The Shyft Group - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Registrant's Telephone Number, Including Area Code: (517) 543-6400

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.

SPARTAN MOTORS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
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SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
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See Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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See Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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See Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(UNAUDITED)
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See Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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SPARTAN MOTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Continued)
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See Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Note 1

For a description of the accounting policies followed refer to the notes to the Spartan Motors, Inc. (the "Company") annual consolidated financial statements for the year ended December 31, 2000, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2001.

Note 2

The accompanying unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of the Company's financial position as of September 30, 2001, and the results of operations and cash flows for the periods presented.

Note 3

The results of operations for the nine-month period ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year.

Note 4

Inventories consist of raw materials and purchased components, work in process, and finished goods and are summarized as follows:

Note 5

Since October 23, 1998, the Company has consolidated its majority-owned subsidiary, Carpenter Industries, Inc. ("Carpenter"), and recognized 100% of Carpenter's operating results. On September 28, 2000, the Company's Board of Directors passed a resolution to cease funding of Carpenter. Carpenter's Board of Directors then voted on September 29, 2000 to begin the orderly liquidation of Carpenter. Since Carpenter was a separate segment of the Company's business, the operating results and the disposition of Carpenter's net assets is being accounted for as a discontinued operation. Accordingly, previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Carpenter's sales for the nine months ended September 30, 2001 and 2000, of $0.7 million and $22.0 million,

Note 5 (continued)

respectively, and Carpenter's sales for the three months ended September 30, 2001 and 2000, of $0 and $5.2 million, respectively, have been properly removed from the restated consolidated sales totals. The net assets and liabilities of the discontinued operations have been segregated in the consolidated balance sheets. Details of such amounts at September 30, 2001 and December 31, 2000 are as follows:

It is anticipated that the final liquidation of assets and resolution of liabilities will occur in the first quarter of 2002.

Note 6

Sales and other financial information by business segment are as follows (amounts in thousands):

Note 6 (continued)

Note 7

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company was required to adopt Statement No. 133 beginning in the first quarter of 2001. The new statement did not have any effect on the earnings or financial position of the Company because the Company does not utilize derivatives.

Note 7 (continued)

In July 2001, the FASB issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets." Statement No. 141 eliminates the pooling of interests method of accounting for business acquisitions and Statement No. 142 eliminates the amortization of goodwill and requires the Company to evaluate goodwill for impairment on an annual basis. Any impairment of goodwill must be recognized currently as a charge to earnings in the financial statements. The Company will be required to apply provisions of the Statements to all business combinations initiated after June 30, 2001. For goodwill and intangible assets arising from business combinations completed before July 1, 2001, the Company will be required to apply the provisions of Statement No. 142 beginning on January 1, 2002. Application of the nonamortization provisions of the Statement in the year ending 2002 is expected to reduce intangibles amortization and increase net earnings by approximately $0.4 million ($0.04 pe r diluted share). During 2002, the Company will perform the initial impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company has not yet determined what effect these tests will have on its consolidated results of operations or financial position.

The following is a discussion of the major elements impacting the Company's financial and operating results for the three- and nine-month periods ended September 30, 2001 compared to the three-and nine-month periods ended September 30, 2000. The comments that follow should be read in conjunction with the Company's consolidated financial statements and related notes contained in this Form 10-Q.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the components of the Company's consolidated statements of operations, on an actual basis, as a percentage of sales:

Three-Month Period Ended September 30, 2001, Compared to the Three-Month Period Ended September 30, 2000

For the three months ended September 30, 2001, consolidated sales increased $2.8 million (5.2%) over the amount reported for the same period in the previous year. Chassis Group sales for this period increased by $3.5 million (8.8%). The majority of this increase is due to higher sales of motorhome chassis. During the third quarter of 2001, motorhome chassis sales were 13.4% higher than the third quarter of 2000. Lower interest rates have contributed to the higher demand in the motorhome market. In addition, dealer inventory levels are down from a year ago, resulting in a slight increase in chassis demand at the original equipment manufacturer ("OEM") level, which represents the Company's customers.

