<PAGE>
===========================================================================
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-13611
SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-2078923
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1000 REYNOLDS ROAD
CHARLOTTE, MICHIGAN 48813
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (517) 543-6400
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.
Aggregate Market Value as of March 15, 1999: $66,816,501
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of March 15, 1999: 12,576,040
shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Company's May 18, 1999,
annual meeting of shareholders are incorporated by reference in Part III.
===========================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Spartan Motors, Inc. ("Spartan" or the "Company") was organized as a
Michigan corporation on September 18, 1975, and is headquartered in
Charlotte, Michigan. The Company began development of its first product
that same year and shipped its first fire truck chassis in October 1975.
For years, Spartan has been known as a world leading, niche market,
engineer and manufacturer for transportation related markets. In June of
1998, the Corporation restructured its operations into four wholly owned
subsidiaries: Spartan Motors Chassis, Inc. located at the corporate
headquarters in Charlotte, Michigan ("Spartan Motors Chassis"); Road
Rescue, Inc. located in St. Paul, Minnesota ("Road Rescue"); Quality
Manufacturing, Inc. located in Talladega, Alabama ("Quality"); and Luverne
Fire Apparatus Co., Ltd. located in Brandon, South Dakota ("Luverne").
Spartan is a leading designer, engineer and manufacturer of custom heavy-
duty chassis. The Company's chassis consist of a frame assembly, engine,
transmission, electrical system, running gear (wheels, tires, axles,
suspension and brakes) and, for fire trucks and some specialty chassis
applications, a cab. The Company's customers are original equipment
manufacturers ("OEMs") who complete their heavy-duty vehicle product by
mounting the body or apparatus on a Spartan chassis.
In its continued efforts to diversify, the Company completed the
acquisitions of Quality and Luverne, two fire truck apparatus companies, in
the third quarter of 1997, and Road Rescue, an emergency vehicle
manufacturer, in the first quarter of 1998. The premium ambulance product
manufactured by Road Rescue is a new market for the Company. The Company
believes that the acquisition of an ambulance manufacturer expands product
diversification and growth opportunities. The acquisitions are expected to
place the acquired companies and Spartan in a position to take advantage of
opportunities, including coordinated purchasing efforts and improved
supplier relations.
The Company's business strategy is to further diversify its product lines
and develop its design, engineering and manufacturing expertise to continue
to be the best value producer of custom vehicle products in the national
and international marketplace. Spartan Motors Chassis sells its custom
chassis to four principal markets: fire truck, motorhome, school and
transit bus and specialty. Spartan focuses on certain custom niches within
its four principal markets and believes that opportunities for growth
remain strong for custom-built chassis and vehicles in each market.
2
<PAGE>
The Company recognizes that annual unit sales of motorhome chassis have
been substantially greater than that of the other three principal chassis
markets. Thus, in the past four years management has placed special
emphasis on further diversification into the school bus, transit bus and
specialty chassis markets.
Also, during the first quarter of 1997, the Company purchased a 33 1/3%
equity interest in school bus body maker Carpenter Industries, Inc.
("Carpenter"). In October 1998, the Company acquired additional shares of
Carpenter's stock, bringing its total ownership to 49.9%, and entered into
an agreement that allows Spartan to control operations and day-to-day
management responsibilities in coordination with a Spartan-appointed
management team. In addition, the Company acquired 95.5% of Carpenter's
non-voting stock. This stock will convert to voting stock on a one-to-one
basis upon the approval of the filing made by the Company under the Hart-
Scott-Rodino Antitrust Improvements Act. This continued investment
provides Spartan with the opportunity to further diversify its business by
offering custom chassis products to the 35,000-unit annual school bus
marketplace. The Company's investment in Carpenter is partnered with San
Mateo, California-based Recovery Equity Investors, Inc., with members of
the key management team at Carpenter obtaining shares of Carpenter stock.
The Company prides itself on the "Spartan" method of conducting business,
which features frugality, limited corporate bureaucracy and proactive
associate involvement. The Company believes that it can best carry out its
long-term business plan and obtain optimal financial flexibility by using
internally or externally generated equity capital as its primary source of
expansion capital.
SUBSIDIARIES/PRODUCTS
The Company is organized into two principal groups, the Chassis Group and
the Bodies Group. For a description of certain financial information
related to each group see Note 16 ("Business Segments") of the Notes to
Consolidated Financial Statements appearing in this Form 10-K.
CHASSIS GROUP
Ninety-eight percent of the components used by Spartan Motors Chassis
("Chassis Group") to manufacture its chassis are commercially available
products purchased from outside suppliers. This strategy allows the
Chassis Group, and its OEMs and end users, to service finished products
with ease, control production costs and expedite the development of new
products. The Chassis Group manufactures chassis only upon receipt of
confirmed purchase orders; thus, it does not have significant amounts of
completed product inventory.
3
<PAGE>
The Chassis Group has extensive engineering experience in creating chassis
for vehicles that perform specialized tasks. The Chassis Group engineers,
manufactures and markets chassis for fire trucks, motorhomes, school buses,
transit buses and specialty applications such as airport sweepers, utility
trucks and crash-rescue apparatus. As a specialized chassis producer, the
Chassis Group believes that it holds a unique position for continued growth
due to its engineering reaction time, manufacturing expertise and
flexibility to profitably manufacture chassis with a specialized design
which will serve customer needs more efficiently and economically than a
standard, commercially-produced chassis.
FIRE TRUCKS CHASSIS
The Chassis Group custom manufactures fire truck chassis and cabs in
response to exact customer specifications. These specifications vary based
on such factors as application, terrain, street configuration and the
nature of the community, state or country in which the fire truck will be
utilized.
The Chassis Group strives to develop innovative engineering solutions to
meet customer requirements, and designs new products anticipating the
future needs of the marketplace. An example of this progressive approach
is the Chassis Group's Advantage fire truck chassis and cab. This entry-
level product was engineered to directly compete within the $80.0 million
commercially produced fire truck chassis market. The Advantage fire truck
chassis and cab is priced competitively without sacrificing the added
flexibility, quality and end user orientation of a custom-built fire truck.
The Chassis Group monitors the availability of new technology and works
closely with its component manufacturers to apply this technology to the
Company's products. For example, the Chassis Group helped introduce the
Detroit Diesel Series 60 engine to the fire truck market, which is
typically used in heavy-duty commercial applications. These engines allow
fire trucks to have larger cab interiors because the pistons are configured
in a straight line rather than in a V-shape. The Chassis Group also worked
with Cummins Engine Co. on the introduction of the N-14 and M-11 engines.
This collaboration resulted in attaining higher emission standards through
charged air-cooled diesel engines. The Company also implemented the MD
series and HD series Allison World Transmission, an improved wholly
electronic automatic transmission design that provides better performance
characteristics and improved service and maintenance capabilities. An
additional illustration of bringing technically advanced components and
products to the fire truck marketplace was the introduction of the
Spartan/Granning Independent Front Suspension ("I.F.S.") in 1998. I.F.S.
places air bags as close to the wheel as possible, utilizing full air
suspension cushions and a constant axle centerline, thus creating a
superior ride, improved handling and greater stability. In addition,
4
<PAGE>
I.F.S. reduces over-steer and under-steer, brake dive and wheel-to-wheel
transfer of road shock to passengers and the body of the vehicle.
The Chassis Group believes that the percentage of fire trucks manufactured
with customized chassis will continue to increase. This is primarily due to
the fact that customized chassis respond to customers' demands for
increased safety features and offer more options and specific
configurations when compared to standard, commercially produced fire
trucks.
The National Fire Protection Association ("NFPA") adopts safety standards
for fire trucks. NFPA standards typically add new requirements that are
intended to increase the safety of fire fighters. Past NFPA standards have
included the total enclosure of all crew-seating areas, establishment of
maximum stepping heights on the apparatus and the provision of access hand
rails. Although NFPA standards are not mandatory, past standards have
significantly impacted fire truck purchasing decisions.
MOTORHOME CHASSIS
The Chassis Group custom manufactures chassis to the individual
specifications of its motorhome chassis OEMs. These specifications vary
based on specific interior and exterior design specifications, power
requirements, horsepower and electrical needs of the motorhome bodies to be
attached to the Spartan chassis. The Chassis Group's motorhome chassis are
separated into three major product series: (i) the "Summit" series
chassis; (ii) the "Mountain Master" series chassis; and (iii) the "K-2"
series chassis. These motorhome chassis are basically distinguished by
differences in allowable vehicle weight, length, gross vehicle weight,
engines, options and price. The Chassis Group designs and engineers
modifications to these three basic product groups to meet customer
requirements and to adapt the chassis to each OEMs specific manufacturing
process.
The Chassis Group continually seeks to develop innovative engineering
solutions to customer requirements and strives to anticipate future market
needs and trends by working closely with the OEMs and listening to the end
users.
TRANSIT AND SCHOOL BUS/CHASSIS
The Chassis Group continued to make significant strides toward continued
product diversification in 1998. These diversification efforts were
specifically focused on expanding Spartan's share in the transit bus and
school bus chassis marketplace. The school bus chassis market, coupled with
a growing market for the Chassis Group's custom transit bus chassis,
creates an excellent opportunity to further diversify into other transit
bus products. The Chassis Group currently believes that the transit bus
5
<PAGE>
business continues to show an opportunity for growth for custom chassis
manufacturing. As the market recognizes the long-term cost savings
relating to maintenance and the extended life cycle of a custom bus and
identifies the need to place safety as a top priority, custom chassis will
have an opportunity for growth. Also creating an atmosphere that favors
custom chassis is the aging population that is expected to require
additional premium, mass-transit type transportation. The Company believes
that medium to small cities and private contractors are committed to move
toward small and midsize buses under 32 feet in length, similar to the
buses produced on Spartan's chassis. The move to smaller specialty buses
is evidenced by the growth in major bus companies that have continued to
build on Spartan's custom chassis.
The overall school bus market has grown 2.4% from approximately 37,100
units in 1997 to approximately 38,000 units in 1998. Sales of transit
style buses remained constant at approximately 9,300 units during both 1997
and 1998. The Chassis Group supplies transit style school bus chassis to
Carpenter, and the Chassis Group believes that this portion of the school
bus market will continue to be a growing segment of the overall school bus
market. The transit style bus generally is superior to the classic type A
& B school bus in terms of safety, handling and durability.
Spartan's innovative custom low floor bus chassis continued to increase
market share in 1998, as the design eliminates the need for costly
mechanical wheel chair lifts through a revolutionary curb height design
that permits the use of manually operated ramps. Spartan's low floor
chassis allows end users to meet Americans with Disabilities Act standards,
which require handicapped accessibility on all publicly funded buses, on a
competitive bases.
The Chassis Group currently expects that its domestic bus vehicle market
will continue to grow due to consumers' increasing demands for improved
mobile services and increasing concern over safety issues. These two areas
are specifically addressed through the use of the Chassis Group's custom
chassis.
Potential customers outside of the United States, in areas where bus
transportation is used to a greater extent than domestically, continue to
show significant interest in the Company's custom bus chassis. The
Company's ability to readily convert the bus chassis from left-hand to
right-hand steering, and the use of components that are serviceable and
accessible throughout the world, should enable Spartan's bus chassis to
continue its growth in the international marketplace.
SPECIALTY VEHICLE CHASSIS
The Chassis Group enjoyed an 89.2% increase in sales of specialty chassis
in 1998. The Chassis Group continues to develop specialized chassis and
6
<PAGE>
actively seeks additional applications of its existing products and
technology in the specialty vehicle market. Spartan believes that this
specialty product group continues to have strong sales growth potential in
the world marketplace. With its experience in manufacturing chassis for
bookmobiles, mobile medical units and other specialty uses, the Company
believes it is well positioned to continue to benefit and flourish in this
market.
