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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 27, 1998.
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 46527-1903
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (219) 533-1105
Securities registered pursuant to Section 12(b) ofthe 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 8, 1999, was $4,946,343.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of December 23, 1998, was 4,133,600 shares.
Page 1 of 25
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 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
Page 2 of 25
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 and with its acquisition of the Imperial
product line in 1994, now offers products at all consumer price levels. In
addition, the Company sells vehicle conversions for the physically challenged
through its 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 500 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. In 1998, the Company began manufacturing and marketing
commercial shuttle buses.
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 February 1997, the Company purchased the
assets of National Mobility Corporation in Elkhart, Indiana. In October 1997,
the Company started Tecstar, Inc. with a partner. The primary business purpose
of Tecstar is to supply conversion vehicles directly to the Big 3 automakers. In
February 1998, the Company started manufacturing and marketing commercial
shuttle buses at its Goshen manufacturing facility.
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 two wholly-owned operating subsidiaries: Starcraft
Automotive Group, Inc., and National Mobility Corporation. The Company owns 51%
of Tecstar, Inc.
Starcraft's principal manufacturing facilities are in Goshen, Indiana.
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 1998 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 1998 were $25,200, $22,900 and $31,500 respectively. The Company
maintains two product lines in its conversion business. The Starcraft product
line, emphasizing high-end, luxury vehicles, averaged a $28,600 wholesale price
to dealers during 1998 assuming an average cost of chassis of $20,000. The
Imperial product line, representing primarily the entry level position, averaged
a $24,200 wholesale price.
According to RVIA statistics, domestic conversion products sold by manufacturers
during the three preceding fiscal years have declined as follows:
Page 3 of 25
1998 1997 1996
---- ---- ----
Industry unit sales 148,700 194,800 228,200
Decline from prior year (23.7%) (14.6%) (2.0%)
The domestic vehicle conversion industry has declined steadily over the last
several years with a continued decline in 1998. 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 dealer retail lots such as sport utility vehicles and a
general concern by dealers about 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 conversion vehicles 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 conditions 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.
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.
The Company's National Mobility Corporation ("NMC") converts fullsize vans with
wheelchair lifts and low- floor minivans for the physically challenged
community. The average conversion price to dealers for NMC products in 1998 was
$10,800.
In 1998 the Company began manufacturing shuttle buses ranging in length from 20
to 35 feet with seating capacity for 12 to 25 passengers. Buses are offered with
a choice of interior and exterior storage areas, wheelchair lifts, diesel and
gasoline engines, and various seat types, arrangements and coverings. The buses
are marketed under the Starcraft trade name and are primarily marketed to
churches, nursing homes and hotel resorts through commercial bus dealers.
Page 4 of 25
The National Mobility and shuttle bus operations accounted for 8% of the
Company's sales in 1998.
Company Strategy
The Company believes it can grow by expanding its domestic vehicle conversion
business and physically challenged vehicle market share, further developing
international sales opportunities and offering additional products in new
markets, such as shuttle buses for airport and hotel use. Through its Tecstar
joint venture, the Company is also seeking to sell conversion vehicles directly
to OEM's.
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 conversion 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. In 1997, the Company established a telemarketing division to
effectively penetrate larger territories.
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.
Domestic Truck and SUV Conversions. Although the Company's conversions of 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
at automotive dealerships have reduced the demand for conversions of these
products. 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 will continue,
but will not be a significant growth segment. 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.
National Mobility Corporation offers a 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 will target key automotive dealers in
each region to maintain market share and develop cooperative marketing plans.
National Mobility will continue to pursue the distribution of its products
through governmental and commercial channels.
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 continuing turmoil in the Asian
financial markets and economies have negatively impacted the demand for the
Company's products. 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.
Page 5 of 25
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, while manufacturing such products in existing
operating facilities.
The Company's shuttle bus operation was set-up in its main Goshen facility. The
Company also developed a conversion for the taxi industry which is being
manufactured in its National Mobility operation.
Tecstar, Inc. is a joint venture company between Starcraft and an engineering
firm. Tecstar's strategy is to set-up manufacturing facilities near OEM assembly
plants and manufacture conversion vehicles directly for the OEM's. The vehicles
are marketed by the OEM and are distributed through the OEM distribution
channel. Tecstar currently has three vehicle programs with facilities beginning
operations in Shreveport, Louisiana and Arlington, Texas.
Chassis and Other Suppliers
50%, 33% and 17% of the company's domestic vehicle conversion units in 1998 were
manufactured on General Motors, Dodge and Ford chassis, respectively. All of the
Company's export sales are associated with General Motors product.
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 changed its chassis system for the Company's
sales to Europe. The program encompasses 34% of the Company's 1998 export sales.
Under this program, 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 is required to purchase its
chassis and the OEM assists in the financing of such purchases. 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.
Page 6 of 25
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 under its restricted sales contracts with the OEM's and
the dollar value in thousands thereof, and, as of the end of such periods, the
number of chassis held over 90 days and the dollar value in thousands thereof.
Year Ended
(Dollars in thousands)
Sept. 27, 1998 Sept. 28, 1997 Sept. 29, 1996
--------------------- --------------------- ----------------------
Chassis Received 7,132 10,687 17,179
Value of Chassis Received $142,640 $ 213,740 $ 305,300
Chassis Over 90 Days at period end 148 433 262
Value of Chassis Held Over 90 Days $ 2,960 $ 8,660 $ 4,615
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 and the purchase of
necessary assembly material. 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. In 1997, chassis availability was generally
good. In 1998 chassis availability was adversely impacted late in the fiscal
year due to a labor stoppage at General Motors. The Company estimates that sales
were adversely impacted by $1.5 million due to chassis shortages in 1998. 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.
