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United States
Securities and Exchange Commission
Washington, D. C. 20547
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1997.
or
|_| Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from _____________ to _______________.
Commission File number: 0-22048
STARCRAFT CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 34-1817634
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Post Office Box 1903, 2703 College Avenue, Goshen, Indiana 46526
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (219) 533-1105
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
Common Share Purchase Rights
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of January 9, 1998, was 7,224,766.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of January 8, 1998, was 4,133,600 shares.
STARCRAFT CORPORATION
Form 10-K
Index
PART 1
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K.
SIGNATURES
PART I
ITEM 1. BUSINESS
Overview
The Company is a leading second-stage manufacturer of custom van, sport utility
vehicle ("SUV") and pick-up truck conversions. Starcraft has historically
specialized in upscale custom vehicles. With the addition of the Imperial Group
("Imperial") in 1994, the Company offers a full range of conversion vehicles at
every consumer price point. In addition, the Company sells vehicle conversions
for the physically challenged through its recently acquired National Mobility
Corporation. The Company believes it is one of the four largest van conversion
manufacturers in the U.S. The Company sells its products to an extensive network
of approximately 600 authorized automotive dealers throughout the continental
U.S. and overseas. The Company believes the Starcraft name has a long-standing
reputation in the vehicle conversion industry for high quality.
Starcraft traces its history to 1903 when Star Tank Company was founded in
Goshen, Indiana as a maker of metal farm equipment. Over the course of the
century the Company's predecessor became a leading manufacturer of aluminum
boats and recreational vehicles and, in the late 1970's, led the automotive
conversion industry by producing luxury van conversions for middle and upper
income consumers. In 1987, the predecessor's management completed a leveraged
buyout and, in 1988, sold the boat manufacturing business. The resulting entity
was highly leveraged and eventually sought protection from creditors in a
bankruptcy reorganization proceeding in late 1990. On January 18, 1991, the
Company purchased the assets of the automotive and recreational vehicle
divisions (except for Canadian operations) from Starcraft Van Conversions
Corporation and its affiliates, as debtors-in-possession (the "Predecessor"),
with bankruptcy court approval. The Company simultaneously sold the recreational
vehicle division to a third party. In July 1994, the Company's wholly owned
subsidiary, Imperial Automotive Group, Inc., acquired substantially all of the
assets of Imperial Industries, Inc. In December 1995, the Company expanded its
manufacturing capabilities with a new plant in McGregor, Texas, operated by
Starcraft Southwest, Inc., a wholly owned subsidiary. In February 1997, the
Company purchased the assets of National Mobility Corporation in Elkhart,
Indiana. During fiscal year 1997 the Company closed its Imperial and McGregor,
Texas manufacturing facilities and consolidated the operations into its
Starcraft Group manufacturing complex in Goshen, Indiana.
The Company was incorporated in Indiana in 1990. Its executive offices are
located at 2703 College Avenue, Goshen, Indiana, 46526; telephone (219)
533-1105. The Company has four wholly-owned operating subsidiaries: Starcraft
Automotive Group, Inc.; Imperial Automotive Group, Inc., Starcraft Southwest,
Inc., and National Mobility Corporation.
Starcraft's principal manufacturing facilities are in Goshen, Indiana, and, as
of February 1997, Elkhart, Indiana with its National Mobility operation.
Industry Information
The custom vehicle conversion industry developed during the early 1970's.
Starcraft's Predecessor was a leader in transforming the industry from one
oriented toward younger recreational users to one oriented toward more mature
automotive customers. The Company believes retail prices of custom vans in the
United States for the 1997 model year generally ranged from $20,000 to $40,000.
Retail mark-ups vary widely among dealers and are not within the Company's
control.
According to the Recreational Vehicle Industry Association ("RVIA"), the average
domestic wholesale price to dealers of a van conversion, pick-up truck
conversion and SUV conversion (including chassis) during the first nine calendar
months of 1997 were $24,500, $18,700 and $28,200 respectively. Because the
Company emphasizes high-end, luxury vehicles, Starcraft's average domestic
wholesale price to dealers during fiscal 1997, was $27,800, assuming an average
cost of chassis to dealers of $20,000. Imperial's average wholesale price to
dealers during fiscal 1997 was $23,800 assuming an average cost of chassis to
dealers of $20,000.
According to RVIA statistics, approximately 144,000 custom vans were sold by
United States conversion manufacturers during calendar 1996 compared to 151,000,
182,000, and 192,000 units in 1995, 1994 and 1993, respectively. RVIA reported
sales of 98,000 units through September 1997 and estimates sales of custom vans
for calendar 1997 will total 115,000, a 20.1% decrease from 1996 levels. In
1995, RVIA began tracking pick-up truck and SUV conversions. For the nine months
ended September 1997, 51,400 of such vehicles were sold by the conversion
industry compared to 58,400 in 1996, a 12% decline.
The domestic vehicle conversion industry has declined steadily over the last
several years with a significant decline in 1997. The Company believes that the
increased popularity of sport utility vehicles and factory minivans, price
pressure from higher chassis costs, lower levels of conversion inventory being
held on dealer lots and fewer automotive dealers selling conversion products
have adversely impacted the market. The Company believes that the changing level
of dealer support is due to the growing availability of additional vehicle
models to stock on their lots such as sport utility vehicles and a general
concern by dealers of the future of the conversion industry.
RVIA statistics are based on reports of its member manufacturers and its
estimates with respect to non-member manufacturers. The Company believes RVIA
members produce 80% - 85% of conversions produced in the United States.
The Company is the leading exporter of conversion vehicles. Primary markets
include Japan and Northern Europe. The recent strengthening of the U.S. dollar
and financial turmoil in Asian markets have negatively impacted the Company's
export sales and profit margins.
The conversion industry is cyclical and is affected by the general trends of the
economy and consumer preferences and consumer confidence and trends of the
automotive and recreational vehicle industries. Consumer preferences for sport
utility vehicles in recent years has adversely affected demand for conversion
products. The level of disposable consumer income affects the Company's sales
because its products are generally considered discretionary expenditures by
consumers. In difficult economic times, consumers tend to spend less of their
income on discretionary items. Other economic factors affecting the demand for
the Company's products include the availability and price of gasoline, the level
of interest rates and the availability of consumer financing. Reduced gasoline
availability could adversely affect the demand for the Company's products. A
significant increase in the price of gasoline could reduce demand for the
Company's products because it would increase the cost of operating these
products. Because many consumers finance their purchase of vehicle conversions,
the availability of financing and level of interest rates can affect a
consumer's purchasing decision. A decline in general economic condition or
consumer confidence can be expected to affect Starcraft's sales adversely. The
Company is dependent upon the OEMs to supply its requirements for vehicle
chassis. Labor stoppages, supply shortages and a variety of other factors that
influence OEM production can affect the availability or timely delivery of
vehicle chassis to the Company. In 1996 the Company's sales were adversely
impacted by the availability of certain OEM chassis.
Company Products
The Company converts fullsize vans manufactured by each of the major original
equipment manufacturers ("OEMs"): GMC Truck, Chevrolet, Dodge and Ford. The
Company manufactures minivan conversions on the GMC Safari, the Chevrolet Astro,
Chevrolet Venture and the Dodge Caravan. Starcraft also customizes Chevrolet and
GMC SUVs, along with several pick-up truck models for GMC, Chevrolet, Ford and
Dodge. The product contains a principal set of conversion features and a variety
of optional accessories designed by the Company in each model year to meet
prevailing customer preferences. Starcraft van models fall principally into
three price ranges (conversion cost to dealer): from $4,000 - $6,000, $6,000 -
$9,000, and $9,000 and above. Imperial models fall into the following price
ranges: $2,000 - $3,000, $3,000 - $4,000, over $4,000. These price ranges
provide marketing flexibility allowing for different demographics and varying
dealer marketing objectives. Certain SUV and pick-up truck conversion packages
may be priced below these ranges.
Operating Data
The following sets forth information respecting the Company's gross sales by
product type for the fiscal periods indicated.
Gross Sales by Product (1)
Year Ended
September 28, 1997 September 29, 1996 October 1, 1995
- - ----------- -------------------------------------- ----------------------------------------- --------------------------------------
Avg. Avg. Avg.
Price/ Gross % of Price/ Gross % of Price/ Gross % of
Units Unit Sales Sales Units Unit Sales Sales Unit Unit Sales Sales
- - ----------- ---------- -------- --------- ------- --------- --------- ----------- -------- -------- -------- ----------- ------
Fullsize 6,734 $6,600 $44,600 57.1% 8,085 $6,600 $53,300 50.1% 9,041 $7,500 $67,600 54.8%
Vans
Minivans 2,346 7,800 18,300 23.5% 4,676 8,200 38,300 36.0% 4,894 8,300 40,700 33.0%
Trucks & 2,909 3,700 10,800 13.9% 3,345 3,200 10,700 10.0% 3,009 3,400 10,300 8.4%
SUVs
Parts N/A N/A 4,300 5.5% N/A N/A 4,200 3.9% N/A N/A 4,700 3.8%
------- ---- ------ ---- ------ ------ -------- ---- ------- ------ -------- -----
Total 11,989 $6,200 $78,000 100% 16,106 $6,400 $106,500 100% 16,944 $7,000 $123,300 100%
==+==== ====== ======= ==== ====== ======= ======== === ====== ====== ======== ====
(1) Gross dollar sales represent the price to dealers of the conversion
before discounts and exclude the cost of the chassis.
Company Strategy
The Company believes it can grow by expanding its domestic van conversion
business market share, further developing international sales opportunities and
offering additional products in new markets, such as conversions for the
physically challenged and shuttle buses for airport and hotel use.
Domestic Van Sales. The Company will continue to focus on core van conversion
products and, through aggressive marketing and promotion, will seek to expand
U.S. sales of custom vans. While Starcraft product lines will continue to
emphasize upscale custom van conversions, Imperial will continue a complementary
emphasis on mid- and low-price point conversion packages. The Company will
continue to seek to further differentiate its Starcraft lines from its
competition by emphasizing total value and quality versus unit price. By
offering both the Starcraft and Imperial product lines, the Company is able to
offer dealers a full price range of conversion vehicles from a single
manufacturer. Imperial will maintain its position in the entry level segment of
the market.
The Company will continue to focus on innovative product development to enhance
customer appeal and vehicle quality and safety. The Company will continue to
seek to differentiate itself from its competition by virtue of the resources it
devotes to training dealer personnel in selling, product knowledge, service and
compliance. Starcraft utilizes a specially equipped service van, videos,
manuals, other visual aids, and the classroom instruction at its main facility
and at dealer locations throughout the country. The Company maintains a strong
customer service area which includes warranty claims and approval, parts
ordering and processing and customer information. The Company maintains records
of Starcraft units sold as far back as 1978 and Imperial maintains records back
to 1991, which was the inception of the predecessor company, Imperial
Industries, Inc.
The acquisition of National Mobility Corporation offers a new product line aimed
at a specific consumer niche, physically challenged persons. By offering
additional products the Company can maintain its strategy to the dealer of being
a complete product line and full service organization. The Company estimates
that 1998 domestic industry sales will decline an additional 5%. The Company
will target key automotive dealers
in each region to maintain market share and develop cooperative marketing plans.
The Company established a telemarketing division in 1997 to target smaller
markets.
Domestic Truck and SUV Conversions. Although the Company's conversions of
General Motors' Suburban, other SUV and pick-up trucks have proven to be a
popular line of products, the significant increase in the number of models and
the chassis availability of these products have reduced the demand for
conversions. Many of the OEM sport utility models now have options that were
historically supplied by the conversion industry. As a result, the Company
believes its overall sales of SUV and pick-up truck conversions may decline. The
Company will focus on select models and OEMs where it feels it can continue to
offer a unique product at a competitive price point.