BODIES GROUP
Spartan's Bodies Group consists of its three wholly owned subsidiaries,
Luverne, Quality and Road Rescue, and its 49.9% owned subsidiary,
Carpenter. All four companies engineer and manufacture vehicles built on
chassis platforms purchased from outside sources.
LUVERNE FIRE APPARATUS CO., LTD.
Luverne engineers, manufactures and markets its custom and commercial fire
apparatus products through a network of dealers throughout North America.
Luverne's product lines include pumper and aerial fire apparatus. Luverne
is recognized in the industry for its innovative design, engineering
expertise and bringing the strength of "Tubular Stainless Steel" design to
the emergency vehicle market. Luverne employs approximately 60 associates
at its headquarters in Brandon, South Dakota.
QUALITY MANUFACTURING, INC.
Quality engineers, manufactures and markets custom and commercially
produced emergency vehicles at its Talladega, Alabama headquarters.
Approximately 85 associates produce pumper and aerial fire apparatus that
are marketed through a dealer network covering North America. Quality
focuses its efforts on high-end fire truck customers who desire to extend
the lifecycle of their emergency vehicles by purchasing premium products.
ROAD RESCUE, INC.
Road Rescue engineers, manufactures and markets premium, custom advanced-
care ambulances and rescue vehicles at its headquarters in St. Paul,
Minnesota. Road Rescue is a market leader in the design and manufacturing
of Type I and Type III advanced care ambulances, especially medium-duty
type vehicles, which represent one of the fastest growing segments of the
emergency vehicle market. Road Rescue markets its products through a
dealer network throughout the United States and Canada. Road Rescue
employs approximately 130 associates.
7
<PAGE>
CARPENTER INDUSTRIES, INC.
Carpenter engineers, manufactures and markets primarily type C and type D
school bus bodies at its headquarters in Richmond, Indiana. The two
principal components of a school bus are the body and chassis. Bodies and
chassis are sold either as integrated units, provided by a single supplier,
or separately, in which case end users purchase bodies and chassis from
different suppliers and have the two components assembled by the bus body
manufacturer. Carpenter markets its products through approximately 40
dealers throughout the United States. The bus body builder employs
approximately 225 associates.
SPARTAN DE MEXICO S.A. DE C.V.
Spartan de Mexico S.A. de C.V. ("Spartan de Mexico") was established in
January 1993 as the Company's wholly owned subsidiary in Queretaro, Mexico.
Spartan de Mexico produced 81 transit bus chassis during 1994. The Company
halted production in 1995 due to the faltering Mexican economy that
negatively affected the demand for transit bus chassis. Spartan de Mexico
incurred losses of $1.2 million 1996. To minimize future negative impacts
on the Company, in December 1996 management determined to close the Spartan
de Mexico facility. As a result of its decision to cease operations, the
Company recorded an additional loss of $4.4 million at year end 1996
resulting from the termination of the cumulative translation adjustment and
the disposal of substantially all inventory not transferred to the
Company's Charlotte, Michigan facilities and the write off of certain
account receivables. Additionally, as part of its exit plan the Company is
actively seeking buyers for the real estate and building located in
Queretaro, Mexico.
MARKETING
Spartan Chassis Group markets its custom manufactured chassis primarily
through the direct contact of its sales department with OEMs, dealers and
end users. The apparatus subsidiaries maintain dealer organizations and
establish close working relationships through their sales departments with
end users. These personal contacts focus on the quality of the each
group's custom products and allow the Company to keep customers updated on
new and improved product lines and end users needs.
In 1998, representatives from the Company attended trade shows, rallies and
expositions throughout North America to promote its products. Trade shows
provide the opportunity to display products and to meet directly with OEMs
who purchase chassis, dealers who sell finished vehicles and consumers who
buy the finished product. Participation in these events also allows the
Company to learn what customers and end users are looking for in the
future. The Company uses these events to create a competitive advantage by
8
<PAGE>
relaying this information back to its research and development engineering
groups for future development purposes. In 1998 Company representatives
also attended trade shows in Europe for the purpose of introducing,
promoting and expanding the Chassis Group's chassis product lines into
international markets.
The Chassis Group's sales, marketing and communication team is responsible
for marketing its custom manufactured chassis and producing product
literature. The sales group consists of approximately nine salespeople
based in Charlotte, Michigan and nine salespeople located throughout North
America, including the independent sales forces of the newly-acquired
emergency vehicle subsidiaries. In addition, the Company retains a sales
representative in London in a continued effort to increase penetration in
this international marketplace.
COMPETITION
The principal methods of competitive advantages utilized by the Company
include customized design, product and service quality and speed of
delivery. The Company competes with companies, some of which are divisions
of large diversified organizations that have total sales and financial
resources exceeding those of the Company, that manufacture for similar
markets. Certain competitors are vertically integrated and manufacture
their own commercial chassis and/or apparatuses, although they generally do
not sell their chassis to outside customers (OEMs). The Company's direct
competitors in the specialty chassis and emergency vehicle apparatus
markets are principally smaller manufacturers.
Because of the lack of reliable published statistics, the Company is unable
to state with certainty its position in the market compared to its
competition. The market share in the custom chassis market is fragmented
and the Company believes that no one company has a dominant market
position.
MANUFACTURING
The Chassis Group has three principal assembly facilities in Charlotte,
Michigan for its custom chassis products. Due to the custom nature of its
business, Spartan chassis cannot be manufactured efficiently on automated
assembly lines. Generally, the Chassis Group designs, engineers and
assembles its specialized heavy-duty truck chassis using commercially
available components purchased from outside suppliers rather than producing
components internally. This approach facilitates prompt serviceability of
finished products, reduces production costs, expedites the development of
new products and reduces the potential of costly down time for the end
user.
9
<PAGE>
The Bodies Group's products are manufactured and assembled in each of their
respective subsidiary facilities. The chassis for the products are
purchased from the Chassis Group and from outside commercially-produced
chassis manufacturers. The facilities do not use fully automated assembly
lines since each vehicle is manufactured to meet specifications of an end
user order. The chassis is rolled down the assembly line on temporary
wheels as other components are added and connected. The body is
manufactured at the facility with components such as pumps, tanks, aerial
ladders and electrical control units purchased from outside suppliers.
The Company believes that the assembly facilities of its subsidiaries are
sufficient for current product production and capacity increases can be
achieved at relatively low cost, largely by increasing the number of
production associates or adding additional shifts.
SUPPLIERS
An important strategy in the Company's product development has been its
ability to purchase quality sub-assemblies and parts from some of the
leading automotive parts suppliers in the country. Major component
suppliers include Meritor Automotive, Inc., Detroit Diesel, Inc., Cummins
Engine Co., Allison Division of General Motors Corporation, Truck Cab
Manufacturing, Eaton Axle Corporation, REYCO Industries, Inc., Granning
Suspensions and Goodyear Tire and Rubber Co. The Company is able to better
control production costs due to its high volume purchasing power with these
component suppliers. With the additional joint volume buying power of the
Company's new subsidiaries, it is expected to further control and reduce
per piece component costs in the future.
RESEARCH AND DEVELOPMENT
The Chassis Group success has depended on its ability to respond quickly to
changing market demands. Thus, it emphasizes research and development and
commits significant resources to develop and adapt new products and
production techniques. The Chassis Group devotes a portion of its
facilities to research and development projects and focuses on implementing
the latest technology from component manufacturers into existing products
and manufacturing prototypes of new product lines. All four Bodies Group
subsidiaries currently operate research and development groups with similar
results in mind.
PRODUCT WARRANTIES
The Company's subsidiaries all provide limited warranties against
assembly/construction defects. These warranties generally provide for the
replacement or repair of defective parts or workmanship for a specified
period following the date of sale. The end users also may receive limited
10
<PAGE>
warranties from suppliers of components that are incorporated into the
Company's chassis and vehicles.
PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
The Company has three patents, one copyright and one service mark. The
Company also has four trademarks, three registered in the United States and
one in Mexico. Two of these registered trademarks are of the Spartan
insignia and limit the right of use exclusively to the Company.
The Company believes its products are identified by the Company's
trademarks and that its trademarks are valuable assets. The Company is not
aware of any infringing uses or any prior claims of ownership of its
trademarks that could materially affect its business.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental laws and regulations
has not had, nor is it expected to have, a material effect on the capital
expenditures, earnings or competitive position of the Company.
ASSOCIATES
The Company and its subsidiaries employed approximately 1,025 full-time
associates as of December 31, 1998. Production workers totaling
approximately 150 associates at Carpenter's facilities are represented by
the United Auto Workers Union. Management presently considers its
relations with associates to be positive.
CUSTOMER BASE
In 1998, the Company's customer base included two major customers. Sales
in 1998 to Fleetwood Motor Homes of Indiana, Inc. ("Fleetwood") were
approximately $62.8 million and sales to Newmar Corp. ("Newmar") were
approximately $40.6 million. These numbers compare to sales of
approximately $46.8 million to Fleetwood and $30.9 million to Newmar in
1997 and approximately $32.8 million to Fleetwood and $23.5 million to
Newmar in 1996. Sales to customers classified as major amounted to 40%,
43% and 32% of total revenues in 1998, 1997 and 1996, respectively.
Although the loss of a major customer potentially could have a material
adverse effect on the Company and its future operating results, the Company
believes that it has developed strong relationships with its customers.
BACKLOG ORDERS
At December 31, 1998, the Company had backlog orders for the Chassis Group
of approximately $83.5 million compared with a backlog of approximately
11
<PAGE>
$71.0 million at December 31, 1997. At December 31, 1998, the Company had
backlog orders for the Bodies Group of approximately $37.1 million compared
with a backlog of approximately $21.7 million at December 31, 1997.
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.
ITEM 2. PROPERTIES.
The following table sets forth information concerning the properties owned
or leased by the Company. Management of the Company believes that its
facilities are adequate to meet its requirements for the foreseeable
future.
<TABLE>
<CAPTION>
OWNED/ SQUARE
USED BY LOCATION USE LEASED FOOTAGE
- ---------------------- -------------------------------- ------------------- ------ -------
<S> <C> <C> <C> <C>
Spartan Motors, Inc. Plant I - 1000 Reynolds Road Headquarters, Owned 51,000
Charlotte, Michigan Manufacturing
and Warehousing
Spartan Motors, Inc. Plant II - 1165 Reynolds Road Manufacturing, Sales Owned 44,000
Charlotte, Michigan and Marketing
Spartan Motors, Inc. Plant III - 1580 Mikesell Street Engineering and Owned 50,000
Charlotte, Michigan Manufacturing
Spartan Motors, Inc. Plant IV - 1549 Mikesell Street Manufacturing, Owned 140,000
Charlotte, Michigan Receiving, Service
Parts, Customer Service,
Research & Development
and Warehousing
Spartan de Mexico Acceso III S-N, Manufacturing and Owned 100,000<F*>
S.A. de C.V. Queretaro, Mexico Warehousing
Luverne Fire 1209 E. Birch Street Headquarters, Leased 28,000
Apparatus Co., Ltd. Brandon, South Dakota Manufacturing,
and Warehousing
12
<PAGE>
Quality Manufacturing, 1420 Nimitz Avenue General offices, Owned 65,000
Inc. Talladega, Alabama Manufacturing
and Warehousing
Road Rescue, Inc. 1133 Rankin Street General offices, Leased 105,000
Saint Paul, Minnesota Manufacturing
and Warehousing
Carpenter Industries, 1100 Industries Rd. General offices, Leased 530,000
Inc. Richmond, Indiana Manufacturing
and Warehousing
- --------------------------
<FN>
<F*>Currently idle
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1998, the Company and its subsidiaries were parties,
both as plaintiff or defendant, to a number of lawsuits and claims
arising out of the normal conduct of their business. In the opinion
of management, the financial position of the Company will not be
materially affected by the final outcome of these legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1998, no matters were submitted to a vote
of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
Spartan's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SPAR."
