UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549_________________
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FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from |
Commission File Number 001-33582001-33582
SPARTAN MOTORS,THE SHYFT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan |
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Registrant’s Telephone Number, Including Area Code: (517) 543-6400
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41280 Bridge Street Novi, Michigan |
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Registrant’s Telephone Number, Including Area Code: (517) 543-6400
Securities registered pursuant to Section 12(b) of the Securities Exchange Act: |
Title of Each Class | Trading Symbol(s) SHYF | Name of Each Exchange on which Registered |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes | ☐ | No |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes | ☐ | No |
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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 |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes |
| No | ☐ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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
Large accelerated filer | ☒ |
| Accelerated filer | ☐ |
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| Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | ☐ | No |
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The aggregate market value of the registrant’s votingregistrant’s common stock held by non-affiliates of the registrant, based on the last sales price of such stock on NASDAQ Global Select Market on June 30, 2017,2021, the last business day of the registrant’s most recently completed second fiscal quarter: $295,236,168.$1,293,553,553
The number of shares outstanding of the registrant’sregistrant’s Common Stock $.01 par value, as of February 23, 2018: 35,089,68414, 2022: 35,002,115 shares
Documents Incorporated by Reference
Portions of the definitive proxy statement for the registrant’s May 23, 201818, 2022 annual meeting of shareholders, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017,2021 are incorporated by reference in Part III.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains some statements that are not historical facts. These statements are called “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.1934, as amended. These statements involve important known and unknown risks, uncertainties and other factors and generally can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “will,” “should” andor similar expressions or words. OurThe Shyft Group, Inc.'s (the “Company”, “we”, “us”, or “our”) future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.
Risk Factors include the risk factors listed and more fully described in Item 1A below, “Risk Factors”, as well as risk factors that we have discussed in previous public reports and other documents filed with the Securities and Exchange Commission. The list in Item 1A below includes all knownthe primary risks our management believes could materially affect the potential results described by forward-looking statements contained in this Form 10-K. However, these risks may not be the only risks we face. Our business, operations, and financial performance could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. In addition, new Risk Factors may emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, although we believe that the forward-looking statements contained in this Form 10-K are reasonable, we cannot provide you with any guarantee that the anticipated results described in those forward-looking statements will be achieved. All forward-looking statements in this Form 10-K are expressly qualified in their entirety by the cautionary statements contained in this section, and investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date this Form 10-K is filed with the Securities and Exchange Commission.
Trademarks and Service Marks
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this Annual Report on Form 10-K are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this Annual Report on Form 10-K are, to our knowledge, the property of their respective owners.
PART I
Item 1. | Business. |
WhenGeneral
As used in this Form 10-K,herein, the term “Company”, “we”, “us” or “our” refers to Spartan Motors,The Shyft Group, Inc. and, depending on the context, could also be used to refer generally to the Company and its subsidiaries which are described below.
General
Spartan Motors, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. Spartan Motors began development of its first product that same year and shipped its first fire truck chassis in October 1975.unless designated or identified otherwise.
We are a niche market leader in specialty vehicle manufacturing and assembly for the engineeringcommercial vehicle (including last-mile delivery, specialty service and manufacturing of heavy-duty, purpose-built specialty vehicles.vocation-specific upfit segments) and recreational vehicle industries. Our products include:include walk-in vans and truck bodies used in e-commerce/parcel delivery; up-fitdelivery, upfit equipment used in the mobile retail and utility trades; fire trucks and fire truck chassis;utility trades, luxury Class A diesel motor home chassis; military vehicles;chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture. Our operating activities are conducted through our wholly-owned operating subsidiary, Spartan MotorsThe Shyft Group USA, Inc. (“Spartan USA”), with locations in Novi, Charlotte, and Plymouth, Michigan; Brandon, South Dakota; Ephrata, Pennsylvania; Bristol, Indiana; SnyderWaterville, Maine; Landisville, Pennsylvania; North Charleston, South Carolina; Pompano Beach and Neligh, Nebraska; and Delevan, Wisconsin, along with contract manufacturing inWest Palm Beach, Florida; Kansas City, MissouriMissouri; Carson, McClellan Park, and Montebello, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico. We employed 2,327 people across all of our business units and corporate location as of January 31, 2018.
Our vehicles, parts and services are sold to commercial users, original equipment manufacturers (OEMs), dealers, commercial and individual end users, and municipalities and other governmental entities. In 2017 55.7% of our revenue was derived from original equipment manufacturers, dealers, and end users, while 44.3% was derived from municipalities and other governmental entities. Our product portfolio gives us access to multiple differentiated markets and corresponding customer bases which help to mitigate the impact of business cycles.
In 2015 we began executing against an aggressive turnaround plan targeting a return to profitability within three years. 2017 marks the end of that turnaround phase with our ER business returning to profitability and the beginning of our growth phase. We will continue to work towards maximizing operational efficiency and profitability, and add in a new focus on growing our revenue and market share through a combination of organic growth, acquisitions and entry into new synergistic markets. As illustrated in the charts below, over the past five years our revenue has increased by $237.6 million, a compound annual growth rate (CAGR) of 10.8%, while net income and adjusted EBITDA have grown by $21.9 million and $22.4 million respectively. Please see the reconciliation of adjusted EBITDA to Net income attributable to Spartan Motors, Inc., below.
Our diversification across several sectors provides numerous opportunities while reducing overall risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customerscustomers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business structure provides the agility to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth. Our expansion of equipment up-fit services in our Fleet Vehicles and Services segment, the recent award of a $214 million order from the United States Postal Service, and the growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market areis an excellent examplesexample of our ability to generate growth and profitability by quickly fulfilling customer needs.
