<PAGE>
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
For the Quarter Ended Commission File Number
MARCH 31, 1998 0-13611
SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-2078923
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 REYNOLDS ROAD
CHARLOTTE, MICHIGAN 48813
(Address of Principal Executive Offices) (Zip Code)
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.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS MAY 12, 1998
----- ------------
<S> <C> <C>
Common stock, $.01 par value 12,560,991 shares
</TABLE>
===========================================================================
<PAGE>
SPARTAN MOTORS, INC.
INDEX
======================================
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 1998
(Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Net Earnings -
Three Months Ended March 31, 1998 and 1997
(Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997
(Unaudited) 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,367,252 $ 4,812,438
Investment securities 2,820,109 2,893,167
Accounts receivable, less allowance
for doubtful accounts of $678,000
in 1998 and $924,000 in 1997 26,866,455 26,875,828
Inventories (Note 4) 38,274,197 27,033,117
Deferred tax benefit 3,057,586 2,861,250
Federal taxes receivable 55,729 513,379
Other current assets 711,059 591,909
----------- -----------
TOTAL CURRENT ASSETS 73,152,387 65,581,088
=========== ===========
Property, Plant and Equipment,
net of accumulated depreciation
of $10,056,000 and $9,734,000 in
1998 and 1997, respectively 12,021,753 11,891,496
Equity Investment in Affiliate (Note 5) -- --
Goodwill, net of accumulated amortization
of $173,000 and $77,000 in 1998 and
1997, respectively 5,584,048 3,378,408
Other Assets 378,243 394,638
----------- -----------
TOTAL ASSETS $91,136,431 $81,245,630
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $12,992,220 $12,001,995
Other current liabilities and accrued expenses 1,981,381 1,469,211
Accrued warranty expense 3,385,813 3,070,780
Accrued customer rebates 523,365 695,367
Taxes on income 2,147,437 1,708,090
Accrued compensation and related taxes 1,052,984 1,301,525
Accrued vacation 853,660 720,788
Deposits from customers 2,797,572 3,184,367
----------- -----------
TOTAL CURRENT LIABILITIES 25,734,432 24,152,123
Long-Term Debt 15,623,381 9,603,785
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value: 2,000,000
shares authorized (none issued)
Common Stock, $.01 par value, 23,900,000 shares
authorized, issued 12,560,991 shares
in 1998 and 12,335,960 shares in 1997 125,610 123,360
Additional Paid in Capital 24,171,059 22,700,965
Retained earnings 25,522,108 24,683,476
Valuation allowance (40,159) (18,079)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 49,778,618 47,489,722
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,136,431 $81,245,630
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (UNAUDITED)
--------------------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
SALES $59,156,255 $45,787,583
COST OF PRODUCTS SOLD 50,470,479 38,653,503
----------- -----------
GROSS PROFIT 8,685,776 7,134,080
OPERATING EXPENSES
Research and development 1,317,300 1,111,328
Selling, general and administrative 4,219,683 3,326,257
----------- -----------
OPERATING INCOME 3,148,793 2,696,495
OTHER INCOME (EXPENSE)
Interest Expense (217,627) (254,568)
Interest and Other Income 293,950 372,914
----------- -----------
EARNINGS BEFORE TAXES AND EQUITY IN LOSS
OF AFFILIATE 3,225,116 2,814,841
EQUITY IN LOSS OF AFFILIATE 1,250,000 1,669,201
----------- -----------
EARNINGS BEFORE TAXES ON INCOME 1,975,116 1,145,640
TAXES ON INCOME 1,036,879 1,095,000
----------- -----------
NET EARNINGS $ 938,237 $ 50,640
=========== ===========
BASIC AND DILUTED NET EARNINGS PER SHARE $ 0.07 $ 0.01
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 12,528,000 12,411,000
=========== ===========
</TABLE>
-5-
<PAGE>
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS/(LOSS)(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net Earnings $ 938,237 $ 50,640
Unrealized losses on investment securities, net of tax 40,159 102,901
----------- -----------