Since 1992, the Board of Directors has authorized management to
repurchase up to a total of 1,400,000 shares of its Common Stock in
open market transactions. Management repurchased 51,600 shares
through December 31, 1998. Repurchase of Common Stock is contingent
upon market conditions. The Company has not set an expiration date
for the completion of the repurchase program. The treasury stock has
13
<PAGE>
been constructively retired in accordance with the Michigan Business
Corporation Act.
The following table sets forth the high and low sale prices for the
Company's Common Stock for the periods indicated, all as reported by
The Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1998:
First Quarter . . . . . . . . . . . . . . . . . $8.625 $6.188
Second Quarter. . . . . . . . . . . . . . . . . 8.375 7.063
Third Quarter . . . . . . . . . . . . . . . . . 7.250 4.750
Fourth Quarter. . . . . . . . . . . . . . . . . 6.875 4.438
Year Ended December 31, 1997:
First Quarter . . . . . . . . . . . . . . . . . $8.250 $6.375
Second Quarter. . . . . . . . . . . . . . . . . 8.000 6.625
Third Quarter . . . . . . . . . . . . . . . . . 9.625 6.875
Fourth Quarter. . . . . . . . . . . . . . . . . 7.500 5.250
</TABLE>
The Company declared cash dividends of $0.07 per outstanding share on
May 19, 1998 and $0.07 per outstanding share on April 20, 1997, to
shareholders of record on May 31, 1998 and April 20, 1997.
The number of shareholders of record of the Company's Common Stock on
March 18, 1999 was 935.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data shown below for the Company for each of
the five years in the period ended December 31, 1998, has been derived
from Consolidated Financial Statements of the Company, which have been
audited by the Company's independent auditors, Ernst & Young LLP, with
respect to the year ended December 31, 1998, and Deloitte & Touche
LLP, with respect to the years ended December 31, 1997, 1996, 1995 and
1994. The following data should be read in conjunction with the
Consolidated Financial Statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Form 10-K.
14
<PAGE>
<TABLE>
Five-Year Operating and Financial Summary
(In Thousands of Dollars, Except Per Share Data)
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $255,338 $178,641 $174,677 $152,599 $189,409
Cost of products sold 217,979 155,291 148,629 131,809 158,390
-------- -------- -------- -------- --------
Gross profit 37,359 23,350 26,048 20,790 31,019
Operating expenses:
Research and development 5,517 4,692 4,194 3,135 3,002
Selling, general & administrative 19,147 15,801 14,264 13,252 13,127
-------- -------- -------- -------- --------
Operating income 12,695 2,857 7,590 4,403 14,890
Other (915) 52 685 1,024 1,629
-------- -------- -------- -------- --------
Earnings before loss on equity
investment, loss on closure
and taxes on income 11,780 2,909 8,275 5,427 16,519
Equity in loss of affiliate 4,059 15,403
Loss on closure of Mexican subsidiary 4,423
Taxes on income 4,236 630 1,532 2,000 5,906
-------- -------- -------- -------- --------
Net earnings (loss) $ 3,485 $(13,124) $ 2,320 $ 3,427 $ 10,613
======== ======== ======== ======== ========
Basic and diluted earnings per share $ 0.28 $ (1.06) $ 0.18 $ 0.27 $ 0.80
======== ======== ======== ======== ========
Cash dividends per common share $ 0.07 $ 0.07 $ 0.05 $ 0.05 $ 0.05
======== ======== ======== ======== ========
Basic and diluted weighted average
common shares outstanding 12,507 12,381 12,541 12,887 13,203
======== ======== ======== ======== ========
Balance Sheet Data:
Net working capital $ 45,208 $ 41,429 $ 54,840 $ 50,890 $ 52,316
Total assets 125,916 81,245 79,683 75,211 81,067
Long-term obligations 31,891 9,604 5,207 5,792 6,211
Shareholders' equity 45,133 47,489 61,405 59,828 61,628
</TABLE>
The five year summary above should be read in conjunction with Note 5
"Equity Investment in Affiliate" and Note 15 "Acquisitions" of the
Consolidated Financial Statements.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following section provides a narrative discussion about Spartan's
financial condition and results of operations. The comments that
follow should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto presented in this Form
10-K.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,
1997
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 revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of products sold 85.4% 86.9% 85.1%
----- ----- -----
Gross profit 14.6% 13.1% 14.9%
Operating expenses:
Research and development 2.1% 2.6% 2.4%
Selling, general & administrative 7.5% 8.9% 8.2%
----- ----- -----
Operating income 5.0% 1.6% 4.3%
Other (0.4%) 0.1% 0.4%
----- ----- -----
Earnings before loss on equity investment,
loss on closure and taxes on income 4.6% 1.7% 4.7%
Equity in loss of affiliate 1.6% 8.6%
Loss on closure of Mexican subsidiary 2.5%
Taxes on income 1.6% 0.4% 0.9%
----- ----- -----
Net earnings (loss) 1.4% (7.3%) 1.3%
===== ===== =====
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1998, consolidated sales increased
$76.7 million (42.9%) over the amount reported for the same period in
the previous year. For the year ended December 31, 1998, chassis
sales increased $37.9 million compared to the amount reported for the
same period in the previous year, with the Bodies Group providing
approximately $55.6 million in revenues. Of the 42.9% increase in
sales, 13.1% is due to acquisitions completed in 1998 within the
Bodies Group. For the year ended December 31, 1998, revenues for fire
truck chassis and school bus chassis sales declined approximately 7.4%
and 60.5%, respectively, while motorhome chassis and transit bus
chassis sales increased approximately 36.7% and 70.0%, respectively,
compared to the year ended December 31, 1997. The reduction in fire
truck chassis sales relates to the soft market in 1998 and the
reduction in school bus chassis sales is attributable to the decline
in transit style bus sales to Carpenter. Currently, Carpenter is the
primary distribution point for school buses and its market share of
transit style buses declined during 1998. The increase in motorhome
chassis sales directly relates to the revenue and market share
increases by the Company's two largest customers, Fleetwood and
Newmar. Transit bus chassis sales increased primarily due to the
introduction of a new tour bus product line marketed by Metrotrans.
Additionally, $7.5 million of chassis that were sold to the Company's
subsidiaries during 1998 had to be eliminated from consolidated
revenues. Before the acquisitions, these chassis would have been
considered revenues for the Company.
Interest and other income, net of interest expense, declined $1.0
million primarily due to increased borrowings used to fund, in part,
the acquisition of Road Rescue and the Company's additional investment
in Carpenter. The decrease in equity in loss of affiliate as a
percentage of sales is due to a decrease in the net loss of Carpenter
in 1998 prior to the consolidation date when compared to 1997.
Included in Carpenter's net loss for 1997 was a write off of goodwill
due to the going concern qualification in its report of independent
auditors in 1997. The increase in the Company's income taxes as a
percentage of sales is due to increased profitability of the Company.
See Note 7 "Taxes on Income" for further information regarding income
taxes.
The report of independent auditors pertaining to Carpenter financial
statements for the year ended December 31, 1998 contained a going
concern qualification. For a portion of 1998, Carpenter was not
operating, which resulted in a large decline in sales and a weakened
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
backlog. Since the time that the Company increased its ownership and
assumed oversight of day-to-day management of operations, the Company
believes that Carpenter has developed a solid operating plan and the
Company is optimistic about the current business prospects of
Carpenter. The Company believes that the school bus market is
comparable in size to the motorhome market. This makes it an
important market in terms of diversification for the Company.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996
For the year ended December 31, 1997, consolidated sales increased
$4.0 million (2%) over the amount reported for the same period in the
previous year. For the year ended December 31, 1997, chassis sales
declined $8.5 million compared to the amount reported for the same
period in the previous year, with the Bodies Group providing
approximately $12.5 million in revenues since the acquisition of
Quality and Luverne in August of 1997. For the year ended December
31, 1997, revenues for fire truck chassis and bus chassis sales
declined approximately 17% and 25% respectively, while motorhome
chassis sales increased 12% compared to December 31, 1996. The
reduction in fire truck chassis sales related to the soft market in
1997 and the reduction in bus chassis sales primarily was attributable
to the decline in transit style bus sales to Carpenter. Carpenter is
the primary distribution point for school buses and their market share
of transit style buses declined dramatically during 1997. The
increase in motorhome chassis sales directly related to the revenue
and market share increases by the Company's two largest customers,
Fleetwood and Newmar.
Additionally, with the acquisition of two of the Company's customers,
Luverne and Quality, $3.2 million of chassis that were in the
inventory of the new subsidiaries at December 31, 1997 had to be
eliminated from consolidated revenues. In previous years, these
chassis would have been considered revenues for the Company.
Cost of products sold included a write-down of inventory in the fourth
quarter of 1997 of approximately $2.4 million that reflected
technological and production changes in the Chassis Group. The write-
down of inventory was the primary reason for the decrease in gross
margins from 14.9% in 1996 to 13.1% in 1997. Selling, general and
administrative expenses remained consistent with 1996 with the
exception of a write-off of a note receivable from a customer in 1997.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest and other income, net of interest expense, declined $1.3
million primarily due to the $15.3 million investment in Carpenter and
the $4.2 cash consideration paid for the acquisitions of Luverne and
Quality. The Company funded these investments through the liquidation
of approximately $6.0 million of marketable securities, increased
borrowings and cash generated from 1997 operations.
A going concern opinion was issued for Carpenter for the year ended
December 31, 1997. Carpenter incurred operating losses of $22.4
million and a non-cash impairment loss of $15.4 million for a total
loss of $37.8 million for the year ended December 31, 1997.
Consequently, the Company wrote down its investment in Carpenter to
zero and wrote off the notes receivable from Carpenter for a total
asset reduction of $15.3 million at December 31, 1997.
The Company believes that the school bus market is an important market
for the Company and therefore, in conjunction with the other
shareholders and new management of Carpenter, has taken steps to
improve the operations of Carpenter. 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 costs.
QUARTERLY RESULTS
The Company's rate of sales growth has varied historically from
quarter to quarter. For a description of quarterly financial data,
see Note 17 to the Consolidated Financial Statements in this Form 10-
K.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, cash used in operating
activities was approximately $11.0 million which was $26.1 million
less than the $15.1 million of cash provided by operating activities
for the year ended December 31, 1997. The Company's working capital
increased by $3.8 million from $41.4 million in 1997 to $45.2 million
in 1998. See the "Consolidated Statement of Cash Flows" contained in
this Form 10-K for further information regarding the $4.77 million
decrease in cash and cash equivalents, from $4.81 million as of
December 31, 1997, to $0.04 million as of December 31, 1998. See
"Selected Financial Data" for a five-year comparison of working
capital and see Note 5 to the Consolidated Financial Statements in
this Form 10-K for an event affecting liquidity.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Shareholders' equity decreased approximately $2.3 million to $45.1
million as of December 31, 1998. This change primarily is the result
of net earnings of $3.5 million, dividends of $0.9 million paid on
June 30, 1998, $0.3 million to acquire 51,600 shares of the Company's
Common Stock, $1.5 million related to the acquisition of Road Rescue
and $6.2 million related to the effect of the minority interest in
shareholders' deficit of Carpenter.
The Company's primary line of credit is a $25.0 million revolving note
payable to a bank. Under the terms of the line of credit 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 December 31, 1998 the Company was in compliance with all debt
covenants. The Company also has unsecured lines of credit at its
subsidiary locations for $0.2 million and $1.0 million and a secured
line of credit for $4.3 million. The $4.3 million line carries an
interest rate of 1/2% above the bank's prime rate (prime rate at
December 31, 1998, was 7.75%) and has an expiration date of June 1999.
