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 December 27, 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: February 1, 1999 - 4,147,002
shares of Common Stock, without par value.
<PAGE>
STARCRAFT CORPORATION December 27, 1998
Form 10-Q
- INDEX -
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets - December 27, 1998 (Unaudited) 1
and September 27, 1998 (Audited)
Statements of Operations (Unaudited)
for the three month periods
ended December 27, 1998 and December 28, 1997 2
Statements of Cash Flow (Unaudited)
for the three month periods ended
December 27, 1998 and December 28, 1997 3
Notes to Financial Statements 4-6
Item 2. Management's Discussion and Analysis 7-10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS December 27, 1998 September 27, 1998
----------------- ------------------
ASSETS (Dollars in Thousands)
Current Assets
<S> <C> <C>
Cash and cash equivalents .................... $ 238 $ 1,369
Trade receivables, less allowance for
doubtful accounts of $40,000 ............ 6,384 6,160
Manufacturers' rebates receivable ............ 565 569
Recoverable income tax ....................... -- 417
Inventories .................................. 11,400 10,857
Other ........................................ 673 401
-------- --------
Total current assets ..................... 19,260 19,773
Property and Equipment
Land, buildings, and improvements ............ 6,031 5,927
Machinery and equipment ...................... 6,369 6,224
-------- --------
12,400 12,151
Less accumulated depreciation ................ 4,566 4,305
-------- --------
7,834 7,846
Goodwill, at amortized cost ....................... 1,331 1,355
Other assets ...................................... 186 41
-------- --------
$ 28,611 $ 29,015
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ......... $ 1,023 $ 1,023
Accounts payable, trade ...................... 8,687 8,244
Accrued expenses:
Warranty ................................. 1,625 1,766
Compensation and related expenses ........ 88 322
Taxes .................................... 705 971
Other .................................... 1,534 2,045
-------- --------
Total current liabilities ......................... 13,662 14,371
Long Term Debt .................................... 12,902 10,777
Deferred Income Taxes ............................. 331 331
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 December 27,
1998 and September 27, 1998 .............. 14,016 14,016
Additional paid-in capital ................... 1,008 1,008
Retained Earnings Deficit .................... (13,308) (11,488)
-------- --------
Total shareholders' equity .............. 1,716 3,536
-------- --------
$ 28,611 $ 29,015
======== ========
</TABLE>
- 1 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 Months Ended
--------------------------------------
Dec. 27, 1998 Dec. 28, 1997
------------- -------------
(Dollars in Thousands)
Net Sales
<S> <C> <C>
Domestic ...................... $ 11,331 $ 9,811
Export ........................ 803 3,608
----------- -----------
12,134 13,419
Cost of Goods Sold ................. 11,176 12,214
----------- -----------
Gross profit .................. 958 1,205
Operating Expenses
Selling and promotion ......... 876 1,288
General and administrative .... 1,646 920
----------- -----------
2,522 2,208
----------- -----------
Operating Loss ............ (1,564) (1,003)
Nonoperating (Expense) Income
Interest, net ................. (287) (172)
Other income, net ............. 31 38
----------- -----------
(256) (134)
----------- -----------
Loss Before Income Taxes (1,820) (1,137)
Income Tax Credit .................. 0 0
----------- -----------
NET LOSS ...................... $ (1,820) $ (1,137)
=========== ===========
BASIC AND DILUTIVE LOSS
PER COMMON SHARE ............ $ (0.44) $ (0.28)
=========== ===========
Average Number of Common and
Common Equivalent
Shares Outstanding .............. 4,133,600 4,133,600
=========== ===========
</TABLE>
- 2 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARCRAFT CORPORATION
STATEMENTS OF CASH FLOW
3 Months Ended
-------------------------------
Dec. 27, 1998 Dec. 28, 1997
------------- -------------
(Dollars in Thousands)
Operating Activities
Net Loss ........................... $(1,820) $(1,137)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization .. 295 258
Change in operating
assets and liabilities:
Receivables ........... 197 (2,353)
Inventories ........... (543) 961
Other ................. (272) (170)
Accounts payable ...... 443 (1,925)
Accrued expenses ...... (1,153) (1,074)
------- -------
Net Cash used in
operating activities ........ (2,853) (5,440)
Investing Activities
Purchase of property and equipment . (249) (283)
Other .............................. (154) 0
------- -------
Net cash used in
investing activities ....... (403) (283)
Financing Activities
Borrowings on revolving
credit agreements ............... 2,182 5,504
Repayments on revolving
credit agreements ............... 0 0
Payments on long-term debt ......... (57) 0
------- -------
Net cash from financing
activities .................. 2,125 5,504
Decrease in Cash and Cash
Equivalents ........................ (1,131) (219)
Cash and cash equivalents at
beginning of period ............. 1,369 608
------- -------
Cash and cash equivalents at
end of period ................... $ 238 $ 389
======= =======
- 3 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
STARCRAFT CORPORATION
December 27, 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 27, 1998.