International Vehicle Sales. The Company intends to further promote Starcraft
vehicles overseas, especially in Central/Northern Europe and Japan. The Company
maintains a distribution agreement with General Motors and Mitsui and Co.
(U.S.A.), Inc. which the Company believes makes Mitsui the sole distributor of
General Motors vans in Japan. Under this agreement Mitsui agreed to use its best
efforts to promote Starcraft vans in Japan and Starcraft agreed to sell van
conversions in Japan solely through Mitsui.
The increase in the U.S. dollar currency rate has put significant pressure on
the Company's export sales. In addition, the recent turmoil in the Asian
financial markets and economies have negatively impacted the demand for the
Company's products. In particular, 1998 sales to Japan, the Company's largest
export market, will decline.
The Company continues to redesign products to maintain unique products in the
marketplace and increase value for price to keep products competitive
internationally. In addition, the Company is targeting several new markets to
develop.
Diversification. With the decline in the conversion industry and the Company's
sales , the Company will attempt to diversify itself further with additional
products targeted at new markets. An example of such diversification is
commercial vehicles. The Company has developed plans to begin producing shuttle
buses for airports, hotels and other commercial markets at its Goshen, Indiana
facility.
Chassis and Other Suppliers
Historically, most of the Company's van conversions have been General Motors
products. In 1991, approximately 92% of its unit sales were represented by
General Motors. For 1997, 65% of the Company's products were on General Motors
chassis. The increase in the proportion of the Company's sales represented by
Ford and Chrysler products was due primarily to aggressive promotional
activities carried on by Chrysler.
The OEMs supply incomplete chassis to Starcraft or other manufacturers or
dealers for restricted use. The Company obtains substantially all of its chassis
acquired for domestic sale from the OEMs pursuant to consignment or restricted
sale contracts. Under these contracts each OEM maintains strict control over the
disposition of chassis delivered to the Company for modification and the Company
is prohibited from delivering a converted chassis provided by the OEM to any
person except an authorized dealer for that OEM. All of the Company's
consignment and restricted sale contracts with chassis suppliers are terminable
by either party on short notice without cause.
Under restricted sale contracts with the OEMs, the OEM retains the certificate
of origin and the Company has no right to obtain it or any other evidence of
title. These contracts state that vehicle title technically passes to the
Company upon acceptance of a chassis and the Company pays state property taxes
on chassis, but the Company can only sell the chassis back to the OEM for resale
to an authorized dealer. Except for demonstration vehicles, the Company is
prohibited from making modifications to chassis under these contracts until it
matches them with a dealer order. In the past, the Company has obtained waivers
of this limitation to permit accumulation of GMC or Chevrolet inventory in
connection with model year changes or other periods of anticipated increasing
demand. Prior to matching a chassis to a dealer order, the Company finances the
chassis through the OEM's financing affiliates at nominal rates. Once the
Company notifies the OEM that it has matched a chassis with a dealer, the OEM
"repurchases" the chassis, crediting
the Company's account with the OEM's financing affiliate and invoicing its
dealer (the Company's customer) for the price of the chassis. Upon receiving the
converted vehicle, the dealer is obligated to pay the Company for the
improvements the Company has made. If the Company fails to match a chassis with
a dealer order within 90 days, the finance charge the Company must pay
increases. The past 90-day finance charge is currently the prime rate plus 1%.
Historically, the Company's international conversion sales have been primarily
manufactured on General Motors chassis. Generally, the foreign purchaser is an
authorized dealer for General Motors and Starcraft. The dealer submits an order
to General Motors' overseas sales affiliate (the "GM Export Affiliate") for the
chassis together with specifications for a Starcraft conversion. The GM Export
Affiliate purchases the chassis from General Motors and forwards it to Starcraft
for second stage manufacturing. Starcraft invoices the GM Export Affiliate for
the completed conversion, and the GM Export Affiliate arranges for shipment of
the unit, at the GM Export Affiliate's expense, from Starcraft to the foreign
dealer.
Starting in 1997, General Motors has changed its chassis system for the
Company's sales to Europe. The Company is the "Manufacturer of Record" for units
imported into Europe and is required to arrange and be responsible for all U.S.
export and shipping requirements. The Company continues to sell only to
authorized General Motors dealers. The Company does not believe this new system
will have a significant impact on its European sales.
A variety of factors govern chassis ordering and availability. Chassis are
ordered from the OEM based on the Company's annual sales plan. The plan is
broken down by OEM and vehicle model. Vehicle specifications are determined on
the basis of historical trend analysis and analysis of the backlog of orders.
The Company's chassis order forecast is shared with each OEM to determine
chassis availability. The OEMs confirm chassis availability and timing on an
annual basis. After confirmation by the OEM, the Company orders a 90-day supply
prioritized through a central computerized system. On a weekly basis, the
Company releases the actual orders it requires and the OEMs schedule delivery
dates for the orders. Chassis allocation to the Company from the OEMs is based
on credit lines, prior usage and wholesale and retail sales rates.
The following table sets forth for the periods indicated the number of chassis
received by the Company and the dollar value thereof, and, as of the end of such
periods, the number of chassis held over 90 days and the dollar value thereof.
Year Ended
(Dollars in thousands)
Sept. 28, 1997 Sept. 29, 1996 Oct. 1, 1995
- - ------------------------------------ -------------------- ----------------------- ---------------------
Chassis Received 10,687 17,179 17,419
Value of Chassis Received $ 213,740 $ 305,300 $ 309,800
Chassis Over 90 Days at period end 433 262 491
Value of Chassis Held Over 90 Days $ 8,660 $ 4,615 $ 8,712
The conversion process begins after a chassis is inspected and accepted and the
Company has received a confirmed order from an authorized dealer that is
compatible with the chassis. Generally, the order is scheduled for production
typically four to five days before work on the vehicle commences to allow for
completion of components to be installed in the chassis. The Company completes
the conversion process in an average of seven to eight days from the date that
the vehicle is first scheduled for production.
The Company is dependent upon the OEMs to supply its requirements for vehicle
chassis. Labor stoppages, supply shortages and a variety of other factors that
influence OEM production can affect the availability or timely delivery of
vehicle chassis to the Company. The impact of these factors was significant in
1996. In 1997, chassis availability was generally good. If vehicle chassis are
unavailable, or if the Company must accept delivery earlier or later than it
otherwise would prefer, sales could be adversely affected and financing expenses
could increase. The Company must also comply with its consignment and restricted
sale contracts with the OEMs pursuant to which the OEMs impose certain
specifications for the Company's vehicle conversions, including gross vehicle
weight standards. Such contracts also restrict the Company's ability to dispose
of completed chassis and prohibit the transfer of chassis to unauthorized U.S.
and foreign dealers. All of the Company's consignment and restricted sale
contracts with chassis suppliers are terminable by either party on short notice
without cause. The availability of the OEM financing rates is dependent upon the
Company's compliance with its OEM contracts and its ability to maintain
satisfactory credit relationships with the OEM's finance subsidiaries. Adverse
changes in the Company's financial condition or results of operations could
cause such financing subsidiaries to seek to adversely change the Company's
financing terms or to terminate such financing arrangements. Such a change or
termination could have a material adverse effect on the Company's financial
condition and results of operations.
General Motors introduced a newly redesigned fullsize van in early calendar
1996. The Company believes dealers reduced their inventory levels in 1995 in
anticipation of the new chassis thereby negatively impacting the Company's sales
to dealers. In addition, the Company believes the availability of the newly
redesigned General Motors fullsize van restricted and negatively impacted the
Company's 1996 sales. At the end of 1996, the availability of this chassis to
the Company was adequate.
In July 1997, Dodge discontinued production of its fullsize van in anticipation
of introducing a newly redesigned van in December 1997. The transition period
adversely impacted the Company's Dodge sales in fiscal 1997 by approximately 600
units.
Vehicle converters can be penalized by the OEM for manufacturing overweight
vehicles and the National Highway Traffic Safety Administration ("NHTSA") could
require overweight vehicles to be recalled. See "Safety and Regulation." Such
standards are imposed by the OEMs in part to help assure that vehicle weight
does not exceed the capacity of the OEM's braking system.
The export of completed vehicles to unauthorized foreign dealers has been a
significant issue in the conversion industry in recent years, especially for
General Motors. In the past, some automotive dealers have sold vehicles to
brokers who, in turn, have sold them to unauthorized dealers overseas. General
Motors' financing subsidiary has indicated an intention to penalize or terminate
financing arrangements with any firm deemed responsible for unauthorized
exports. The Company makes an effort to assure itself that none of its vehicles
are exported in an unauthorized manner including obtaining written assurances
from certain dealers. General Motors has significantly increased its efforts to
curtail such activity. The Company has no control over the eventual disposition
of its vehicles by dealers, however, so it cannot eliminate the possibility of
unauthorized export. These efforts nevertheless should help assure that the
Company will not be deemed responsible for any unauthorized export.
Supplies for the components and materials the Company utilizes in its vehicle
conversions are generally available from several sources. From time to time the
Company experiences delays in delivery of certain components or materials from
suppliers, but such delays have not historically had any material effect on the
Company's production.
Manufacturing
The incomplete van chassis the Company receives directly from the OEMs have no
seats or floor covering or other interior components. The Company modifies the
exterior and interior of the chassis body to provide passenger comfort and
enhance safety. SUVs and pick-up trucks received have full interior OEM
components. The Company modifies these components and performs certain exterior
enhancements.
Vehicle Modification and Assembly. After a chassis is inspected and accepted,
the Company begins the conversion process by modifying the chassis exterior,
installing tinted vista bay windows, raised roof, decorative decals and ground
effects. Star-structure steel bracing is installed for added structural support,
followed by rust proofing, wiring, insulation and vibration dampening materials.
After exterior seals are tested for leaks, the vehicle is lined with fabric and
wood-accented sidewalls and headliners. The Company's associates assemble the
complete vehicle interior in multiple production lines using the Company's own
manufactured components and parts supplied by others. The Company's distinctive
hardwood features, contoured seats, carpeting, curtains and other amenities are
installed in each vehicle, along with the customer's selection from over 100
optional accessories, including a wide variety of electronic components such as
rear heating and air-conditioning, television, video cassette player and other
audio equipment.
Vehicle Components. The Company manufactures its own woodwork, upholstery and
wiring harnesses, among other components. Starcraft's distinctive hardwood
interior appointments are manufactured at the Goshen facility in its 45,000
square foot wood shop. The Company planes, joins, shapes, sands and finishes
rough-cut teak and walnut lumber in a process that combines automation and hand
craftsmanship. A wood-burning laser is utilized which can transfer any image
directly onto wood components for added customization.
Vehicle seating and upholstery are primarily manufactured at the Company's Emma,
Indiana, facility, located 15 miles from its Goshen, Indiana plant. Company
associates cut and sew interior wall coverings, headliners, curtains and seat
upholstery from leather, cloth and vinyl materials. The seat padding and
upholstery are then assembled on pre-fabricated frames. Some of Starcraft's wire
harnesses are manufactured at the Goshen plant. The Company also paints and
finishes all of its custom fiberglass and polymer vehicle body components, such
as raised roofs, running boards and other ground effects which are manufactured
to the Company's design specifications by others. The Company maintains an
enclosed painting system to provide fiberglass and polymer components with high
quality base coat and clear coat finishes. This water-filtered, down draft
system is similar to those of the major automotive manufacturers and is designed
to control environmentally harmful emissions.