We have the ability to carry out our long-term growth plan and obtain optimal financial flexibility by using a combination of cash generated from borrowings, borrowings under our credit facilities as well as internally or externally generated equity capital as sources of expansion capital.Performance Overview
Unless noted otherwise, the data in this Form 10-K reflects our continuing operations and, therefore, excludes the performance of our prior ERV business. Over the past five years our sales have increased by $587.6 million, a compound annual growth rate (CAGR) of 25.2%, while income from continuing operations has grown by $52.5 million, a CAGR of 41.4%, and Adjusted EBITDA has grown by $76.4 million, a CAGR of 35.9%. Please see the reconciliation of income from continuing operations to Adjusted EBITDA near the end of Item 1 of this Form 10-K.
Our Segments
We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision makersmaker to assess segment performance and allocate resources among our operating units. We have threetwo reportable segments: Fleet Vehicles and Services Emergency Response Vehicles("FVS") and Specialty ChassisVehicles ("SV"). As of October 1, 2021, the composition of both reportable segments changed due to an internal reorganization as certain businesses previously managed and Vehicles.reported within FVS are now a part of SV. Corresponding items of segment information for earlier periods have been recast. For certain financial information related to each segment, see Note 16,"Note 17 – Business Segments," of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K. RevenueSales by segment isare as follows:
Fleet Vehicles and Services Segment
We manufacture fleetcommercial vehicles used in the e-commerce/last mile/parcel delivery, beverage and grocery delivery, laundry and linen, mobile retail, and trades and construction industries through our Bristol, IndianaIndiana; Landisville, Pennsylvania; North Charleston, South Carolina; and beginning in 2018, our Ephrata, Pennsylvania operations.Charlotte, Michigan locations. Our fleetcommercial vehicles are marketed under the Utilimaster brand name, which serves a diverse customer base and also sells aftermarket parts and accessories for walk-in vans and other delivery vehicles. We also provide vocation-specific equipment up-fitupfit services, which are marketed and sold under the Spartan Up-fitas Utilimaster Upfit Services, go-to-market brand, through our contract manufacturing operations at St. Louis, Missouriin Kansas City, Missouri; North Charleston, South Carolina; and Saltillo, Mexico. Our Fleet Vehicles and Services segment employed 898 associates at our Bristol, Indiana facility,approximately 2,100 employees and 400 contractors as of JanuaryDecember 31, 2018, of which 121 were contracted employees.2021.
We offer fleet vehicles in classGross Vehicle Weight Rating ("GVWR") Class 1 through 6,Class 7, the largest range of product offerings amongamongst our competitors.
Cargo Van Upfit | "Velocity" | Traditional Walk-in-Van | Truck Body | |||
Class 1 & 2 | Class 2 | Class 4 | Class 6 & 7 |
In the years ended December 31, 2017, 2016 and 2015, interior equipment up-fitting and aftermarket parts sales represented 17.3%, 25.9% and 14.9% of the Fleet Vehicles and Services segment sales. Innovation
Innovation
Our “Solution Experts”Experts employ a customer-centric approach by working with customers through a process of listening and learning, needs assessment, and design innovation through building and implementing solutions custom designed forwith our customers.customers and their end customers in mind. Recent innovations implemented by our Solution Experts include innovative and cost saving solutions for the specialty service segment, utility industry, food and beverage delivery, and mobile retail industry, such as safe loading equipment, keyless entry and cargo access systems, backup camera systems, and refrigeration solutions. Our teams can deliver product customization ranging from out-of-the-box to 100% custom solutions.solutions, based on customer needs and business requirements.
Recent innovations launched by the product development team include a new walk-in-van format, named the Velocity. Available in GVWR Class 2 and Class 3 designs, the Velocity lineup spans multiple OEM chassis formats to accommodate buyer preference and to increase manufacturing and distribution scale, as Utilimaster build operations are aligned with OEM chassis manufacturing.
Products
Walk-in Assembled on a de-contented or “stripped” truck chassis supplied with engine and drive train components, | |
Truck
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Specialty We install specialty interior and exterior | |
Parts and Accessories We provide a full line of parts and accessories for our walk-in vans and truck bodies. |
Marketing
We market our fleetcommercial vehicles, including walk-in vans, cutaway vans, and truck bodies, under the Aeromaster®, Velocity, Ultimate, Trademaster®, Metromaster®,and Utilivan®, Spartan Upfit Services and Reach product brand names. We sell our fleet vehicles to leasing companies, national and fleet accounts (national accounts typically have 1,000+ vehicle fleets and fleet accounts typically have 100+ vehicle fleets), and through a network of independent truck dealers in the U.S. and Canada. In 2018 we will begin marketingWe also market our truck bodies direct to retail customers in select markets. We provide aftermarket support, including parts sales and field service,services, to all of our fleet vehicle customers through our Customer Service Department located in Bristol, Indiana, which maintains the only online parts resource among the major delivery vehicle manufacturers. Except in limited circumstances, we do not provide financing to dealers, fleet or national accounts. We also maintain multi-year supply agreements with certain key fleet customers in the parcel and linen/uniform rental industries.Indiana.
Manufacturing
Manufacturing
We applyhave implemented the SpartanShyft Production System, of lean manufacturing and continuous improvement toin all of our fleet vehicle operationsfacilities in order to maximize efficiency and reduce costs. We manufacturemanufacture walk-in vans and truck bodies at our Bristol, Indiana facility and beginning in 2018, manufacture truck bodies at our Ephrata, Pennsylvania facility.Landisville, Pennsylvania; and Kansas City, Missouri facilities. We have dedicated facilities at North Charleston, South Carolina; Kansas City, MissouriMissouri; and Saltillo, Mexico aligned with our commercial and OEM customers for the installation of up-fitupfit equipment. Our walk-in vans and truck bodies are manufactured on non-automated assembly lines utilizing a combination of high- and low-skilledhigh-skilled tradespeople and assemblers. Our up-fitupfit facilities utilize teams of workers requiring minimal capital investment for efficient and timely installation of a variety of equipment.