TOTAL COMPREHENSIVE EARNINGS/(LOSS) $ 898,078 $ (52,261)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 938,237 $ 50,640
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization 582,628 452,654
Gain on sales of assets and marketable securities -- (79,144)
Equity in net loss of affiliate 1,250,000 1,669,201
Decrease (increase) in:
Accounts receivable 359,159 (2,436,071)
Inventories (8,027,682) (508,163)
Deferred tax benefit -- 16,309
Federal taxes receivable 457,650 925,000
Other assets 100,134 (433,807)
Increase (decrease) in:
Accounts payable (388,554) 2,018,794
Other current liabilities and accrued expenses 418,438 (605,555)
Accrued warranty expense 80,033 (93,260)
Accrued customer rebates (172,002) 121,564
Taxes on income 439,347 83,200
Accrued vacation (12,482) 24,000
Accrued compensation and related taxes (544,938) 322,665
Deposits from customers (845,934) --
----------- -----------
TOTAL ADJUSTMENTS (6,304,203) 1,477,387
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,365,966) 1,528,027
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (231,125) (405,133)
Proceeds from sales of property, plant and equipment 27,704 11,600
Purchases of investment securities (338,658) (600,000)
Proceeds from sales of investment securities 400,000 3,862,969
Investment in Affiliate (1,250,000) (10,000,000)
Acquisition of subsidiary, net of cash received (1,661,787) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,053,866) (7,130,564)
(Continued)
</TABLE>
-7-
<PAGE>
<TABLE>
SPARTAN MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
--------------------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable $ (236,177)
Proceeds from long-term debt 6,000,000 $ 5,000,000
Payments on long-term debt (676,092) (173,206)
Net proceeds from exercise of stock options 24,140 80,124
Purchase of treasury stock (137,225) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,974,646 4,906,918
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,445,186) (695,619)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,812,438 4,912,001
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,367,252 $ 4,216,382
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES: Cash paid for interest was $267,000 and $257,000
for the three months ended March 31, 1998 and 1997, respectively. Cash paid
for income taxes was $636,000 and $73,000 for the three months ended March 31,
1998 and 1997, respectively.
See notes to consolidated financial statements.
-8-
<PAGE>
SPARTAN MOTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
NOTE 1 For a description of the accounting policies followed refer to
the notes to the Company's annual consolidated financial
statements for the year ended December 31, 1997, included in Form
10-K filed with the Securities and Exchange Commission on March
31, 1998.
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" which requires that all items recognized as components of
other comprehensive income be reported in the financial statements.
Comprehensive income for the Company generally represents items that
are reported as components of shareholders' equity in accordance with
generally accepted accounting principles but have not been recognized
as part of net income, such as unrealized gains or losses on
investment securities and foreign currency translation adjustments.
NOTE 2 The accompanying unaudited interim consolidated financial
statements reflect all normal and recurring adjustments that are
necessary for fair presentation of the financial position as of
March 31, 1998, and the results of operations for the three month
periods ended March 31, 1998 and 1997.
NOTE 3 The results of operations for the three month period ended March
31, 1998 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:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C> <C>
Finished goods $ 3,789,441 $ 2,801,432
Raw materials and purchased components 30,069,957 21,721,297
Work in process 5,950,849 3,612,888
Obsolescence reserve (1,545,050) (1,102,500)
----------- -----------
$38,274,197 $27,033,117
=========== ===========
</TABLE>
-9-
<PAGE>
NOTE 5 The Company has a 33% interest in Carpenter Industries, Inc.