By manufacturing many of its own components, the Company is able to exercise
significant control over the quality and supply of components built into its
custom vehicles and to accommodate a wide range of customization demands. The
Company is also able to provide consumers with ongoing service and repair
capabilities by maintaining a record of, and access to supplies of, paint,
upholstery and other materials used to modify each vehicle.
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation into Starcraft Automotive Group's manufacturing complex
in Goshen, Indiana. The consolidation is designed to enhance profitable growth
by reducing excess production capacity, personnel count and fixed overhead
expenses. The Company recorded a $750,000 restructure charge in the first
quarter of fiscal year 1997. The Company estimates it will realize annual
overhead expense reductions of approximately $1.1 million from reduced facility
and personnel costs during 1998 relative to 1997.
In June 1997 the Company closed its McGregor, Texas manufacturing facility and
sold certain assets of the business. The Company recorded a $260,000 net
restructure charge in the third quarter of fiscal year 1997. The Company should
realize savings from the closure of the Texas facility which lost $1.3 million
pretax in 1997. The consolidation efforts were a result of the Company's belief
that the conversion industry will remain at current lower levels and the
elimination of excess production capacity was critical to obtain profitability.
Production Associates. The Company periodically employs associate training that
may include classroom instruction, job certification and technical and personal
skills training. The principal objective of the training is to develop
associates into more effective members of a team dedicated to continuous
improvement in all facets to the Company's business. In 1997, the Company's
production line associates' compensation was changed from an hourly system to an
incentive system.
The Goshen facility produced 45 custom vehicles per eight-hour shift during peak
production periods in 1997
and has capacity to produce up to 95 units in one shift. During the fourth
quarter of 1997 the Goshen facility was producing 30 units per day, including
Starcraft and Imperial models.
Sales and Marketing
Domestic. The Company sells its custom vehicles to approximately 600 automobile
dealers throughout the continental U.S. and overseas. Custom vehicles are sold
through a network of regional exclusive sales representatives and associate
representatives. Each of its U.S. dealers is an authorized dealer for General
Motors, Ford or Chrysler and most sell and service a full complement of cars,
SUVs and vans. Starcraft's top 50 dealers accounted for approximately 60%, 59%
and 51% of unit sales in fiscal 1997, 1996 and 1995, respectively. During the
past two years, the geographic areas of the U.S. where the Company's sales have
been strongest include (i) the Great Lakes region (i.e., Illinois, Indiana,
Michigan, New York, Ohio, Pennsylvania, and Wisconsin), (ii) Oklahoma and Texas
and (iii) Northern California.
The Company's direct sales efforts to dealers are supplemented by a variety of
advertising and promotional programs and participation in various automobile
shows. The Company is also refining a targeting approach to better utilize
advertising expenditures by expanding its team selling efforts and developing
new marketing materials, including videos. In 1997 the Company established a
telemarketing sales team in Ocala, Florida to cost effectively focus on smaller
dealer activities.
International. Starcraft exports converted vehicles to 18 countries around the
world and employs an indernational department which is exclusively responsible
for the development of international sales. International sales fluctuate from
country to country and over time depending on import taxes and tariffs and
fluctuations in currency exchange rates as well as local economic conditions.
Starcraft's primary overseas markets are Japan and northern Europe. The Company
exported 1,584, 2,543 and 2,195 conversions in 1997, 1996 and 1995,
respectively.
The recent increase in U.S. currency and turmoil in Asian financial markets have
negatively impacted the Company's internationlal sales.
The Company intends to further promote Starcraft and Imperial vehicles overseas.
The Company maintains a distribution agreement with General Motors and Mitsui by
which the Company believes makes Mitsui the sole distributor of General Motors
vans in Japan. This agreement will continue from year-to-year unless terminated
on three months notice prior to the end of any such year.
Research and Development
The Company continues to devote efforts and resources in the area of research
and development to improve the appeal and safety of its products. Starcraft
believes it has a strong record of innovative product development to enhance
customer appeal and vehicle quality.
The Company has a patent on a system called the Integrated Belting System
("IBS"). Upon a rear-end collision in excess of 20 m.p.h., passenger seats in
many vehicles can collapse backward, increasing the risk of injury to vehicle
occupants. IBS is designed to reduce significantly the risk of seat back
collapse by restraining the seat back. A new seat belt integrated with the
conventional seat belt system is anchored to the vehicle roof or wall and
traverses the seat back. In the event of collision, the seat back is secured in
place.
IBS has been successfully tested by an independent testing firm. The Company
believes that only one other automotive manufacturer currently offers seats with
a safety feature designed to prevent collapse on rear impact. Eventually, the
Company intends to license the use of IBS by other manufacturers. There is no
assurance, however, as to the extent IBS will be employed by other
manufacturers.
The Company has product research and development teams devoted to design and
safety improvements. During fiscal 1997, 1996 and 1995, the Company spent
approximately $824,000, $893,000 and $726,000, respectively, on product research
and development.
Competition
The United States vehicle conversion market is very competitive with four
principal national manufacturers and numerous local and regional manufacturers,
many of which are relatively small companies serving local dealers. The Company
believes it is one of the four largest van conversion companies in the United
States. The others are Glaval Inc., Mark III Industries, Inc. and Explorer Van
Company. The Company's Starcraft lines generally feature high-end, luxury custom
vehicles competing most directly with Explorer. The Imperial product lines
compete more directly in the price-sensitive segment of the van conversion
market. The Company believes the number of competitors will continue to decline
as increased quality, financial and engineering standards are imposed by the
OEMs.
In international markets, the Company competes with numerous foreign
manufacturers that produce vehicles comparable to converted vans, although
custom vans such as the Company's tend not to be widely produced within its
foreign markets.
The Company's Starcraft lines will continue to be focused on luxury vehicle
modifications and will seek to increase its market share of high-end van
conversions for which Starcraft vehicles have an established reputation.
Starcraft will also continue to be sensitive to changes in consumer preferences.
The Imperial product lines enable the Company to participate more fully in the
price-sensitive segment of the conversion market and offer its dealers a full
price range of conversion vehicles from one manufacturer. The Company believes
competitive factors in its industry include price, quality and variety of
product line, service and warranty, dealer network and safety. The Company
maintains a leading position in the conversion industry through high quality
workmanship, innovation, versatility in meeting customization requirements and
the diversity of its product line.
The Company will also target the mobility market through its National Mobility
subsidiary by offering fullsize vans and minivans for the physically challenged.
The Company estimates that it competes in this market with four national
manufacturers and several regional manufacturers. These products will be
distributed through both automotive dealerships and mobility centers. In
addition, the Company will participate in state government quotes for mobility
vehicles.
Backlog and Seasonality
At September 28, 1997, the Company had a backlog of 842 unit orders compared
with a backlog of 1,067 unit orders at September 29, 1996. The Company considers
such orders to be reasonably firm. All of the Company's products are subject to
certain seasonal sales influences and sales tend to be stronger during March
through July. The Company uses off-season sales promotions to market its
products with a view to reducing seasonal swings in sales.
Warranties
The Company historically provided a three-year, 36,000 mile limited warranty on
its conversions. In 1997, the Starcraft products began offering a 5-year, 60,000
mile warranty. The OEMs provide their own standard warranties of the chassis and
engine. At the time of sale of its product, the Company estimates the costs to
be incurred for product warranties and establishes reserves for warranty claims.
The Company believes that such reserves will adequately cover any such warranty
claims. The Company provides complete owners' manuals to retail customers
covering the conversion package as well as parts, warranty and service manuals
for dealers. The Company keeps a record of the paint, upholstery and styles
included in each vehicle conversion so that, when necessary, it can re-create
matching replacement parts.
Patents and Trademarks
IBS. In 1996, the Company received a U.S. patent on IBS, which is designed to
reduce significantly the risk of seat back collapse in the event of a rear-end
collision by restraining the seat back. A new seat belt integrated with the
conventional seat belt system is anchored to the vehicle roof or wall and
traverses the seat back. In the event of collision, the seat back is secured in
place. See "Research and Development."
Trademarks. The Company's Predecessor manufactured boats, motor homes and other
recreational vehicles under the name "Starcraft." (R) The boat manufacturing
business was sold by the Predecessor to Brunswick
Corporation in 1988. The Company initially acquired the recreational vehicle
business in the Predecessor's 1991 reorganization proceeding, but immediately
sold it to Jayco Inc. The Predecessor's Canadian conversion business was
acquired by a Canadian firm. Brunswick Corporation has independently registered
and owns the "Starcraft" and related trademarks for use with boats and marine
products and thus Starcraft has no control over the quality of boats produced
and sold under the "Starcraft" mark. The Company retains ownership of
"Starcraft" and related registered marks for use with automotive and
recreational vehicle products. It licenses the owners of the Predecessor's RV
business and Canadian van conversion business to use these trademarks. While it
has some control over the quality of its licensees' products, it does not
control all aspects of their businesses. The Canadian entity is required to pay
a royalty to the Company and to purchase its components from the Company (or
from others with the company's approval). The Company does not export to Canada
and its Canadian licensee does not export to the United States.
Because of these considerations, there is a risk that the distinctiveness of the
"Starcraft" mark could become diluted or that its reputation for quality could
be adversely affected if the quality of another manufacturer's products sold
under the mark declines. The Company believes, however, that customers are
sufficiently discerning when making a purchase as significant as a vehicle
conversion that confusion between the Company and makers of other "Starcraft"
products is unlikely. It also believes its licensees are currently in compliance
with their obligations under their license agreements.
Safety and Regulation
The manufacture, distribution and sale of the Company's products are subject to
governmental regulations in the United States at the federal, state and local
levels. The most extensive regulations are promulgated under the National
Traffic and Motor Vehicle Safety Act which, among other things, empowers NHTSA
to require a manufacturer to remedy vehicles containing "defects related to
motor vehicle safety" or vehicles which fail to conform to all applicable
federal motor vehicle safety standards.
Federal Motor Vehicle Safety Standards were promulgated by the NHTSA in 1992.
Many of the Company's conversion components were affected by these standards.
Starcraft engaged a testing Company, which also performs testing for NHTSA, to
test the company's components. The Company's components subject to the new
standards were determined to meet or exceed them. Promulgation of additional
safety standards in the future could require the Company to incur additional
testing and engineering expenses which could adversely affect the Company's
results of operations.
NHTSA can require automotive manufacturers to recall products. The Company has
not experienced any material recalls.
The Company's international sales are subject to foreign tariffs and taxes,
changes in which are difficult to predict and which can adversely affect
Starcraft sales. Starcraft's products must also comply with government safety
standards imposed in its foreign markets. For example, in Japan and Germany each
vehicle conversion is individually inspected by local authorities before the
vehicle is registered in the country.
Both federal and state authorities have various environmental control standards
relating to air, water and noise pollution that affect the business and
operations of the Company. In particular, the Company generates paint, varnish
and other finishing wastes that it is required to dispose of in compliance with
environmental regulations. The Company believes that it has complied in all
material respects with applicable environmental regulations and standards and
does not currently expect that any failure of compliance will have any material
adverse effect on the Company.
Like other automotive manufacturers, the Company may be subject to claims that
its products caused or contributed to damage or injury sustained in vehicle
accidents or may be required to recall products deemed unsafe. Any such claims
in excess of the Company's insurance coverage or material product recall
expenses could adversely affect the Company's financial condition and results of
operations.