Emergency Response VehiclesSegment
We are one of the top three fire truck apparatus and cab-chassis manufacturers in North America, with an emphasis on broad categorical coverage. We engineer and manufacture custom emergency response cabs and chassis and complete apparatus to customer specifications, for use by the fire industry throughout the United States and Canada.
Our Emergency Response Vehicles segment consists of the emergency response cab-chassis and apparatus operations at our Charlotte, Michigan location and the Spartan apparatus operations at our Brandon, South Dakota; Snyder and Neligh, Nebraska; Ephrata, Pennsylvania; and Delevan, Wisconsin locations, along with our Spartan-Gimaex joint venture.
The Emergency Response Vehicles segment has extensive engineering experience in creating custom vehicles that perform specialized tasks, and generally manufactures vehicles only upon receipt of confirmed purchase orders; thus, it does not have significant amounts of completed product inventory. As an emergency response vehicle producer, Spartan Motors believes it holds a unique position for continued growth due to its engineering reaction time, manufacturing expertise and flexibility. The Emergency Response Vehicles segment employed 953 associates as of January 31, 2018, 2 of which were contracted employees.
InnovationSpecialty Vehicles Segment
We communicate with end users to continuously identify innovations and bring the latest technology, safety and functionality to our emergency response cab-chassis and apparatus customers. Over the past few years, we have introduced innovations on our emergency response chassis and apparatus such as: our Spartan Select and S-180 truck programs, designed to provide the custom apparatus that emergency response professionals need with unprecedented order-to-delivery cycle times as short as 180 days; our industry-leading Advanced Protection System, which includes side curtain airbags, crew protecting knee bags, outboard accident sensors, smart restraint systems, heavy duty windshield wipers for increased visibility in all weather conditions, and a 360 degree camera that gives around-the truck visibility; our Advanced Climate Control system, the most advanced HVAC system available in the industry; Mobile Gateway, which provides an extensive group of connectivity features - even if the communications infrastructure is compromised or down; heated roll down side glass; optimized engine tunnel; and a new fire truck cab interior configuration, which provides additional space and comfort in both the driver and officer positions, improved shoulder harness accessibility, increased interior volume and a 45% reduction in in-cab noise levels when traveling at 45 mph.
Products
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Marketing
We market our custom emergency response cab-chassis and apparatus through a network of dealers throughout the U.S. and Canada, as well as select markets in South America and Asia, under the Spartan, Smeal, Ladder Tower and UST brands. Our dealer organizations establish close working relationships with municipal fire departments. These personal contacts focus on the quality of the group’s specialty products and allow us to keep customers updated on new and improved product lines and end users’ needs. We provide aftermarket support, including parts sales, directly through our refurbishment centers located throughout the United States and through our dealer network.
In 2017 and consistent with prior years, we were one of the largest participants of the Fire Department Instructors Conference, the largest fire and safety industry trade show in North America. We also participate in other trade shows throughout the year. Trade shows provide the opportunity to display products and to meet directly with OEMs who purchase chassis, dealers who sell finished vehicles and fire departments that use the finished products. Engineers from our advanced product development team attend these trade shows, and along with communication with our dealer network, work to provide the innovation, functionality and quality that fire departments need.
Manufacturing
We apply the Spartan Production System of lean manufacturing and continuous improvement to bring world class efficiency, productivity and quality to our chassis and apparatus operations. We manufacture our emergency response cab-chassis and apparatus at our Charlotte, Michigan; Brandon, South Dakota; Snyder, Nebraska; and Ephrata Pennsylvania locations. Emergency response cab-chassis are manufactured at our Charlotte, Michigan facility, while our apparatus and aerial ladders are manufactured at our Brandon, South Dakota; Snyder, Nebraska; Delavan, Wisconsin; and Ephrata, Pennsylvania locations. We are able to match the manufacturing capabilities of our various locations with the demands of the specific products in order to maximize efficiency. Due to the custom nature of our products, our manufacturing processes utilize skilled workers working on non-automated assembly lines. Our chassis and apparatus are generally manufactured to customer specifications in response to orders received. We also manufacture a limited number of chassis and apparatus for use as demonstration vehicles or to be sold from stock.
Specialty Chassis and Vehicles Segment
Our Specialty Chassis and Vehicles segment operatesincludes our Spartan RV chassis and Builtmore Contract Manufacturing out of our Charlotte, Michigan facility where we engineer and manufacture luxury Class A diesel motor homemotorhome chassis, manufacture our Reach walk-in van, provide contract assembly of defensespecialty vehicles and other specialty chassis,other commercial vehicles, and distribute related aftermarket parts and accessories.accessories under the Spartan RV Chassis and Builtmore Contract Manufacturing brand names. Our service truck bodies operations include locations in Carson, McClellan Park, and Montebello, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Waterville, Maine. We also provide vocation-specific equipment upfit services, which are marketed and sold under the Strobes-R-Us brand, through our manufacturing operations in Pompano and West Palm Beach, Florida. Our specialty vehicle products are manufactured to customer specifications upon receipt of confirmed purchase orders. As a specialty chassis and vehicle manufacturer, we believe we hold a unique position for continued growth due to the high quality and performance of our products, our proactive engineering, reaction time, manufacturing expertise and flexibility, and the scalability of our operations. Our specialty vehicle products are generally sold through original equipment manufacturers in the case of chassis and vehicles and to dealerdealers, distributors or directly to consumers for truck bodies and aftermarket parts and accessories. The Specialty Chassis and Vehicles segment employed 461associates (all in Charlotte, Michigan)approximately 1,100 employees and less than 100 contractors as of JanuaryDecember 31, 2018, of which 99 were contracted employees. 2021.