("Carpenter"). Carpenter is a manufacturer of school bus bodies
and chassis. The Company advanced $1,250,000 to Carpenter during
the first quarter of 1998, which was written off to record the
Company's share of Carpenter's net loss for the quarter. The
Company accounts for its investment in Carpenter using the equity
method of accounting. A summary of Carpenter's balance sheet as of
March 31, 1998 and the results of its operations for the three-month
period ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET
Current Assets $30,918,086
Total Assets 46,213,382
Current Liabilities 32,192,723
Total Liabilities 50,382,323
Shareholders' Equity (4,168,941)
Total Liabilities and Shareholders' Equity 46,213,382
INCOME STATEMENT
Revenues 9,923,322
Loss from Operations (3,541,649)
Net Loss (4,572,663)
</TABLE>
A going concern opinion was issued for Carpenter for its year
ended December 31, 1997. Therefore, the Company's investment in
Carpenter had been impaired. The Company has written down its
investment in Carpenter to zero.
On March 31, 1998, the shareholders of Carpenter, including the
Company, entered into a Contribution, Subscription and Stock
Purchase Agreement whereby $1.0 million of new capital was invested
by two shareholders and a commitment was made by the third
shareholder to invest approximately $0.5 million. Carpenter
actively is pursuing the refinancing of its entire debt and upon the
completion of such refinancing, with certain termination rights, the
shareholders have agreed to make additional contributions to
Carpenter.
NOTE 6 During the three months ended March 31, 1998 shareholders'
equity changed as follows:
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at December 31, 1997 $47,489,722
Net earnings 938,237
Exercise of stock options 24,140
Purchase of treasury stock (137,225)
Stock issued in purchase of subsidiary 1,485,824
Valuation allowance - investment securities (22,080)
-----------
Balance at March 31, 1998 $49,778,618
===========
</TABLE>
NOTE 7 On January 7, 1998, the Company purchased all of the outstanding
stock of Road Rescue, Inc. ("Road Rescue"), a manufacturer of
emergency vehicles, including ambulances, rescue vehicles, and
critical care units. The purchase price paid for Road Rescue was
approximately $3.3 million, including cash consideration of
approximately $1.8 million with the balance funded through the
issuance of 240,133 shares of the Company's Common Stock. The
fair market value of the Company's Common Stock on the effective
date of the transaction was $6-3/16 per share. Funds for the
payment of the purchase price were provided primarily through the
Company's line of credit. The acquisition was accounted for using
the purchase method and, accordingly, the assets and liabilities
of the acquired entity have been recorded at their estimated fair
value at the date of the acquisition. The excess of purchase
price over the estimated fair value of the net assets acquired,
approximately $2.4 million, has been recorded as goodwill, which
is being amortized over 15 years. The fair values of the assets
acquired and the liabilities assumed were as follows: current
assets of approximately $3.9 million; property, plant and
equipment of approximately $0.4 million; other assets of
approximately $0.1 million; current liabilities of approximately
$3.3 million; and long-term liabilities of approximately $0.3
million.
The following unaudited pro forma results of operations for the
three months ended March 31, 1998 and 1997 assume the
acquisitions occurred at the beginning of the respective periods.
These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been in effect on
the dates indicated, or of the results which may occur in the
future.
-11-
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C> <C>
Net sales $59,156,255 $50,971,511
Net earnings 938,237 103,924
Basic and diluted earnings per share $ 0.07 $ 0.01
</TABLE>
NOTE 8 The Financial Accounting Standards Board has issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related
Information." This statement is effective for fiscal years
beginning after December 15, 1997. As interim financial
statements are not required to reflect this statement in the
first year of adoption, the Company will adopt SFAS No. 131
during the fourth quarter of 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the major elements impacting the
Company's financial and operating results for the period ended March 31,
1998 compared to the period ended March 31, 1997. 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 net earnings, on an
actual basis, as a percentage of revenues:
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
------ ------
<S> <C> <C> <C>
Revenues 100.0% 100.0%
Cost of Product Sold 85.3% 84.4%
----- -----
Gross Profit 14.7% 15.6%
Operating Expenses:
Research and development 2.2% 2.4%
Selling, general and administrative 7.2% 7.3%
----- -----
Income from operations 5.3% 5.9%
Other 0.1% 0.2%
----- -----
Earnings before loss on equity investment,
minority interest and taxes on income 5.4% 6.1%
Equity in loss of affiliate 2.1% 3.6%
Taxes on income 1.7% 2.4%
----- -----
Net earnings 1.6% 0.1%
----- -----
</TABLE>
THREE MONTH PERIOD ENDED MARCH 31, 1998, COMPARED TO THE THREE MONTH PERIOD
ENDED MARCH 31, 1997
For the three months ended March 31, 1998 consolidated sales
increased $13.4 million (29.3%) over the amount reported for the same
period in the previous year. The Emergency Vehicle Group provided
approximately $12.5 million in sales during the first quarter of 1998 and
was not consolidated with the Company during the first quarter of 1997.
