SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 28, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-22048
STARCRAFT CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1817634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 1903
2703 College Avenue
Goshen, Indiana 46526
(Address of principal executive offices/zip code)
Registrant's telephone number, including area code: 219/533-1105
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: August 7, 1998 - 4,133,600
shares of Common Stock, without par value.
<PAGE>
STARCRAFT CORPORATION June 28, 1998
Form 10-Q
- INDEX -
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - June 28, 1998 (Unaudited) 1
and September 28, 1997 (Audited)
Statements of Operations (Unaudited) for the three month
periods ended June 28, 1998 and June 29, 1997 and the
Nine month periods ended June 28, 1998 and June 29, 1997 2
Statements of Cash Flow (Unaudited)
for the nine month
periods ended June 28, 1998 and June 29, 1997 3
Notes to Financial Statements 4-7
Item 2. Management's Discussion and Analysis 8-12
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 15
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS June 28, 1998 September 28, 1997
-------------- ------------------
ASSETS (Dollars in Thousands)
Current Assets
<S> <C> <C>
Cash and cash equivalents .......................... $ 245 $ 608
Trade receivables, less allowance for
doubtful accounts of: 1998 - $40, 1997 - $81 .. 4,568 3,977
Manufacturers' rebates receivable .................. 402 692
Recoverable income tax ............................. 515 3,300
Inventories ........................................ 15,692 9,270
Other .............................................. 589 444
-------- --------
Total current assets ........................... 22,011 18,291
Property and Equipment
Land, buildings, and improvements .................. 5,856 5,857
Machinery and equipment ............................ 6,015 5,608
-------- --------
11,871 11,465
Less accumulated depreciation ...................... 4,096 3,491
-------- --------
7,775 7,974
Goodwill, at amortized cost ............................. 1,380 1,453
Other assets ............................................ 36 61
-------- --------
$ 31,202 $ 27,779
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade ............................ $ 11,092 $ 6,354
Accrued expenses:
Warranty ....................................... 1,023 1,337
Compensation and related expenses .............. 236 484
Taxes .......................................... 762 1,060
Current Maturity of Long-Term Debt ............. 9,000 -0-
Other .......................................... 1,525 2,045
-------- --------
Total current liabilities ............................... 23,638 11,280
Long Term Debt .......................................... -0- 5,696
Deferred Income Taxes ................................... 508 508
Shareholders' Equity
Preferred Stock, no par value;
authorized but unissued
2,000,000 shares
Common Stock, no par value;
10,000,000 shares authorized
4,133,600 shares issued as of June 28,
1998 and September 28, 1997 ................... 14,016 14,016
Additional paid-in capital ......................... 1,008 1,008
Retained Earnings Deficit .......................... (7,968) (4,729)
-------- --------
Total shareholders' equity .................... 7,056 10,295
-------- --------
$ 31,202 $ 27,779
======== ========
</TABLE>
- 1 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
---------------------------------- ------------------------------
June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997
------------- ------------- ------------- -------------
(Dollars in thousands, except per share amounts)
Net Sales
<S> <C> <C> <C> <C>
Domestic ..................................... $ 10,079 $ 16,775 $ 31,157 $ 45,894
Export ....................................... 1,741 6,690 8,546 13,792
----------- ----------- ----------- -----------
11,820 23,465 39,703 59,686
Cost of Goods Sold ................................ 10,964 20,622 35,986 53,695
----------- ----------- ----------- -----------
Gross profit ............................. 856 2,843 3,717 5,991
Operating Expenses
Selling and promotion ........................ 982 1,910 3,537 5,660
General and administrative ................... 886 1,753 2,837 5,182
Restructure charge ........................... -0- 260 -0- 1,010
----------- ----------- ----------- -----------
1,868 3,923 6,374 11,852
----------- ----------- ----------- -----------
Operating Loss .................................... (1,012) (1,080) (2,657) (5,861)
Nonoperating (Expense) Income
Interest expense ............................. (197) (123) (572) (268)
Subsidiary equity loss ....................... (68) (68)
Other income, net ............................ (4) 51 58 160
----------- ----------- ----------- -----------
(269) (72) (582) (108)
Loss Before Income Taxes .............. (1,281) (1,152) (3,239) (5,969)
Income Tax Credit ................................. -0- (460) -0- (2,383)
----------- ----------- ----------- -----------
NET LOSS ..................................... $ (1,281) $ (692) $ (3,239) $ (3,586)
=========== =========== =========== ===========
BASIC AND DILUTIVE LOSS