Fire truck chassis sales for the third quarter of 2001 were up 3.9% over the same period of 2000. The fire truck market continues to be strong in 2001, as economic conditions generated by higher gasoline prices or stock market fluctuations do not typically impact it greatly. The stability of the market, coupled with market share gains by the Company's Gladiator and Advantage product lines, generated the increase in sales. The Company had no sales of transit bus sales in the third quarter, as the Company made the decision in 2000 to transition out of the transit bus market.

EVTeam sales increased $2.9 million, or 18.9%, from their sales level in the prior year's third quarter. As the demographics of society drive the need for more ambulances, the EVTeam has seen an increase in the demand for ambulances. In addition, the EVTeam's segment of the ambulance market is also strengthened by the move from privatization to municipal ownership, as municipalities tend to buy higher-end ambulances. The strong fire truck market mentioned above has also boosted EVTeam sales.

Intercompany sales were up $3.7 million (134.9%) for the quarter, resulting in an increase in the sales elimination number. This increase is due to increased chassis sales to the EVTeam from the Chassis Group. The EVTeam is in the process of filling two large orders, one for the City of Atlanta and the other for the City of Chicago, all built on Chassis Group products.

Gross margin increased from 7.3% for the quarter ended September 30, 2000 to 16.8% for the same period of 2001. The improvement is due to two primary reasons. First of all, in the third quarter of 2000, the Company decided to exit the transit bus market, resulting in write-offs of obsolete chassis inventory related to transit buses. Secondly, the Company has experienced decreases in obsolete inventory expense related to the Company's other product lines and in warranty expense resulting from increased management and associate attention to these items.

Operating expenses decreased slightly from 11.5% of sales for the third quarter of 2000 to 11.4% for the third quarter of 2001. However, operating expenses in dollars are slightly higher in 2001 (4.0%) due to the Company's emphasis on brand management and increased spending in that area.

On September 28, 2000, the Company's Board of Directors passed a resolution to cease funding of the Company's majority-owned subsidiary, Carpenter Industries, Inc. Carpenter's Board of Directors then voted on September 29, 2000 to begin the orderly liquidation of Carpenter. The disposition of Carpenter's assets is being accounted for as a discontinued operation. The $2.1 million loss from operations of Carpenter reflects a loss generated from operating the business segment during the third quarter of 2000. The $6.1 million after-tax loss on disposal of Carpenter recorded in the third quarter of 2000 resulted from the decision to orderly liquidate Carpenter. There was no impact from the discontinued operation in the third quarter of 2001. Details of Carpenter's assets and liabilities at September 30, 2001 and December 31, 2000 are set forth in Note 5 to the condensed consolidated financial statements included in this Form 10-Q. It is anticipated that the final liquidation of assets and resolution of liabil ities will occur in the first quarter of 2002.

Total chassis orders received during the third quarter of 2001 increased 24.6% compared to the same period in 2000. This is primarily due to an increase of 39.5% in motorhome chassis orders tempered by a 20.5% decrease in fire truck chassis orders. A federal grant program has slowed order intake marketwide. If a fire department placed an order and subsequently was awarded a federal grant, the grant money could not be used for that previously placed order. Therefore, many fire departments were holding orders until they knew whether they were grant recipients. Based on average order lead-time, the Company estimates that approximately one-half of the motorhome, one-third of the specialty, and none of the fire truck chassis orders received during the three-month period ended September 30, 2001 were produced and delivered by September 30, 2001.

At September 30, 2001, the Company had $84.0 million in backlog compared with a backlog of $88.6 million related to continuing operations at September 30, 2000. This is due to decreases of Chassis Group backlog of $1.3 million, or 2.7%, and EVTeam backlog of $3.4 million, or 8.1%.

While orders in the backlog are subject to modification, cancellation or rescheduling by customers, the Company has not experienced significant modification, cancellation or rescheduling of orders in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period to period is not necessarily indicative of eventual actual shipments.

Nine-Month Period Ended September 30, 2001, Compared to the Nine-Month Period Ended September 30, 2000

For the nine months ended September 30, 2001, consolidated sales decreased $21.1 million (10.9%) over the amount reported for the same period in the previous year. Chassis Group sales for these periods decreased by $23.9 million (15.3%). This decrease is primarily due to lower sales of motorhome chassis. During the first nine months of 2001, motorhome chassis sales were 22.9% lower than the first nine months of 2000. Higher gasoline prices and a fluctuating stock market have contributed to the slower demand in the motorhome market, although demand in the motorhome market increased in the third quarter of 2001, as discussed above.