Employees
As of September 28, 1997, the Company employed 568 people. Of these,
approximately 434 were production line associates and 134 were salaried sales,
engineering and administrative staff. During peak production periods, the
Company may increase its work force. Historically, the available labor force has
been adequate to meet such periodic requirements. The Company considers its
relationships with its personnel to be satisfactory.
The Company maintains a training and education process. The principal goal of
this program is to build a team-based learning organization that develops the
combined skills of associates. Management believes this approach promotes a
culture conducive to participation and teamwork that breeds innovation and
effective performance. The process includes personal and practical skills
training, and technical and development training. The Company has applied for
and received matching grants from the State of Indiana for part of this training
effort.
ITEM 2. PROPERTIES
The Company owns its properties in Goshen, and Emma, Indiana and leases the
Elkhart property, as further described below.
Size of
Location Facility Type of Operation
- - ---------------------- ------------------ ----- ----------------------------
Goshen, Indiana 454,400 s.f. Executive Offices (20,420
s.f.); Manufacturing and
Assembly
Emma, Indiana 42,700 s.f. Sewing and Upholstery
Manufacturing
Elkhart, Indiana 56,000 s.f. Offices (2,600 s.f.);
(National Mobility) Manufacturing and Assembly
The Goshen and Emma production facilities were constructed in the 1960's. They
have been maintained and improved upon from time to time and are presently in
satisfactory condition and sufficient for the Company's current requirements.
The Company also stores chassis on a 37-acre lot it owns near its Goshen
production facility. The Goshen facility produced 45 units per day during peak
production periods in 1997. See "Manufacturing."
The Elkhart facility, on approximately 3 acres of land, is leased for three
years through February 29, 2000 with five, one-year renewal options at the
Company's discretion. The lease contains an option to purchase for $800,000.
Monthly rent is $14,000 and the Company is responsible for property taxes and
building insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company does not anticipate that any pending legal proceeding to which it is
party will have any material adverse effect on its financial conditions or
results of operations. The Company maintains product liability insurance which
it currently considers adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock is quoted on the NASDAQ Stock Market, National Market, under the
symbol "STCR." As of December 19, 1997, there were 98 shareholders of record of
Starcraft's Common Stock. The Company estimates that, as of such date, there
were approximately 1,200 beneficial owners of its Common Stock.
The following table sets forth the high and low bid prices per share of Common
Stock for the periods indicated.
Quarter Ended High Low
December 31, 1995 6.750 3.875
March 31, 1996 5.375 4.250
June 30, 1996 5.437 3.750
September 29, 1996 5.000 3.750
December 29, 1996 4.875 2.875
March 30, 1997 5.250 3.469
June 29, 1997 3.750 2.500
September 28, 1997 3.750 1.750
Source: Media General Financial Services
The foregoing quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Dividend Policy. The Company has paid no cash dividends since its initial public
offering. The Company currently intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate paying
cash dividends on Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent, among other things, upon earnings, capital requirements, any
financing agreement covenants and the financial condition of the Company.
Stock Repurchase. In March 1995, the Company's Board of Directors approved the
repurchase of up to 500,000 shares of the Company's outstanding shares of common
stock, of which 153,000 shares have been acquired to date. No shares were
repurchased in 1997.
Anti-Takeover Provisions. Indiana law and the Company's Articles of
Incorporation and Code of By-laws contain provisions that restrict the
acquisition of control of the Company. Such provisions can affect the rights of
shareholders acquiring substantial interests in the Company's shares. For
example, a shareholder who acquires more than 10% of the Company's shares
without prior board approval will be limited in the timing and terms of any
transaction it may enter into with the Company and will be subject to related
provisions. Any shareholder who effects an acquisition after which such
shareholder holds more than 20% of the Company's outstanding shares will have no
voting rights in the shares acquired in such acquisition, unless such rights are
conferred by the disinterested shareholders at the next annual meeting (or
earlier special meeting).
SHAREHOLDER RIGHTS PLAN
In August 1997 the Company adopted a shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousand,
except per share data) Year Ended
- - --------------------------------------------------------------------------------------------------------------------
Income Statement Data Sept. 28, Sept. 29, 1996 Oct. 1, 1995 Oct. 2, 1994 Oct. 3, 1993
1997
- - ---------------------------------- ---------------- ---------------- --------------- --------------- --------------
Net Sales:
Domestic $ 57,235 $73,317 $ 91,652 $81,640 $75,278
Export 15,047 25,648 21,408 10,734 10,001
Total Net Sales 72,282 98,965 113,060 92,374 85,279
Cost of Goods Sold 66,342 83,669 92,692 73,775 68,262
Gross Profit 5,940 15,296 20,368 18,599 17,017
Operating Expenses 13,924 15,049 15,864 12,505 11,099
Restructuring and Goodwill
Impairment Charges 5,926 ---- ---- ---- ----
Operating Income (loss) (13,910) 247 4,504 6,094 5,918
Interest (expense) ( 400) ( 293) (208) 99 (373)
Other, Net 194 176 214 104 31
Income (loss) Before Taxes (14,116) 130 4,510 6,297 5,576
Income Taxes (Credit)/Pro Forma (2,814) 20 1,753 2,517 2,241
Income Taxes (1)
Net Income (loss) /Pro Forma $ (11,302) $ 110 $ 2,757 $ 3,780 $ 3,335
Net Income (loss)
Weighted Common Shares 4,127 4,142 4,261 4,193 3,512
Outstanding
Earnings (loss) Per Share $ (2.74) $ 0.03 $ 0.65 $ 0.90 $ 0.95
Balance Sheet Data
- - ---------------------------------- ----------- -------- --------- --------- ---------
Working Capital $ 7,011 $ 8,476 $ 8,693 $ 8,140 $ 9,072
Total Assets 27,779 36,524 34,213 32,772 24,590
Long-term Debt 5,696 0 323 196 209
Shareholders' Equity 10,295 21,552 21,688 19,556 14,866
Book Value per Share 2.49 5.23 5.20 4.58 3.05
(1) For the period up through July 21, 1993, the Company was an S
Corporation for federal and state income tax purposes and, accordingly,
was not subject to such taxes. The pro forma information for the year
ended October 3, 1993 has been computed as if the Company were subject
to federal and state income taxes based on the tax laws in effect
during that year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The consolidated statements of income summarize operating results for the last
three years. This section of Management's Discussion highlights the main factors
affecting the changes in operating results during the three-year period.
1997 VERSUS 1996
Net Sales
Net sales for 1997 were $72.3 million compared to $99.0 million in 1996.
Domestic sales declined 21.9% to $57.2 million and export sales declined 41.3%
to $15.0 million. The Company's average sale per unit was $6,000 in 1997 on
12,000 sale units versus $6,100 in 1996 on 16,100 sale units.
The domestic conversion market continues to decline due to the increased
popularity and availability of sport utility vehicles and factory minivans,
price pressure from higher chassis costs and lower levels of conversion
inventory being held on dealer retail lots. The Company's domestic sale units
declined 23.3% versus an industry average of 14.6% as reported by the
Recreational Vehicle Industry Association. International sales in 1996 benefited
from the early build of 1997 model year minivans for Japan totaling $6 million.
Gross Profit
Gross profit decreased from $15.3 million (15.5% of sales) in 1996 to $5.9
million (8.2% of sales) in 1997. The decrease in gross margin as a percent of
sales is attributable to the impact of fixed plant overhead costs on the lower
sales volume and $1.0 million of incremental carrying costs on chassis
consignment inventory.
Selling and promotion expense
Selling and promotion expense decreased $1 million to $7.2 million in 1997 from
1996 due to the lower domestic sales volume. This expense increased from 8.4% of
sales to 10.0% of sales due to the impact of fixed salesmen salaries on the
lower sales volume.
General and Administrative Expense
General and administrative expense decreased 7.0% in 1997 relative to 1996
before the impact of the National Mobility acquisition (1.7% after National
Mobility). The decrease is primarily attributable to a reduction in personnel.
Restructuring Charges
In December 1996 the Company completed the consolidation of its Imperial
Automotive Group manufacturing operation into Starcraft Automotive Group's
manufacturing complex in Goshen, Indiana. The consolidation is designed to
enhance profitable growth by reducing excess production capacity, personnel
count and fixed overhead expenses. The Company recorded a $750,000 restructure
charge in the first quarter of fiscal year 1997, which remains reasonable at
year end. The Company estimates it will realize annual overhead expense
reductions of approximately $1.1 million from reduced facility and personnel
costs during 1998 relative to 1997.
In June 1997 the Company closed its McGregor, Texas manufacturing facility and
sold certain assets of the business. The Company recorded a $260,000 net
restructure charge in the third quarter of fiscal year 1997 primarily for the
write-down of leasehold improvements. The Company should realize savings from
the closure of the Texas facility which lost $1.3 million pretax in 1997.
The restructuring charges consisted of employee termination and other costs
($179,000), leasehold asset write-offs ($326,000) and the recognition of
remaining contractual lease obligations ($505,000).
Goodwill Impairment Loss
Operating losses at Imperial, together with a strategic review of the conversion
industry, resulted in an evaluation of the goodwill related to the acquisition
of Imperial Industries, Inc. The July 1994 acquisition of Imperial Industries,
Inc. was viewed at that time as a strategic expansion of the Company's
production capacity, conversion products lines, and sales and dealer network.
The operating strategy was to allow Imperial to remain an independent
manufacturing and operating subsidiary focused exclusively on the price
sensitive, entry level domestic market. However, subsequent to the acquisition,
the domestic market has contracted, gross margins have deteriorated, and
Imperial has experienced operating losses. In 1997, the manufacturing operations
of Imperial were consolidated into the Starcraft manufacturing facility to
reduce excess capacity. Further integration of the manufacturing operations, as
well as integration and reduction of the sales, dealer and general and
administration functions, have occurred since this consolidation.
As a result of the change in the domestic market, abandonment of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle conversion market, an impairment loss of $4.9
million, increased from the estimate of $4.5 million previously announced, was
recorded in the fourth quarter of 1997 to write-off the remaining goodwill
associated with this acquisition.
Income Taxes
The 1997 income tax credit was recorded at a 19.9% effective rate primarily due
to the impact of a $2.5 million valuation allowance for deferred income taxes.
The effective rate in 1996 was 15.4% which benefitted from the implementation of
a foreign sales corporation subsidiary.
1996 VERSUS 1995
Net Sales
Net sales for 1996 were $99.0 million, down 12.5% from 1995. Domestic sales
decreased 20.0% to $73.3 million while export sales increased 19.8% to $25.6
million. Unit sales decreased 4.9% to 16,106 in 1996.
Domestic sales were hampered early in the year by the availability of
General Motors products, primarily attributable to the OEM strike, production
issues on the minivan and the delayed introduction of the newly redesigned
fullsize van. As the Company historically relies heavily on General Motors
products, the Company's unit van shipments declined 12.7% in 1996 compared to
the industry's decline of 6.5% as reported by the Recreational Vehicle Industry
Association. Van conversion sales for 1996 were negatively impacted by the
growing popularity of OEM sport utility vehicles ("SUVs"). The Company's
shipments of converted pickup trucks and SUVs increased 11.3% in 1996.
International sales in 1996 benefited from the early build of 1997 model
minivans for Japan totaling $6 million.
The average conversion price declined 9.3% in 1996 due to a change in
product sales mix toward pickup trucks and SUVs and the percentage increase of
Imperial and Lonestar units which compete primarily in the entry level price
range.
Gross Profit
Gross profit margin for 1996 was 15.5% compared to 18.0% in the prior year.
The 1996 decline is due to the impact of fixed overhead on the lower sales and
approximately $200,000 of project expenses incurred on the start-up of the Texas
facility.