PER COMMON SHARE ........................... $ (0.31) $ (0.17) $ (0.78) $ (0.87)
=========== =========== =========== ============
Average Number of Common and
Common Equivalent
Shares Outstanding ............................. 4,133,600 4,118,600 4,133,600 4,118,600
=========== =========== =========== ===========
</TABLE>
- 2 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
9 Months Ended
June 28, 1998 June 29, 1997
------------- -------------
(Dollars in Thousands)
Operating Activities
<S> <C> <C>
Net Loss .......................................... $ (3,239) $ (3,586)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization ................. 780 900
Non-Cash Restructuring
Charges .................................. 0 690
Change in operating
assets and liabilities:
Receivables .......................... 2,484 599
Inventories .......................... (6,422) 4,645
Other ................................ (152) (2,686)
Accounts payable ..................... 4,738 (3,112)
Accrued expenses ..................... (1,380) (3,251)
-------- --------
Net Cash used in
operating activities ....................... (3,191) (5,801)
Investing Activities
Purchase of property and equipment ................ (517) (918)
Purchase of net assets of National
Mobility Corporation .......................... 0 (1,756)
Other ............................................. 41 2
-------- --------
Net cash used in
investing activities ...................... (476) (2,672)
Financing Activities
Borrowings on revolving
credit agreements .............................. 8,804 12,200
Repayments on revolving
credit agreements .............................. (5,500) (3,900)
Payments on long-term debt ........................ 0 (323)
-------- --------
Net cash from financing
activities ................................. 3,304 7,977
Decrease in Cash and Cash
Equivalents ....................................... (363) (496)
Cash and cash equivalents at
beginning of period ............................ 608 1,366
-------- --------
Cash and cash equivalents at
end of period .................................. $ 245 $ 870
======== ========
</TABLE>
- 3 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
STARCRAFT CORPORATION
June 28, 1998
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Starcraft
Corporation (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to those rules and
regulations. Reference is made to the Company's audited
financial statements set forth in its annual report on Form
10-K for its fiscal year ended September 28, 1997. Certain
fiscal year 1997 amounts were reclassified to be consistent
with the fiscal year 1998 classification.
In the opinion of the management of the Company, the unaudited
financial statements contain all adjustments (which include
only normally recurring adjustments) necessary for a fair
statement of the results of operations for the three month and
nine month periods ended June 28, 1998 and June 29, 1997. The
results of operations for the nine months ended June 28, 1998
are not necessarily indicative of the results which may be
expected for the year ending September 27, 1998.
Note 2. Inventories
The composition of inventories is as follows (dollars in
thousands):
June 28, 1998 September 28, 1997
------------- ------------------
Raw Materials $ 5,912 $4,654
Chassis 5,925 -0-
Work in Process 1,995 1,667
Finished Goods 1,860 2,949
------------- ------------
$ 15,692 $ 9,270
------------ -----------
Chassis inventory at June 28, 1998 represents chassis purchased under a
new export sales program and the shuttle bus business.
- 4 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
Note 3. Long-Term Debt
On January 12, 1998, the Company entered into an amended
credit agreement with its bank. Borrowings are limited to
specified percentages of eligible receivables, inventories,
and property and equipment and are subject to maximum limits
of $15 million through March 30, 1998, $12 million from March
31, 1998 through June 29, 1998, and $10 million thereafter.
The carrying amount of the company's line of credit
approximates fair value.
Borrowings pursuant to the agreement bear interest at the
prime rate of the lending bank plus 1% and are secured by
substantially all of the Company's assets. Fees on the unused
commitment range from 0.125% to 0.250% of the average daily
unused portion of the available credit based on the Company's
level of interest, taxes, depreciation, and amortization.
Pursuant to the agreement, the Company must, among other
things, maintain a minimum level of tangible net worth of $6.1
million from January 1, 1998 through June 27, 1998, $7.25
million from June 28, 1998 through September 27, 1998 and $7.6
million thereafter. If these minimum levels are not
maintained, any outstanding balances become payable upon
demand of the bank. The Company's tangible net worth was $5.68
million at June 28, 1998.
At June 28, 1998 the Company was in default of the tangible
net worth covenant. Subsequent to June 28, 1998 the Company
was in technical default as the maximum credit limit of the
Credit Agreement reduced to $10 million and the Company was
unable to reduce its borrowings to such required level. The
Company's current borrowing levels are $11.5 million.