Chassis sales for the three months ending March 31, 1998 increased
$0.9 million (1.9%) compared to the sales reported for the same period in
1997. For the first quarter of 1998, motorhome chassis sales increased
12.2% compared to the first quarter of 1997, primarily due to the increase
in market demand for recreational vehicles. Fire truck chassis sales
decreased 27.5% during the first quarter of 1998 compared to the same
period for 1997. With the acquisition of two of the Company's customers,
Luverne Fire Apparatus Co., Ltd. and Quality Manufacturing, Inc., $1.9
million of chassis that were in the inventory of the new subsidiaries at
March 31, 1998 had to be eliminated from consolidated sales. In previous
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
years, these chassis would have been considered sales for the Company.
Additionally, the reduction of sales reflects the soft market during 1997.
The backlog for fire trucks, at March 31, 1998, is 8.8% above the previous
year in response to the strengthening of the market and the demand for the
Company's Advantage product line. Bus sales for the first quarter of 1998
have increased 121.3% over the same period for 1997 primarily due to the
introduction of Z2, the Company's new tour bus chassis.
Gross profit increased $1.6 million for the first quarter of 1998
compared to the first quarter of 1997. The increase primarily is due to
the contribution of the Emergency Vehicle Group and the increased
sales of the chassis. Gross profit as a percentage of sales declined from
15.6% for the first quarter of 1997 to 14.7% for the first quarter of 1998.
The Emergency Vehicle Group operates at lower margins than the Chassis
Group since their value added is in the body rather than the chassis. Also,
the change in product mix, the increase in bus chassis sales and decrease
in fire truck chassis sales during the first quarter of 1998 compared to
the first quarter of 1997, depressed the Company's gross margin percentage.
Operating expenses declined from 9.7% of sales for the first quarter
of 1997 compared to 9.4% for the first quarter of 1998. The decline is
primarily due to a 2% decline in Chassis Group operating expenses from
the first quarter of 1997 to the first quarter of 1998. Also, the reduction
in operating expenses as a percentage of sales reflects the Company's
continued efforts to increase efficiencies and reduce costs.
The equity in loss of affiliate is the result of Carpenter losing $4.6
million during the first quarter of 1998. In an effort to minimize the impact
of the losses, during the first quarter of 1998, Carpenter management began to
dispose of fixed assets and inventory that are nonessential to continuing
operations and have streamlined their production efforts and reduced
production and operating costs.
On March 31, 1998, the shareholders of Carpenter, including the
Company, entered into a Contribution, Subscription and Stock Purchase
Agreement whereby $1.0 million of new capital was invested by two
shareholders and a commitment was made by the third shareholder to invest
approximately $0.5 million. Carpenter actively is pursuing the refinancing
of its entire debt and upon the completion of such refinancing, with
certain termination rights, the shareholders have agreed to make additional
contributions to Carpenter.
Total chassis orders received decreased 3.1% during the three months
ended March 31, 1998 compared to the same period in 1997. The decrease in
orders primarily is attributed to the Company's school bus and motorhome
product lines. Based on average order lead-time, the Company estimates
that approximately one-half of the motorhome, one-third of the
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
bus/specialty and none of the fire truck orders received during the three-
month period ended March 31, 1998 were produced and delivered by March 31,
1998.