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.
Page 7 of 25
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. 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.
The shuttle bus operation utilizes bailment or consignment arrangements with the
OEM's, but must purchase the chassis prior to the start of manufacturing. The
shuttle bus operation is subject to the same risk factors of chassis
availability as the Company's vehicle conversion business.
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. In 1998, the availability of certain hardwood components adversely
impacted 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.
After a chassis is inspected and accepted, tinted vista bay windows, raised
roof, decorative decals and ground effects are installed. Star-structure steel
bracing is installed for added structural support, followed by rust proofing,
wiring, insulation and vibration dampening materials. The vehicle's interior 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 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. Wire harnesses are
manufactured at the Goshen plant. It also finishes its hardwood components at
the Goshen plant. The Company 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. This water-filtered, down draft paint system is
similar to those of the major automotive manufacturers and is designed to
control environmentally harmful emissions.
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation into Starcraft Automotive Group's manufacturing complex
in Goshen, Indiana. The consolidation was designed to reduce 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 realized annual overhead expense reductions of
approximately $1.0 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
realized 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 returning to
profitability.
Page 8 of 25
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.
The Goshen facility produced 45 custom vehicles per eight-hour shift during peak
production periods in 1998 and has capacity to produce up to 70 units in one
shift.
Sales and Marketing
Domestic. The Company sells its custom vehicles to approximately 500 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. During the past two years, the geographic areas of the U.S. where
the Company's sales have been strongest include the Great Lakes region (i.e.,
Illinois, Indiana, Michigan, New York, Ohio, Pennsylvania, and Wisconsin), and
Oklahoma and Texas.
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 and larger territories.
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.
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 and pursue commercial applications.
International. Starcraft exports converted vehicles to 18 countries around the
world and employs an international department which is exclusively responsible
for the development of such 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
1,273, 1,584 and 2,543 conversions in 1998, 1997 and 1996, respectively. The
recent increase in U.S. currency and turmoil in Asian financial markets have
negatively impacted the Company's international 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.
The Company's shuttle bus products are marketed and distributed through
approximately 20 independent bus dealers. The majority of these bus dealers
carry other bus lines in addition to Starcraft. The Company will continue to
develop products to expand its customer base, including bidding for government
and large commercial contracts.
Page 9 of 25
Competition
The United States conversion vehicle 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
estimates it has approximately 55 competitors in the conversion vehicle on
business. 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 entry level segment of the
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 and SUV's such as the Company's tend not to be widely produced
within its foreign markets.
The market for the Company's shuttle buses is highly competitive. The other
competitors in the bus industry are substantially larger than the Company. The
Company's products are a very small percentage of the bus market. The Company
will continue to position its product as an exceptional quality, high value
product targeting the high end user niche market. There can be no assurance that
the Company will be able to maintain or improve its competitive position in the
bus market.
Tecstar competes against several much larger automotive parts suppliers. Tecstar
is highly dependent on continuing to successfully bid future contracts as its
existing programs have two to four year terms.
Backlog and Seasonality
At September 27, 1998, the Company had a backlog of 441 unit orders compared
with a backlog of 842 unit orders at September 28, 1997. The backlog declined
from prior year levels due to reduced market activity, chassis availability
issues from the General Motors labor stoppage and customer concern from the
Company's production constraints in the summer arising from raw material
component availability. 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 on certain of its Starcraft products. 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." The boat manufacturing
business was sold by the Predecessor to Brunswick Corporation in 1988 which
subsequently sold the business. The Company initially acquired the recreational
vehicle business in the Predecessor's 1991 reorganization proceeding, but
immediately sold it to an RV company. The Predecessor's Canadian conversion
business was acquired by a Canadian firm. A corporation in the boating industry
has independently registered and owns the "Starcraft" and related trademarks for
use with boats and marine products and thus the Company 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
Page 10 of 25
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 is not permitted to 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 are promulgated by the NHTSA. 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.
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 27, 1998, the Company employed 550 people. Of these,
approximately 450 were production line associates and 100 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.
Page 11 of 25
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. 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 the facility for
$800,000. Monthly rent is $14,500 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, under the symbol "STCR." As
of December 21, 1998, there were 85 shareholders of record of Starcraft's Common
Stock.
During 1998, the Company did not meet the new market capitalization requirements
for continued listing on the NASDAQ National Market. As a result, in September
1998 the Company's shares began trading on the NASDAQ Small Cap market.
Page 12 of 25
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 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
December 28, 1997 3.000 2.000
March 29, 1998 2.750 1.750
June 28, 1998 2.875 2.125
September 27, 1998 2.313 1.000
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 or 1998.
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.