This line of credit is secured by accounts receivable and inventory.
Borrowings under this line totaled $4,032,556 at December 31, 1998.
The other two lines carry an interest rate of 1% above the bank's
prime rate. The $0.2 million line has an expiration date of June 1,
1999. The $1.0 million line expires only if there is a change in
management. There were borrowings on one of these lines of $0.2
million at December 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.
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. The Company's investment securities matured before
the filing of this Form 10-K. 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 $0.3 million
in annual interest expense. Conversely, a decrease in interest rates
of 1% could result in the Company saving $0.3 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.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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,
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 READINESS DISCLOSURE
This Year 2000 Readiness Disclosure is based upon and partially
repeats information provided by the Company's outside consultants and
others regarding the Year 2000 readiness of the Company and its
customers, suppliers, financial institutions and other parties.
Although the Company believes this information to be accurate, it has
not independently verified such information.
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 equipment
with embedded chips and communications with third party vendors and
suppliers. The plan regularly is updated and monitored by the
Company's technical personnel and management. The Company's plan to
address the Year 2000 issue involves the following four phases:
assessment, remediation, testing and implementation. The status of
these phases is summarized in the chart below.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
---------- ----------- ------- --------------
<S> <C> <C> <C> <C>
Information Technology 100% Complete 100% Complete 95% Complete 95% Complete
Expected Expected
completion date is completion date is
June 1999. June 1999.
Operating Equipment 100% Complete 100% Complete 100% Complete 100% Complete
with Embedded Chips
or Software
Products 100% Complete 100% Complete 100% Complete 100% Complete
Third Parties 100% Complete 100% Complete 95% Complete 75% Complete
Expected Implement
completion date contingency plans
is April 1999. or other alternatives
as necessary by
June 1999.
</TABLE>
As referenced in the previous chart, management has reviewed its Year
2000 exposure to third party customers, distributors, suppliers and
financial institutions. Lack of readiness by these third parties
could expose the Company to the potential for loss and impairment of
business processes and activities. The Company is assessing these
risks and is considering the need for contingency plans intended to
address perceived risks. The Company cannot predict what effect the
failure of such a third party to address, in a timely manner, the Year
2000 problem would have on the Company.
As of December 31, 1998, the Company had not incurred any material
costs in connection with identifying, assessing, remediating and
testing Year 2000 issues and does not expect to incur material costs
in the future. The immaterial costs consist primarily of personnel
expense for employees who have only a portion of their time dedicated
to the Year 2000 remediation effort. It is the Company's policy to
expense such costs as incurred. These costs will be funded through
operating cash flows. The Company has not replaced, nor does it
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
anticipate replacing, any systems due to Year 2000 issues. In
addition, the Company has not accelerated any system replacement due
to Year 2000 issues. Any system replacement that the Company has
undertaken was due to regular, scheduled maintenance. Based on
currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Company's financial condition, results of
operation or liquidity. However, the extent to which the computer
operations and other systems of the Company's important third parties
are adversely affected could, in turn, affect the Company's ability to
communicate with third parties and could have a material adverse
effect on the operations of the Company.
Management of the Company believes that it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted
above, the Company has not yet completed all necessary phases of its
Year 2000 plan. If the Company does not complete any additional
phases, the Company will be unable to access its voice mail and may
have some employees with personal computers that will malfunction. In
addition, disruptions in the economy generally resulting from Year
2000 issues could also materially adversely affect the Company. The
amount of potential liability and lost revenue cannot be reasonably
estimated at this time. The Company has developed contingency plans
for certain critical applications and is working on developing such
plans for other applications. These contingency plans involve, among
other actions, manual workarounds, increasing inventories and
adjusting staffing strategies.
The costs of the project and 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, the ability of all third parties who have business relationships
with the Company to continue their businesses without interruption and
similar circumstances.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
projections about the Company's markets, the economy and about Spartan
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 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. Spartan 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 an 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 effects of the Year 2000 issues on the Company's
business; the degree of competition by competitors; changes in laws or
regulations, including changes related to safety standards 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," which is
incorporated by reference in this Item 7A, for discussion of market
risk related to variable interest rates on short-term and long-term
debt.
24
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,645 $ 4,812,438
Investment securities 500,000 2,893,167
Accounts receivable, less allowance for doubtful accounts
of $2,600,000 in 1998 and $924,000 in 1997 43,110,400 26,875,828
Inventories 47,244,529 27,033,117
Deferred tax benefit 2,165,250 2,861,250
Federal taxes receivable -- 513,379
Other current assets 1,042,762 591,909
------------ -----------
TOTAL CURRENT ASSETS 94,100,586 65,581,088
PROPERTY, PLANT AND EQUIPMENT, NET 23,420,603 11,891,496
EQUITY INVESTMENT IN AFFILIATE -- --
GOODWILL, net of accumulated amortization of $478,000 in 1998 and
$77,000 in 1997 7,315,035 3,378,408
OTHER ASSETS 1,080,253 394,638
------------ -----------
TOTAL ASSETS $125,916,477 $81,245,630
============ ===========
</TABLE>
25
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,969,302 $12,001,995
Notes payable 7,134,297 --
Other current liabilities and accrued expenses 5,184,466 1,469,211
Accrued warranty 3,888,364 3,070,780
Accrued customer rebates 563,162 695,367
Taxes on income 1,446,432 1,708,090
Accrued compensation and related taxes 1,327,923 1,301,525
Accrued vacation 1,253,460 720,788
Deposits from customers 3,133,676 3,184,367
Current portion of long-term debt 991,251 --
------------ -----------
TOTAL CURRENT LIABILITIES 48,892,323 24,152,123
ACCOUNTS PAYABLE, LONG-TERM 1,655,607
LONG-TERM DEBT, LESS CURRENT PORTION 27,641,888 9,603,785
NOTES PAYABLE TO RELATED PARTIES 2,593,874
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 2,000,000 shares
authorized (none issued) -- --
Common stock, $0.01 par value; 23,900,000 shares
authorized, issued 12,536,891 shares and 12,335,960
shares as of December 31, 1998 and 1997, respectively. 125,369 123,360
Additional paid in capital 24,152,744 22,700,965
Retained earnings, net of effect of minority interest in
shareholders' deficit of subsidiary of ($6,207,000) in 1998 20,883,094 24,683,476
Accumulated other comprehensive loss (28,422) (18,079)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 45,132,785 47,489,722
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $125,916,477 $81,245,630
============ ===========
</TABLE>
See notes to Consolidated Financial Statements.
26
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
SALES $255,338,279 $178,641,415 $174,677,163
COSTS OF PRODUCTS SOLD 217,978,731 155,290,918 148,629,018
------------ ------------ ------------
GROSS PROFIT 37,359,548 23,350,497 26,048,145
OPERATING EXPENSES
Research and development 5,516,899 4,692,527 4,193,639
Selling, general and administrative 19,147,861 15,801,265 14,264,179
------------ ------------ ------------
OPERATING INCOME 12,694,788 2,856,705 7,590,327
OTHER INCOME / (EXPENSE)
Interest expense (1,214,720) (846,600) (464,166)
Interest and other income 300,014 899,314 1,148,807
------------ ------------ ------------
EARNINGS BEFORE LOSS ON CLOSURE OF MEXICAN
SUBSIDIARY, EQUITY IN LOSS OF AFFILIATE AND TAXES
ON INCOME 11,780,082 2,909,419 8,274,968
LOSS ON CLOSURE OF MEXICAN SUBSIDIARY -- -- 4,422,907
------------ ------------ ------------
EARNINGS BEFORE EQUITY IN LOSS OF AFFILIATE AND
TAXES ON INCOME 11,780,082 2,909,419 3,852,061
EQUITY IN LOSS OF AFFILIATE 4,059,085 15,403,616 --
------------ ------------ ------------
EARNINGS (LOSS) BEFORE TAXES ON INCOME 7,720,997 (12,494,197) 3,852,061
TAXES ON INCOME 4,236,000 630,000 1,532,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ 3,484,997 $(13,124,197) $ 2,320,061
============ ============ ============
BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE $ 0.28 $ (1.06) $ 0.18
============ ============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,507,000 12,381,000 12,541,000
============ ============ ============
27
<PAGE>
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,536,000 12,418,000 12,602,000
============ ============ ============
</TABLE>
See notes to Consolidated Financial Statements.
28
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
CUMULATIVE
NUMBER COMMON ADDITIONAL PAID RETAINED VALUATION TRANSLATION
OF SHARES STOCK IN CAPITAL EARNINGS ALLOWANCE ADJUSTMENT TOTAL
--------- -------- ---------- -------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 12,623,872 $21,482,878 $40,543,432 $ 61,025 $(2,259,041) $59,828,294
Change in par value of
common stock to $0.01 (21,255,232) $21,255,232
Purchase and constructive
retirement of stock (300,000) (189,670) (322,430) (2,041,697) (2,553,797)
Stock options exercised 30,200 85,565 133,140 218,705
Dividends paid ($0.05 per
share) (626,679) (626,679)
Comprehensive income:
Net earnings 2,320,061 2,320,061
Other comprehensive items,
net of tax:
Recognition of foreign
currency translation
adjustment 2,259,041 2,259,041
Change in valuation
allowance (net of tax
benefit of $22,000) (41,005) (41,005)
-----------
Total comprehensive
income 4,538,097
----------- ----------- ----------- ----------- --------- ----------- -----------
Balance at December 31, 1996 12,354,072 123,541 21,065,942 40,195,117 20,020 - $61,404,620
Purchase and constructive
retirement of stock (308,100) (3,081) (523,531) (1,525,095) (2,051,707)
Stock options exercised 36,650 367 229,416 229,783
Shares issued in acquisition
of subsidiary 253,338 2,533 1,929,138 1,931,671
Dividends paid ($0.07 per
share) (862,349) (862,349)
29
<PAGE>
Comprehensive loss:
Net loss (13,124,197) (13,124,197)
Other comprehensive items,
net of tax:
Change in valuation
allowance (net of tax
benefit of $10,300) (38,099) (38,099)
-----------
Total comprehensive
loss (13,162,296)
----------- ----------- ----------- ----------- --------- ----------- -----------
Balance at December 31, 1997 12,335,960 123,360 22,700,965 24,683,476 (18,079) - 47,489,722
</TABLE>
30
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
CUMULATIVE
NUMBER COMMON ADDITIONAL PAID RETAINED VALUATION TRANSLATION
OF SHARES STOCK IN CAPITAL EARNINGS ALLOWANCE ADJUSTMENT TOTAL
--------- -------- ---------- -------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase and constructive
retirement of stock (51,600) (561) (94,785) (198,434) (293,735)
Stock options exercised 12,400 124 63,141 63,265
Shares issued in
acquisition of subsidiary 240,131 2,401 1,483,423 1,485,824
Dividends paid ($0.07 per
share) (879,655) (879,655)
Minority interest in share-
holders' deficit of sub-
sidiary at acquisition (6,207,290) (6,207,290)
Comprehensive income:
Net earnings 3,484,997 3,484,997
Other comprehensive items,
net of tax:
Change in valuation
allowance (net of tax
benefit of $6,000) (10,343) (10,343)
-----------
Total comprehensive
income 3,474,654
----------- ----------- ----------- ----------- --------- ----------- -----------
Balance at December 31, 1998 12,536,891 $ 125,369 $24,152,744 $20,883,094 $ (28,422) - 45,132,785
=========== =========== =========== =========== ========= =========== ===========
</TABLE>
See notes to Consolidated Financial Statements.