At March 31, 1998, the Company had approximately $81.1 million in
backlog chassis orders compared with a backlog of approximately $56.1
million for the same period in 1997. While orders in 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 three months ended March 31, 1998 cash used in operating
activities was $5.4 million compared to cash provided by operations of $1.5
million for the three months ended March 31, 1997. The use of cash
primarily relates to an increase in inventory since December 31, 1997.
This inventory build up was due to the change in engine design to meet
requirements of the Environmental Protection Agency and the components
associated with this design change. Working capital increased $6.0 million,
from $41.4 million to $47.4 million, during the three months ended March 31,
1998. See the Consolidated Statement of Cash Flows contained in this Form
10-Q for further information regarding the $3.4 million decrease in cash and
cash equivalents from $4.8 million at December 31, 1997 to $1.4 million at
March 31, 1998.
Shareholders' equity increased from approximately $47.5 million as of
March 31, 1997 to approximately $49.8 million as of March 31, 1998. This
change primarily is due to the result of net earnings of $0.9 million and
stock issued in purchase of Road Rescue of $1.5 million. See Note 7 of the
financial statements in this Form 10-Q for further information regarding the
acquisition of Road Rescue. The Company's debt to equity ratio increased to
31.4% on March 31, 1998, compared with 20.2% at December 31, 1997 due to the
$1.5 million of term debt used to finance the acquisition of Road Rescue and
the increase in borrowing due to the increased inventory.
The Company's primary unsecured line of credit with a bank provides
for maximum borrowings of $20.0 million at 45 basis points above the 30-day
LIBOR, which was 6.13% at March 31, 1998. As of March 31, 1998, there were
no borrowings against this line. In addition, under the terms of its
credit agreement with its bank, the Company has the ability to issue
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
letters of credit totaling $0.4 million. At March 31, 1998, the Company had
outstanding letters of credit totaling $0.2 million. The Company also has
unsecured lines of credit at its subsidiary locations for $0.75 million and
$1.0 million. There were no borrowings on these lines of credit at March
31, 1998. The Company believes it has sufficient resources 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 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 selling prices of its
products. However, the Company normally does not attempt to negotiate
inflation-based price adjustment provisions into its contracts. Since
order lead times can be as much as six months, Spartan has limited ability
to pass on cost increases to its customers on a short-term basis. In
addition, the markets served by the Company are competitive in nature, and
competition limits the pass through of cost increases in many cases. The
Company strives to minimize the effect of inflation through cost reductions
and improved productivity.
YEAR 2000 COMPLIANCE
The Company is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, in the form of software
failure, errors or miscalculations.
The Company established a Year 2000 task force and developed a plan to
prepare for the year 2000 in 1998. This plan began with the performance of
an inventory of software applications and communicating with third party
vendors and suppliers. The Company has a plan, which regularly is updated
and monitored by technical personnel. Plan status regularly is review by
management of the Company.
The Company will continue to assess the impact of the Year 2000 issue
on the remainder of its computer-based systems and applications throughout
1998. The Company's goal is to perform tests of its systems ad
-16-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
applications during 1998 and to have all systems and applications compliant
with the century change by December 31, 1998, allowing 1999 to be used for
full validation and testing.
The costs associated with the Year 2000 compliance primarily will
consist of personnel expense for staff dedicated to the effort and
professional fees paid to third party providers of remedial services. It
is the Company's policy to expense such costs as incurred. The Company
also may invest in new or upgraded technology that has definable value
lasting beyond 2000. In these instances, where Year 2000 compliance is
merely ancillary, the Company may capitalize and depreciate such an asset
over its estimated useful life.