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
period ended December 27, 1998 and the three month period
ended December 28, 1997. The results of operations for the
three months ended December 27, 1998 are not necessarily
indicative of the results which may be expected for the year
ending October 2, 1999.
Note 2. Inventories
The composition of inventories is as follows (dollars in
thousands):
December 27, 1998 September 27, 1998
----------------- ------------------
Raw Materials $6,337 $4,631
Chassis 1,306 2,006
Work in Process 2,364 2,584
Finished Goods 1,393 1,636
----- -----
$11,400 $10,857
------- -------
- 4 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
STARCRAFT CORPORATION
Note 3. Long-Term Debt
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 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 ($3.2 million), ($3.2 million),
($350,000) and $700,000 as of the end of the first, second,
third and fourth quarters of fiscal year 1999, respectively.
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 1999 quarters.
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. The Company is in compliance with its
financial covenants as of December 27, 1998.
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, both whom are currently directors and one of
whom is an officer of the Company.
Note 4. Consignment Arrangements
The Company 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 December 27, 1998, the Company had possession of chassis in
the aggregate amount of $16.1 million (of which $3.8 million
was over 90 days).
- 6 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Comparison of the three months ended December 27, 1998 (First
Quarter Fiscal Year 1999) to the three months ended
December 28, 1997 (First Quarter Fiscal Year 1998)
- --------------------------------------------------------------------------------
Net Sales
Net sales declined $1.3 million (9.6%) to $12.1 million in the first quarter of
fiscal 1999. Domestic sales increased 15.5% from prior year levels. The domestic
sales increase is due to incremental sales from the Company's new Tecstar and
shuttle bus operations. Export sales were $800,000 in the 1999 fiscal quarter
compared to $3.6 million in 1998. The $2.8 million reduction in export sales is
primarily attributable to a timing delay on Asian business and chassis delays on
the Company's European business. The Company should recover this export business
during the remainder of fiscal year 1999.
Gross Profit
Gross profit decreased to $1.0 million (7.9% of sales) in the 1999 fiscal first
quarter from $1.2 million (9.0% of sales) in the 1998 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 cost savings from the
Company's plant consolidation and restructuring efforts in fiscal year 1998.
Selling and promotion expense
Selling and promotion expense decreased approximately $400,000 to $900,000 (7.2%
of sales) in the first fiscal 1999 quarter compared to $1.3 million (9.6% of
sales) in fiscal 1998. The reduction is primarily due to lower sales commissions
on the lower domestic sales volume.
General and Administrative Expense
General and administrative expense increased to $1.6 million for the 1999 fiscal
first quarter from $900,000 in fiscal 1998. The increase is primarily
attributable to $500,000 of start-up costs on the Company's Tecstar operation.
Interest Expense
Interest expense increased to $287,000 in the fiscal 1999 first quarter from
$172,000 in fiscal 1998. The increase is due to higher borrowing levels on the
credit line.
Income Taxes
The Company does not have a tax credit to offset operating losses for the
quarters because the tax carry back is fully utilized.