Innovation
We promote effective communication through
Through trade shows and motor homemotorhome rallies, we talk with a wide variety of motor homemotorhome owners to identify needs and bring our customers the latest technology and highest quality in our motor homemotorhome and specialty chassis. Over the past few years, we have introducedRecent innovations onto our motor homemotorhome chassis including:include: custom tuned suspensions, independent front suspension, and passive steer tag axle that greatly improve ride, handling and maneuverability; adaptive cruise control, collision mitigation, electronic stability control and lane departure warning to improve safety; and automatic air leveling that adds convenience and functionality to top line motor homes.motorhomes. We also support trade shows, OEM and dealer events to promote our truck body products and upfit services. We continue to expand our product portfolio and execute innovations in that segment.
Products
Products
We custom manufacture diesel chassis for luxury Class A |
We provide final assembly services for Isuzu N-gas and F-series chassis for the North American | |
Service Truck Bodies We manufacture and assemble truck bodies for a variety of trades and vocations. Those body configurations include service bodies, stake bodies, contractor bodies, dump/landscape bodies and vocational dry freight bodies under the Royal Truck Body and DuraMag brand names. | |
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Parts and Accessories We provide truck accessories under our Magnum brand and provide a full line of parts and accessories |
Marketing
We sell our Class A diesel motor homemotorhome chassis to OEM manufacturersOEMs for use in constructionthe manufacturing of premium motor homes. We actively participate in a variety of trade shows and motor home rallies that promote our products and aftermarket parts and services in additionaddition to providing an opportunity to communicate with our end customers to showcase Spartan’sour latest innovations and identify needs and opportunities for continuous improvement of our chassis. We sell our service truck bodies through a commercial dealer network and through OEM pools, and we actively participate in a variety of regional and national trade shows that promote our products. We also provide vocation-specific equipment upfit services, which are marketed and sold under the Strobes-R-Us brand.
Manufacturing
Manufacturing
Our motor homemotorhome chassis, service truck body, and specialty manufacturingmanufacturing operations benefit fromemploy the SpartanShyft Production System, of lean manufacturing, and continuous improvement to bring efficiency and cost reduction throughout our Specialty Chassis and Vehicles segment. We engineer, manufacture, motor homeand assemble Spartan RV chassis, drill rigs, militaryas well as other specialty vehicles and specialty bus chassis on non-automated assembly lines at our Charlotte, Michigan facility.lines. We assemble both the Isuzu N-gasN- and F-series chassis on high-volume assembly lines at our Charlotte, Michigan location that utilize a variety of state of the artstate-of-the-art automation and testing equipment. Our upfit facilities utilize teams of workers requiring minimal capital investment for efficient and timely installation of a variety of equipment.
Competition
Recent Acquisition
On January 1, 2017, we acquired substantially all of the assets and certain liabilities of Smeal Fire Apparatus Co., Smeal Properties, Inc., Ladder Tower Co., and U.S. Tanker Co., resulting in the addition of $124.7 million of revenue in 2017. When used in this Annual Report on Form 10-K, “Smeal” refers to the assets, liabilities, and operations acquired from such entities. The assets acquired consist of the assets used by the former owners of Smeal in the operation of its business designing, manufacturing, and distributing emergency response vehicle bodies and aerial devices for the fire service industry. Smeal has operations in Snyder and Neligh, Nebraska; Delavan, Wisconsin; and Ephrata, Pennsylvania and is operated as part of our Emergency Response Vehicles segment. Our acquisition of Smeal resulted in the expansion of our product portfolio and, with the addition of the Smeal dealer network, an expansion of our geographic reach across 44 states and 13 Canadian provinces and territories. The acquisition strengthened our emergency response vehicle product line with the addition of market leading aerial designs and three manufacturing locations that will allow us to align our product portfolio with location specific manufacturing expertise to further increase efficiency and accelerate our Emergency Response Vehicles segment’s return to profitability.
Our strategy is to accelerate our growth by expanding into additional products and markets through opportunistic, strategic acquisitions. We believe that we have the management expertise, balance sheet strength and capital availability to enable continued growth through both organic expansion and an aggressive acquisition strategy.
Competition
The principal methods we use to build competitive advantages include short engineering reaction time, custom design capability, high product quality, superior customer service and quick delivery. We employ a solutions-based approach to offer specialized productsproducts tailored to customer needs across the spectrum of our products. We compete with companies that manufacture for similar markets, including some divisions of large diversified organizations that have total sales and financial resources exceeding ours. Our competition in the fleet vehicle market ranges from one large manufacturer in the walk-in van market to a number of smaller manufacturers in the truck body and equipment up-fitupfit markets. Our direct competitors in the emergency vehicle apparatus market are principally larger manufacturers that compete throughout the North American market and often have a strong international presence. Certain competitors are vertically integrated and manufacture their own emergency response chassis and/or apparatus, although they generally do not sell their chassis to outside customers (other OEMs). Our competitors in the specialty vehicle market are principally large multi-product line manufacturers of specialty and heavy-duty vehicles. In addition to established mature competitors, we also face competition from new market entrants including technology companies.