Page 13 of 25
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousand,
except per share data) Year Ended
---------------------------------------------------------------------------------
Income Statement Data Sept. 27, Sept. 28, Sept. 29, Oct. 1, Oct. 1,
1998 1997 1996 1995 1994
---------------- ---------------- --------------- --------------- --------------
Net Sales:
Domestic $ 42,857 $ 57,235 $ 73,317 $ 91,652 $ 81,640
Export 10,235 15,047 25,648 21,408 10,734
Total Net Sales 53,092 72,282 98,965 113,060 92,374
Cost of Goods Sold 49,590 66,342 83,669 92,692 73,775
Gross Profit 3,502 5,940 15,296 20,368 18,599
Operating Expenses 9,548 13,924 15,049 15,864 12,505
Restructuring and Goodwill
Impairment Charges ---- 5,926 ---- ---- ----
Operating Income (loss) (6,046) (13,910) 247 4,504 6,094
Interest income (expense) ( 892) ( 400) (293) (208) 99
Other income, Net 100 194 176 214 104
Income (loss) Before Taxes (6,838) (14,116) 130 4,510 6,297
Income Taxes (Credit) (79) (2,814) 20 1,753 2,517
Net Income (loss) (6,759) (11,302) 110 2,757 3,780
Weighted Common Shares 4,134 4,127 4,142 4,261 4,193
Outstanding
Earnings (loss) Per Share $ (1.63)$ (2.74) $ 0.03 $ 0.65 $ 0.90
Balance Sheet Data
---------------- ---------------- --------------- --------------- --------------
Working Capital $ 5,402 $ 7,011 $ 8,476 $ 8,693 $ 8,140
Total Assets 29,015 27,779 36,524 34,213 32,772
Long-term Debt 10,777 5,696 0 323 196
Shareholders' Equity 3,536 10,295 21,552 21,688 19,556
Book Value per Share 0.86 2.49 5.23 5.20 4.58
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.
1998 VERSUS 1997
(Dollars in Thousands) 1997 to
1998
1998 1997 Change
----------------------- ---------------------- ---------
Net Sales $ 53,092 100.0% $72,282 100.0% (26.5%)
Cost of goods sold 49,590 93.4% 66,342 91.8% (25.3%)
-------- ----- -------- ----- -----
Gross profit 3,502 6.6% 5,940 8.2% (41.0%)
Selling and promotion expenses 4,484 8.4% 7,243 10.0% (38.1%)
General and administrative expenses 5,064 9.6% 6,681 9.2% (24.2%)
Restructuring charges 0 0.0% 1,010 1.4% --
Goodwill impairment loss 0 0.0% 4,916 6.8% --
-------- ----- -------- ----- -----
Operating loss (6,046) (11.4%) (13,910) (19.2%) (56.5%)
Interest expense (892) (1.7%) (400) (0.6%) 123.0%
Other income 100 0.2% 194 0.3% (48.5%)
-------- ----- -------- ----- -----
Loss before taxes (6,838) (12.9%) (14,116) (19.5%) (51.6%)
Income tax credit (79) (0.2%) (2,814) (3.9%) (97.2%)
-------- ----- -------- ----- -----
NET LOSS ($ 6,759) (12.7%) ($11,302) (15.6%) (40.2%)
======== ===== ======== ===== =====
Net Sales
Net Sales for 1998 decreased 26.5% to $53.1 million from $72.3 million in 1997.
Vehicle conversion sales declined 27.2%, comprised of a 28.2% decline in
domestic and 32.0% decline in export. The start-up of the shuttle bus business
generated $1.2 million in sales in 1998.
The Company's domestic sales declined consistent with the decline in the overall
conversion market of 23.7% as reported by the Recreational Vehicle Industry
Association. In addition, the Company's sales were adversely impacted by
production constraints in the third quarter from shortages of key raw material
parts, primarily hardwood components. The Company estimates that the production
issues negatively impacted the year's sales by approximately $7 million.
Export sales declined due to price pressures from the stronger U.S. dollar and
reduced demand in Japan and Korea caused by the economic turmoil in Asia.
Gross Profit
Gross profit margin for 1998 was 6.6% of sales compared to 8.2% in 1997. The
decrease in gross margin as a percent of sales is primarily attributable to the
impact of fixed plant overhead costs on the lower sales volume.
Selling and promotion expense
Selling and promotion expense for 1998 decreased 38.1% to $4.5 million primarily
due to the lower domestic sales volume. The decrease in selling and promotion
expense as a percentage of sales in 1998 is due to cost reductions from fixed
salesmen salaries and the elimination of the Texas operation.
General and Administrative Expense
General and administrative expense in 1998 was $5.1 million, a 24.2% decrease
from 1997. The decrease is primarily attributable to reductions in personnel,
partially offset by $487,000 of start-up expense from Tecstar.
Restructuring Charges
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation and its Texas manufacturing facility into Starcraft
Automotive Group's manufacturing complex in Goshen, Indiana. The Company
recorded a $1.0 million restructure charge in fiscal 1997.
Goodwill
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. In 1997. As a
Page 15 of 25
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 was recorded in 1997 to write-off the remaining goodwill associated with
this acquisition.
Income taxes
The Company recorded a minimal income tax credit in 1998 as the tax carry-back
is fully utilized. 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.
1997 VERSUS 1996
(Dollars in Thousands) 1996 to
1997
1997 1996 Change
----------------------- ---------------------- ---------
Net Sales $ 72,282 100.0% $ 98,965 100.0% (27.0%)
Cost of goods sold 66,342 91.8% 83,669 84.5% (20.7%)
-------- ------- -------- ------- ------
Gross profit 5,940 8.2% 15,296 15.5% (61.2%)
Selling and promotion expenses 7,243 10.0% 8,252 8.4% (12.2%)
General and administrative expenses 6,681 9.2% 6,797 6.9% (1.7%)
Restructuring charges 1,010 1.4% 0 0.0% --
Goodwill impairment loss 4,916 6.8% 0 0.0% --
-------- ------- -------- ------- ------
Operating income (loss) (13,910) (19.2%) 247 0.2% --
Interest expense (400) (0.6%) (293) (0.3%) 36.5%
Other income 194 0.3% 176 0.2% 10.2%
-------- ------- -------- ------- ------
Income (loss) before taxes (14,116) (19.5%) 130 0.1% --
Income taxes (credit) (2,814) (3.9%) 20 0.0% --
-------- ------- -------- ------- ------
NET INCOME (LOSS) ($11,302) (15.6%) $ 110 0.1% --
======== ======== ======== ======= ======
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 continued to decline in 1997 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.