Loss per Share
Loss per share increased to $0.44 on 4,133,600 average common shares outstanding
for the fiscal 1999 first quarter from $0.28 on 4,133,600 shares for the same
period a year ago.
- 7 -
<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.
The Company's domestic van business declined 15% in the 1999 first quarter.
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 of 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 continued turmoil in financial markets in Asia
will pressure the Company's 1999 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
1998 the Company started Tecstar, a joint venture to supply conversion vehicles
directly to the OEM's, and entered the commercial shuttle bus business as a
start to its diversification strategy.
Tecstar completed the start-up of its Shreveport, Louisiana facility and began
production shipments in November 1998. Tecstar's Arlington, Texas facility
should begin production in March 1999.
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 implementation strategy more fully described
in the Company's 10-K is being executed as planned as of December 27, 1998.
- 8 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
STARCRAFT CORPORATION
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Operations utilized $2.9 million of cash in the first three months of fiscal
1999 compared to $5.4 million in the fiscal 1998 period. Operating cash was used
in the 1999 period to fund the operating loss and payments of calendar year end
miscellaneous accruals.
Capital expenditures for the fiscal 1999 quarter were $249,000 primarily for
start-up of the Tecstar plants.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of December 1998, bank debt was $13.9 million.
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 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 $(3.2 million),$(3.2 million), $(350,000) and $700,000 as
of the end of the first, second, third and fourth quarters of fiscal year 1999,
respectively. 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 1999 quarters. 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. The Company is in
compliance with its financial covenants as of December 27, 1998.
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, both whom
are currently directors and one of whom is an officer of the Company.
- 9 -
<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%.
The Company believes that future cashflows from operations, funds available
under its bank revolving credit agreement, and the continued use of OEM
financing arrangements to manage its chassis inventory will be sufficient to
satisfy its anticipated operating needs and capital improvements for 1999.
The foregoing paragraphs contain forward looking statements regarding cost
savings, adequacy of capital resources, seasonality and supply of, and demand
for, the Company's products, and the prospects of Management's operating
strategies, 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
27, 1998, under the subsection entitled "Discussion of Forward-Looking
Information" which is incorporated herein by reference.
- 10 -
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes In Securities
In November 1998, the Company refinanced its revolving and term credit
arrangements and entered into a new credit agreement with a financial
institution. The Company's former principal lending bank retained a subordinated
term loan position. To induce such bank to proceed with the refinancing, two
individuals who are currently Directors of the Company guaranteed up to $500,000
each of the Company's indebtedness ($1 million in the aggregate). To induce the
individuals to provide the Company with such credit support, the Company issued
to each of the individuals a warrant to purchase 200,000 shares of the Company's
common shares at a purchase price of $2.20 per share. The warrants have a term
of five years. The exercise price represents the average market value of the
Company's Common Stock for the ten trading days preceding the date of the
issuance. The issuance of the warrants was approved by the independent directors
of the Company.
The isuance of the warrants was exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended.
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.
- 11 -
<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)
February 15, 1999 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
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements for the three months
ended December 27, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000906473
<NAME> Starcraft Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-2-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> DEC-27-1998
<EXCHANGE-RATE> 1.000
<CASH> 238
<SECURITIES> 0
<RECEIVABLES> 6,989
<ALLOWANCES> 40
<INVENTORY> 11,400
<CURRENT-ASSETS> 19,260
<PP&E> 12,400
<DEPRECIATION> 4,566
<TOTAL-ASSETS> 28,611
<CURRENT-LIABILITIES> 13,661
<BONDS> 12,902
<COMMON> 14,016
0
0
<OTHER-SE> (12,300)
<TOTAL-LIABILITY-AND-EQUITY> 28,611
<SALES> 12,134
<TOTAL-REVENUES> 12,134
<CGS> 11,176
<TOTAL-COSTS> 11,176
<OTHER-EXPENSES> 2,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> (1,820)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,820)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,820)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