In addition to reviewing its own computer operating systems and
applications, the Company will have formal communications with its
significant suppliers and large customers to determine the extent to which
the Company's interface systems are vulnerable to those of third parties'
failure to resolve their own Year 2000 issues. There is no assurance that
the systems of other companies on which the Company's systems rely will be
converted in a timely manner. If such modification and conversions are not
made, or are not completed timely, the Year 2000 issue could have an
adverse impact on the operations of the Company.
Based on currently available information, management does not
presently anticipate that the costs to address the Year 2000 issues will
have as adverse impact on the Company's financial conditions, results of
operation or liquidity.
The date on which the Company believes it will complete the Year 2000
modifications are based on management's best estimates. There can be no
guarantee that these estimates will be achieved and actual results could
differ from those anticipated. Specific factors that might cause
differences include, but are not limited to, the ability of other companies
on which the Company's systems rely to modify or convert their systems to
be Year 2000 compliant, the ability to locate and correct all relevant
computer code and similar circumstances.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and
projections about the chassis market, the economy and about the Company
itself. Words such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "intends," "is likely," "plans," "projects," variations of
such words and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
performance and involve certain risks, uncertainties and assumptions
("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual
results and outcomes may differ materially from what may be expressed or
forecasted in such forward-looking statements. The Company undertakes no
obligation to update, amend or clarify forward-looking statements, as a
result of new information, future events or otherwise. Future Factors that
could cause a difference between a ultimate actual outcome and a preceding
forward-looking statement include, but are not limited to, changes in
interest rates; demand for products and services; the degree of competition
by competitors; changes in laws or regulations, including changes related
to safety standard adopted by NFPA; changes in prices, levies and
assessments; the impact of technological advances; government and
regulatory policy changes; trends in customer behaviors; dependence on key
personnel; and the vicissitudes of the world and national economy.
-18-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
EXHIBIT NO. DOCUMENT
3.1 Spartan Motors, Inc. Restated Articles of Incorporation.
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the period ended December 31, 1995,
and incorporated herein by reference.
3.2 Spartan Motors, Inc. Bylaws (restated to reflect all
amendments). Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1995, and incorporated herein by reference.
4.1 Restated Articles of Incorporation. See Exhibit 3.1 above.
4.2 Bylaws. See Exhibit 3.2 above.
4.3 Form of Stock Certificate. Previously filed as an exhibit to
the Registration Statement on Form S-18 (Registration No.
2-90021-C) filed on March 19, 1984, and incorporated herein
by reference.
4.4 Rights Agreement dated June 4, 1997, between Spartan Motors,
Inc. and American Stock Transfer and Trust Company.
Previously filed as an Exhibit to the Company's Form 8-A filed
on June 25, 1997, and incorporated herein by reference.
10.1 Restated Spartan Motors, Inc. 1988 Non-Qualified Stock Option
Plan.<F*> Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996, and incorporated herein by reference.
10.2 The Spartan Motors, Inc. 1984 Incentive Stock Option Plan.<F*>
Previously filed as an Exhibit to the Registration Statement
on Form S-8 (Registration No. 33-28432) filed on April 28,
1989, and incorporated herein by reference.
10.3 Restated Spartan Motors, Inc. 1994 Incentive Stock Option
Plan.<F*> Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996, and incorporated herein by reference.
-19-
<PAGE>
EXHIBIT NO. DOCUMENT
10.4 The Spartan Motors, Inc. 1996 Stock Option and Restricted
Stock Plan for Outside Market Advisors. Previously filed as
an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996, and incorporated herein by
reference.
10.5 Carpenter Industries, Inc. Stockholders' Agreement.
Previously filed as an Exhibit to the Company's Form 8-K
Current Report filed on January 21, 1997, and incorporated
herein by reference.
10.6 Contribution Agreement between Carpenter Industries LLC and
Carpenter Industries, Inc. Previously filed as an Exhibit to
the Company's Form 8-K Current Report filed on January 21,
1997, and incorporated herein by reference.