Suppliers
We are dedicated to establishing long-term and mutually beneficial relationships with our suppliers. Through these relationships, we benefit from new innovations, higher quality, reduced lead times, smoother/faster manufacturing ramp-up of new vehicle introductionsintroductions and lower total costs of doing business. Our accelerating growth and company-wide supply chain management initiatives allow us to benefit from economies of scale and maximize to focus on a common vision.
The single largest commodity directly utilizedutilized in production is aluminum, which we purchase under purchase agreements based on forecasted production requirements. To a lesser extent we are dependent upon suppliers of lumber, fiberglass and steel for our manufacturing. We have initiated long-term supplier agreements and are consolidating suppliers where beneficial to gain pricing advantages. There are several readily available sources for the majority of these raw materials. However, we are heavily dependent on specific component part products from a few single source vendors. We maintain a qualification, on-site inspection, assistance, and performance measurement system to control risks associated with reliance on suppliers. We normally do not carry inventories of such raw materials or components in excess of those reasonably required to meet production and shipping schedules. Material and component cost increases are passed on to our customers whenever possible. However, thereThere can be no assurance that there will not be any supply issues over the long-term.
In the assembly of certain of our fleet vehicles, we use chassis supplied by third parties, and we generally do not purchase these chassis for inventory. For this market, we typically accept shipment of truck chassis owned by dealers or end users, for the purposepurpose of installing and/or manufacturing our specialized commercial vehicles on such chassis, but from time to time we do purchase chassis for use in fulfilling certain customer orders.
Research and Development
Our success depends on our ability to innovate and add new products and features ahead of changing market demands and new regulatory requirements. Thus, we emphasize research and development and commit significant resources to develop and adapt new productsproducts and production techniques. Our engineering team of nearly 200 technical professionals is looking past “current practices” and “best practices” to deliver “next practices” for our customers and shareholders. Our engineering group is organized as a unified team serving onegroup's goal throughout the company,company: to deliver world class products and manufacturing processes regardless of product line or location, a concept that we refer to as “One Spartan Engineering”. The team balances the synergies of One Spartan Engineering with fully integrated teams dedicated to product line specialization.location. Results are accomplished with the appropriate blend of predictive analysis and physical property testing in our Research and Development facilities along with ride-and-drive analysis. Our efforts range from executing special orders for current production; to new production development for new functionality and product improvements; to exciting technologies that are new to the markets we serve, like vehicle electrification. Our engineering actions are driven by our firm commitment to safety, quality, delivery, and productivity. We spent $6.5$8.5 million, $6.8$4.4 million, and $4.6$4.9 million on research and development in 2017, 20162021, 2020, and 2015,2019, respectively.
During 2021, Shyft Innovations, our dedicated mobility research and development team, unveiled plans to bring to market an all-electric purpose-built Class 3 chassis platform designed to serve a wide array of medium-duty truck markets, from last mile parcel delivery fleets to work trucks, passenger busses, recreational vehicles, and more. The EV-powered chassis will feature customizable length and wheelbase, making it well suited for a variety of vehicle types. The chassis’ modular design can accommodate multiple GVWR classifications, based on build out and usage. With this high degree of configurability, the all-electric chassis is adaptable to last mile delivery, work truck, mass transit, recreational vehicle, and other emerging EV markets.
Product Warranties
We provide limited warranties against assembly and construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for specified periods, ranging from one year to the life of the product,twenty years, following the date of sale. With the use of validation testing, predictive analysis tools and engineering and design standards, we strive to continuously improve product quality and durability, and reduce our exposure to warranty claims. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles. For more information concerning our product warranties, see Note 10,"Note 11 – Commitments and Contingent Liabilities," of the Notes to Consolidated Financial Statements in Item 8 appearing in this Form 10-K.
Patents, Trademarks and Licenses
We have 2717 United States patents, (provisional and regular), which include rights to the design and structure of chassis and certain peripheral equipment and we have 1418 pending patent applications in the United States. The existing patents will expire on various dates from 20182025 through 20332040 and allutility patents are subject to payment of required maintenance fees. We also own 33 United Statesor license 84 federal and international trademark and service mark registrations. The trademark and service mark registrations are generally renewable under applicable laws, subject to payment of required fees and the filing of affidavits of use. In addition, we have various internationalpending trademark registrations and pending applications.
We believe ourOur products and services are identified by our trademarks and that ourservice marks. Our trademarks and service marks are valuable assets to allboth of our business segments. We are not aware of any infringing uses or any prior claims of ownership of our trademarks that could materially affect our business. It is our policy to pursue registration of our primary marks whenever possible and to vigorously defend our patents, trademarks and other proprietary marks against infringement or other threats to the greatest extent practicable under applicable laws.
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 our capital expenditures, earnings or competitive position.
Joint Venture
Spartan USA is a participant in Spartan-Gimaex Innovations, LLC (“Spartan-Gimaex”), a 50/50 joint venture with Gimaex Holding, Inc. that was formed to provide emergency response vehicles for the domestic and international markets. Spartan-Gimaex is reported as a consolidated subsidiary of Spartan Motors, Inc. In February 2015, Spartan USA and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the joint venture. In June 2015, Spartan USA and Gimaex Holding, Inc. entered into court proceedings to determine the terms of the dissolution. In February 2017, by agreement of the parties, the court proceeding was dismissed with prejudice and the judge entered an order to this effect as the parties agreed to seek a dissolution plan on their own. No dissolution terms have been determined as of the date of this Form 10-K.