Page 16 of 25
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 was designed to
reduce 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.
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.
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 contracted, gross margins deteriorated, and Imperial
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 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.
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 58% of the Company's total unit shipments in 1998 compared to 65% in
1997.
Page 17 of 25
The Company's retail dealers had approximately 1,300 units on hand at the end of
1998 compared to 3,600 at the end of 1997 and 5,300 at the end of 1996.
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 about the
future of the conversion industry.
The strengthened U.S. dollar and recent turmoil in financial markets in Asia
pressured 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 in 1999. The domestic conversion
market is expected to continue to decline in 1999.
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 and has commenced production of a taxi product. In 1998
the Company continued to pursue its cost reduction and diversification strategy
with the introduction of the shuttle bus product and the Tecstar program. The
Company plans to continue to develop these new products and to increase its
product offerings in the vehicle conversion commercial market.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $4.6 million during 1998 compared to using
cash of $3.0 million in the prior year. The use of cash resulted primarily from
the pretax operating loss. Receivables decreased $0.8 million due to the
decrease in sales and production levels. Inventories increased primarily due to
chassis purchase requirements under the shuttle bus business and the European
conversion van sales program. Raw chassis in inventory at the end of September
1998 was $2 million compared to none at the end of last year. This inventory
growth was primarily financed by the OEM through accounts payable which
increased $1.9 million over prior year levels.
The Company invested $785,000 million in property and equipment during the year
primarily for information systems ($430,000) and the shuttle bus plant start-up
($200,000).
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.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of September 1998, bank debt was $11.8 million.
Page 18 of 25
On October 30, 1998, the Company entered into a new $14 million credit agreement
with a lending institution. The agreement is subject to renewal in November
2001. Revolving advances under the agreement are limited to specified
percentages of eligible receivables and inventories and are subject to a maximum
limit of $9.2 million. The credit agreement also includes a $4.8 million term
loan which is payable in monthly principal installments of $57,000 beginning
December 1, 1998. The revolving borrowings bear interest of either 1/2% over
prime or 3% over the Eurodollar rate. The term loan bears interest at either
3/4% over prime or 3.5% over the Eurodollar rate. The borrowings are secured by
substantially all of the Company's assets. There is a fee of .25% of the average
unused portion of the maximum borrowing amount. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $(3.2 million) as of January 3, 1999, $(3.2 million) as of March 28, 1999,
$(350,000) as of June 27, 1999 and $700,000 as of October 3, 1999. Additionally,
the Company must generate earnings before income taxes, depreciation and
amortization (EBITDA) of at least $(2.4 million), $362,000, $1.5 million and
$410,000 for the fiscal quarters ending January 3, 1999, March 28, 1999, June
27, 1999 and October 3, 1999, respectively. If these minimum levels are not
maintained, any outstanding balances become payable upon demand of the lending
institution. In order to maintain the minimum levels of tangible net worth and
EBITDA through 1999, the Company needs to achieve operating results
substantially consistent with its 1999 operating plan.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3
million to be paid with proceeds from the $14 million refinancing described
above. The remaining $3 million is payable in monthly principal installments of
$36,000 beginning December 1, 1998. The note matures in November 2001 at which
time any remaining principal balance is due. The note bears interest at 2% over
the bank's prime rate and is subordinate to the $14 million credit agreement
described above. The note is partially guaranteed by two individuals, one of
whom is a director and officer of the Company and the other is currently an
outside director. As incentive for their guarantees, the Company issued to the
individuals warrants to purchase a total of 400,000 shares of Common Stock for
$2.20 per share. The warrants have a five year term and are exercisable at the
date of the grant.
The current and long-term notes payable on the September 27, 1998 balance sheet
reflect the above modifications.
On January 12, 1998, the Company entered into an amended credit agreement with
its former primary lender which was effective as of December 31, 1997.
Borrowings were limited to specified percentages of eligible receivables,
inventories and property and equipment, and were 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 under this agreement bore
interest at 1% over the bank's prime rate were secured by substantially all of
the Company's assets.
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 estimates that it will require $2 million to finance the start-up of
Tecstar in 1999. The Company's new financing agreement is forecasted to satisfy
this requirement.
Page 19 of 25
The Company believes that future cash flows from operations, funds available
under its 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 1999.
OTHER MATTERS
The Company is dependent on a centralized computer which provides data in
support of vital company-wide operational and accounting functions. Many of the
computer processes used to generate this data were programmed in-house following
the common practice of using only two digits to designate a year. Other software
purchased by the Company was written using the same convention. As the year 2000
approaches, programs with such date-related logic will not be able to
distinguish between the years 1900 and 2000, potentially causing software and
hardware to fail, generate erroneous calculations or present information in an
unusable form beyond December 31, 1999. In 1997, the Company began devoting
significant resources to replace its current system with a new, year
2000-compliant enterprise computer system. It is expected that the new system
will be operational by June 1999. The total cost of the project, including
hardware, software and consulting costs, is currently estimated to be
approximately $1.1 million, of which $900,000 has been incurred as of September
27, 1998. These costs do not include any costs associated with the
implementation of contingency plans, which are in the process of being
developed.
Due to the uncertainty of the year 2000 readiness of third-party suppliers,
customers and financial institutions, the Company is currently unable to
determine whether the consequences of year 2000 failures will have a material
impact on the Company's operations. The Company is attempting to assess the
status of its significant third party vendors, customers and financial
institutions through the use of questionnaires. Management expects this process
to be complete by mid-1999. It is anticipated that the Company's year 2000
project will reduce the risk of significant business interruptions, but there is
no assurance that this outcome will be achieved. Failure to detect and correct
all internal instances of non-compliance or the inability of third parties to
achieve timely compliance could result in the interruption of normal business
operations which could, depending on its duration, have a material adverse
effect on the Company's financial condition or results of operations.
