UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended January 2, 2005
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-22048
STARCRAFT CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1817634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 1903
1123 South Indiana Avenue
Goshen, Indiana 46526
(Address of principal executive offices/zip code)
Registrant's telephone number, including area code: 574/534-7827
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes: No: [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: February 6, 2005 - 8,968,691
shares of Common Stock, without par value.
STARCRAFT CORPORATION January 2, 2005
Form 10-Q
- INDEX -
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - January 2, 2005 (unaudited)
and October 3, 2004 (Audited) 1-2
Consolidated Statements of Operations (Unaudited)
for the three month periods ended January 2, 2005
and December 28, 2003 3
Consolidated Statements of Cash Flow (Unaudited)
for the three month periods ended January 2, 2005
and December 28, 2003 4
Notes to Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures about Market Risks 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
CERTIFICATIONS 20-28
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION AND SUBSIDIARIES
(Unaudited) (Audited)
CONSOLIDATED BALANCE SHEETS January 2, 2005 October 3, 2004
--------------- ---------------
(Dollars in Thousands)
ASSETS
Current Assets
Cash and cash equivalents....................... $ 686 $ 1,173
Accounts receivable trade, less allowance for doubtful
accounts: $277 at January 2, 2005
and $327 at October 3, 2004................ 29,887 21,195
Other receivables............................... 2,045 2,188
Inventories ................................... 14,693 13,547
Tooling and engineering services................ 2,890 2,609
Refundable income taxes......................... 2,163 1,696
Deferred income taxes........................... 1,401 1,949
Other current assets............................ 860 678
----------- -------------
Total current assets........................ 54,625 45,035
Property and Equipment
Land, buildings, and improvements............... 5,734 5,812
Machinery and equipment......................... 14,912 14,442
----------- -------------
20,646 20,254
Less, accumulated depreciation.................. 6,519 5,737
----------- -------------
14,127 14,517
Goodwill............................................. 77,443 77,443
Intangible assets, net............................... 12,320 12,860
Other assets ....................................... 1,446 1,506
----------- -------------
$ 159,961 $ 151,361
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt............ $ 321 $ 310
Accounts payable, trade......................... 19,409 20,860
Accrued expenses:
Compensation and related expenses........... 911 1,742
Warranty ................................... 192 248
Taxes - other............................... 67 185
Medical self insurance...................... 317 412
Interest.................................... 651 262
Other....................................... 468 569
----------- -------------
Total current liabilities................... 22,336 24,588
Long -term, net of current maturities................ 29,700 18,854
Deferred income taxes................................ 4,733 4,938
Commitments and contingencies........................ -- --
(Continued)
See Notes to Consolidated Financial Statements
1
PART I FINANCIAL INFORMATION - Continued
Item 1. Financial Statements
STARCRAFT CORPORATION AND SUBSIDIARIES
(Unaudited) (Audited)
CONSOLIDATED BALANCE SHEETS January 2, 2005 October 3, 2004
--------------- ---------------
(Dollars in Thousands)
Shareholders' Equity
Preferred stock, no par value: authorized
2,000,000 shares, none issued............... -- --
Common stock, no par value: authorized
20,000,000 shares, issued and outstanding
8,968,691 shares at January 2, 2005
and October 3, 2004 $ 149,831 $ 149,831
Additional paid-in capital..................... 9,665 9,665
Accumulated deficit............................. (56,652) (56,794)
Accumulated other comprehensive income.......... 348 279
------------ ------------
Total shareholders' equity ................ 103,192 102,981
------------ ------------
$ 159,961 $ 151,361
============ ============
See Notes to Consolidated Financial Statements
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
3 Months Ended
------------------------------------------
January 2, 2005 December 28, 2003
--------------- -----------------
(Dollars in thousands, except per share amounts)
Net sales $ 46,256 $ 43,798
Cost of goods sold ......................... 40,344 36,152
----------- -----------
Gross profit ...................... 5,912 7,646
Operating expenses
Selling and promotion ................. 643 629
General and administrative............. 3,956 4,017
Amortization of intangibles............ 540 --
----------- -----------
Operating income....................... 773 3,000
Nonoperating expense
Interest expense....................... (512) (73)