Selling and Promotion Expense
Selling and promotion expense for 1996 decreased 11.2% to $8.3 million,
primarily attributable to the reduced sales. Selling and promotion expense as a
percent of sales was 8.4% in 1996 compared to 8.2% in the prior year.
General and
Administrative Expense
General and administrative expense was $6.8 million in 1996, a 3.4%
increase from 1995. The increase is due to approximately $360,000 of expenses to
start-up the Texas facility, offset by the successful implementation of several
expense-containment strategies including personnel reductions.
Income Tax Expense
The effective tax rate on income for 1996 was 15.4% compared to 38.9% in
the prior year. The effective rate in 1996 benefited from the implementation of
a foreign sales corporation subsidiary.
Seasonality and Trends
The Company's sales and profits are dependent on the automotive markets in the
United States and overseas, primarily Japan and northern Europe, and the OEM's
ability to supply vehicle chassis. The business tends to be seasonal with
stronger sales in March through July and is influenced by a number of factors
including atypical weather for any sales region and OEM programs affecting the
price, supply and delivery of vehicle chassis. General Motors' chassis
represented 65% of the Company's total unit shipments in 1997 compared to 72% in
1996.
The Company's retail dealers had approximately 3,600 units on hand at the end of
1997 compared to 5,300 at the end of 1996, 5,600 at the end of 1995 and 7,200 at
the end of 1994. Conversion inventory on dealer retail lots is down for the
entire industry relative to prior years. The Company believes dealers are
stocking fewer conversion products because of the growing availability of
additional vehicle models such as sport utility vehicles and a general concern
by dealers of the future of the conversion industry. The OEMs have recently
increased their advertising and dealer training efforts to support vehicle
conversion product.
The strengthened U.S. dollar and recent turmoil in financial markets in Asia
will pressure the Company's 1998 export sales and margins. However, new market
penetration and continued development of existing markets, especially Europe,
should partially offset the Asia market decline. The domestic conversion market
is expected to continue to decline in 1998.
The Company eliminated much excess production capacity and reduced overhead in
1997 to address the decline in revenue. In 1997 the Company began a plan to
diversify both its product base and target markets as it acquired National
Mobility Corporation. National Mobility markets its products in both the retail
and government markets. In 1998 the Company expects to continue to pursue its
cost reduction and diversification strategy. The Company plans to increase its
product offerings in the vehicle conversion commercial market, initially shuttle
buses for the airport, nursing home and hotel markets.
The Company has reviewed its information systems for compatability with year
2000. It has plans in place to replace software deemed incompatable with year
2000 in a timely manner and does not anticipate any material adverse effect from
year 2000 compatability issues.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $3.0 million during 1997 compared to providing
cash of $1.9 million in the prior year. The use of cash resulted primarily from
the pretax operating loss. The Company expects to receive $3.3 million in
federal and state tax refunds in December 1997 or January 1998. Receivables
decreased $2.5 million and accounts payable decreased $3.4 million due to the
decrease in sales and production levels. Inventories declined $4.5 million due
to the reduced production levels and the Company's inventory reduction efforts.
The Company invested $1.4 million in property and equipment during the year
primarily for product tooling ($210,000), information systems ($670,000),
building upgrades ($290,000) and plant equipment ($100,000). The Company expects
1998 capital expenditures to be significantly less than 1997 levels.
The Company acquired National Mobility Corporation of Elkhart, Indiana in
February 1997 for $1.2 million in cash, assumption of certain bank debt, and
15,000 shares of the Company's Common Stock. National Mobility is one of the
largest manufacturers of conversion vehicles for the physically challenged with
annual sales for fiscal 1997 of $4 million.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of September 1997, bank debt was $5.7 million.
On January 12, 1998, the Company entered into an amended credit agreement with
its bank which was effective as of December 31, 1997. The agreement has a
maturity date of January 31, 1999. Borrowings are limited to specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum limits of $15 million through March 30, 1998, $12 million
from March 31, 1998 through June 29, 1998, and $10 million thereafter.
Borrowings pursuant to the agreement bear interest at the prime rate of the
lending bank plus 1% and are secured by substantially all of the Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused portion of the available credit based on the Company's level of
total interest bearing liabilities compared to consolidated earnings before
interest, taxes, depreciation, and amortization. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6.7 million at December 31, 1997, $6.1 million from January 1, 1998 through
June 27, 1998, $7.25 million from June 28, 1998 through September 27, 1998 and
$7.6 million thereafter. If these minimum levels are not maintained, any
outstanding balances become payable upon demand of the bank. The Company's
tangible net worth was $8.842 million at September 28, 1997.
In order to maintain the minimum levels of tangible net worth through 1998, the
Company needs to achieve operating results substantially consistent with its
1998 operating plan. This plan calls for 1998 net sales to be approximately six
percent less than 1997 net sales. This reduction results primarily from reduced
sales in the core conversion business partially offset by the inclusion of a
full year of National Mobility Corporation's sales in 1998. The Company plans to
reduce cost of goods sold through improved plant operating efficiencies, a new
pay system for production line associates, and the reduction of carrying costs
of its chassis by decreasing inventory levels. In addition, the Company plans to
reduce selling, general and administrative expenses. In December 1997 the
Company reorganized its sales department and adopted a more focused advertising
plan to reduce selling and promotion costs. General and administrative costs
will be reduced primarily through reductions in personnel and the decrease in
certain employee benefits in 1998.
In addition to the availability of bank financing, the Company has restricted
sales agreements with General Motors Acceptance Corporation, Chrysler Financial
Corporation and Ford Motor Credit Company. Pursuant to these agreements, the
Company obtains vehicle chassis from the OEM's for 90 days at nominal rates. If
the Company fails to match a chassis with a dealer order within 90 days after
delivery of the chassis to the Company, carrying charges increase to prime rate
plus 1%.
In 1995 the Board of Director's approved the repurchase of up to 500,000 shares
of the Company's outstanding shares of Common Stock, of which 153,000 shares
have been acquired to date. No shares were repurchased in 1997. Additional
shares are not expected to be acquired until the Company's debt is reduced.
The Company believes that future cash flows from operations, funds available
under its bank revolving credit agreement, and the continued use of OEM
financing arrangements to manage its chassis inventory will be sufficient to
satisfy its anticipated operating needs and capital improvements for 1998.
DISCUSSION OF FORWARD-LOOKING INFORMATION
The discussion above includes forward-looking statements respecting
restructuring cost estimates, future personnel and facility expense reductions,
anticipated tax refunds, domestic and international market and economic trends,
the Company's product and target market diversification plans, anticipated
capital expenditures, the adequacy of capital resources and other matters. From
time to time, Starcraft may make oral or written forward-looking statements
regarding its anticipated sales, costs, expenses, earnings and matters affecting
its condition and operations. All such forward- looking statements are subject
to a number of material factors which could cause the statements or projections
contained therein to be materially inaccurate. Such factors include, without
limitation, the following:
General Operating Contingencies. The Company may not be able to attract and
retain employees with sufficient skills to conduct its operations efficiently
and may from time to time be subject to work slow-downs or stoppages. The
Company may be adversely affected by delay or unavailability of supply of
numerous component parts. The Company will not always be able to satisfy its
capital requirements with internally generated funds and may, from time to time,
need to rely on bank financing and other third party capital resources. There is
no assurance that such resources will always be available to the Company or as
to the terms that will apply to any financing.
Acquisitions. The Company may be engaged in negotiations from time to time
regarding prospective acquisitions of van conversion or related businesses. Such
acquisitions could be material to the Company and, if effected, could have a
material effect on the Company's financial condition or results of operations.
There is no assurance as to when or whether the Company will be able to effect
acquisitions, whether it will be able to generate requisite funding to effect
such acquisitions, or as to the terms on which such acquisitions may be
effected.
Economic Conditions. The van conversion industry is cyclical and is affected by
the general trends of the economy and consumer preferences and consumer
confidence and trends of the automotive and recreational vehicle industries both
domestically and in international markets. The level of disposable consumer
income affects the Company's sales because its products are generally considered
discretionary expenditures by consumers. In difficult economic times, consumers
tend to spend less of their income on discretionary items. Other economic
factors affecting the demand for the Company's products include the availability
and price of gasoline, the level of interest rates and the availability of
consumer financing. A decline in general economic conditions or consumer
confidence can be expected to affect Starcraft's sales adversely.
Supply and Financing of Vehicle Chassis. The Company is dependent upon the OEMs
to supply its requirements for vehicle chassis. Labor stoppages, supply
shortages and a variety of other factors that influence OEM production can
affect the availability or timely delivery of vehicle chassis to the Company. If
vehicle chassis are unavailable, or if the Company must accept delivery earlier
or later than it otherwise would prefer, sales could be adversely affected and
financing expenses could increase. The Company must also comply with its
consignment and restricted sale contracts with the OEMs pursuant to which the
OEMs impose certain specifications for the Company's vehicle conversions,
including gross vehicle weight standards. Such contracts also restrict the
Company's ability to dispose of completed chassis and prohibit the transfer of
chassis to unauthorized U.S. and foreign dealers. All of the Company's
consignment and restricted sale contracts with chassis suppliers are terminable
by either party on short notice without cause. The availability of the OEM
financing rates is dependent upon the Company's compliance with its OEM
contracts and its ability to maintain satisfactory credit relationships with the
OEM's finance subsidiaries. Adverse changes in the Company's financial condition
or results of operations could cause such financing subsidiaries to seek to
change adversely the Company's financing terms or to terminate such financing
arrangements. Such a change or termination could have a material adverse effect
on the Company's financial condition and results of operations.
Regulation. The Company is subject to various foreign, federal, state and local
regulations. In particular, van conversion components produced by the Company
are required to comply with Federal Motor Vehicle Safety Standards and similar
safety standards imposed in its foreign markets. Promulgation of additional
safety standards in the future could require the Company to incur additional
testing and engineering expenses which could adversely affect the Company's
results of operations. The Company's international sales can be adversely
affected by changes in foreign import tariffs and taxes and fluctuations in
exchange rates. The Company must comply with certain Federal and state
regulations relating to the disposition of hazardous wastes generated in its
production processes. The Company's failure to comply with applicable
regulations or changes in current regulations, including the adoption of new
safety or environmental standards, could have material adverse effect on the
Company's results of operations.
Competition. The United States van conversion industry is very competitive with
several principal nationwide manufacturers and numerous local and regional
competitors. There is no assurance the Company will be able to maintain its
current competitive position in the van conversion market.