The lender has not waived the violations, however, has
indicated its willingness to issue a forbearance agreement
through September 30, 1998 to allow the Company to complete
its refinancing objectives.
The Company is currently working to replace the Credit
Agreement. The Company has received two, non-binding letters
of intent from alternative financing sources to replace the
Credit Agreement. The Company has reclassified the bank debt
as a current liability.
Note 4. Consignment Arrangements
The Company primarily obtains vehicle chassis for modification
from major vehicle manufacturers ("OEMs") under the
consignment and restricted sale agreements. These agreements
generally provide that (i) the Company may not obtain
certificates of origin or other evidence of ownership of
chassis, (ii) modifications must conform to standards
specified by the OEMs, and (iii) modifications typically 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.
- 5 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
Note 4. Consignment Arrangements (Continued)
The agreements are secured by various credit arrangements with
the OEMs. The OEMs may require the Company to purchase chassis
in the event that the restricted sales agreements are
terminated. The Company has not been required to purchase any
chassis during the periods covered by the accompanying
financial statements. The Company pays the OEMs a nominal
carrying charge for the first 90 days. After 90 days the
carrying charges accelerate to approximate market interest
rates. Throughout the consignment period, the Company is
subject to the risk of decline in value of the consigned
chassis.
Consistent with the practice in its 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 in the
accompanying financial statements.
At June 28, 1998, the Company had possession of chassis in the
aggregate amount of $23.9 million (of which $1.6 million was
over 90 days).
The Company is required to purchase its chassis requirements
under the European sales and shuttle bus programs.
Note 5. Restructure 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 reduced 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 Texas manufacturing
facility and sold certain assets of the business. The Company
recorded a $260,000 restructure charge in the third quarter of
fiscal year 1997 primarily for the write-down of leasehold
improvements at the facility.
- 6 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
Note 6. Earnings Per Share
The computation of basic and diluted loss per share follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
3 Months 9 Months
-------------------------------------------- ------------------------------------
June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and
diluted loss per share - loss
available to common
stockholders ($1,281) ($ 692) ($3,239) ($3,586)
============ ========== ======= =========
Denominator:
Denominator for basic
loss per share - weighted
average shares 4,134 4,119 4,134 4,119
Effect of dilutive securities:
Employee stock options (a) -- -- -- --
Denominator for diluted loss
per share - adjusted
weighted average shares
and dilutive securities 4,134 4,119 4,134 4,119
============ ========== ======= =========
Basic Loss Per Share ($ 0.31) ($0.17) $(0.78) ($0.87)
============ ========== ======= =========
Dilutive Loss Per Share ($0.31) ($0.17) $0.78) ($0.87)
============ ========== ======= =========
</TABLE>
(a) Calculation does not reflect the effect of the employee
stock options outstanding since their effect is
antidilutive.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Comparison of the three months ended June 28, 1998 (Third
Quarter Fiscal Year 1998) to the three months ended
June 29, 1997 (Third Quarter Fiscal Year 1997)
- --------------------------------------------------------------------------------
Net Sales
Domestic and international sales declined significantly in the third quarter
primarily due to production constraints from shortages of key raw material
parts, primarily hardwood components. The Company estimates that the production
issues negatively impacted the third quarter's sales by approximately $7
million. Domestic van sales orders during the quarter were consistent with the
average industry decline of 16% as reported by the Recreational Vehicle Industry
Association.
Gross Profit
Gross profit decreased to $900,000 (7.2% of sales) in the 1998 third quarter
from $2.8 million (12.1% of sales) in the 1997 period. The decrease in gross
margin dollars and as a percent of sales is attributable to the impact of fixed
plant overhead costs on the reduced sales volume.
Selling and Promotion Expense
Selling and promotion expense decreased approximately $900,000 (9.7% of domestic
sales) to $1.0 million in the 1998 quarter compared to $1.9 million (11.4% of
domestic sales) in fiscal 1997 due to reduced sales representative commissions
on the lower domestic sales volume. The reduction as a percent of sales is
attributable to lower fixed sales representative salaries in conjunction with
the personnel reorganization efforts in 1997.
General and Administrative Expense
General and administrative expense declined approximately $900,000 to $900,000
for the 1998 quarter from $1.8 million in fiscal 1997. The decrease is
attributable to the plant consolidations and personnel restructuring that the
Company implemented in fiscal year 1997.