Fire truck chassis sales for the nine months ended September 30, 2001 were up 12.7% over the same period of 2000. The fire truck market continues to be strong in 2001, as higher gasoline prices or stock market fluctuations do not typically impact it greatly. Transit bus sales continued to decrease as the Company winds down its backlog of transit buses. The Company made the decision in 2000 to transition out of the transit bus market.

EVTeam sales increased $6.8 million, or 14.8%, from their sales level in the nine months ended September 30, 2000. Both the ambulance market and the fire truck market continue to be strong, as neither tends to be greatly impacted by higher gasoline prices or stock market fluctuations.

Intercompany sales were up $4.0 million (47.3%) for the nine months ended September 30, 2001, resulting in an increase in the sales elimination number. This increase is due to increased chassis sales to the EVTeam from the Chassis Group. The EVTeam is in the process of filling two large orders, one for the City of Atlanta and the other for the City of Chicago, all built on Chassis Group products.

Gross margin increased from 12.9% for the nine months ended September 30, 2000 to 15.9% for the same period of 2001. The improvement is due to two primary reasons. First of all, in the third quarter of 2000, the Company decided to exit the transit bus market, resulting in write-offs of obsolete chassis inventory related to transit buses. Secondly, the Company has experienced decreases in obsolete inventory expense related to the Company's other product lines and in warranty expense resulting from increased management and associate attention to these items.

Operating expenses increased from 10.1% of sales for the first nine months of 2000 to 10.9% for the first nine months of 2001. While operating expenses in dollars dropped (3.7%), sales volume dropped 10.9%, resulting in an increase in operating expenses as a percentage of sales.

On September 28, 2000, the Company's Board of Directors passed a resolution to cease funding of the Company's majority-owned subsidiary, Carpenter Industries, Inc. Carpenter's Board of Directors then voted on September 29, 2000 to begin the orderly liquidation of Carpenter. The disposition of Carpenter's assets is being accounted for as a discontinued operation. The $3.9 million loss from operations of Carpenter reflects a loss generated from operating the business segment during the first nine months of 2000. The $6.1 million after-tax loss on disposal of Carpenter recorded in the third quarter of 2000 resulted from the decision to orderly liquidate Carpenter. There was no impact from the discontinued operation in the first nine months of 2001. Details of Carpenter's assets and liabilities at September 30, 2001 and December 31, 2000 are set forth in Note 5 to the condensed consolidated financial statements included in this Form 10-Q. It is anticipated that the final liquidation of assets and resolution o f liabilities will occur in the first quarter of 2002.

Total chassis orders received during the first nine months of 2001 decreased 17.5% compared to the same period in 2000. This is primarily due to decreases of 21.8% and 15.6% in fire truck and motorhome chassis orders, respectively. Based on average order lead-time, the Company estimates that approximately three-quarters of the motorhome, one-half of the specialty, and one-third of the fire truck chassis orders received during the nine-month period ended September 30, 2001 were produced and delivered by September 30, 2001.

At September 30, 2001, the Company had $84.0 million in backlog compared with a backlog of $88.6 million related to continuing operations at September 30, 2000. This is due to decreases of Chassis Group backlog of $1.3 million, or 2.7%, and EVTeam backlog of $3.4 million, or 8.1%.

While orders in the backlog are subject to modification, cancellation or rescheduling by customers, the Company has not experienced significant modification, cancellation or rescheduling of orders in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period to period is not necessarily indicative of eventual actual shipments.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2001, cash provided by operating activities from continuing operations was $17.5 million, which was an $8.2 million improvement over the $9.3 million of cash provided by operating activities from continuing operations for the nine months ended September 30, 2000. The Company's working capital decreased $9.7 million from $38.0 million at December 31, 2000 to $28.3 million at September 30, 2001. See the "Condensed Consolidated Statements of Cash Flows" contained in Item 1 of this Form 10-Q for further information regarding the decrease in cash and cash equivalents, from $0.5 million at December 31, 2000 to $17,899 at September 30, 2001.