AssociatesHuman Capital Management
We believe people are the most critical component in our continued success, and we strive to attract high-performing talent. As of December 31, 2021, we employed 2,327 associates asapproximately 3,800 employees and contractors. Approximately 13% of January 31, 2018, substantiallyour total workforce consists of contractors, including all personnel at our Saltillo, Mexico operation. Compared to 2020, we decreased the percentage of which are full-time, including 222 contracted associates. Management considers its relationscontractors in our workforce by approximately 50%. This decrease reflected a strategic change in our talent acquisition strategy of direct hiring instead of contract relationships. Of our total workforce, 92% reside in the United States, with associates to be positive.the remaining 8% in Mexico. Our production processes at our non-unionized facilities employleverage a combination of high- and low-skilledskilled tradespeople and high-touch assemblers involvedworking in body, electrical, mechanical, paint, and assembly operations. As a team, our employees and contractors put the Company’s core values into action, while executing on key growth initiatives to maintain long-term sustainable growth. We strive to create a workplace of choice to attract, retain, and develop top talent to achieve our vision and deliver shareholder results.
In our locations, we compete with many local companies for talent. We have implemented talent strategies and market competitive wages and benefits to support talent acquisition and retention. In addition to these actions, we have implemented employee surveys and focus groups that encourage our employees to share their opinions and feedback on the culture of our company. The results of the survey are analyzed and measured to learn how we can enhance and accelerate improvements in the attraction and retention in a difficult talent environment.
We adhere to a philosophy that includes, among other things, commitments to create ongoing job opportunities, pay fair wages, and protect worker health and safety. Fundamental to these commitments are our Company’s core values of honesty and integrity, accountability, trust, and performance excellence. Management considers relations with the Company’s workforce to be positive.
Compensation and Benefits
We believe the structure of our compensation packages provides the appropriate incentives to attract, retain and motivate our employees. We provide base pay that is competitive and that aligns with employee positions, skill levels, experience and geographic location. In addition to base pay, we seek to reward employees with incentive awards, recognition programs, educational opportunities, paid time off, and equity awards for employees at certain roles.
Diversity and Inclusion
We value and advance the diversity and inclusion of the people with whom we work. We are committed to equal opportunity and are intolerant of discrimination and harassment. We work to maintain workplaces that are free from discrimination or harassment on the basis of race, sex, color, national or social origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, political opinion or any other status protected by applicable law.
The basis for recruitment, hiring, placement, development, training, compensation and advancement at the Company includes qualifications, performance, skills and experience.
We do not tolerate disrespectful or inappropriate behavior, unfair treatment or retaliation of any kind. Harassment is not tolerated in the workplace and in any work-related circumstance outside the workplace.
COVID-19 Health Measures
In response to the COVID-19 pandemic, we implemented measures to help ensure the health, safety and security of our employees, while constantly monitoring the rapidly evolving situation and adapting our efforts and responses. We are diligently following guidance from authorities and health officials. This includes allowing remote work in certain circumstances, imposing travel restrictions and implementing safety measures for on-site employees including, but not limited to, the use of personal protective equipment as appropriate and in accordance with local laws and regulations.
Customer Base
We serve customers ranging from municipalities to OEMs to commercial customers and vehicle dealers throughout our product lines. Sales to our top 10 customers in 20172021 accounted for 38.8%60.6% of our revenue.sales. Sales to customers that individually exceeded 10% of our consolidated revenuesales for 20162021, 2020 and 20152019 are detailed in the chart below. In 2017 no customer individually exceeded 10% of our consolidated revenue.
Year | Customer | Sales ($ millions) | Percentage of consolidated revenue | Segment | ||||||||
2016 | Jayco, Inc. | $ | 71.0 | 12.0 | % | Specialty Chassis and Vehicles | ||||||
2015 | Jayco, Inc. | $ | 78.8 | 14.3 | % | Specialty Chassis and Vehicles |
Year | Customer | Sales ($ millions) | Percentage of consolidated sales | Segment | ||||||||
2021 | Amazon | $ | 248.6 | 25.1 | % | FVS | ||||||
2020 | Amazon | $ | 198.3 | 29.3 | % | FVS | ||||||
2019 | Amazon | $ | 173.0 | 22.9 | % | FVS | ||||||
2019 | USPS | $ | 113.8 | 15.0 | % | FVS |
WeWe do have other significant customers which, if the relationship changes significantly, could have a material adverse impact on our financial position and results of operations. We believe that we have developed strong relationships with our customers and continually work to develop new customers and markets. See related risk factors in Item 1A of this Form 10-K.
Sales to customers outside the United States were $81.2$11.7 million, $31.7$9.5 million, and $40.1$21.4 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively, or 11.5%1.2%, 5.4%1.4%, and 7.3%2.8%, respectively, of sales for those years. AllSubstantially all of our long-lived assets are located in the United States.
Order Backlog
Order Backlog
Our order backlog by reportable segment is summarized in the following table (in thousands).
December 31, 2017 | December 31, 2016 | Increase/(decrease) | ||||||||||
Fleet Vehicles and Services | $ | 267,698 | $ | 89,549 | $ | 178,149 | ||||||
Emergency Response Vehicles | 233,583 | 139,870 | 93,713 | |||||||||
Specialty Chassis and Vehicles | 33,806 | 20,037 | 13,769 | |||||||||
Total consolidated | $ | 535,087 | $ | 249,456 | $ | 285,631 |
December 31, 2021 | December 31, 2020 | Increase | ||||||||||
FVS | $ | 859,442 | $ | $ 421,544 | $ | 437,898 | ||||||
SV | 104,117 | 57,107 | 47,010 | |||||||||
Total consolidated | $ | 963,559 | $ | 478,651 | $ | 484,908 |
The increase in Fleet Vehicles and ServicesOur FVS backlog wasincreased by $437.9 million, or 103.9%, driven by a $214.3new orders for walk-in vans. Our SV segment backlog increased by $47.0 million, contract received in September, 2017or 82.3%, due to supply delivery vehicles, which will be fulfilled through 2019. The increase in our Emergency Response Vehicles backlog was driven by the Smeal acquisition, which added $84.4 million to our backlog at December 31, 2017. The increase in Specialty Chassis and Vehicles backlog was driven by an increase in orders for motor home chassis as a result of new model introductions in 2017.Class A diesel motorhome market demand and service body orders.