Interest Expense
Interest expense increased to $197,000 in the fiscal 1998 third quarter from
$123,000 in fiscal 1997. The increase is due to higher borrowing levels and
higher interest rates on the bank credit line.
Income Taxes
In the third quarter the Company did not have a tax credit to offset operating
losses because the tax carry back is fully utilized. The fiscal 1997 second
quarter benefitted from a 40% tax credit carry back.
Loss per Share
Loss per share increased to $0.31 on 4,133,600 average common shares outstanding
for the fiscal 1998 third quarter from $0.17 on 4,118,600 shares for the same
period a year ago.
- 8 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Comparison of the nine months ended June 28, 1998
to the nine months ended June 29, 1997
- --------------------------------------------------------------------------------
Net Sales
Net sales declined 33% due to production issues in the 1998 third quarter and a
decline in the domestic market of 26.2% as reported by the Recreational Vehicle
industry. International sales were adversely impacted by the strong U.S. dollar
and decline in the Asian markets.
Gross Profit
Gross profit decreased to $3.7 million (9.4% of sales) in the 1998 period from
$6.0 million (10.0% of sales) in the 1997 period. 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, offset by the fixed cost reduction from the
1997 plant consolidations.
Selling and Promotion Expense
Selling and promotion expense decreased approximately $2.1 million to $3.5
million (11.4% of domestic sales) in the 1998 period compared to $5.7 million
(12.3% of domestic sales) in fiscal 1997. The reduction in dollars is due to the
lower domestic sales volume.
General and Administrative Expense
General and administrative expense declined to $2.8 million for the 1998 period
from $5.2 million in fiscal 1997. The decrease is attributable to personnel
restructuring that the Company implemented in fiscal year 1997.
Restructuring Charge
During fiscal year 1997, the Company consolidated its Imperial Automotive Group
manufacturing operation and its Texas manufacturing facility into Starcraft
Automotive Group's manufacturing complex in Goshen, Indiana and recorded a $1.0
restructure charge.
Interest Expense
Interest expense increased by approximately $300,000 in the fiscal 1998 period.
The increase is due to higher borrowing levels and higher interest rates on the
bank credit line.
Income Taxes
In the 1998 nine month period the Company did not have a tax credit to offset
operating losses because the tax carry back is fully utilized. The fiscal 1997
period benefitted from a 40% tax credit carry back.
Loss per Share
Loss per share decreased to $0.78 on 4,133,600 average common shares outstanding
in 1998 from $0.87 on 4,118,600 shares for the same period a year ago.
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
SEASONALITY AND TRENDS
The Company's sales and profits are dependent on the automotive markets in the
United States and overseas, primarily Japan and Europe, and the OEM's ability to
supply vehicle chassis. The business tends to be seasonal with stronger domestic
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
60.6% of the Company's total unit shipments for the 1998 year-to-date period
compared to 66.9% in 1997.
The Company's production constraints in the third quarter adversely impacted
sales volume and dealer relations. The fourth quarter will also be adversely
impacted by the production constraints. Although a portion of these lost sales
may be recovered in the 1998 fourth quarter, fourth quarter sales may decline
from prior year levels. The industry's sales continue to decline as reported by
the Recreational Vehicle Industry Association. Conversion inventory on dealer
lots has decreased for the entire industry relative to prior year levels. The
Company believes dealers are stocking fewer conversion products because of the
growing availability of additional vehicle models such as sport utility vehicles
and factory minivans and a general concern by dealers about the future of the
conversion industry. The OEM's have recently increased their advertising support
and dealer training efforts to support vehicle conversion products.
The strengthened U.S. Dollar and recent turmoil in financial markets in Asia
will continue to pressure the Company's 1998 export sales and margins.
The Company plans to continue to diversify its products and markets in an effort
to stabilize sales. The vehicle conversion business will continue to be the core
business of the Company, but additional strategies will be implemented in an
attempt to reduce the cyclicality and seasonality of the Company's sales. In
1997 the Company acquired National Mobility, a manufacturer of vehicles for the
physically challenged, and entered the commercial shuttle bus business and taxi
cab business as a start to its diversification strategy.
NASDAQ has informed the Company that, in its view, the Company does not meet the
market capitalization requirement, implemented in early 1998, for continued
listing on the NASDAQ National Market. The Company has appealed this position
with NASDAQ but can provide no assurance that its common shares will not be
delisted from such market. The Company may have the option to list the Company's
shares on the NASDAQ Small Cap Market.