----------- -----------
Income before minority
interest and income taxes ........ 261 2,927
Minority interest in income of subsidiary -- 1,407
----------- -----------
Income before income taxes 261 1,520
Income taxes 119 197
----------- -----------
Net income $ 142 $ 1,323
=========== ===========
Comprehensive income $ 211 $ 1,456
=========== ===========
Basic earnings per share $ 0.02 $ 0.26
=========== ===========
Dilutive earnings per share $ 0.02 $ 0.24
=========== ===========
See Notes to Consolidated Financial Statements
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
3 Months Ended
------------------------------------------
January 2, 2005 December 28, 2003
--------------- -----------------
(Dollars in thousands, except per share amounts)
Operating Activities
Net income ......................... $ 142 $ 1,323
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation ...................... 876 441
Amortization....................... 540 --
Gain on sale of equipment.......... (119) --
Minority interest.................. -- (1,407)
Change in deferred income taxes.... 343 --
Change in operating assets and liabilities:
Receivables ...................... (8,877) 2,568
Inventories ...................... (1,055) (4,253)
Other current assets ............. (461) 59
Accounts payable .................. (1,632) 2,321
Accrued expenses................... (774) (5,005)
Other .......................... (185) 160
----------- -----------
Net cash from operating activities. (11,202) (3,793)
----------- -----------
Investing Activities
Purchase of property and equipment (524) (1,675)
Proceeds from sale of equipment ... 308 --
Acquisitions ............................ -- (1,200)
Other assets ......................... 82 (593)
----------- -----------
Net cash from investing activities (134) (3,468)
----------- -----------
Financing Activities
Net proceeds on revolving credit
agreements......................... 10,892 7,514
Payments on long-term debt............. (63) --
Distributions to minority shareholder.. -- (186)
Proceeds from exercise of stock options -- 242
----------- -----------
Net cash from financing activities 10,829 7,570
Effect of exchange rate changes on cash 20 --
Increase (decrease) in Cash and Cash
Equivalents ........................... (487) 309
Cash and cash equivalents at
beginning of period................. 1,173 836
----------- -----------
Cash and cash equivalents at
end of period....................... $ 686 $ 1,145
=========== ===========
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Starcraft
Corporation and subsidiaries (collectively referred to as the "Company")
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to those rules and
regulations. Reference is made to the Company's audited consolidated
financial statements set forth in its Annual Report on Form 10-K for its
fiscal year ended October 3, 2004.
In the opinion of the management of the Company, the unaudited consolidated
financial statements contain all adjustments (which include only normally
recurring adjustments) necessary for a fair presentation of the financial
statements of the interim periods reported. The results of operations for
the three month period ended January 2, 2005 are not necessarily indicative
of the results which may be expected for the year ending October 2, 2005.
The Company has adopted a 52 or 53 week fiscal year ending the last Sunday
nearest to September 30. The results of operations for the quarter ended
January 2, 2005 and December 28, 2003 are for 13 weeks.
Certain amounts in the December 28, 2003 consolidated financial statements
have been reclassified to conform with the current presentation. These
reclassifications had no effect on total assets, total shareholders' equity
or net income as previously reported.
Note 2. Acquisition
On January 16, 2004, the Company through Wheel to Wheel Acquisition
Company, LLC an Indiana limited liability company and a wholly owned
subsidiary of the Company (the "Acquisition Subsidiary"), acquired all the
issued and outstanding shares of common stock of Wheel to Wheel, Inc., a
Michigan corporation ("Wheel to Wheel") in a merger transaction. Wheel to
Wheel had a 50% ownership in each of Tecstar, LLC and Tecstar Manufacturing
Canada Limited (collectively "Tecstar"). Prior to January 16, 2004, the
Company owned 50% of Tecstar and consolidated the accounts due to
management representation on the Tecstar Board of Directors and control of
its affairs. The Company accounted for the Wheel to Wheel 50% ownership as
minority interest. With the acquisition of Wheel to Wheel, Tecstar became a
wholly-owned subsidiary of the Company.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 2. Acquisition - (Continued)
The following table illustrates the effect on revenues, net income and
earnings per share if Wheel to Wheel had been acquired at the beginning of
the year ended October 3, 2004. The proforma results of the Tarxien
Automotive and Classic Design Concepts, Inc. acquisitions were
insignificant.