Supplemental disclosures: Cash paid for interest was $994,500, $789,900
and $464,000 for 1998, 1997 and 1996, respectively. Cash paid for income
taxes was $1,472,000, $1,488,000 and $3,044,000 for 1998, 1997 and 1996,
respectively.
31
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 3,484,997 $(13,124,197) $ 2,320,061
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,552,411 1,879,071 1,925,353
Gain (loss) on disposal of assets and investment
securities (73,742) (13,922) 3,752,328
Fixed asset impairment 1,141,020
Equity in net loss of affiliate 4,059,085 15,403,616
Decrease (increase) in assets net of effects of
acquisition of subsidiaries:
Accounts receivable (15,060,510) 2,320,924 (6,001,433)
Inventories (9,267,705) 3,366,899 118,869
Deferred tax benefit 908,720 (1,333,786) (25,928)
Federal taxes receivable 513,379 411,621 (925,000)
Other assets 6,742 1,009,428 235,093
Increase (decrease) in liabilities net of effects
of acquisition of subsidiaries:
Accounts payable 5,673,457 2,761,539 2,431,913
Other current liabilities and accrued expenses (3,415,116) (953,161) 1,455,890
Accrued warranty (389,930) 1,005,793 380,916
Accrued customer rebates (132,215) 201,063 (550,442)
Taxes on income (261,658) 1,564,496 (449,000)
Accrued vacation 387,318 8,668 60,103
Accrued compensation and related taxes (574,449) (70,183) (29,438)
Deposits from customers (509,830) 705,390 --
------------ ------------ -----------
TOTAL ADJUSTMENTS (14,443,023) 28,267,456 2,379,224
------------ ------------ -----------
32
<PAGE>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,958,026) 15,143,259 4,699,285
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,044,333) (1,626,900) (1,385,064)
Proceeds of sale of property, plant and equipment 171,724 21,589 90,148
Purchases of investment securities (364,976) (2,685,732) (4,136,097)
Proceeds from sales of investment securities 2,731,869 8,691,833 2,762,659
Investment in affiliate (3,132,500) (15,283,000) --
Minority interest contributions 2,584,627 -- (15,000)
Principal payment on note receivable -- -- 1,061,219
Acquisition of subsidiaries, net of cash received (1,655,043) (4,243,728) --
------------ ------------ -----------
NET CASH USED IN INVESTMENT ACTIVITIES (708,632) (15,125,938) (1,607,135)
</TABLE>
33
<PAGE>
<TABLE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 255,000 -- --
Payments on notes payable (291,177) -- --
Proceeds from long-term debt 12,646,215 18,188,785 --
Payments on long-term debt (4,608,048) (15,621,396) (419,097)
Net proceeds from exercise of stock options 63,265 229,783 218,705
Purchase of treasury stock (293,735) (2,051,707) (2,553,797)
Payment of dividends (879,655) (862,349) (626,679)
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,891,865 (116,884) (3,380,868)
EFFECT OF EXCHANGE RATE DECREASE -- -- (1,876)
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,774,793) (99,563) (290,594)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,812,438 4,912,001 5,202,595
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,645 $ 4,812,438 $ 4,912,001
============ =========== ===========
</TABLE>
Supplemental disclosures: Cash paid for interest was $994,500,
$789,900 and $464,100 for 1998, 1997 and 1996, respectively. Cash
paid for income taxes was $1,472,000, $1,488,000 and $3,044,000 1998,
1997 and 1996, respectively.
Supplementary disclosures of non-cash activities: See Note 15 for
detail of non-cash assets and liabilities related to acquisition of
subsidiaries.
See notes to Consolidated Financial Statements.
34
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS. Spartan Motors, Inc. ("Spartan" or the
"Company") is an international engineer and manufacturer of custom
motor vehicle chassis and bodies. The Company's principal markets are
fire trucks, motorhomes, school buses, transit buses and specialty
vehicles. The Company has four subsidiaries included in its
consolidated statements that are manufacturers of bodies for various
markets including fire trucks, crash rescue vehicles and school buses.
REVENUE RECOGNITION. The Company's method of accounting for the
recognition of revenue is to recognize revenue on production when the
product has been completed, tested and tendered for delivery.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Spartan and its six wholly owned subsidiaries:
Spartan Motors Chassis, Inc., Spartan Motors Foreign Sales
Corporation, Inc., Spartan de Mexico S.A. de C.V., Quality
Manufacturing, Inc., Luverne Fire Apparatus Co., Ltd. and Road Rescue,
Inc. ("Road Rescue") (see Note 15). Carpenter Industries, Inc.
("Carpenter") is a 49.9% owned subsidiary that has been consolidated
since October 23, 1998 (see Note 5). Prior to this date, Carpenter
was accounted for on the equity method. All material inter-company
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION. The financial position and results of
operations of Spartan de Mexico for 1996 were measured using the local
currency as the functional currency. Assets and liabilities were
translated at the exchange rate in effect at year-end. Income
statement accounts were translated at the average rate of exchange
prevailing during the year. Before the disposal of this subsidiary,
translation adjustments arising from differences in exchange rates
from period to period were included in the cumulative translation
adjustments account in shareholders' equity. Gains and losses
resulting from foreign currency transactions have been included in the
determination of net income for the period in which the exchange rate
changes.
CASH AND CASH EQUIVALENTS include cash on hand, cash on deposit and
money market funds. The Company considers all investments purchased
with a maturity of three months or less to be cash equivalents.
INVESTMENT SECURITIES are classified as available-for-sale securities
and are reported at fair value, with offsetting adjustments to
35
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
shareholders' equity net of tax, in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The fair value of investment securities is determined based on quoted
market prices.
INVENTORIES are stated at the lower of cost or market. Cost for
approximately 59.1% (82.3% in 1997) of inventories is determined using
the last-in, first-out (LIFO) cost method. Cost for the remaining
inventory is determined using the lower of first-in, first-out (FIFO)
cost method. The FIFO cost for all inventories approximates
replacement cost.
PROPERTY, PLANT AND EQUIPMENT are stated at cost and are depreciated
over their estimated useful lives using principally an accelerated
method for both financial statement and income tax purposes.
GOODWILL represents the excess of purchase price over fair value of
net assets of acquired businesses. Goodwill is amortized on a
straight-line basis over 15 years. The carrying amounts of goodwill
are reviewed if facts and circumstances suggest that they may be
impaired. If the review indicates that the carrying amount will not
be recoverable, as determined using an undiscounted cash flow
analysis, the carrying amount of the goodwill is reduced by the
estimated shortfall of cash flows to fair value.
TAXES ON INCOME. The Company recognizes income tax expense in
accordance with SFAS No. 109, "Accounting for Income Taxes." A
deferred tax liability or asset is recognized for the estimated future
tax effects attributable to temporary differences as measured by
provisions of the enacted tax laws, and is subject to ongoing
assessment of realizability.
EARNINGS PER SHARE Basic earnings (loss) per share represents net
income (loss) available to common shareholders divided by the weighted
average number of common shares outstanding during the period.
Diluted earnings (loss) per share represents net income (loss)
available to common shares outstanding divided by the weighted average
number of common shares outstanding plus the average dilutive effect
of the Company's stock options outstanding (see Note 11) during the
period calculated. The effect of dilutive stock options was 29,000,
37,000 and 61,000 shares at December 31, 1998, 1997 and 1996.
36
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK. The Company performs periodic credit
evaluations of its customers' financial condition and generally
requires collateral. Receivables generally are due within 30 days and
allowances are maintained for potential credit losses. Such losses
consistently have been within management's expectations. Two
customers represented approximately 19% of the Company's trade
accounts receivable at December 31, 1998. At December 31, 1997, two
customers represented approximately 34% of the Company's trade
accounts receivable.
FINANCIAL INSTRUMENTS. The Company values financial instruments as
required by SFAS No. 107 "Disclosures about Fair Values of Financial
Instruments." The carrying amounts of cash and cash equivalents and
accounts and notes receivable approximate fair value. The Company
estimated the fair value of its long-term, fixed-rate debt using
discounted cash flow analysis based on the Company's current borrowing
rates for similar types of debt, the effect of which is that the
carrying value of the debt approximates its fair value. The variable-
rate line of credit is tied to a floating LIBOR rate and, therefore,
approximates market value.
USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
COMPREHENSIVE INCOME. As of January 1, 1998, the Company adopted
Financial Accounting Standards Board (FASB) Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 establishes rules
for the reporting of comprehensive earnings and its components;
however, the adoption of this statement had no impact on the Company's
net earnings or shareholders' equity. Statement No. 130 requires
unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
aggregated and disclosed as accumulated other comprehensive income
(loss) within shareholders' equity. Prior year financial statements
have been reclassified to conform to the requirements of Statement No.
130.
37
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
SEGMENT AND GEOGRAPHICAL DATA. Effective in the fourth quarter of
1998, the Company adopted FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports.
The statement also establishes standards for related disclosures about
products and services, geographical areas and major customers. The
adoption of Statement No. 131 does not affect the Company's results of
operations or financial position, but does affect the disclosure of
segment information.
Prior to 1998, the Company reported under one business segment. Upon
the adoption of Statement No. 131, the Company segregated its
operations into two reportable operating segments: the Chassis Group
and the Bodies Group. The Chassis Group designs, engineers, and
manufactures custom heavy-duty chassis. The Bodies Group manufactures
vehicles built on chassis platforms purchased from the Chassis Group
and outside sources. The Company's reportable segments are business
units that offer different products and services and are managed
separately because each business requires different manufacturing,
technology and marketing strategies.
The accounting policies of the segments are the same as those
described above. The Company evaluates performance based on net
earnings of each segment. Identifiable assets are those assets used
exclusively in the operations of each segment or which are allocated
when used jointly.
38
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENT SECURITIES
A summary of the Company's investment securities portfolio is
presented in the tables below.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------
GROSS UNREALIZED
--------------------- ESTIMATED
COST GAIN (LOSS) FAIR VALUE
---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Municipal bonds $ 544,805 $(44,805) $ 500,000
---------- ------- -------- ----------
TOTAL $ 544,805 $ - $(44,805) $ 500,000
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------
GROSS UNREALIZED
--------------------- ESTIMATED
COST GAIN (LOSS) FAIR VALUE
---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Municipal bonds $2,921,610 $5,601 $(34,044) $2,893,167
---------- ------ -------- ----------
TOTAL $2,921,610 $5,601 $(34,044) $2,893,167
========== ====== ======== ==========
</TABLE>
The municipal bonds held at December 31, 1998 mature in 1999.
The Company computes gains and losses on dispositions of investment
securities using the specific identification method. Gains of
approximately $6,000, $48,000 and $19,000, and losses of approximately
$16,000, $64,000 and $6,000 were realized from sales of investment
debt securities during 1998, 1997 and 1996, respectively.
39
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The Company recognized investment income from investment securities of
approximately $158,000, $354,000 and $688,900 during 1998, 1997 and
1996, respectively.
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C> <C>
Finished goods $ 4,688,880 $ 2,801,432
Raw materials and purchased components 38,477,149 21,721,297
Work in process 5,698,500 3,612,888
Obsolescence reserve (1,620,000) (1,102,500)
----------- -----------
TOTAL $47,244,529 $27,033,117
=========== ===========
</TABLE>
For 1998 and 1997, inventory valued at LIFO was approximately the same
as inventory valued using the FIFO method. The LIFO valuation method
had a minimal effect on earnings for the years ended December 31,
1998, 1997 and 1996.