Potential Product Liability. Like other automotive manufacturers, the Company
may be subject to claims that its products caused or contributed to damage or
injury sustained in vehicle accidents or may be required to recall products
deemed unsafe. Any such claims in excess of the Company's insurance coverage or
material product recall expenses could adversely affect the Company's financial
condition and results of operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
To the Board of Directors
Starcraft Corporation
We have audited the accompanying consolidated balance sheets of Starcraft
Corporation and Subsidiaries as of September 28, 1997 and September 29, 1996 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended September 28, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of Starcraft Corporation and Subsidiaries for the year ended October 1, 1995
were audited by other auditors whose report dated November 3, 1995 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Starcraft Corporation and Subsidiaries as of September 28, 1997 and September
29, 1996 and the consolidated results of their operations and their cash flows
for each of the two years in the period ended September 28, 1997 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young
January 12, 1998
Fort Wayne, Indiana
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Starcraft Corporation
Goshen, Indiana
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Starcraft Corporation and Subsidiaries
for the period ended October 1, 1995. These consolidated financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of the operations and cash flows
of Starcraft Corporation and Subsidiaries for the period ended October 1, 1995
in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
November 3, 1995
Starcraft Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
September 28, September 29,
1997 1996
-------------------------------
Assets
Current assets:
Cash and cash equivalents $ 608 $ 1,366
Trade receivables, less allowance for
doubtful accounts: (1997--$81; 1996--$51) 3,977 9,165
Manufacturers' rebates receivable 692 1,079
Recoverable income taxes 3,300 -
Inventories 9,270 11,508
Other 444 330
---------------------------
Total current assets 18,291 23,448
Property and equipment:
Land, buildings, and improvements 5,857 6,033
Machinery and equipment 5,608 4,430
---------------------------
11,465 10,463
Less accumulated depreciation 3,491 2,697
---------------------------
7,974 7,766
Goodwill, at amortized cost 1,453 5,140
Other assets 61 170
===========================
$27,779 $ 36,524
===========================
September 28, September 29,
1997 1996
---------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable, trade $ 6,354 $ 9,330
Accrued expenses:
Warranty 1,337 1,600
Compensation and related expenses 484 882
Taxes 1,060 1,280
Other 2,045 1,557
Current portion of long-term debt - 323
----------------------------------
Total current liabilities 11,280 14,972
Long-term debt 5,696 -
Deferred income taxes 508 -
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value--2,000,000
shares authorized but unissued - -
Common stock, no par value:
Authorized shares--10,000,000 shares
Issued and outstanding shares
1997--4,133,600; 1996--4,118,600 14,016 13,971
Additional paid-in capital 1,008 1,008
Retained earnings (deficit) (4,729) 6,573
----------------------------------
10,295 21,552
----------------------------------
$27,779 $ 36,524
==================================
See accompanying notes.
Starcraft Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
Years ended
--------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
--------------------------------------------------------
Net sales:
Domestic $ 57,235 $ 73,317 $ 91,652
Export 15,047 25,648 21,408
------------------------------------------------------
72,282 98,965 113,060
Cost of goods sold 66,342 83,669 92,692
------------------------------------------------------
Gross profit 5,940 15,296 20,368
Operating expenses:
Selling and promotion 7,243 8,252 9,292
General and administrative 6,681 6,797 6,572
Restructuring charges 1,010 - -
Goodwill impairment loss 4,916 - -
-----------------------------------------------------
Operating income (loss) (13,910) 247 4,504
Nonoperating (expense) income:
Interest, net (400) (293) (208)
Other income, net 194 176 214
------------------------------------------------------
(206) (117) 6
------------------------------------------------------
Income (loss) before income taxes (14,116) 130 4,510
Federal and state income taxes (credit) (2,814) 20 1,753
======================================================
Net income (loss) $ (11,302) $ 110 $ 2,757
======================================================
Earnings (loss) per common and
common equivalent share $ (2.74) $ 0.03 $ 0.65
======================================================
Average number of common and
common equivalent shares outstanding 4,127,350 4,142,402 4,260,915
======================================================
See accompanying notes.
Starcraft Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
Additional Retained
Common Paid-in- Earnings
Stock Capital (Deficit) Total
-----------------------------------------------------------
Balance, October 2, 1994 $14,442 $1,008 $ 4,106 $ 19,556
Net income - - 2,757 2,757
Repurchase and retirement
of 100,000 shares of common stock (338) - (287) (625)
-----------------------------------------------------------
Balance, October 1, 1995 14,104 1,008 6,576 21,688
Net income - - 110 110
Repurchase and retirement
of 53,000 shares of common stock (133) - (113) (246)
-----------------------------------------------------------
Balance, September 29, 1996 13,971 1,008 6,573 21,552
Net loss - - (11,302) (11,302)
Issuance of 15,000 shares
of common stock 45 - - 45
===========================================================
Balance, September 28, 1997 $14,016 $1,008 $ (4,729) $ 10,295
===========================================================
See accompanying notes.
Starcraft Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Years ended
--------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
--------------------------------------------------------
Operating activities
Net income (loss) $ (11,302) $ 110 $ 2,757
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,199 1,087 1,006
Non-cash restructuring charges 611 - -
Goodwill impairment loss 4,916 - -
Deferred income taxes 583 51 93
Change in operating assets and liabilities:
Receivables 2,465 (2,810) (229)
Inventories 4,494 205 (1,346)
Other (113) 163 176
Accounts payable (3,369) 2,947 (696)
Accrued expenses (2,512) 110 (703)
--------------------------------------------------------
Net cash provided by (used in) operating activities (3,028) 1,863 1,058
Investing activities
Purchase of property and equipment (1,407) (932) (1,630)
Purchase of assets of National Mobility Corporation (1,756) - -
Proceeds from sale of property and equipment 60 36 45
--------------------------------------------------------
Net cash used in investing activities (3,103) (896) (1,585)
Financing activities
Proceeds from revolving credit agreement 12,200 7,800 5,100
Payments of revolving credit agreement (6,504) (7,800) (5,100)
Payments of long-term debt (323) (610) (512)
Repurchase of common stock - (246) (625)
--------------------------------------------------------
Net cash provided by (used in) financing activities 5,373 (856) (1,137)
--------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (758) 111 (1,664)
Cash and cash equivalents at beginning of year 1,366 1,255 2,919
========================================================
Cash and cash equivalents at end of year $ 608 $ 1,366 $ 1,255
========================================================
Supplemental information:
Interest paid $ 376 $ 304 $ 222
Income taxes paid $ 140 $ 60 $ 2,205
See accompanying notes.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share data)
September 28, 1997
1. Nature of Business and Significant Accounting Policies
Nature of Business and Principles of Consolidation
Starcraft Corporation and Subsidiaries (Company) are second stage manufacturers
of custom van, pickup truck, and sport utility vehicle conversions. The
consolidated financial statements include the accounts of Starcraft Corporation
and its wholly owned subsidiaries: Starcraft Automotive Group, Inc., Imperial
Automotive Group, Inc. (Imperial), Starcraft Southwest, Inc., and National
Mobility Corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company's customers operate in the automotive industry. The Company sells
conversion units throughout the United States, and export sales are principally
to locations in Japan and northern Europe. Credit is extended to customers based
on an evaluation of the customer's financial condition, and when credit is
extended collateral generally is not required. Sales to the Company's largest
customer were $9,541, $18,526, and $15,185 in 1997, 1996, and 1995,
respectively.
Significant Accounting Policies
Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three
months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for certain inventories ($8,962 and $8,408 at
September 28, 1997 and September 29, 1996, respectively) and by the first-in,
first-out (FIFO) method for all other inventories.
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.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
1. Nature of Business and Significant Accounting Policies (continued)
Goodwill
Goodwill is amortized by the straight-line method over a period of 15 years and
is stated net of accumulated amortization of $57 and $482 at September 28, 1997
and September 29, 1996, respectively. The Company evaluates the recoverability
based on undiscounted projected operating cash flows when factors indicate that
an impairment may exist. During the fourth quarter of 1997, the Company wrote
off the remaining goodwill associated with the acquisition of Imperial
Industries, Inc. as more fully described in Note 8.
Warranties
The Company follows the policy of accruing an estimated liability for warranties
at the time the warranted products are sold.
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 generally recognized upon
shipment. Net sales do not include the cost of chassis (see Note 10).
Stock Based Compensation
The Company periodically grants stock options for a fixed number of shares to
employees. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Use of Estimates
Preparation of the financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
1. Nature of Business and Significant Accounting Policies (continued)
Earnings Per Share
Earnings (loss) per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," ("FAS 128") which is required to be adopted by the
Company in the first quarter of 1998. Upon adoption, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. The impact of FAS 128 on the calculation of
earnings per share is not expected to be material.
Seasonality
The Company's business is seasonal. Sales are generally higher during the spring
and summer months of the year.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to September 30. The years
ended September 28, 1997, September 29, 1996, and October 1, 1995 each contain
52 weeks.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
2. Inventories
The composition of inventories is as follows:
September 28, September 29,
1997 1996
-----------------------------------------
Raw materials $ 4,654 $ 7,126
Work-in-process 1,667 1,786
Finished goods 2,949 2,596
=========================================
$ 9,270 $ 11,508
=========================================
The use of the LIFO method of determining the cost of inventories did not have a
material effect on inventories at September 28, 1997 and September 29, 1996.
3. Debt Arrangements
On January 12, 1998, the Company entered into an amended credit agreement with
its bank which was effective as of December 31, 1997. The agreement has a
maturity date of January 31, 1999. Borrowings are limited to specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum limits of $15,000 through March 30, 1998, $12,000 from
March 31, 1998 through June 29, 1998, and $10,000 thereafter. The carrying
amount of the Company's line of credit approximates fair value. Interest expense
was approximatley $403, $305, and $224 in 1997, 1996, and 1995, respectively.
Borrowings pursuant to the agreement bear interest at the prime rate of the
lending bank plus 1% and are secured by substantially all of the Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused portion of the available credit based on the Company's level of
total interest bearing liabilities compared to consolidated earnings before
interest, taxes, depreciation, and amortization. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6,700 at December 31, 1997, $6,100 from January 1, 1998 through June 27,
1998, $7,250 from June 28, 1998 through September 27, 1998 and $7,600
thereafter. If these minimum levels are not maintained, any outstanding balances
become payable upon demand of the bank. The Company's tangible net worth was
$8,842 million at September 28, 1997.
In order to maintain the minimum levels of tangible net worth through 1998, the
Company needs to achieve operating results substantially consistent with its
1998 operating plan. This plan calls for 1998 net sales to be slightly lower
than 1997 net sales. The Company plans to reduce cost of goods sold through
improved plant operating efficiencies, a new pay system for production line
associates, and the reduction of carrying costs of its chassis by decreasing
inventory levels. In addition, the Company plans to reduce selling, general and
administrative expenses primarly through reductions in personnel and employee
benefits costs.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
4. Income Taxes
Federal and state income taxes (credits), all of which were domestic, consist of
the following:
1997 1996 1995
---------------------------------------------------
Current:
Federal $(2,770) $ (103) $ 1,272
State (627) 55 378
---------------------------------------------------
---------------------------------------------------
(3,397) (48) 1,650
Deferred:
Federal 508 54 83
State 75 14 20
---------------------------------------------------
---------------------------------------------------
583 68 103
===================================================
$(2,814) $ 20 $ 1,753
===================================================
The provisions for income taxes are different from amounts that would otherwise
be computed by applying a federal statutory rate of 34% to income taxes. A
reconciliation of the differences is as follows:
1997 1996 1995
-----------------------------------------------------------
Rate applied to pretax income (loss) $ (4,799) $ 44 $ 1,533
State taxes--net (701) 46 182
Foreign sales corporation (36) (205) -
Temporary differences for which no benefit
was recognized 2,544 - -
Other, net 178 135 38
===========================================================
$ (2,814) $ 20 $ 1,753
===========================================================
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
4. Income Taxes (continued)
The composition of the deferred tax assets and liabilities is as follows:
September 28, September 29,
1997 1996
-------------------------------------------
Deferred tax liabilities:
Accelerated depreciation $ (484) $ (330)
Inventory basis difference (331) (331)
Other (57) (84)
-------------------------------------------
-------------------------------------------
(872) (745)
Deferred tax assets:
Inventory 216 267
Nondeductible accruals:
Warranty 276 378
Other 455 175
Goodwill 1,741 -
Alternative minimum tax credit carryforward 220 -
-------------------------------------------
Total deferred tax assets 2,908 820
Valuation allowance (2,544) -
-------------------------------------------
364 820
===========================================
Net deferred tax asset (liability) $ (508) $ 75
===========================================
The alternative minimum tax carryforward of $220 has no expiration date for
income tax purposes.