Unaudited
December 28, 2003
-----------------
Net sales $ 44,908
Net income 1,026
Basic earnings per share $ .20
Diluted earnings per share .18
Note 3. Inventories
Inventories consist of the following (dollars in thousands):
(Unaudited) (Audited)
January 2, 2005 October 3, 2004
--------------- ---------------
Raw materials $ 14,276 $ 12,917
Finished goods 489 700
---------- ----------
14,765 13,617
Allowance for slow-moving
and obsolete inventories 72 70
---------- ----------
Total $ 14,693 $ 13,547
========== ==========
Note 4. Goodwill
Goodwill represents the excess of the Wheel to Wheel purchase price over
the fair value of the assets acquired. Under SFAS No. 142 goodwill is not
amortized and is assessed annually for impairment. The Company's accounting
policy is to test goodwill for impairment annually as of the end of the
Company's second fiscal quarter.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 5. Intangible Assets
Intangible assets subject to amortization consist of a customer
relationship and business contracts acquired through the acquisition
of Wheel to Wheel. The customer relationship (cost of $10,000 and
accumulated amortization of $480) is being amortized using the
straight-line method over 20 years. The contracts (cost of $4,300 and
accumulated amortization of $1,500) are being amortized over the life
of the respective contract, ranging from two to four years.
Amortization expense was $540 thousand for the quarter ended January
2, 2005.
Note 6. Long-Term Debt
Long-term debt consists of the following:
Unaudited Audited
January 2, 2005 October 3, 2004
--------------- ---------------
Domestic bank revolving lines of credit $ 11,770 $ --
Canadian revolving line of credit 125 975
Mortgage note payable to bank, due in monthly installments of $15
including interest at .5% above the bank's prime rate due
September 2006, collateralized by related building. 1,290 1,309
Promissory note payable to a former shareholder of Wheel to Wheel
related to the stock redemption agreement, payable in monthly
installments of $22 including interest at 5%, due May 1, 2013,
unsecured. 1,793 1,821
Various capital lease obligations due in total monthly
installments of $7 including interest ranging from 12% to 19%,
with maturities through June 2006. 43 59
Senior subordinated convertible notes 15,000 15,000
---------- ---------
30,021 19,164
Less, current maturities 321 310
---------- ---------
Long-term debt $ 29,700 $ 18,854
========== =========
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 7. Earnings Per Share
The computation of basic and diluted earnings per share follows (in
thousands, except share and per share amounts):
Three Months Ended
----------------------------------------
(Unaudited) (Unaudited)
January 2, 2005 December 28, 2003
--------------- -----------------
Basic earnings per share
Net income available
to common stockholders $ 142 $ 1,323
======== =========
Weighted average common
shares outstanding 8,969 5,103
======== =========
Basic earnings per share $ 0.02 $ 0.26
======== =========
Diluted earnings per share
Net income available
to common stockholders $ 142 $ 1,323
======== =========
Weighted average common
shares outstanding 8,969 5,103
Add: Potential dilutive effects of
incentive stock options 330 563
-------- ---------
Weighted average potential
diluted common shares outstanding 9,299 5,666
======== =========
Diluted earnings per share $ 0.02 $ 0.24
======== =========
Prior year information restated for effect of the 5% stock dividend distributed
in March 2004. The effects of the convertible debt on earnings per share were
not presented as they were antidilutive.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 8. Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock Based Compensation - Transition and Disclosure."
Stock options are granted for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at
the date of grant. The Company accounts for the stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, the Company
recognizes no compensation expense for the stock options.
The following table illustrates the effect on net income and earnings
per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123.