40
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major classifications
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C> <C>
Land and improvements $ 2,180,967 $ 973,994
Buildings and improvements 16,781,206 10,556,411
Plant machinery and equipment 11,202,700 3,258,770
Furniture and fixtures 6,225,112 5,705,664
Vehicles 1,034,013 1,130,514
----------- -----------
TOTAL 37,423,998 21,625,353
Less accumulated depreciation 14,003,395 9,733,857
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT $23,420,603 $11,891,496
=========== ===========
</TABLE>
NOTE 5 - EQUITY INVESTMENT IN AFFILIATE
In January 1997, the Company acquired a 33 1/3% interest in Carpenter
for approximately $10.0 million. Carpenter is a manufacturer of school
bus bodies and chassis. The Company made additional equity investments
to Carpenter through October 23, 1998 of approximately $3.1 million.
The Company accounted for its investment in Carpenter using the equity
method of accounting and reduced the carrying value of its investment
of Carpenter to zero to reflect its share of Carpenter's net losses
for the respective periods. On October 23, 1998, the Company acquired
additional shares of Carpenter's voting common stock for $1.00,
bringing the Company's total ownership percentage to 49.9%. In
addition, the Company acquired 95.5% of Carpenter's non-voting common
stock in exchange for $3.08 million in cash and $5.08 million in
credit support. Going forward, the Company also agreed to contribute
up to $3.00 million in additional working capital support in exchange
for additional shares of non-voting common stock. The non-voting
stock is convertible into voting stock on a one-to-one basis upon
approval of the Company's filing under the Hart-Scott-Rodino Antitrust
41
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - EQUITY INVESTMENT IN AFFILIATE (CONTINUED)
Improvements Act. As part of these transactions, the Company also
obtained control of the Board of Carpenter and is actively managing
Carpenter's day-to-day operations. Because the Company acquired
effective control of Carpenter on October 23, 1998, Carpenter's
operations have been consolidated with those of the Company from that
day forward. An additional equity in loss of affiliate of
approximately $0.93 million was recorded as part of the initial
consolidation process to reflect the Company's share of previous
Carpenter losses that were not recorded under the equity method.
Purchase accounting for this transaction resulted in the recording of
$1.5 million of goodwill and a $6.2 million debit to retained earnings
representing the minority interest in Carpenter's shareholders'
deficit. Pro forma disclosures for this acquisition are included in
Note 15. The Company will continue to record 100% of Carpenter's
operating results until Carpenter's shareholders' equity is no longer
in a deficit position.
NOTE 6 - LEASES
The Company leases office equipment and manufacturing and warehouse
space under operating lease agreements. Leases generally provide that
the Company shall pay the cost of utilities, insurance, taxes and
maintenance. Rent expense for the years ended December 31, 1998, 1997
and 1996 was $1,067,000, $352,000 and $276,000, respectively. Future
minimum lease commitments under non-cancelable leases are as follows:
$765,000 in 1999; $765,000 in 2000; $727,000 in 2001; $648,000 in
2002; $593,000 in 2003; and $315,000 thereafter.
42
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - TAXES ON INCOME
Income tax expense (credit) is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal $ 3,005,000 $ 2,053,000 $1,450,000
State 323,000 (23,000) 204,000
----------- ----------- ----------
Total current 3,328,000 2,030,000 1,654,000
Deferred:
Federal 852,000 (1,297,000) (102,000)
State 56,000 (103,000) (20,000)
----------- ----------- ----------
Total deferred 908,000 (1,400,000) (122,000)
----------- ----------- ----------
TOTAL PROVISION FOR INCOME TAXES $ 4,236,000 $ 630,000 $1,532,000
=========== =========== ==========
</TABLE>
Income (loss) before income taxes:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C> <C>
Domestic $ 7,720,997 $(12,494,197) $9,501,261
Foreign (5,649,200)
----------- ------------ ----------
TOTAL PRETAX INCOME (LOSS) $ 7,720,997 $(12,494,197) $3,852,061
=========== ============ ==========
</TABLE>
Differences between the expected income tax expense, derived from
applying the federal statutory income tax rate to earnings (loss)
before taxes on income, and the actual tax expenses are as follows:
43
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - TAXES ON INCOME (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997 1996
------------------------- --------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at the
statutory rate $ 2,625,000 34.00% $(4,248,000) (34.00)% $1,310,000 34.00%
Increase (decrease) in income
taxes resulting from:
Loss of foreign subsidiary
not deductible for U.S.
tax purposes -- -- -- -- 280,000 7.30
Valuation for equity in
loss of affiliate 1,380,000 17.87 5,237,000 41.92
Foreign Sales Corporation (119,000) (1.54) (37,000) (0.30) (70,000) (1.80)
Nondeductible expenses 41,000 0.53 33,000 0.26 40,000 1.00
State tax expense 302,000 3.91 (158,000) (1.26) 121,000 3.10
Municipal income (21,000) (0.27) (121,000) (0.97) (131,000) (3.40)
Other 28,000 0.36 (76,000) (0.61) (18,000) (0.40)
----------- ------ ----------- ------ ---------- -----
TOTAL $ 4,236,000 54.86% $ 630,000 5.04% $1,532,000 39.80%
=========== ====== =========== ====== ========== =====
</TABLE>
Temporary differences which give rise to deferred tax assets
(liabilities) are as follows:
44
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - TAXES ON INCOME (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C> <C>
Current Asset (Liability)
Additional capitalized inventory costs $ 124,000 $ 121,000
Vacation accrual 268,000 107,000
Warranty reserve 1,215,000 1,096,000
Inventory allowance 389,000 1,244,000
Allowance for doubtful accounts 221,000 337,000
Other (51,750) (43,750)
---------- ----------
TOTAL $2,165,250 $2,861,250
========== ==========
</TABLE>
The Company's 49.9% owned subsidiary, Carpenter, is not included in
the consolidated tax return. At December 31, 1998, Carpenter had
current deferred income tax assets of $2.0 million and noncurrent
deferred income tax assets of $16.8 million related to a net operating
loss carryforward and $6.0 million related to goodwill. The deferred
tax assets have been offset entirely with valuation allowances.
However, if Carpenter generates sufficient taxable income and certain
other provisions are met in the future, taxable income will be offset
by approximately $5.5 million in assets reserves and approximately
$40.2 million in net operating loss carryforwards which expire through
the year 2018.
45
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following: DECEMBER 31,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
Revolving note payable to bank, with interest
payable monthly at 45 basis points above the
LIBOR rate, which was 5.5% at December 31,
1998, due November 2000, secured by the Company's assets. $22,250,000 $9,603,785
Note payable to Pullman Bank and Trust Company, which
requires monthly installments of $9,675, including interest
at 9.75% and a final payment of $99,416 on January 1,
2003; secured by 12 school buses and all lease income
from these buses. 444,135 --
Note payable to Newcourt Financial USA, Inc., which requires
monthly installments of $100,120 including interest at
9.25%; due April 2, 2002; secured by equipment. 3,323,222 --
Note payable to the City of Richmond; interest is payable
monthly at 4.5% for 120 months with principal due in
balloon payment November 12, 2006; secured by first
mortgage on a subsidiary's manufacturing facility. 2,500,000 --
Other 115,782
----------- ----------
TOTAL 28,633,139 9,603,785
Less current portion of long-term debt 991,251 --
----------- ----------
TOTAL $27,641,888 $9,603,785
=========== ==========
</TABLE>
The aggregate amounts of maturities on long-term debt for the
subsequent four years are as follows: $23,461,374 in 2000; $1,200,712
in 2001; $380,386 in 2002; and $99,416 in 2003.
The Company's primary line of credit is a $25.0 million revolving note
payable to a bank. Under the terms of the line of credit 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.
46
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - DEBT (CONTINUED)
At December 31, 1998 the Company was in compliance with all debt
covenants. The Company also has unsecured lines of credit at its
subsidiary locations for $0.2 million and $1.0 million and a secured
line of credit for $4.3 million. The $4.3 million line carries an
interest rate of 1/2% above the bank's prime rate (prime rate at
December 31, 1998 was 7.75%) and has an expiration date of June 1999.
This line of credit is secured by accounts receivable and inventory.
Borrowings under this line totaled $4,032,556 at December 31, 1998.
The other two lines carry an interest rate of 1% above the bank's
prime rate. The $0.2 million line has an expiration date of June 1,
1999. The $1.0 million line expires only if there is a change in
management. There were borrowings on one of these lines of $0.2
million at December 31, 1998.
The remaining short-term note payable relates to Carpenter and $2.9
million is outstanding at December 31, 1998. This note permits
borrowings secured by bus and van body units, as well as chassis
purchased from various dealers. During 1998, Carpenter changed its
policy and no longer funds units using this note. Advances under this
note are due and payable the earlier of: (i) receipt of proceeds from
the sale by Carpenter; or (ii) 360 days after the date of the loan.
Carpenter pays monthly interest payments on all units financed at the
prime rate plus 1.5%.
Notes payable to related parties consist of mortgage notes payable to
two entities associated with Carpenter; one is a former owner and the
other is a current owner of 49.9% of the voting stock. Interest on
this note is payable monthly at prime plus 1%. The note is due
December 2001 and is secured by a second mortgage on Carpenter's
manufacturing facility in Richmond.
NOTE 9 - TRANSACTIONS WITH MAJOR CUSTOMERS
The Company had two customers classified as major customers in 1998,
1997 and 1996:
47
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - TRANSACTIONS WITH MAJOR CUSTOMERS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- ------------------------
ACCOUNTS ACCOUNTS ACCOUNTS
CUSTOMER SALES RECEIVABLE SALES RECEIVABLE SALES RECEIVABLE
- -------- ----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
A. . . . . . . $62,800,000 $4,960,000 $46,800,000 $6,900,000 $32,800,000 $3,660,000
B. . . . . . . 40,570,000 3,350,000 30,900,000 2,188,000 23,500,000 1,783,000
</TABLE>
NOTE 10 - PROFIT-SHARING PLAN
The Spartan Motors, Inc. Profit-Sharing Plan and Trust covers all
Chassis Group employees whom meet length of service and minimum age
requirements. Contributions to the plan are determined annually by
the Board of Directors and were $0.3 million each for 1998, 1997 and
1996. The Company's policy is to fund plan costs accrued. Carpenter
sponsors a defined contribution profit sharing plan with 401(k)
provisions for all employees of Carpenter who have met certain
requirements for participation. Carpenter may make discretionary
contributions to the plan as determined by its Board of Directors.
Carpenter did not make contributions to the plan for the year ended
December 31, 1998.
NOTE 11 - STOCK OPTIONS
The Company has incentive stock option plans covering certain
employees. Shares reserved for options under these plans total
3,100,000. The options granted are exercisable for a period of 10
years from the grant date. The exercise price for all options is
equal to the market price at the date of grant.
The Company has a stock option and a restricted stock plan for outside
market advisors. Shares reserved for options under this plan total
200,000 and the options are exercisable for a period of 10 years from
the grant date. The exercise price for these options is equal to the
market price at the grant date.
48
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - STOCK OPTIONS (CONTINUED)
The Company has a non-qualified stock option plan for certain
employees and directors. Shares reserved for options under this plan
total 900,000 and the options are exercisable for a period of 10 years
from the grant date. The exercise price for these options is equal to
the market price at the date of grant.