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, or as the Company's ability to
continue to comply with such terms over time.
Acquisitions and Diversification. 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
Page 20 of 25
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. A significant aspect of the Company's strategy is
to diversify its product offerings into new product lines, such as taxis and
shuttle buses. The Company has less experience manufacturing and marketing such
products than it has in its core conversion vehicle business. There is no
assurance that such new product lines will be profitable.
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 vehicle 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 vehicle conversion market.
Page 21 of 25
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 RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
We have audited the accompanying consolidated balance sheet of Starcraft
Corporation and Subsidiaries as of September 27, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended September 27, 1998. 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 audit. The
consolidated financial statements of Starcraft Corporation and Subsidiaries as
of September 28, 1997 and for the years ended September 28, 1997 and September
29, 1996 were audited by other auditors whose report dated January 12, 1998
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides 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 27, 1998 and the
consolidated results of their operations and their cash flows for the year ended
September 27, 1998 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
November 23, 1998
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 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.
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 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
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, 1998 and September 28, 1997
- -------------------------------------------------------------------------------
1998 1997
---- ----
(in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 1,369 $ 608
Trade receivables, less allowance for
doubtful accounts: 1998 - $40; 1997 - $81 6,160 3,977
Manufacturers' rebates receivable 569 692
Recoverable income taxes 417 3,300
Inventories 10,857 9,270
Other 401 444
------------ ------------
Total current assets 19,773 18,291
Property and equipment
Land, buildings and improvements 5,927 5,857
Machinery and equipment 6,224 5,608
------------ ------------
12,151 11,465
Less accumulated depreciation 4,305 3,491
------------ ------------
7,846 7,974
Goodwill, at amortized cost 1,355 1,453
Other assets 41 61
------------ ------------
$ 29,015 $ 27,779
============ ============
See accompanying notes to financial statements.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 27, 1998 and September 28, 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,023 $ -
Accounts payable, trade 8,244 6,354
Accrued expenses
Warranty 1,766 1,337
Compensation and related expenses 322 484
Taxes 971 1,060
Other 2,045 2,045
------------ ------------
Total current liabilities 14,371 11,280
Long-term debt 10,777 5,696
Deferred income taxes 331 508
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 - 4,133,600 14,016 14,016
Additional paid-in capital 1,008 1,008
Accumulated deficit (11,488) (4,729)
------------ ------------
3,536 10,295
------------ ------------
$ 29,015 $ 27,779
============ ============
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 27, 1998, September 28, 1997 and
September 29, 1996
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands, except per share data)
Net sales
Domestic $ 42,857 $ 57,235 $ 73,317
Export 10,235 15,047 25,648
------------ ------------ ------------
53,092 72,282 98,965
Cost of goods sold 49,590 66,342 83,669
------------ ------------ ------------
Gross profit 3,502 5,940 15,296
Operating expenses
Selling and promotion 4,484 7,243 8,252
General and administrative 5,064 6,681 6,797
Restructuring charges - 1,010 -
Goodwill impairment loss - 4,916 -
------------ ------------ ------------
Operating income (loss) (6,046) (13,910) 247
Nonoperating (expense) income
Interest, net (892) (400) (293)
Other income, net 100 194 176
------------ ------------ ------------
(792) (206) (117)
------------ ------------ ------------
Income (loss) before income taxes (6,838) (14,116) 130
Federal and state income taxes (credit) (79) (2,814) 20
------------ ------------ ------------
Net income (loss) $ (6,759) $ (11,302) $ 110
============ ============ ============
Earnings (loss) per common share, basic $ (1.63) $ (2.74) $ .03
Earnings (loss) per common and common
equivalent share, assuming dilution $ (1.63) $ (2.74) $ .03
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 27, 1998, September 28, 1997 and
September 29, 1996
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
Cash flows from operating activities
Net income (loss) $ (6,759) $ (11,302) $ 110
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation and amortization 1,018 1,199 1,087
Noncash restructuring charges - 611 -
Goodwill impairment loss - 4,916 -
Deferred income taxes (177) 583 51
Change in operating assets and liabilities
Receivables 823 2,465 (2,810)
Inventories (1,587) 4,494 205
Accounts payable 1,890 (3,369) 2,947
Accrued expenses 178 (2,512) 110
Other 30 (113) 163
------------ ------------ ------------
Net cash from operating activities (4,584) (3,028) 1,863
Cash flows from investing activities
Purchase of property and equipment (785) (1,407) (932)
Purchase of assets of National Mobility Corporation - (1,756) -
Proceeds from sale of property and equipment 26 60 36
------------ ------------ ------------
Net cash from investing activities (759) (3,103) (896)
Cash flows from financing activities
Proceeds from revolving credit agreement 11,604 12,200 7,800
Payments of revolving credit agreement (5,500) (6,504) (7,800)
Payments of long-term debt - (323) (610)
Repurchase of common stock - - (246)
------------ ------------ ------------
Net cash from financing activities 6,104 5,373 (856)
------------ ------------ ------------
Net change in cash and cash equivalents 761 (758) 111
Cash and cash equivalents at beginning of year 608 1,366 1,255
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,369 $ 608 $ 1,366
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid $ 770 $ 376 $ 304
Income taxes paid 10 140 60
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 27, 1998, September 28,
1997 and September 29, 1996
- --------------------------------------------------------------------------------
Outstanding Additional Retained
Common Common Paid-In Earnings
Shares Stock Capital (Deficit) Total
-------------- -------------(in thousands)----------- ----------
Balance, October 2, 1995 4,171,600 $ 14,104 $ 1,008 $ 6,576 $ 21,688
Net income - - - 110 110
Repurchase and retirement
of 53,000 shares of common stock (53,000) (133) - (113) (246)
-------------- ---------- ---------- ---------- ----------
Balance, September 29, 1996 4,118,600 13,971 1,008 6,573 21,552
Net loss - - - (11,302) (11,302)
Issuance of 15,000 shares
of common stock 15,000 45 - - 45
-------------- ---------- ---------- ---------- ----------
Balance, September 28, 1997 4,133,600 14,016 1,008 (4,729) 10,295
Net loss - - - (6,759) (6,759)
-------------- ---------- ---------- ---------- ----------
Balance, September 27, 1998 4,133,600 $ 14,016 $ 1,008 $ (11,488) $ 3,536
============== ========== ========== ========== ==========
See accompanying notes to financial statements.