While orders in the backlog are subject to modification, cancellation or rescheduling by customers, this has not been a major factor in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as chassis availability, 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 periodperiod-to-period is not necessarily indicative of eventual actual shipments.
Non-GAAP Financial Measure
This report contains adjustedpresents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our underlying operating performance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operating performance. For the periods covered by this report such items include expenses associated with restructuring actions takenoperations before interest, income taxes, depreciation and amortization, as adjusted to improve the efficiency and profitability of certain of our manufacturing operations, expenses related to product recall campaigns, non-cash charges related to the impairment of assets, expenses related to a recent business acquisition,eliminate the impact of the step-up in inventory value associated with the recent businessrestructuring charges, acquisition related expenses and the impactadjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of the business acquisition on the timing of chassis revenue recognition.our ongoing operations.
We present the non-GAAP measure adjustedAdjusted EBITDA because we consider them it to be an important supplemental measure of our performance. The presentation of adjustedAdjusted EBITDA enables investors to better understand our operations by removing items that we believe are not representative of our continuing operations and may distort our longer termlonger-term operating trends. We believe this measure to be useful to improve the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not indicative of our continuing operating performance. We believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.
Our management uses adjustedAdjusted EBITDA to evaluate the performance of and allocate resources to our segments. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual incentive compensation for our management team and long-term incentive compensation for certain members of our management team.
The following table reconciles Net income attributable to Spartan Motors, Inc.reconciles Income from continuing operations to Adjusted EBITDA for the periods indicated.
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net Income (loss) attributable to Spartan Motors, Inc. | $ | 15,935 | $ | 8,610 | $ | (16,972 | ) | $ | 1,173 | $ | (5,971 | ) | ||||||||
Interest expense | 864 | 410 | 365 | 341 | 311 | |||||||||||||||
Income tax | 90 | 100 | 4,880 | (2,103 | ) | (1,881 | ) | |||||||||||||
Depreciation & Amortization | 9,937 | 7,903 | 7,437 | 8,378 | 9,238 | |||||||||||||||
EBITDA | 26,826 | 17,023 | (4,290 | ) | 7,789 | 1,697 | ||||||||||||||
Restructuring charges | 1,252 | 1,095 | 2,855 | 2,157 | - | |||||||||||||||
Impact of intercompany chassis sales to Smeal | 2,073 | - | - | - | - | |||||||||||||||
Acquisition related expenses | 1,354 | 882 | - | - | - | |||||||||||||||
Impact of inventory fair value step-up | 189 | - | - | - | - | |||||||||||||||
Product recall expenses | (368 | ) | 3,457 | 8,600 | - | 1,979 | ||||||||||||||
Contingent consideration | - | - | - | 742 | 21 | |||||||||||||||
Asset impairment | - | 406 | 2,234 | - | 5,198 | |||||||||||||||
NHTSA settlement | - | - | 2,269 | - | - | |||||||||||||||
Joint venture expenses | 1 | 7 | 508 | 144 | (2 | ) | ||||||||||||||
Adjusted EBITDA | $ | 31,327 | $ | 22,870 | $ | 12,176 | $ | 10,832 | $ | 8,893 |
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
Income from continuing operations | $ | 69,974 | $ | 38,289 | $ | 36,790 | $ | 18,116 | $ | 17,471 | ||||||||||
Net (income) loss attributable to non-controlling interest | (1,230 | ) | (347 | ) | (140 | ) | - | 1 | ||||||||||||
Interest expense | 414 | 1,293 | 1,839 | 1,080 | 864 | |||||||||||||||
Income tax expense | 14,506 | 9,867 | 10,355 | 3,334 | 2,382 | |||||||||||||||
Depreciation and amortization | 11,356 | 13,903 | 6,073 | 6,214 | 6,032 | |||||||||||||||
Restructuring and other related charges | 505 | 1,873 | 316 | 662 | 798 | |||||||||||||||
Acquisition related expenses and adjustments | 1,585 | 1,332 | 3,531 | 1,952 | 588 | |||||||||||||||
Non-cash stock-based compensation expense | 8,745 | 7,706 | 5,281 | 4,027 | 3,536 | |||||||||||||||
Loss from write-off of construction in process | - | 2,430 | - | - | - | |||||||||||||||
Loss from liquidation of JV | 643 | - | - | - | - | |||||||||||||||
Non-recurring professional fees | 1,568 | - | - | - | - | |||||||||||||||
Adjusted EBITDA | $ | 108,066 | $ | 76,346 | $ | 64,045 | $ | 35,385 | $ | 31,672 |
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments thereto) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available, free of charge, on our internet website (www.SpartanMotors.comwww.TheShyftGroup.com) as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission.Commission ("SEC").