Activity for the years ended December 31, 1998, 1997 and 1996 is as
follows for all plans:
<TABLE>
<CAPTION>
PRICE WEIGHTED-AVERAGE OPTION
RANGE EXERCISE PRICE SHARES
-------------- ---------------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $1.55 - $15.95 $11.41 1,247,725
Options granted $6.56 - $14.58 $ 7.02 463,230
Options exercised $6.75 - $8.80 $ 8.71 (11,700)
Options expired $6.75 - $14.50 $11.11 (192,850)
---------
Balance at December 31, 1996 $1.55 - $15.95 $10.12 1,506,405
=========
Options granted $6.13 - $13.25 $ 7.65 435,935
Options exercised $6.75 - $12.67 $12.01 (6,750)
Options expired $1.73 - $14.50 $10.18 (170,270)
---------
Balance at December 31, 1997 $1.55 - $15.95 $ 9.50 1,765,320
=========
Options granted $5.19 - $7.13 $ 6.21 504,695
Options exercised $1.73 - $12.67 $ 5.17 (12,500)
Options expired $1.55 - $15.95 $ 9.60 (118,400)
---------
Balance at December 31, 1998 $1.73 - $14.58 $ 8.74 2,139,115
=========
</TABLE>
49
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - STOCK OPTIONS (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 1998 under the plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE PRICE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
RANGE 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- -------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.73 - $1.73 34,875 1.6 $1.73 34,875 $1.73
$5.19 - $7.75 1,246,145 8.5 $6.80 1,220,353 $6.81
$8.80 - $12.67 481,395 5.0 $10.41 481,395 $10.41
$13.25 - $14.58 376,700 5.3 $13.79 376,700 $13.79
--------- ---------
$1.73 - $14.58 2,139,115 7.0 $8.76 2,113,323 $8.79
========= =========
</TABLE>
The estimated fair value of options granted in 1998, 1997 and 1996
ranges from $2.52 to $8.23 per share.
The Company follows APB No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation for
these plans been determined based on the fair market value at the
grant dates for awards under those plans consistent with the method of
FASB Statement 123, the Company's net income (loss) and earnings
(loss) per share for the years ended December 31, 1998, 1997 and 1996,
would have been reduced to the PRO FORMA amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C>
Net Earnings (Loss)
As reported $3,484,997 $(13,124,197) $2,320,061
PRO FORMA 2,210,975 (13,213,278) 2,192,945
</TABLE>
50
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C>
Net Earnings (Loss) Per Share
As reported $ 0.28 $ (1.06) $ 0.18
PRO FORMA 0.18 (1.07) 0.17
</TABLE>
The fair market value of options granted under the Company's stock
option plans during 1998, 1997 and 1996 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used: no dividend yield; expected
volatility of 36.1%; risk free interest rate of 5.27%; and expected
lives of five years.
Stock options exercisable are the only reconciling item between basic
and diluted weighted average common shares outstanding. The dilutive
effect on the number of shares outstanding is immaterial and results
in no difference between basic earnings per share and diluted earnings
per share.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
Under the terms of its credit agreement with its bank, the Company has
the ability to issue letters of credit totaling $1.0 million. At
December 31, 1998, the Company had outstanding letters of credit
totaling $0.8 million.
At December 31, 1998, the Company and its subsidiaries were parties,
both as plaintiff and defendant, to a number of lawsuits and claims
arising out of the normal course of their business. In the opinion of
management, the financial position of the Company will not be
materially affected by the final outcome of these legal proceedings.
The Company has repurchase agreements with lending institutions, which
have provided floor plan financing to OEMs. These agreements provide
for the repurchase of products from the lending institution in the
event of the OEMs default. The total contingent liability on
December 31, 1998, was approximately $10.8 million. Historically,
losses under these agreements have not been significant and it is
51
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
management's opinion that any future losses will not have a material
effect on the Company's financial position or operating results.
One of the Company's subsidiaries sold approximately 100 units to a
newly formed not-for-profit entity. To assist in financing for this
transaction, the subsidiary agreed to provide repurchase support to
the various financing companies who provided lease financing to the
not-for-profit entity. Total repurchase obligations related to these
transactions are approximately $2.5 million.
NOTE 13 - NOTES RECEIVABLE
On April 4, 1994, the Company entered into a financing agreement with
an unrelated entity whereby a line of credit was established.
Additionally, the Company entered into a term agreement with such
entity. During 1997, the above notes receivable were determined to be
impaired due to the deterioration of the entity's business.
Consequently, these balances, $1.0 million and $0.56 million,
respectively, were written off in 1997.
NOTE 14 - PURCHASE OF TREASURY STOCK
On July 11, 1995, the Board of Directors authorized management to
repurchase up to 1,000,000 shares of its Common Stock in the open
market. Repurchase of the Common Stock was contingent upon market
conditions. No expiration date was set for the completion of the
repurchase program. During 1995 the Company repurchased 200,000
shares at an average market price of approximately $9.13 to $9.50 per
share. During 1996 the Company repurchased 300,000 shares at an
average market price of approximately $8.51 per share. During 1997
the Company repurchased 308,100 shares at an average market price of
approximately $6.66 per share. During 1998 the Company repurchased
51,600 shares at an average market price of approximately $5.69 per
share. All treasury stock has been constructively retired in
accordance with the Michigan Business Corporation Act applicable to
all Michigan corporations.
NOTE 15 - ACQUISITIONS
On January 7, 1998, the Company purchased all of the outstanding stock
of Road Rescue, a manufacturer of emergency vehicles, including
ambulances, rescue vehicles and critical care units. The purchase
52
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - ACQUISITIONS (CONTINUED)
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 240,131 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 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 $0.2 million; current liabilities of
approximately $3.3 million; and long-term liabilities of approximately
$0.3 million. In accordance with a condition included in the purchase
agreement, a purchase price adjustment resulted in an additional cost
of $0.5 million during 1998, including 39,149 additional shares of
stock that were issued in January 1999. A purchase price adjustment
for this transaction was recorded at year-end to reflect the increase
in goodwill.
The Company acquired two other emergency vehicle manufacturers in 1997
for approximately $6.3 million. The following unaudited pro forma
results of operations for the 12 months ended December 31, 1998 and
1997, assume all three acquisitions and the acquisition of Carpenter
discussed in Note 5 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.
53
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $298,813,000 $289,826,000
Net earnings (loss) (12,957,000) (34,014,000)
Basic and diluted earnings (loss) per share $ (1.04) $ (2.75)
</TABLE>
NOTE 16 - BUSINESS SEGMENTS
Sales and other financial information by business segment is as
follows (amounts in thousands):
<TABLE>
Year Ended December 31, 1998
<CAPTION>
MANUFACTURING OF
---------------------- CONSOLIDATION
CHASSIS BODIES ENTRIES CONSOLIDATED
-------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $207,234 $55,611 $ (7,507) $255,338
Interest expense 1,008 423 (216) 1,215
Depreciation and amortization expense 1,643 840 69 2,552
Equity in loss of affiliate 3,133 -- 926 4,059
Income tax expense 3,942 294 -- 4,236
Segment earnings 4,333 359 (1,207) 3,485
Segment assets 122,567 50,411 (47,062) 125,916
</TABLE>
54
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - BUSINESS SEGMENTS (CONTINUED)
<TABLE>
Year Ended December 31, 1997
<CAPTION>
MANUFACTURING OF
---------------------- CONSOLIDATION
CHASSIS BODIES ENTRIES CONSOLIDATED
-------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $169,369 $12,481 $ (3,209) $178,641
Interest expense 814 33 -- 847
Depreciation and amortization expense 1,762 117 -- 1,879
Equity in loss of affiliate 15,404 -- -- 15,404
Income tax expense 508 122 -- 630
Segment earnings (12,855) 205 (474) (13,124)
Segment assets 75,998 14,562 (9,314) 81,246
</TABLE>
<TABLE>
Year Ended December 31, 1996
<CAPTION>
MANUFACTURING OF
---------------------- CONSOLIDATION
CHASSIS BODIES ENTRIES CONSOLIDATED
-------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $174,677 $174,677
Interest expense 464 464
Depreciation and amortization expense 1,925 1,925
Income tax expense 1,532 1,532
Segment earnings 2,320 2,320
</TABLE>
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the year ended December 31,
1998, is as follows:
55
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $59,450,205 $55,705,697 $69,857,050 $70,624,341
Expenses 56,225,089 54,136,724 66,056,176 67,440,222
----------- ----------- ----------- -----------
Earnings before equity in loss of
affiliate and taxes on income 3,225,116 1,568,973 3,800,874 3,184,119
Equity in loss of affiliate 1,250,000 1,521,000 332,500 955,585
Taxes on income 1,036,879 502,109 1,409,897 1,287,115
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 938,237 $ (454,136) $ 2,058,477 $ 941,419
=========== =========== =========== ===========
BASIC AND DILUTED NET
EARNINGS (LOSS) PER SHARE $ 0.08 $ (0.04) $ 0.16 $ 0.08
=========== =========== =========== ===========
</TABLE>
In the fourth quarter of 1998, in conjunction with the restart of
production, Carpenter decreased its obsolescence reserve by $2.6
million.
Summarized quarterly financial data for the year ended December 31,
1997, is as follows:
56
<PAGE>
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $46,160,497 $39,468,601 $38,479,206 $ 55,432,425
Expenses 43,345,656 38,574,773 37,577,086 57,133,795
----------- ----------- ----------- ------------
Earnings (loss) before equity in loss
of affiliate and taxes on income 2,814,841 893,828 920,120 (1,701,370)
Equity in loss of affiliate 1,669,201 961,770 2,134,322 10,638,323
Taxes on income 1,095,000 353,400 226,124 (1,044,524)
----------- ----------- ----------- ------------
NET EARNINGS (LOSS) $ 50,640 $ (421,342) $(1,458,326) $(11,295,169)
=========== =========== =========== ============
BASIC AND DILUTED NET
EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.03) $ (0.12) $ (0.91)
=========== =========== =========== ============
</TABLE>
57
<PAGE>
Report of Independent Auditors
Board or Directors and Shareholders
Spartan Motors, Inc.
We have audited the accompanying consolidated balance sheet of Spartan
Motors, Inc. (the Company) and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the Index at Item
14. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements and financial
statement schedule based on our audit. We did not audit the financial
statements of Carpenter Industries, Inc. (Carpenter), a 49.9% owned
subsidiary that is accounted for on the equity method through October
23, 1998 and the consolidation method thereafter. Such statements
reflect total assets of $25.2 million as of December 31, 1998, and
total revenues of $47.2 million for the year then ended. Those
statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data
included for Carpenter, is based solely on the report of the other
auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit and the report of the other auditors provide a
reasonable basis for our opinion.
The report of other auditors on the financial statements of Carpenter
is qualified with respect to Carpenter's ability to continue as a
going concern. In our opinion, this matter is not material in relation
to the consolidated financial statements of Spartan Motors, Inc. and
subsidiaries.
In our opinion, based on our audit and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Spartan Motors, Inc. and subsidiaries as of December 31,
58
<PAGE>
1998, and the consolidated results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 12, 1999
59
<PAGE>
BIRK GROSS BELL & COULTER, P.C.
CERTIFIED PUBLIC ACCOUNTANTS / BUSINESS CONSULTANTS
Bradley S. Bell, CPA Steven A. Eichenberger, CPA
Jeffrey W. Birk, CPA Howard I. Gross, CPA, CFP, ABV
Jeffrey L. Coulter, CPA Steven W. Reed, CPA, ABV
10 W. MARKET, 2300 MARKET TOWER - INDIANAPOLIS, IN 46204 - 317-633-4700
300 S. MADISON, SUITE 410 - GREENWOOD, IN 46142 - 317-887-4072
FAX - 317-638-5217
INDEPENDENT AUDITORS' REPORT
Board of Directors
Carpenter Industries, Inc.
Richmond, Indiana
We have audited the accompanying balance sheets of Carpenter
Industries, Inc. as of December 31, 1998 and 1997 and the related
statements of operations, changes in shareholders' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Carpenter
Industries, Inc. as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1,
conditions exist which raise substantial doubt about its ability to
continue as a going concern unless it is able to obtain or generate
sufficient cash flow to meet its obligations and sustain its
operations. Management's plans in regard to these matters are also
60
<PAGE>
described in Note 1. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
/s/ Birk Gross Bell & Coulter, P.C.