Three Months Ended
------------------------------------------------
January 2, 2005 December 28, 2003
(Dollars in thousands, except per share amounts)
Net income - as reported $ 142 1,323
Deduct: total stock-based employee
compensation expense determined under
fair value based methods for all awards 1,842 986
-------- --------
Net (loss) income - pro forma $ (1,700) $ 337
======== ========
Earnings per share - as reported
Basic earnings per share $ 0.02 $ 0.26
======== ========
Diluted earnings per share $ 0.02 $ 0.24
======== ========
Earnings per share - pro forma
Basic earnings per share $ (.19) $ 0.07
======== ========
Diluted earnings per share $ * $ 0.06
======== ========
*Not presented herein since effect is antidilutive
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION AND SUBSIDIARIES
January 2, 2005
Note 9. Warranty Expense
The Company provides products to Original Equipment Manufacturers ("OEM")
under warranty terms similar to terms offered by the OEM to its customers,
which are generally 3 years or 36,000 miles. The Company accrues an
estimated liability for potential warranties at the time products are sold,
based on past experience.
Note 10. Merger
On November 23, 2004, the Company entered into an Agreement and Plan of
Merger whereby Quantum Fuel Systems Technologies Worldwide, Inc.
("Quantum") will acquire all of the issued and outstanding shares of common
stock of Starcraft Corporation in a tax-free stock-for-stock exchange
valued at approximately $185 million at announcement date, including the
assumption of debt and other consideration. Under the terms of the
definitive Agreement and Plan of Merger, each Starcraft shareholder will
receive 2.341 shares of Quantum common stock for every share of Starcraft
common stock.
The merger agreement was unanimously approved by the Company's Board of
Directors and recommended to the shareholders for approval. Four of
Starcraft's largest shareholders, who collectively represent 51.3% of
Starcraft's issued and outstanding shares of common stock have entered into
a voting agreement with Quantum pursuant to which they have agreed to vote
their Starcraft shares in favor of the merger. General Motors, Quantum's
largest stockholder, owning 14.2% of the issued and outstanding common
shares of Quantum and 11.4% of the voting power of Quantum's common stock,
has entered into a voting agreement with Starcraft agreeing to vote in
favor of the transaction.
The transaction will be submitted to the shareholders of both companies on
February 28, 2005 at separate special meetings of shareholders of each
company for approval. The transaction is also subject to customary closing
conditions, and is expected to close in the first quarter of calendar year
2005.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Comparison of the three months ended January 2, 2005
(First Quarter Fiscal Year 2005)
to the three months ended December 28, 2003
(First Quarter Fiscal Year 2004)
Net sales for the quarter ended January 2, 2005 increased $2.5 million to $46.3
million from $43.8 million for the quarter ended December 28, 2003. The
Shreveport facility contributed $4.5 million of sales during the first quarter,
which exceeded prior year first quarter sales by $4.2 million, as this facility
was in a start-up mode in the prior year. H2 and wheel distribution sales were
$7.8 million and exceeded prior year first quarter sales by $2.4 million due
solely to increases in the wheel distribution program. Sales associated with
Wheel to Wheel, which was acquired during the second quarter of fiscal 2004 were
$2.1 million and were all incremental compared to prior year. Our paint facility
in Canada contributed sales of $2.3 million, which exceeded prior year first
quarter sales of $1.3 million. Partially offsetting these favorable variances,
was a decline in sales from our New Jersey facility of $3.8 million, as this
facility was recently shutdown due to the planned expiration of a second stage
program. Sales volume in our Texas facility was $27.2 million during the first
quarter of 2005, which was down slightly compared to prior year first quarter
sales of $28.1 million. Sales at the Canadian facility were $1.9 million
compared to sales during the first quarter of the prior year of $4.3 million.
This facility continues to be affected by lower vehicle sales at the OEM level.
Gross profit was $5.9 million or 12.8% of sales for the first quarter of fiscal
2005 compared to $7.6 million or 17.5% of sales for the 2004 first quarter.
Gross margin dollars and gross margin as a percent of sales declined in the 2005
quarter due to product mix shift from higher margin second stage manufacturing
business to distribution and support company business that carry lower margins.
Second stage gross margin as percent of sales increased to 19.6% in the 2005
quarter compared to 19.1% in 2004. Because second stage revenue declined from
$36.6 million to $29.1 million, gross margin attributable to the second stage
business declined $1.3 million in the 2005 quarter compared to 2004. Gross
margin on H2 and wheel distribution sales increased 26% due to higher sales in
the 2005 quarter. Revenue from businesses acquired in 2004 and support company
businesses was $4.9 million in the 2005 first fiscal quarter, but generated
negative gross margin of ($.9 million).