5. Compensation Plans
The Company sponsors a qualified profit-sharing plan, more commonly known as a
401(k) plan, for all of its employees with over six months of service. The plan
provides for a matching contribution by the Company of the employee's salary
deduction, up to 6% of compensation. In addition, the plan provides for a
discretionary contribution annually as determined by the Board of Directors. The
amounts charged to expense for this plan were approximately $361, $107, and $470
in 1997, 1996, and 1995, respectively.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
6. Stock Option Plans
The Company maintains two stock incentive plans under which stock options are
granted to key employees and directors. The plans authorize the grant of stock
options for up to 630,000 shares of the Company's common stock. The options in
these two plans have 5 year terms and become fully exercisable after six months.
The Company also sponsors a qualified stock option plan with 40,000 shares of
common stock reserved for options to certain sales representatives who are not
employees of the Company. These options have five year terms.
Under the three plans, options may not be granted at prices below 85% of the
current market value of the stock at the date of grant. All options awarded
through September 28, 1997 have been at fair market value on the date of grant.
For each of the three years in the period ended September 28, 1997, the effect
of the stock options in computing earnings per common share was antidilutive.
A summary of the Company's stock option activity and related information
follows:
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------------- --------------- -------------- --------------- --------------
Outstanding at
beginning of year 375,349 $6.24 311,850 $8.02 241,350 $8.55
Granted 124,500 3.40 176,500 4.38 167,000 7.46
Canceled (92,500) 5.02 (113,001) 8.26 (96,500) 8.37
------------- ---------------- --------------- -------------- --------------- --------------
Outstanding at end of
year 407,349 $5.65 375,349 $6.24 311,850 $8.02
============= ================ =============== ============== =============== ==============
Exercisable at end of 302,149 $6.46 359,849 $6.21 248,076 $8.21
============= ================ =============== ============== =============== ==============
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
6. Stock Option Plans (continued)
As of September 28, 1997, there were 225,500 options outstanding with exercise
prices which ranged from $2.50 to $5.00. The weighted-average exercise price of
these options is $4.01, and the weighted-average remaining contractual life is
4.0 years. As of September 28, 1997, there were 181,849 options outstanding with
exercise prices which ranged from $5.125 to $10.00. The weighted-average
exercise price of these options is $7.67, and the weighted-average remaining
contractual life is 1.5 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25 no compensation expense
has been recognized because the exercise price of the Company's stock options
has equaled the market price of the underlying stock on the date of grant. Pro
forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
and has been determined as if the Company had accounted for its stock options
issued in 1997 and 1996 under the fair value method of FAS 123. The fair value
was estimated as of the date of grant using a Black-Sholes option pricing model
with the following assumptions:
1997 1996
------------------------------------------------
Risk-free interest rate 6.04% - 6.77% 5.41% - 6.71%
Dividend yield 0% 0%
Volatility factor 40.9% - 48.8% 33.3% - 41.3%
Expected option life 4 years 4 years
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1997 1996
--------------------------------
Pro forma net income (loss) $(11,469) $ 13
Pro forma net income (loss) per share $ (2.78) $ 0.00
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
7. Shareholder Rights Plan
In August 1997 the Company adopted a Shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.
8. Restructuring Charges and Goodwill Impairment
In December 1996 the Company consolidated its Imperial manufacturing operation
located in Elkhart, Indiana into the Company's facility in Goshen, Indiana. In
June 1997 the Company closed its McGregor, Texas plant and sold the assets of
the business. The Company recorded $1,010 of restructuring charges related to
such activities primarily for employee termination and other costs ($179),
leasehold asset write-offs ($326) and the recognition of remaining contractual
lease obligations ($505). The contractual lease obligations primarily pertain to
remaining rent and associated contractual costs at the former Imperial location.
The remaining liability for contractual lease obligations at September 28, 1997
is $155, which will be paid in fiscal 1998.
Operating losses at Imperial, together with a strategic review of the conversion
industry, resulted in an evaluation of the goodwill related to the acquisition
of Imperial Industries, Inc. The July 1994 aquisition of Imperial Industries,
Inc. was viewed at that time as a strategic expansion of the Company's
production capacity, conversion products lines, and sales and dealer network.
The operating strategy was to allow Imperial to remain an independent
manufacturing and operating subsidiary focused exclusively on the price
sensitive, entry level domestic conversion market. However, subsequent to the
acquistion, the domestic market has contracted, gross margins have deteriorated,
and Imperial has experienced operating losses. In 1997, the manufacturing
operations of Imperial were consolidated into the Starcraft manufacturing
facility to reduce excess capacity. Further integration of the manufacturing
operations, as well as integration and reduction of the sales, dealer and
general and administration functions, have occurred since this consolidation.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
8. Restructuring Charges and Goodwill Impairment Loss (continued)
As a result of the change in the domestic market, abandonment of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle conversion market, it was determined that the
goodwill was not recoverable and, therefore, a goodwill impairment loss of
$4,916 was recorded in the fourth quarter of 1997 to write-off the remaining
goodwill associated with this acquisition.
9. Business Combination
On February 28, 1997, the Company acquired the assets and assumed certain
liabilities of National Mobility Corporation, a manufacturer of conversion
vehicles for the physically challenged. The purchase price of the acquired
assets was $1,200 in cash, assumption of certain bank debt, and issuance of
15,000 shares of the Company's common stock. The excess of the total acquisition
cost over the fair value of the net assets acquired is recorded as goodwill and
is being amortized over 15 years using the straight-line method.
The acquisition was recorded using the purchase method of accounting, and
accordingly, the results of operations of National Mobility Corporation for the
seven months ended September 28, 1997 are included in the consolidated financial
statements. The purchase price has been allocated to assets acquired and
liabilities assumed based on their respective fair values at the date of
acquisition. The allocation of the purchase price is summarized as follows:
Current assets $ 2,448
Property and equipment 200
Goodwill 1,510
Current liabilities (2,357)
-------
$ 1,801
=======
On the basis of a pro forma consolidation of the results of operations as if the
acquisition had taken place at the beginning of 1996, consolidated net sales
would have been $102,978 for 1996 and $73,771 for 1997. Consolidated pro forma
income (loss) and earnings (loss) per share would not have been materially
different from the reported amounts for 1997 and 1996. The pro forma information
is not necessarily indicative of what the actual consolidated results of
operations might have been if the acquisition had been effective at the
beginning of 1996.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
10. Consignment Arrangements
The Company obtains vehicle chassis for modification from major vehicle
manufacturers (OEMs) under consignment and restricted sales agreements. These
agreements generally provide that (i) the Company may not obtain certificates of
origin or other evidence of ownership of chassis, (ii) modification must conform
to standards specified by OEMs, and (iii) modifications generally are performed
only after a sale has been negotiated with an OEM approved dealer. The Company
generally ships converted chassis only after dealer acceptance has been approved
by the OEM. The OEMs bill the dealer and provide warranty for the chassis.
Consistent with the practice in their industry, the Company accounts for chassis
as consignment inventory. Accordingly, the Company records chassis inventory and
related obligations only in the event they are required to purchase chassis from
the OEM. Provisions for decline in chassis value are recognized when, in
management's estimation, such provisions are necessary. Provisions for decline
in chassis value, chassis inventory, and chassis sales are not material to the
accompanying financial statements.
At September 28, 1997, the Company has possession of chassis in the aggregate
amount of $28,200 (of which $8,660 related to chassis on consignment for periods
exceeding 90 days) and has total chassis line availability between $82,520 and
$92,040 based on the time of year. Carrying charges on consignment chassis,
which are presented in cost of goods sold, were approximately $2,740, $1,729,
and $2,046 in 1997, 1996, and 1995, respectively. The OEMs have also instituted
incentive rebates to second-stage manufacturers based on the number of chassis
delivered to dealers. Those incentives reduced cost of goods sold by
approximately $751, $1,135, and $1,415 in 1997, 1996, and 1995, respectively.
11. Commitments and Contingencies
The Company leases certain of its facilities and equipment. The total rental
expense for the years ended 1997, 1996, and 1995 is $688, $490, and $295,
respectively. Rental commitments at September 28, 1997 for long-term
noncancelable operating leases are as follows:
1998 $ 228
1999 189
2000 94
2001 5
=========
$ 516
=========
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
11. Commitments and Contingencies (continued)
The Company is subject to various legal proceedings and claims with respect to
such matters as product liabilities and other actions which arise out of the
normal course of its business. Management and its legal counsel periodically
review the probable outcome of pending proceedings and the costs reasonably
expected to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be reasonably
estimated. In the opinion of management, any ultimate cost to the Company in
excess of amounts accrued will not materially affect its consolidated financial
position, cash flows or results of operations.
The Company's commitments with respect to its chassis arrangements are described
in Note 10.
12. Research and Development
The Company incurs costs to improve the appeal and safety of its products.
Research and development costs are charged to operations when incurred. Amounts
charged to operations were approximately $824, $893, and $726 in 1997, 1996, and
1995, respectively.
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
13. Unaudited Interim Financial Information
Presented below is certain unaudited quarterly financial information for 1997
and 1996.
Quarter ended
-------------------------------------------------------------------------
December 29, March 30, June 29, September 28,
1996 1997 1997 1997
-------------------------------------------------------------------------
Net sales $17,669 $18,552 $23,465 $12,596
Gross profit (loss) 2,028 1,120 2,843 (51)
Net loss (1,342) (1,552) (692) (7,716)
Loss per common share (0.33) (0.37) (0.17) (1.87)
Quarter ended
-------------------------------------------------------------------------
December 31, March 31, June 30, September 29,
1995 1996 1996 1996
-------------------------------------------------------------------------
Net sales $15,658 $23,063 $31,507 $28,737
Gross profit 1,538 1,717 6,276 5,765
Net income (loss) (1,142) (1,229) 1,414 1,067
Earnings (loss) per
common share (0.27) (0.30) 0.34 0.26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of the report:
Financial Statements (as of September 28, 1997 and September 29, 1996
and for the fiscal periods ended September 28, 1997, September 29,
1996, and October 1, 1995):
Reports of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Cash Flows
Statements of Shareholders' Equity
Notes to Financial Statements
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the period ending
September 28 1997.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index immediately following the signature page.
(d) The following financial statement schedule is filed as part of this
report:
Schedule II-Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
have been omitted.
STARCRAFT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in Thousands)
Balance at Charged to Deductions from Balance at Close
Beginning of Period Operations Additions to of Period
Reserves (a)
Allowance for doubtful accounts - deducted from accounts receivable, trade, in
the consolidated balance sheets:
- - ------------------------------------------------------------------------------------------------------------------------
52 weeks ended $ 51 $ 30 $ -- $ 81
September 28, 1997
52 weeks ended $ 57 $ -- ($ 6) $ 51
September 29, 1996
52 weeks ended $ 60 $ -- ($ 3) $ 57
October 1, 1995
(a) Write-off of bad debts, less recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report to be signed on
behalf of the undersigned, thereto duly authorized.