The Company has reviewed its information systems for compatibility with year
2000. It has plans in place to replace software deemed incompatible with year
2000 in a timely manner and does not anticipate any material adverse effect from
year 2000 compatibility issues. The Company is in the process of implementing a
new information system for approximately $750,000.
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Operations utilized $3.2 million of cash in the first nine months of fiscal 1998
compared to $5.8 million in the fiscal 1997 period. Operating cash was used in
the 1998 period primarily to fund the operating loss and fund chassis purchases
for its European and bus programs.
Receivables decreased $2.5 million during the fiscal 1998 period primarily due
to the collection of federal tax refunds. Inventory increased $6.4 million and
accounts payable increased $4.7 million, primarily due to chassis for the
European sales program.
Capital expenditures for the 1998 quarter were $517,000 primarily for a new
management information system.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of June 1998, bank debt was $9.0 million.
On January 12, 1998, the Company entered into an amended credit agreement with
its bank which was effective as of December 31, 1997. Borrowings are limited to
specified percentages of eligible receivables, inventories, and property and
equipment and are subject to maximum limits of $15 million through March 30,
1998, $12 million from March 31, 1998 through June 29, 1998, and $10 million
thereafter.
Borrowings pursuant to the agreement bear interest at prime rate of the lending
bank plus 1% and are secured by substantially all of the Company's assets. Fees
on the unused commitment range from 0.125% to 0.250% of the average daily unused
portion of the available credit based on the Company's level of total interest
bearing liabilities compared to consolidated earnings before interest, taxes,
depreciation, and amortization. Pursuant to the agreement, the Company must,
among other things, maintain a minimum level of tangible net worth of $6.7
million at December 31, 1997, $6.1 million from January 1, 1998 through June 27,
1998, $7.25 million from June 28, 1998 through September 27, 1998 and $7.6
million thereafter. If these minimum levels are not maintained, any outstanding
balances become payable upon demand of the bank. The Company's tangible net
worth at June 28, 1998 was $5.68 million.
At June 28, 1998 the Company was in default of the tangible net worth covenant.
Subsequent to June 28, 1998, the Company was in technical default as the maximum
credit limit of the Credit Agreement reduced to $10 million and the Company was
unable to reduce its borrowings to such required level. The Company's current
borrowing levels are $11.5 million.
The Lender has not waived the violations; however, the lender has indicated its
willingness to issue a forbearance agreement through September 30, 1998 to allow
the Company to complete its refinancing objectives.
The Company is currently working to replace its Credit Agreement. The Company
has received two, non-binding letters of intent from alternative financing
sources to replace the Credit Agreement. The alternative financing arrangements
would increase the borrowing availability of the Company. Management currently
expects that the Company will be able to refinance the Credit Agreement on
acceptable terms in a timely manner.
- 11 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
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. 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 addition, the Company expects to require approximately $2.0 million to $4.0
million in addition to the funds that may be available under its refinanced
credit arrangements to fund operating costs, including the carrying costs of
certain anticipated export receivables and the capital requirements of its
Tecstar joint venture. Management, with the assistance of an independent
financial advisor, is assessing alternative strategies to generate such funds.
Such alternatives may include a private placement of convertible subordinated
debentures, convertible preferred stock or common stock. Such alternatives may
be significantly dilutive to existing shareholders. Also under consideration are
the sale or sale/leaseback of certain assets. Such latter alternatives would
require senior lender consent. Management currently expects that the Company
will be able to pursue one or a combination of the forgoing alternatives to
accommodate its capital and liquidity requirements, but no assurance to that
effect can be given.
The foregoing discussion contains forward looking statements regarding cost
savings, adequacy of availability of capital resources, seasonality, the impact
of certain production restraints, and supply of and demand for, the Company's
products, all of which are subject to a number of important factors which may
cause the Company's projections to be materially inaccurate. Some of such
factors are described in the Company's Form 10-K for the year ended September
28, 1997, under "Discussion of Forward-Looking Information".
- 12 -
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
Information respecting defaults under the Company's Credit
Agreement is incorporated herein by reference to Item 2.
Managements' Discussion and Analysis under Liquidity and
Capital Resources, above.
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as exhibits to this report.
Exhibit No.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARCRAFT CORPORATION
(Registrant)
August 19, 1998 By: /s/ Kelly L. Rose
-----------------------
Kelly L. Rose
Chairman of the Board and
Chief Executive Officer
By: /s/ Michael H. Schoeffler
---------------------------
Michael H. Schoeffler
President and Chief Financial
Officer
- 14 -