Selling and promotion expenses were $.6 million during the first quarter of
2005, which approximated prior year levels. General and administrative expenses
also approximated prior year levels at $4.0 million. Expenses associated with
the proposed merger were $.4 million in the current quarter. Currency
transaction gains from our Canadian operations amounted to $.3 million during
the first quarter of fiscal 2005, which was $.2 million higher than prior year.
Interest expense was $.5 million during the first quarter of 2005 compared to
$.1 million during the first quarter of fiscal 2004. The increase was due to
higher revolving debt levels, long-term debt assumed in the merger with Wheel to
Wheel, and higher interest rates associated with the unsecured convertible debt
when compared to revolving credit interest rates.
Income tax expense was minimal and relative to low profit levels during the
quarter. The effective tax rate of 46% is due to a lower impact of Canadian
losses on the effective rate when compared to the effective rate on domestic
profits.
Net income prior to merger related expenses and amortization of intangible
assets was $1.1 million.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
SEASONALITY AND TRENDS
The Company's sales and profits are dependent on the automotive markets in the
United States. The business is influenced by a number of factors including OEM
plant shutdowns, model year changeovers, atypical weather for any sales region,
interest rates, gasoline prices, and OEM programs affecting price and supply.
The business is also dependent upon long-term contracts.
The Company provided updates on the status of our OEM programs in the Company's
annual report on Form 10-K for the year ended October 3, 2004. There has been no
material change in the status of these programs.
LIQUIDITY AND CAPITAL RESOURCES
Funds available from operations and under the Company's revolving credit
agreements were adequate to finance operations and provide for capital
expenditures during the three months ended January 2, 2005. Long-term debt was
$29.7 million at January 2, 2005 compared to $18.9 million at October 3, 2004.
Long-term debt at October 3, 2004 was lower than normal due to a receipt of
payment from our customer on October 1, 2004. Payments are collected the first
week of the accounting period, but due to timing of year end, we received an
additional payment in the fourth quarter of fiscal 2004 that typically would
have been received during the first quarter of fiscal 2005.
Operations utilized $11.2 million of cash during the first quarter of fiscal
2005, compared to $3.8 million in the fiscal 2004 period. Trade receivables at
January 2, 2005 were $8.8 million higher than October 3, 2004 due to the
customer payment timing issue discussed above. Inventory at January 2, 2005 was
$1.1 million higher than October 3, 2004 due to engineering contracts in process
and increased volume at our paint facility. Other receivables and
tooling/engineering development were essentially unchanged at $4.9 million at
January 2, 2005 and $4.8 million at October 3, 2004. Trade payables were $19.4
million at January 2, 2005 compared to $20.9 million at October 3, 2004. Accrued
expenses were $2.6 million at January 2, 2005, down from October 3, 2004 levels
of $3.4 million. This decrease is due mostly to incentive compensation paid in
December and a one week reduction in accrued payroll due to timing of month
ends.
The Company believes that future cash flows from operations and funds available
under its revolving credit agreement will be sufficient to satisfy its
anticipated operating needs and capital and liquidity requirements for 2005. The
Company also believes that its objectives for growth over the next few years can
be accomplished with capital investment levels consistent with prior years, and
that its internal resources and existing or refinanced credit facilities will
provide sufficient liquidity for such purposes.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
INCOME TAXES
The Company recorded minimal tax expense during the first quarter of fiscal 2005
due to low profit levels.
MANUFACTURING AND OPERATING TRENDS
The Supply Program in the New Jersey facility has ended and the plant was closed
in December 2004.
The Canadian facility operated at a loss during the first quarter due to a
continued slowdown in sales of this vehicle. A previously announced 2 wheel
drive derivative should improve volume during the second quarter and return the
facility to profitability.
The Canadian paint facility operated a loss during the first quarter.
Improvement in efficiencies, quality and volume is expected during the second
quarter and should improve results.
A previously announced joint venture (AMSTAR) was recently launched in Fort
Wayne, Indiana. Losses, although not significant, will be incurred in the second
quarter due to start-up expenses.