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 27, 1998 and September 28, 1997
(In thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 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, and shuttle buses. 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. Additionally the Company has a controlling interest
in Tecstar, Inc. which is also included as a part of the consolidated financial
statements.
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 $5,579, $9,541 and $18,526 in 1998, 1997 and 1996, respectively.
Cash Equivalents: Cash equivalents include all highly liquid investments with a
maturity when purchased 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
($10,081 and $8,962 at September 27, 1998 and September 28, 1997, 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.
Goodwill: Goodwill is amortized by the straight-line method over a period of 15
years and is stated net of accumulated amortization of $155 and $57 at September
27, 1998 and September 28, 1997, 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 recognized upon
shipment. Net sales do not include the cost of consigned chassis (see Note 10).
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 27, 1998 and September 28, 1997
(In thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 in accordance with
generally accepted accounting principles 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.
Earnings Per Common Share: Basic and diluted earnings per common share are
computed under an accounting standard effective beginning with the quarter ended
December 28, 1997. All prior earnings per common share amounts have been
restated to be comparable. Basic earnings per common share is based on net
income available to common shareholders divided by the weighted average number
of common shares considered to be outstanding during the period. The weighted
average number of common shares outstanding were 4,133,600, 4,127,350 and
4,142,402 for the years ended September 27, 1998, September 28, 1997 and
September 29, 1996, respectively. Diluted earnings per common share shows the
dilutive effect of any additional potential common shares issuable under stock
options. The Company's outstanding incentive stock options were not considered
in the computations of earnings per share, assuming dilution because the effects
of assumed exercise would have been antidilutive.
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 27, 1998, September 28, 1997 and September 29,
1996 each contain 52 weeks.
NOTE 2 - INVENTORIES
The composition of inventories at September 27, 1998 and September 28, 1997 is
as follows:
1998 1997
---- ----
Raw materials $ 4,631 $ 4,654
Chassis 2,006 -
Work-in-process 2,584 1,667
Finished goods 1,636 2,949
------------ ------------
$ 10,857 $ 9,270
============ ============
The use of the LIFO method of determining the cost of inventories did not have
material effect on inventories at September 27, 1998 and September 28, 1997.
NOTE 3 - DEBT ARRANGEMENTS
On October 30, 1998, the Company entered into a new $14,000 credit agreement
with a lending institution. The agreement is subject to renewal in November
2001. Revolving advances under the agreement are limited to specified
percentages of eligible receivables and inventories and are subject to a maximum
limit of $9,200. The credit agreement also includes a $4,800 term loan which is
payable in monthly principal installments of $57 beginning December 1, 1998. The
note matures in November 2001 at which time any remaining principal balance is
due The revolving borrowings bear interest of either 1/2% over prime or 3% over
the Eurodollar rate. The term note bears interest at either 3/4% over prime or
3.5% over the Eurodollar rate. The borrowings are secured by substantially all
of the Company's assets. There is a fee of .25% of the average unused portion of
the maximum borrowing amount. Pursuant to the agreement, the Company must, among
other things, maintain a minimum level of tangible net worth of $(3,200) as of
January 3, 1999, $(3,200) as of March 28, 1999, $(350) as of June 27, 1999 and
$700 as of October 3, 1999. Additionally, the Company must generate earnings
before income taxes, depreciation and amortization (EBITDA) of at least
$(2,400), $362, $1,518 and $410 for the fiscal quarters ending January 3, 1999,
March 28, 1999, June 27, 1999 and October 3, 1999, respectively. If these
minimum levels are not maintained, any outstanding balances become payable upon
demand of the lending institution. In order to maintain the minimum levels of
tangible net worth and EBITDA through 1999, the Company needs to achieve
operating results substantially consistent with its 1999 operating plan.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3,000
to be paid with proceeds from the $14,000 refinancing described above. The
remaining $3,000 is payable in monthly principal installments of $36 beginning
December 1, 1998. The note matures in November 2001 at which time any remaining
principal balance is due. The note bears interest at 2% over the bank's prime
rate and is subordinate to the $14,000 credit agreement described above. The
note is partially guaranteed by two individuals, both whom are currently
directors and one of whom is an officer of the Company. (See Note 13)
The current and long-term notes payable on the September 27, 1998 balance sheet
reflect the above modifications.
On January 12, 1998, the Company entered into an amended credit agreement with
its former primary lender which was effective as of December 31, 1997.