10.7 Carpenter Industries, Inc. Registration Rights Agreement.
Previously filed as an Exhibit to the Company's Form 8-K
Current Report filed on January 21, 1997, and incorporated
herein by reference.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. The Company filed a Current Report Form 8-K on
January 19, 1998, regarding the Company's merger with Road Rescue, Inc.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Spartan Motors, Inc. has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SPARTAN MOTORS, INC.
Date: May 14, 1998 By /S/RICHARD J. SCHALTER
Richard J. Schalter
Secretary, Treasurer and Chief Financial
Officer
-21-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
3.1 Spartan Motors, Inc. Restated Articles of Incorporation.
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the period ended December 31, 1995,
and incorporated herein by reference.
3.2 Spartan Motors, Inc. Bylaws (restated to reflect all
amendments). Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1995, and incorporated herein by reference.
4.1 Restated Articles of Incorporation. See Exhibit 3.1 above.
4.2 Bylaws. See Exhibit 3.2 above.
4.3 Form of Stock Certificate. Previously filed as an exhibit to
the Registration Statement on Form S-18 (Registration No.
2-90021-C) filed on March 19, 1984, and incorporated herein
by reference.
4.4 Rights Agreement dated June 4, 1997, between Spartan Motors,
Inc. and American Stock Transfer and Trust Company.
Previously filed as an Exhibit to the Company's Form 8-A filed
on June 25, 1997, and incorporated herein by reference.
10.1 Restated Spartan Motors, Inc. 1988 Non-Qualified Stock Option
Plan.<F*> Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996, and incorporated herein by reference.
10.2 The Spartan Motors, Inc. 1984 Incentive Stock Option Plan.<F*>
Previously filed as an Exhibit to the Registration Statement
on Form S-8 (Registration No. 33-28432) filed on April 28,
1989, and incorporated herein by reference.
10.3 Restated Spartan Motors, Inc. 1994 Incentive Stock Option
Plan.<F*> Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996, and incorporated herein by reference.
10.4 The Spartan Motors, Inc. 1996 Stock Option and Restricted
Stock Plan for Outside Market Advisors. Previously filed as
an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996, and incorporated herein by
reference.
<PAGE>
EXHIBIT NO. DOCUMENT
10.5 Carpenter Industries, Inc. Stockholders' Agreement.
Previously filed as an Exhibit to the Company's Form 8-K
Current Report filed on January 21, 1997, and incorporated
herein by reference.
10.6 Contribution Agreement between Carpenter Industries LLC and
Carpenter Industries, Inc. Previously filed as an Exhibit to
the Company's Form 8-K Current Report filed on January 21,
1997, and incorporated herein by reference.
10.7 Carpenter Industries, Inc. Registration Rights Agreement.
Previously filed as an Exhibit to the Company's Form 8-K
Current Report filed on January 21, 1997, and incorporated
herein by reference.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SPARTAN
MOTORS, INC. AND SUBSIDIARIES FOR THE PERIOD ENDED MARCH 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,367,252
<SECURITIES> 2,820,109
<RECEIVABLES> 26,866,455
<ALLOWANCES> 678,000
<INVENTORY> 38,274,197
<CURRENT-ASSETS> 73,152,387
<PP&E> 12,021,753
<DEPRECIATION> 10,056,000
<TOTAL-ASSETS> 91,136,431
<CURRENT-LIABILITIES> 25,734,432
<COMMON> 125,610
<BONDS> 15,623,381
0
0
<OTHER-SE> 49,653,008
<TOTAL-LIABILITY-AND-EQUITY> 91,136,431
<SALES> 59,156,255
<TOTAL-REVENUES> 59,450,205
<CGS> 50,470,479
<TOTAL-COSTS> 50,470,479
<OTHER-EXPENSES> 5,754,610
<LOSS-PROVISION> 66,474
<INTEREST-EXPENSE> 217,627
<INCOME-PRETAX> 3,225,116
<INCOME-TAX> 1,036,879
<INCOME-CONTINUING> 938,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 938,237
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