Wheel to Wheel generated losses during fiscal year 2004 due to softness in the
engineering and tooling development side of the business. It is expected that
this trend will continue through the second quarter of fiscal 2005.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
APPLICATION OF CRITICAL ACCOUNTING POLICIES
In the course of normal business and in the preparation of its consolidated
financial statements in accordance with accounting principles generally accepted
in the United States, Management is required to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates. Some of the more significant policies
include:
Revenue Recognition: The Company generally manufactures products based on
specific orders from customers. Shipments are generally made by common carrier
after receiving authorization from the customer, and revenue is recognized upon
shipment under FOB factory terms.
Warranties: The Company follows the policy of accruing an estimated liability
for warranties at the time the warranted products are sold. The estimate is
generally based on past claims experience.
Property and Equipment: Property and equipment are stated at cost. Depreciation
is computed principally by the straight-line method over the estimated useful
lives of the assets. The Company is depreciating buildings over periods of 15 to
50 years, building improvements over periods of 5 to 20 years, and equipment
over periods of 3 to 12 years.
Identifiable Intangible Asset and Goodwill: The identifiable intangible assets
generated by the Wheel to Wheel merger will be amortized to expense over the
expected lives of the assets ranging from two to twenty years. Goodwill will not
be amortized to expense, but rather will be evaluated annually at the end of the
Company's second fiscal quarter for any impairment in the carrying value, and
adjusted accordingly through the income statement.
Forward Looking Statements
The foregoing discussion contains forward-looking statements regarding economic
conditions and trends, adequacy of capital resources, seasonality and supply of,
and demand for, the Company's products, and the prospects of Management's
operating strategies, revenues and profits, all of which are subject to a number
of important factors which may cause the Company's projections to be materially
inaccurate. Some of such factors are described in the Company's Form 10-K for
the year ended October 3, 2004, under the subsection entitled "Discussion of
Forward-Looking Information" which is incorporated herein by reference.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
LONG-TERM CONTRACTUAL OBLIGATIONS:
Long-term contractual obligations as of January 2, 2005 are as follows:
Payments due by period (in thousands)
---------------------------------------------------------------------
Total Less than 1-3 3-5 More than
1 Year Years Years 5 Years
Long-Term Debt Obligations $30,021 $ 321 $13,456 $15,418 $
Operating Lease Obligations $15,892 $ 3,069 $ 5,017 $ 3,781 $ 4,025
Employment Agreement Obligations $ 7,090 $ 2,940 $ 3,250 $ 900 $ --
------- ------- ------- ------- -------
Total $53,003 $ 6,330 $21,723 $20,099 $ 4,851
======= ======= ======= ======= =======
15
ITEM 3. QUANTATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISKS
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
There have been no material changes from the information provided in the
Company's annual report on Form 10-K for the year ended October 3, 2004.
16
ITEM 4. CONTROLS AND PROCEDURES
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
Starcraft carried out an evaluation, under the supervision and with the
participation of Starcraft's management, including Starcraft's Co-Chief
Executive Officers and Chief Financial Officer, of the effectiveness of the
design and operation of Starcraft's disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15. Based upon that evaluation, the Co-Chief Executive
Officers and Chief Financial Officer concluded that, at January 2, 2005,
Starcraft's disclosure controls and procedures are effective in accumulating and
communicating to management (including such officers) the information relating
to Starcraft (including its consolidated subsidiaries) required to be included
in Starcraft's periodic SEC filings.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures during the Company's last fiscal quarter, nor any significant
deficiencies or material weaknesses in such disclosure controls and procedures
requiring corrective actions. As a result, no corrective actions were taken.
17
PART II OTHER INFORMATION
Item 6. Exhibits
31.1 Certification by Co-Chief Executive Officer required by Rule 31a-14(a)
or 15d-14(a)
31.2 Certification by Co-Chief Executive Officer required by Rule 31a-14(a)
or 15d-14(a)
31.3 Certification by Chief Financial Officer required by Rule 31a-14(a) or
15d-14(a)
32 Certification required under Section 1350
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARCRAFT CORPORATION
(Registrant)
February 15, 2005 By: /s/ Joseph E. Katona, III
----------------------------------
Joseph E. Katona, III
Chief Financial Officer
(Signing on behalf of the registrant
as Principal Financial Officer)
19