Borrowings were limited to specified percentages of eligible receivables,
inventories and property and equipment, and were 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. Borrowings under this agreement bear interest at 1%
over the bank's prime rate and were secured by substantially all of the
Company's assets. This credit agreement was further amended on November 23, 1998
(see above).
NOTE 3 - DEBT ARRANGEMENTS (Continued)
The carrying amount of the Company's long-term debt approximates fair value.
Interest expense was approximately $892, $403 and $305 in 1998, 1997 and 1996,
respectively.
Long-term debt is due as follows:
Fiscal Year Ending
1999 $ 1,023
2000 1,116
2001 1,023
2002 8,638
NOTE 4 - INCOME TAXES
Federal and state income taxes (credits), all of which were domestic, consist of
the following:
1998 1997 1996
---- ---- ----
Current
Federal $ (61) $ (2,770) $ (103)
State 159 (627) 55
------------ ------------ ------------
98 (3,397) (48)
Deferred
Federal (154) 508 54
State (23) 75 14
------------ ------------ ------------
(177) 583 68
------------ ------------ ------------
$ (79) $ (2,814) $ 20
============ ============ ============
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:
1998 1997 1996
---- ---- ----
Rate applied to pretax income (loss) $ (2,325) $ (4,799) $ 44
State taxes - net (196) (701) 46
Foreign sales corporation - (36) (205)
Net operating loss for which no
benefit was recognized 2,231 - -
Temporary differences for which
no benefit was recognized 254 2,544 -
Other, net (43) 178 135
------------ ------------ ------------
$ (79) $ (2,814) $ 20
============ ============ ============
NOTE 4 - INCOME TAXES (Continued)
The composition of the deferred tax assets and liabilities at September 27, 1998
and September 28, 1997 is as follows:
1998 1997
---- ----
Deferred tax liabilities
Accelerated depreciation $ (460) $ (484)
Inventory basis difference (331) (331)
Other - (57)
------------ ------------
(791) (872)
Deferred tax assets
Inventory 275 216
Nondeductible accruals
Warranty 689 276
Other 487 455
Goodwill 1,587 1,741
Alternative minimum tax credit carryforward 220 220
Net operating loss carryforward 2,231 -
------------ ------------
Total deferred tax assets 5,489 2,908
Valuation allowance (5,029) (2,544)
------------ ------------
460 364
------------ ------------
Net deferred tax asset (liability) $ (331) $ (508)
============ ============
The alternative minimum tax carryforward of $220 has no expiration date for
income tax purposes. The net operating loss carryforward of $2,231 expires in
2018.
NOTE 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 discretionary matching contribution by the Company of the
employee's salary deduction, up to 6% of compensation. Also, the plan provides
for an additional discretionary contribution annually as determined by the Board
of Directors. The amounts charged to expense for this plan were approximately
($250), $361 and $107 in 1998, 1997 and 1996, respectively.
NOTE 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 five 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 27, 1998 have been at fair market value on the date of grant.
For each of the three years in the period ended September 27, 1998, 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 for the
years ended September 27, 1998, September 28, 1997 and September 29, 1996
follows:
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding at
beginning of year 407,349 $ 5.65 375,349 $ 6.24 311,850 $ 8.02
Granted 188,849 1.85 124,500 3.40 176,500 4.38
Canceled (85,000) 4.41 (92,500) 5.02 (113,001) 8.26
Expired (58,349) 8.15 - - - -
----------- ------- ----------- -------- ----------- --------
Outstanding at
end of year 452,849 $ 3.97 407,349 $ 5.65 375,349 $ 6.24
=========== ======= =========== ======== =========== =======
Exercisable at end of year 383,515 $ 4.22 302,149 $ 6.46 359,849 $ 6.21
=========== ======= =========== ======== =========== =======
As of September 27, 1998, there were 267,349 options outstanding with exercise
prices which ranged from $1.625 to $4.00. The weighted-average exercise price of
these options is $2.34, and the weighted-average remaining contractual life is
4.1 years. As of September 27, 1998, there were 185,500 options outstanding with
exercise prices which ranged from $4.25 to $7.75. The weighted-average exercise
price of these options is $6.32, and the weighted-average remaining contractual
life is 1.8 years.
NOTE 6 - STOCK OPTION PLANS (Continued)
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.
Proforma 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 1998 and 1997 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:
1998 1997
---- ----
Risk-free interest rate 4.52% - 5.63% 6.04% - 6.77%
Dividend yield 0% 0%
Volatility factor 54.8% - 59.8% 40.9% - 48.8%
Expected option life 4 years 4 years
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's proforma
information follows:
1998 1997 1996
---- ---- ----
Proforma net income (loss) $(6,912) $(11,469) $13
Proforma net income (loss) per share $(1.67) $ (2.78) $0.00
NOTE 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 to two times
the purchase price of the right. The rights expire on August 12, 2007.
NOTE 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
that plant. 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 27, 1997
was paid during 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 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 conversion 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, 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.
NOTE 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.
NOTE 9 - BUSINESS COMBINATION (Continued)
The acquisition was recorded using the purchase method of accounting, and
accordingly, the results of operations of National Mobility Corporation for the
year ended September 27, 1998 and 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 proforma 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 proforma
income (loss) and earnings (loss) per share would not have been materially
different from the reported amounts for 1998 and 1997. The proforma 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.
NOTE 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 the 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.