Shareholders' equity increased $3.6 million in the first nine months of 2001 to $34.3 million. This change resulted from the $4.3 million in net earnings of the Company, reduced by $0.7 million in dividends paid.

The Company's primary line of credit is a $25.0 million revolving note payable to a bank. The Company also has a $3.3 million term note under the same debt agreement. Under the terms of the line of credit and term note agreement, the Company is required to maintain certain financial ratios and other financial conditions. The agreement also prohibits the Company from incurring additional indebtedness, limits certain acquisitions, investments, advances or loans and restricts substantial asset sales. At September 30, 2001 the Company was in compliance with all debt covenants.

The Company also has secured lines of credit for $1.1 million and $0.2 million and an unsecured line of credit for $1.0 million. The $1.1 million line is due from Carpenter and carries an interest rate of 1/2% above the bank's prime rate (prime rate at September 30, 2001 was 6.00%) and has an expiration date of September 2001. This line of credit is secured by accounts receivable and inventory and is guaranteed by the Company. Borrowings under this line totaled $1.1 million at September 30, 2001. The $0.2 million line carries an interest rate of 2% above the bank's prime rate and has an expiration date of June 1, 2002. This line of credit is secured by accounts receivable, inventory and equipment. There were no borrowings on this line at September 30, 2001. The $1.0 million line carries an interest rate of 1% above the bank's prime rate and expires only if there is a change in management. There were no borrowings on the $1.0 million line at September 30, 2001. The Company believes it has sufficient resour ces from cash flows from operating activities and, if necessary, from additional borrowings under its lines of credit to satisfy ongoing cash requirements for the next 12 months.

EFFECT OF INFLATION

Inflation affects the Company in two principal ways. First, the Company's debt is tied to the prime and LIBOR interest rates so that increases affecting interest rates may be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, the Company attempts to cover increased costs of production and capital by adjusting the prices of its products. However, the Company generally does not attempt to negotiate inflation-based price adjustment provisions into its contracts. Since order lead times can be as much as six months, the Company has a limited ability to pass on cost increases to its customers on a short-term basis. In addition, the markets the Company serves are competitive in nature, and competition limits the Company's ability to pass through cost increases in many cases. The Company strives to minimize the effect of inflation through cost reductions and improved productivity.

FORWARD LOOKING STATEMENTS

This Form 10-Q contains statements that are not historical facts. These statements are called "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using "estimate," "anticipate," "believe," "project," "expect," "intend," "predict," "potential," "future," "may," "should" and similar expressions or words. Our future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. There are numerous factors that could cause actual results to differ materially from the results discussed in forward-looking statements, including:

This list provides examples of factors that could affect the results described by forward-looking statements contained in this Form 10-Q. However, this list is not intended to be exhaustive; many other factors could impact our business and it is impossible to predict with any accuracy which factors could result in which negative impacts. Although we believe that the forward-looking statements contained in this Form 10-Q are reasonable, we cannot provide you with any guarantee that the anticipated results will be achieved. All forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements contained in this section and you are cautioned not to place undue reliance on the forward-looking statements contained in this Form 10-Q. In addition to the risks listed above, other risks may arise in the future, and we disclaim any obligation to update information contained in any forward-looking statement.

The Company's primary market risk exposure is a change in interest rates in connection with its outstanding variable rate short-term and long-term debt. Due to variable interest rates on the Company's short-term and long-term debt, an increase in interest rates of 1% could result in the Company incurring an additional $0.1 million in annual interest expense. Conversely, a decrease in interest rates of 1% could result in the Company saving $0.1 million in annual interest expense. The Company does not expect such market risk exposure to have a material adverse effect on the Company. The Company does not enter into market risk sensitive instruments for trading purposes.

PART II. OTHER INFORMATION

(a)          Exhibits. The following documents are filed as exhibits to this report on Form 10-Q:

(b)          Reports on Form 8-K. The Company did not file any Current Reports on Form 8-K during the quarter ended September 30, 2001

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.

EXHIBIT INDEX