February 10, 1999
Indianapolis, Indiana
61
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The information required to be disclosed has been previously disclosed
in the Company's Current Report on Form 8-K filed on September 28,
1998 with the Securities and Exchange Commission.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors of the Company contained under the
captions "Board of Directors," "Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the definitive Proxy
Statement for its annual meeting of shareholders to be held on May 18,
1999, is here incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the captions "Compensation of
Directors" and "Executive Compensation" in the definitive Proxy
Statement for its annual meeting of shareholders to be held on May 18,
1999, is here incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the captions "Voting Securities,"
"Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the definitive Proxy Statement for its
annual meeting of shareholders to be held on May 18, 1999, is here
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Certain Relationships and
Related Transactions" in the definitive Proxy Statement for its annual
meeting of shareholders to be held on May 18, 1999, is here
incorporated by reference.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
ITEM 14(A)(1). LIST OF FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and its
subsidiaries are filed as a part of this Report:
Consolidated Balance Sheets as of December 31, 1998 and December
31, 1997
Consolidated Statements of Operations for the Fiscal Years Ended
December 31, 1998, December 31, 1997 and December 31, 1996
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended December 31, 1998, December 31, 1997 and December 31,
1996
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 31, 1998, December 31, 1997 and December 31, 1996
Notes to Consolidated Financial Statements as of December 31,
1998
Report of Ernst & Young LLP
Report of Birk Gross Bell & Coulter, P.C.
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES. ATTACHED AS APPENDIX
A.
The following consolidated financial statement schedules of the
Company and its subsidiaries are filed as part of this report:
Schedule II--Valuation and Qualifying Accounts
All other schedules (I, III, IV and V) for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
Schedule--Report of Deloitte & Touche LLP dated March 17,
1998
63
<PAGE>
ITEM 14(A)(3). LIST OF EXHIBITS. THE FOLLOWING EXHIBITS ARE FILED AS
A PART OF THIS REPORT:
EXHIBIT
NUMBER DOCUMENT
2.1 Investment Agreement dated December 23, 1996, among
Recovery Equity Investors II, LP, Spartan Motors, Inc.,
Carpenter Industries, Inc., Carpenter Industries LLC,
The Beurt SerVaas Revocable Trust and The Curtis
Publishing Company. Previously filed as an Exhibit to
the Company's Form 8-K Current Report filed on January
21, 1997, and incorporated herein by reference.
2.2 Amendment No. 1 to the Investment Agreement dated
January 6, 1997. Previously filed as an Exhibit to the
Company's Form 8-K Current Report filed on January 21,
1997, and incorporated herein by reference.
3.1 Spartan Motors, Inc. Restated Articles of
Incorporation. 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.
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 Spartan Motors, Inc. Restated Articles of
Incorporation. See Exhibit 3.1 above.
4.2 Spartan Motors, Inc. 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.
64
<PAGE>
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 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
21 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Birk Gross Bell & Coulter, P.C.
24 Limited Powers of Attorney
27 Financial Data Schedule.
_________________________
<F*>Management contract or compensatory plan or arrangement.
65
<PAGE>
The Company will furnish a copy of any exhibit listed above to any
shareholder of the Company without charge upon written request to
Richard J. Schalter, 1000 Reynolds Road, Post Office Box 440,
Charlotte, Michigan 48813.
ITEM 14(B). REPORTS ON FORM 8-K.
During the last quarter of the period covered by this Report, the
registrant filed no current reports on Form 8-K.
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SPARTAN MOTORS, INC.
March 19, 1999 By /S/ RICHARD J. SCHALTER
Richard J. Schalter,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
March 19, 1999 By */S/ GEORGE W. SZTYKIEL
George W. Sztykiel, Director
(Principal Executive Officer)
March 19, 1999 By */S/ JOHN E. SZTYKIEL
John E. Sztykiel, Director
(Principal Operating Officer)
March 19, 1999 By /S/ RICHARD J. SCHALTER
Richard J. Schalter
(Principal Accounting and
Financial Officer)
March 19, 1999 By */S/ WILLIAM F. FOSTER
William F. Foster, Director
March 19, 1999 By */S/ ANTHONY G. SOMMER
Anthony G. Sommer, Director
March ___, 1999 By___________________________________
George Tesseris, Director
March ___, 1999 By___________________________________
Charles E. Nihart, Director
67
<PAGE>
March ___, 1999 By___________________________________
David R. Wilson, Director
March 19, 1999 By */S/ JAMES C. PENMAN
James C. Penman, Director
*By /S/ RICHARD J. SCHALTER
Richard J. Schalter
Attorney-in-Fact
68
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
2.1 Investment Agreement dated December 23, 1996, among Recovery
Equity Investors II, LP, Spartan Motors, Inc.,
Carpenter Industries, Inc., Carpenter Industries LLC,
The Beurt SerVaas Revocable Trust and The Curtis
Publishing Company. Previously filed as an Exhibit to
the Company's Form 8-K Current Report filed on January
21, 1997, and incorporated herein by reference.
2.2 Amendment No. 1 to the Investment Agreement dated January 6,
1997. Previously filed as an Exhibit to the Company's
Form 8-K Current Report filed on January 21, 1997, and
incorporated herein by reference.
3.1 Spartan Motors, Inc. Restated Articles of Incorporation.
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.
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 Spartan Motors, Inc. Restated Articles of
Incorporation. See Exhibit 3.1 above.
4.2 Spartan Motors, Inc. 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.
<PAGE>
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 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
21 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche, LLP.
23.3 Consent of Birk Gross Bell & Coulter, P.C.
24 Limited Powers of Attorney
27 Financial Data Schedule.
- ---------------------
<F*>Management contract or compensatory plan or arrangement.
ii<PAGE>
<PAGE>
<TABLE>
APPENDIX A
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SPARTAN MOTORS, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------- -------- ---------------------------- -------- --------
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES (ACQUISITIONS) DEDUCTIONS OF PERIOD
- --------------------------------- ---------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 924,064 $ 251,189 $2,133,639 $ 709,056 $ 2,599,836
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 629,000 $ 509,691 $ 1,326 $ 215,953 $ 924,064
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 591,000 $ 71,400 $ - $ 33,400 $ 629,000
</TABLE>
A-1
<PAGE>
SCHEDULE
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Spartan Motors, Inc.
Charlotte, Michigan
We have audited the accompanying consolidated balance sheet of Spartan
Motors, Inc. (the "Company") and subsidiaries as of December 31, 1997,
and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the two years in the period ended
December 31, 1997. Our audits also included the financial statement
schedule for each of the two years in the period ended December 31, 1997,
listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits. We did
not audit the financial statements of Carpenter Industries, Inc.
("Carpenter"), the Company's investment in which is accounted for by
the equity method. The Company's equity of $15,403,616 in Carpenter's net
loss for the year ended December 31, 1997 is included in the accompanying
financial statements. The financial statements of Carpenter were audited
by other auditors whose report (which includes an explanatory paragraph
describing matters that raised substantial doubt about Carpenter's ability
to continue as a going concern) has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such company, is based
solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of Spartan Motors, Inc. and subsidiaries
as of December 31, 1997, and the results of their operations and
their cash flows for each of the two years in the period then ended
in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in
A-2
<PAGE>
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
March 17, 1998
Lansing, Michigan
A-3
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF SPARTAN MOTORS, INC.
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
------------------ --------------
<S> <C>
Spartan Motors Foreign Sales Corporation, Inc. West Indies
Spartan de Mexico S.A. de C.V. Mexico
Luverne Fire Apparatus Co., Ltd. South Dakota, United States
Quality Manufacturing, Inc. Alabama, United States
Road Rescue, Inc. Minnesota, United States
Carpenter Industries, Inc. Delaware, United States
(49.9% interest)
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
Board of Directors and Shareholders
Spartan Motors, Inc.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-28432) pertaining to the Nonqualified Stock Option Plan
and the 1984 Incentive Stock Option Plan of Spartan Motors, Inc. and in the
Registration Statement (Form S-8 No. 33-80980) pertaining to the 1994
Incentive Stock Option Plan of Spartan Motors, Inc. of our report dated
February 12, 1999, with respect to the consolidated financial statements
and schedule of Spartan Motors, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 18, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Spartan Motors, Inc.
Charlotte, Michigan
We consent to the incorporation by reference in Registration Statement Nos.
33-28432 and No. 33-80980 of Spartan Motors, Inc. on Form S-8 of our report
dated March 17, 1998, appearing in this Annual Report on Form 10-K of
Spartan Motors, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
March 19, 1999
Lansing, Michigan
<PAGE>
EXHIBIT 23.3
BIRK GROSS BELL & COULTER, P.C.
CERTIFIED PUBLIC ACCOUNTANTS / BUSINESS CONSULTANTS
===========================================================================
10 W. MARKET, 2300 MARKET TOWER - INDIANAPOLIS, IN 46204 - 317-633-4700
300 S. MADISON, SUITE 410 - GREENWOOD, IN 46142 - 317-887-4072
FAX - 317-638-5217
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Spartan Motors, Inc.
Charlotte, Michigan
We consent to the incorporation by reference in Registration Statement No.
33-28432 of Spartan Motors, Inc. on Form S-8 and Registration Statement No.
33-80980 of Spartan Motors, Inc. on Form S-8 of our report dated February
10, 1999, (which report expresses an unqualified opinion and includes an
explanatory paragraph which indicates that there are matters that raise
substantial doubt about Carpenter Industries, Inc.'s ability to continue as
a going concern) appearing in this Annual Report on Form 10-K of Spartan
Motors, Inc. for the year ended December 31, 1998.
/s/ Birk Gross Bell & Coulter, P.C.
Indianapolis, Indiana
March 18, 1999
AN INDEPENDENT MEMBER OF
BDO
SEIDMAN
ALLIANCE Members: Division for CPA Firms American
Institute of Certified Public Accountants
<PAGE>
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 15, 1999 /S/ JAMES C. PENMAN
James C. Penman
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 18, 1999 /S/ JOHN E. SZTYKIEL
John E. Sztykiel
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 19, 1999 /S/ GEORGE W. SZTYKIEL
George W. Sztykiel
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 19, 1999 /S/ ANTHONY G. SOMMER
Anthony G. Sommer
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 23, 1999 /S/ WILLIAM F. FOSTER
William F. Foster
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Spartan Motors, Inc., does hereby appoint
JOHN E. SZTYKIEL and RICHARD J. SCHALTER, or any of them, his or her
attorneys or attorney to execute in his or her name an Annual Report of
Spartan Motors, Inc. on Form 10-K for its fiscal year ended December 31,
1998, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to
do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 16, 1999 /S/ RICHARD J. SCHALTER
Richard J. Schalter
<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 DECEMBER 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,645
<SECURITIES> 500,000
<RECEIVABLES> 43,110,400
<ALLOWANCES> 3,012,000
<INVENTORY> 47,244,529
<CURRENT-ASSETS> 94,100,586
<PP&E> 23,420,603
<DEPRECIATION> 14,801,939
<TOTAL-ASSETS> 125,916,477
<CURRENT-LIABILITIES> 48,892,323
<BONDS> 0
<COMMON> 125,369
0
0
<OTHER-SE> 45,007,416
<TOTAL-LIABILITY-AND-EQUITY> 125,916,477
<SALES> 255,338,279
<TOTAL-REVENUES> 255,638,675
<CGS> 217,978,731
<TOTAL-COSTS> 217,978,731
<OTHER-EXPENSES> 25,879,480
<LOSS-PROVISION> 251,189
<INTEREST-EXPENSE> 1,214,720
<INCOME-PRETAX> 11,780,464
<INCOME-TAX> 4,236,000
<INCOME-CONTINUING> 3,484,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,484,997
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