STARCRAFT CORPORATION
DATE: January 12, 1998 By: /s/ Kelly L. Rose
--------------------------------
Kelly L. Rose,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 12th day of January, 1998.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, Chief
Kelly L. Rose Executive Officer
2) Principal Financial/Accounting Officer:
By: /s/ Michael H. Schoeffler President, Chief
Michael H. Schoeffler Financial Officer,
Treasurer, Secretary
3) The Board of Directors:
By: /s/ Kelly L. Rose Director
Kelly L. Rose
By: /s/ Frank K. Martin Director
Frank K. Martin
By: /s/ L. Craig Fulmer Director
L. Craig Fulmer
By: /s/ David J. Matteson Director
David J. Matteson
By: /s/ Allen H. Neuharth Director
Allen H. Neuharth
EXHIBIT INDEX
Reference to Sequential
Regulation S-K Page
Exhibit Number Document Number
3.1 Registrant's Articles of Incorporation, as amended.
Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ending October 1,
1995. *
3.2 Registrant's Code of By-Laws, as amended. Incorporated
by reference to Exhibit 3.2 to the Registrant's Form
10-K for the fiscal year ending September 29, 1996. *
4.1 Article 6 - "Terms of Shares" and Article 9 -
"Provisions for Certain Business Combinations" of the
Registrant's Articles of Incorporation, as amended.
Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ending October 1,
1995. *
4.2 Article III - "Shareholder Meetings", Article VI -
"Certificates for Shares" and Article VII - "Corporate
Books and Records - Section 3" of the Registrant's Code
of By-Laws, as amended. Incorporated by reference to
Exhibit 3.2 to the Registrant's Form 10-K for the fiscal
year ending September 29, 1996. *
4.3 Amended and Restated Credit Agreement between the
Registrant and Bank One Indianapolis, N.A., dated
November 30, 1994. Incorporated by reference to Exhibit
4.6 of the Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
4.4 First Amendment to Amended and Restated Credit Agreement
between the Registrant and Bank One, Indianapolis, N.A.
dated March 7, 1995. Incorporated by reference to
Exhibit 10(2) to the Registrant's Form 10-Q for the
quarter ending April 2, 1995. *
4.5 Second Amendment to Amended and Restated Credit
Agreement dated April 6, 1996 among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to the Registrant's Form 10-Q
for the Quarter Ended March 31, 1997. *
4.6 Third Amendment to Amended and Restated Credit
Agreement, effective January 31, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to the Registrant's Form 10-Q
for the Quarter Ended March 31, 1997. *
4.7 Fourth Amendment to Amended and Restated Credit
Agreement, effective June 29, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.8 Fifth Amendment to Amended and Restated Credit
Agreement, effective December 31, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.9 Rights Agreement, dated as of August 12, 1997, between
Registrant and Harris Trust and Savings Bank, as Rights
Agent. Incorporated by reference to the Registrant's 8-A
filed September 9, 1997. *
10.1(a) The Starcraft Automotive Corporation Stock Incentive Plan. **
10.1(b) The Starcraft Corporation 1997 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.1(b) to the
Registrant's From 10-K for the fiscal year ending
September 29, 1996. *
10.2 Form of Tax indemnification agreement among the
Registrant, Mr. Kash, Mr. Rose, Mr. Newberry and Mr.
Hardin, dated as of July 21, 1993. Incorporated by
reference to Exhibit 10.7 of the Registrant's
registration statement on Form S-1, Reg. No. 33- 63760. *
10.3(a) Employment Agreement with Kelly L. Rose dated June 2,
1993. Incorporated by reference to Exhibit 10.10(a) of
the Registrant's Form S-1. **
10.3(b) Employment Agreement with Kelly L. Rose dated December
12, 1996. Incorporated by reference to Exhibit 10.3(b)
to the Registrant's From 10-K for the fiscal year ending
September 29, 1996.
10.3(c) Form of First Addendum to Employment Agreement with
Kelly L. Rose, December 31, 1997. [ ]
10.3(d) Consulting Agreement with Allen H. Neuharth dated
September 15, 1993. Incorporated by reference to Exhibit
10.3(k) of the Registrant's Form 10-K for the fiscal
year ending October 2, 1994. *
10.3(e) Employment Agreement between the Registrant and Michael
H. Schoeffler dated January 16, 1995. Incorporated by
reference to Exhibit 10.3(m) of the Registrant's Form
10-K for the year ending October 1, 1995. *
10.3(f) Employment Agreement between the Registrant and Michael
H. Schoeffler dated December 12, 1996. Incorporated by
reference to Exhibit 10.3(e) to the Registrant's From
10-K for the fiscal year ending September 29, 1996.
10.4 Inventory Loan and Security Agreement by and between the
Registrant and General Motors Acceptance Corporation, as
amended. Incorporated by reference to Exhibit 10.13 of
the Registrant's Form S-1. **
10.5 Agreement by and between the Registrant and General
Motors Acceptance Corporation dated February 7, 1991.
Incorporated by reference to Exhibit 10.14 of the
Registrant's Form S-1. **
10.6 Intercreditor Agreement between General Motors
Acceptance Corporation and Bank One, Indianapolis, N.A.
dated July 21, 1992. Incorporated by reference to
Exhibit 10.16 of the Registrant's Form S-1. **
10.7 Authorized Converter Pool Agreement between the
Registrant and Ford Motor Company dated May 7, 1991 and
amended May 7, 1991. Incorporated by reference to
Exhibit 10.17 of the Registrant's Form S-1. **
10.8 Wholesale Financing and Security Agreement between the
Registrant and Ford Motor Credit Company dated April 17,
1991. Incorporated by reference to Exhibit 10.18 of the
Registrant's Form S-1. **
10.9 Intercreditor Agreement between Ford Motor Credit
Company and Bank One, Indianapolis, N.A. dated July 17,
1992. Incorporated by reference to Exhibit 10.20 of the
Registrant's Form S-1. **
10.10 Truck Consignment Agreement between the Registrant and
Chrysler Corporation dated August 29, 1991. Incorporated
by reference to Exhibit 10.21 of the Registrant's Form
S-1. **
10.11 License Agreement by and between the Registrant and
AlliedSignal, Inc. dated February 18, 1993. Incorporated
by reference to Exhibit 10.22 of the Registrant's Form
S-1. **
10.12 Agent Agreement by and between the Registrant, Mitsui &
Co. (U.S.A.), Inc. and Mitsui & Co., Ltd. dated March 1,
1993. Incorporated by reference to Exhibit 10.23 of the
Registrant's Form S-1. **
10.13 License Agreement by and between the Registrant and
Starcraft RV, Inc. dated September 12, 1991.
Incorporated by reference to Exhibit 10.24 of the
Registrant's Form S-1. **
10.14 License Agreement by and between the Registrant and
Starcraft Recreational Products, Ltd. dated January 18,
1991. Incorporated by reference to Exhibit 10.25 of the
Registrant's Form S-1. **
10.15 Contract for Conditional Sale of Real Estate by and
between the Registrant and the Harold A. Schrock
Revocable Trust dated December 20, 1991 and amended
February 28, 1992. Incorporated by reference to Exhibit
10.26 of the Registrant's Form S-1. **
10.16(a) Directors' Share Plan, restated effective October 1,
1995. Incorporated by reference to exhibit 10.16(a) of
the Registrant's Form 10-K for the year ending October
1, 1995. *
10.16(b) Directors' Compensation Deferral Plan effective October
1, 1995. Incorporated by reference to Exhibit 10.16(b)
of the Registrant's Form 10-K for the year ending
October 1, 1995. *
10.17 Ford Authorized Convertor Pool Agreement between
Imperial Automotive Group, Inc. and Ford Motor Co. dated
June 29, 1994. Incorporated by reference to Exhibit
10.19 of the Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
10.18 Inventory Loan and Security Agreement between Imperial
Automotive Group, Inc. and General Motors Acceptance
Corporation dated June 20, 1994. Incorporated by
reference to Exhibit 10.20 of the Registrant's Form 10-K
for the fiscal year ending October 2, 1994. *
10.19 Ford Authorizing Converter Pool Agreement between Ford
Motor Co. and Imperial Automotive Group, Inc. dated June
29, 1994. Incorporated by reference to Exhibit 10.21 of
the Registrant's Form 10-K for the fiscal year ending
October 2, 1994. *
10.20 Intercreditor Agreement between General Motors
Acceptance Corporation and Bank One Indianapolis, N.A.
dated July 15, 1994. Incorporated by reference to
Exhibit 10.24 of the Registrant's Form 10-K for the
fiscal year ending October 2, 1994. *
10.21 GMC Truck Special Vehicle Manufacturers Agreement by and
between Starcraft Automotive Group, Inc. and GMC Truck
Division, Truck & Bus Group, General Motors Corporation
dated February 1, 1995. Incorporated by reference to
Exhibit 10.21 of the Registrant's Form 10-K for the year
ending October 1, 1995. *
10.22 GMC Truck Special Vehicle Manufacturer's Agreement
between Imperial Automotive Group, Inc. and the GMC
division of General Motors Corporation effective
February 1, 1995. Incorporated by reference to Exhibit
10.22 of the Registrant's Form 10-K for the year ending
October 1, 1995. *
10.23 Lease between Imperial Automotive Group, Inc. and Beck
Real Estate Corporation dated February 3, 1995.
Incorporated by reference to Exhibit 10 to the
Registrant's Form 10-Q for the quarter ending January 1,
1995. *
10.24 Guaranty of Starcraft Automotive Group, Inc. to the
obligations of Starcraft Corporation to General Motors
Acceptance Corporation dated February 9, 1995.
Incorporated by reference to Exhibit 10.23 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.25 Guaranty of Starcraft Automotive Group, Inc. to the
obligations of Imperial Automotive Group, Inc.to General
Motors Acceptance Corporation dated February 9, 1995.
Incorporated by reference to Exhibit 10.25 of the
Registrants Form 10-K for the year ending October 1,
1995. *
10.26 Promissory Note from the Registrant to Imperial
Industries, Inc. dated April 1, 1995. Incorporated by
reference to Exhibit 10(3) to the Registrant's Form 10-Q
for the quarter ending April 2, 1995. *
10.27 Chevrolet Quality Approved Converters Program Agreement
by and between Starcraft Automotive Group, Inc. and
Chevrolet Motor Division, General Motors Corporation
dated April 10, 1995. Incorporated by reference to
Exhibit 10.27 of the Registrant's Form 10-K for the year
ending October 1, 1995. *
10.28 Chevrolet Quality Approved Converters Program between
Imperial Automotive Group, Inc. and Chevrolet division
of General Motors Corporation dated April 10, 1995.
Incorporated by reference to Exhibit 10.28 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.29 Agreement between Chrysler Corporation and Starcraft
Automotive Group, Inc. dated July 1, 1995. Incorporated
by reference to Exhibit 10.29 of the Registrant's Form
10-K for the year ending October 1, 1995. *
10.30 Pool Company Wholesale Finance Plan and Security
Agreement between Chrysler Credit Corporation and
Starcraft Automotive Group, Inc. dated July 1, 1995.
Incorporated by reference to Exhibit 10.30 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.31 Agreement between Chrysler Corporation and Imperial
Industries, Inc. dated July 1, 1995. Incorporated by
reference to Exhibit 10.31 of the Registrant's Form 10-K
for the year ending October 1, 1995. *
10.32 Pool Company Wholesale Finance Plan and Security
Agreement between Chrysler Credit Corporation and
Imperial Industries, Inc. dated July 1, 1995.
Incorporated by reference to Exhibit 10.32 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
11 Computation of Earnings Per Share [ ]
21 Subsidiaries of the Registrant. [ ]
23 (a) Consent of Ernst & Young LLP. [ ]
23 (b) Consent of McGladrey & Pullen, LLP [ ]
27 Financial Data Schedule [ ]
- - ------------
* Incorporated by reference as indicated in the
description.
** Incorporated by reference to the exhibit, bearing the
corresponding exhibit number to the Registrant's
registration statement on Form S-1, Reg. No. 33-63760,
unless another exhibit number is listed in the above
description.