NOTE 10 - CONSIGNMENT ARRANGEMENTS (Continued)
At September 27, 1998, the Company has possession of chassis in the aggregate
amount of $8,720 (of which $2,960 related to chassis on consignment for periods
exceeding 90 days) and has total chassis line availability between $34,500 and
$44,000 based on the time of year. Carrying charges on consignment chassis,
which are presented in cost of goods sold, were approximately $1,030, $2,740 and
$1,729 in 1998, 1997 and 1996, 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 $731, $751 and $1,135 in 1998, 1997 and 1996, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment. The total rental
expense for 1998, 1997 and 1996 is $270, $688 and $490, respectively. Rental
commitments at September 27, 1998 for long-term noncancelable operating leases
are as follows:
1999 $ 204
2000 96
2001 5
------------
$ 305
============
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.
NOTE 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 $520, $824 and $893 in 1998, 1997 and
1996, respectively.
NOTE 13 - SUBSEQUENT EVENT
On November 20, 1998 the Company issued warrants to purchase shares of Common
stock to two individuals as incentive for their partial guarantee of the
Company's long-term debt (See Note 3). The individuals can both purchase up to
200,000 shares of Common stock of the Company for $2.20 per share which was the
ten day average market price preceding the date of grant. The warrants have a
five year term and are exercisable at the date of grant.
NOTE 14 - UNAUDITED FINANCIAL INFORMATION
Presented below is certain unaudited quarterly financial information for 1998
and 1997.
Quarter Ended
December 28, March 29, June 28, September 27,
1997 1998 1998 1998
------------ --------- -------- -------------
Net sales $ 13,419 $ 14,464 $ 11,820 $ 13,389
Gross profit (loss) 1,205 1,656 856 (215)
Net loss (1,137) (821) (1,281) (3,520)
Loss per common share (0.28) (0.19) (0.31) (0.85)
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)
Adjustments in the fourth quarter of the fiscal year ended September 27, 1998
included the start up loss related to Tecstar, Inc. and certain accruals.
Adjustments in the fourth quarter of the fiscal year ended September 28, 1997
included a goodwill impairment loss.
NOTE 15 - MANAGEMENT'S PLAN REGARDING CONTINUING OPERATIONS
At September 27, 1998 and for the year then ended, the Company had negative cash
flow from operations, recurring losses from operations and no additional funds
available under its prior loan agreement.
Future operations of the Company are intended to continue. The Company has
refinanced its existing debt with a new lending institution (see Note 3). The
new agreement gives the Company availability of funds for near term operating
losses and working capital needs (subject to borrowing base limitations). The
new agreement also includes financial covenants that are less restrictive than
similar covenants with its former lender. Management intends to reduce operating
losses and ultimately return the Company to profitability through
diversification of their products and markets, and through continued cost
reductions. If future actual results fail to meet management's plan, additional
losses could occur.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported.
Page 22 of 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
Page 23 of 25
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 27, 1998 and September 28, 1997
and for the fiscal periods ended September 27, 1998, September 28,
1997, and September 29, 1996):
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 a report on Form 8-K on July 24, 1998, reporting a
change of its independent auditors.
(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:
(i) 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.
Page 24 of 25
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 $ 81 $ -- $ 41 $ 40
September 27, 1998
52 weeks ended $ 51 $ 30 $ -- $ 81
September 28, 1997
52 weeks ended $ 57 $ -- ($ 6) $ 51
September 29, 1996
(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 11, 1999 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 28th day of December, 1998.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, Chief Executive Officer
Kelly L. Rose
2) Principal Financial/
Accounting Officer:
By: /s/ Michael H. Schoeffler President, Chief Financial Officer,
Michael H. Schoeffler 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/ G. Raymond Stults Director
G. Raymond Stults
By: /s/ David J. Matteson Director
David J. Matteson
By: /s/ Allen H. Neuharth Director
Allen H. Neuharth
Page 25 of 25
PART IV
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.
Incorporated by reference to Exhibit [ ] of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
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.
Incorporated by reference to Exhibit [ ] of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
4.9 Seventh Amendment to Amended and Restated
Credit Agreement, dated as of February 27,
1998 , among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automotive
Group, Inc. and Bank One, Indiana, N.A.
Incorporated by reference to Exhibit 10.1 of
the Registrant's Form 10-Q for the quarter
ending March 29, 1998. *
4.10 Eighth Amendment to Amended and Restated
Credit Agreement, effective November 23,
1998, among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.11 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. *
4.12 Promissory Note from Starcraft Automotive
Group, Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. [ ]
4.13 Guaranty of Kelly L. Rose to the obligations
of Starcraft Automotive Group, Inc. to Bank
One, Indiana, N.A. dated November 23, 1998. [ ]
4.14 Guaranty of Gerald R. Stults to the
obligations of Starcraft Automotive Group,
Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. [ ]
4.15 Loan and Security Agreement by and among
Starcraft Automotive Group, Inc., National
Mobility Corporation, Starcraft Corporation,
Imperial Automotive Group, Inc. and Foothill
Capital Corporation, dated October 30, 1998. [ ]
4.16 Secured Promissory Note from Starcraft
Automotive Group, Inc. and National Mobility
Corporation to Foothill Capital Corporation
dated October 30, 1998. [ ]
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. Incorporated by reference to Exhibit
10.1 of the Registrant's Form 10-Q for the
fiscal year ending March 29, 1998. *
10.3(d) Second Addendum to Employment Agreement with
Kelly L. Rose, effective December 15, 1997. [ ]
10.3(e) 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(f) 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(g) 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 Form 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. *
10.33 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to
Kelly L. Rose, dated November 23, 1998. [ ]
10.34 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to G.
Ray Stults, dated November 23, 1998. [ ]
11 Computation of Earnings Per Share. [ ]
21 Subsidiaries of the Registrant. [ ]
23.1 Consent of Crowe, Chizek and Company LLP. [ ]
23.2 Consent of Ernst & Young 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.