The public may read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Information About our Executive Officers
The executive officers of the Company, their business experience and their ages as of February 1, 2022, are as follows:
Name | Position | Business Experience | Age | Executive Officer Since | ||
Daryl M. Adams | President and Chief Executive Officer | President and Chief Executive Officer since February 2015. Director since December 2014. Chief Operating Officer from July 2014 to February 2015. Chief Executive Officer, Midway Products from 2007 to 2014. | 60 | 2015 |
Name | Position | Business Experience | Age | Executive Officer Since | ||
Jonathan C. Douyard | Chief Financial Officer | Chief Financial Officer since March 2020. Vice President and Chief Financial Officer, Fluke Corporation from June 2016 to February 2020. Vice President, Finance and Chief Financial Officer, Commercial Systems & Services business unit, Sikorsky Aircraft (United Technologies) from September 2015 to May 2016. Director, Finance, Commercial Systems & Services business unit, Sikorsky Aircraft (United Technologies) from 2012 to 2015. Various financial leadership roles, General Electric subsidiaries from 2001 to 2012. | 42 | 2020 | ||
Todd A. Heavin | Chief Operating Officer | Chief Operating Officer since June 2019. Management Consultant from August 2017 to May 2019. Division President, American Axle from April 2017 to August 2017. Division General Manager, Metaldyne Performance Group from 2014 to April 2017. | 60 | 2019 | ||
Chad M. Heminover | President Fleet Vehicles and Services | President, Shyft Fleet Vehicles and Services since May 2018. Vice President of Operations and Business Development, Shyft Fleet Vehicles and Services from December 2017 through April 2018. Business Unit President, Taylor Corporation from 2014 through December 2017. | 45 | 2018 | ||
Stephen K. Guillaume | President Specialty Vehicles | President, Shyft Specialty Vehicles since May 2015. Vice President of New Business Development and Joint Ventures from January 2015 to May 2015.Vice President and General Manager, Navistar Commercial Trucks from 2010 through 2014. | 54 | 2015 | ||
Joshua A. Sherbin | Chief Legal Officer, Chief Compliance Officer and Corporate Secretary | Chief Legal Officer, Chief Compliance Officer and Corporate Secretary since May 2021. Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary, TriMas Corporation from March 2016 to May 2021. Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary, TriMas Corporation from 2008 to March 2016. | 59 | 2021 |
Item 1A. | Risk Factors. |
Our financial condition, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control that may cause actual performance to differ materially from historical or projected future performance. The risksrisks described below are the primary risks known to us that we believe could materially affect our business, financial condition, results of operations, or cash flows. However, these risks may not be the only risks we face. Our business could also be affected by additional factors that are not presently known to us, factors we currently consider to be immaterial to our operations, or factors that emerge as new risks in the future.
Risks Related to the COVID-19 Pandemic
Our results of operations are likely to continue to be adversely affected by the circumstances relating to the COVID-19 pandemic.
We depend on localhave experienced challenges to our business arising from the COVID-19 pandemic and municipal governmentsrelated governmental directives, and we expect to continue facing these challenges for a substantial portionthe foreseeable future. In 2020, we were forced to shut down certain of our business.facilities, often on short notice. Although all of our facilities are currently in operation, future shutdowns are possible as long as the COVID-19 virus presents a public health risk.
In 2017, localaddition, we have had to incur additional costs and municipal governments wereexpenses to maintain our facilities and operations in compliance with governmental directives and in a manner designed to protect the end customer for 42%health and safety of our revenue, including custom fire truckworkforce. These challenges are made more difficult by the fact that we have facilities in multiple states, and each state has implemented different restrictions and directives in response to the pandemic. This also increases our compliance-related risk as we work to understand and comply with the different rules and regulations within each state.
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We have also experienced increased employee absences related to the pandemic, due to illness and/or the need to care for family members. This challenge may continue throughout 2022.
These challenges also impact our suppliers, and we have experienced supply chain disruptions as a result. Our inability to obtain raw materials, chassis fire truck bodies, aerial ladders and other fire truck related apparatus. These markets are heavily impacted by municipal capital spending budgets, which may be impacted by fluctuating municipal tax revenues. These budgetary constraints may havesupplies on a significant adverse effect on the overall fire and emergency vehicle market and/or cause a shift in the fire and emergency vehicle market away from highly customized products toward commercially produced vehicles. These changes could result in weakened demand fortimely basis negatively impacts our products, which may have an adverse impact on our net sales, financial condition, profitability and/or cash flows.
The integration of businesses or assets we have acquired or may acquire in the future involves challenges that could disrupt our business and harm our financial condition.
As part of our growth strategy, we have pursued and expect we will continueability to selectively pursue, acquisitions of businesses or assets in order to diversify, expand our capabilities, enter new markets, or increase our market share. Integrating any newly acquired business or assets can be expensive and can require a great deal of management time and other resources. If we are unable to successfully integrate the newly acquired businesses with our existing business, we may not realize the synergies we expect from the acquisition and our business and results of operations may be adversely impacted.
Re-configuration or relocation of our production operations could negatively impact our earnings.
We may, from time to time, re-configure our production lines or relocate production of products between buildings or locations or to new locations in order to maximize the efficient utilization of our existing production capacity or take advantage of opportunities to increase manufacturing efficiencies. Costs incurred to effect these re-configurations or re-locations may exceed our estimate, and efficiencies gained may be less than anticipated, each offulfill customer orders, which may have a negativematerial adverse impact on our results of operations, financial condition, and financial position.liquidity.
Disruptions within our dealer network could adversely affect our business.Risks Related to Our Company and Business
We rely, for certain of our products, on a network of independent dealers to market, deliver, provide training for, and service our products to and for customers. Our business is influenced by our ability to initiate and manage new and existing relationships with dealers.
From time to time, we or an individual dealer may choose to terminate the relationship, or the dealership could face financial difficulty leading to failure or difficulty in transitioning to new ownership. In addition, our competitors could engage in a strategy to attempt to acquire or convert our dealers to carry their products. We do not believe our business is dependent on any single dealer, the loss of which would have a sustained material adverse effect upon our business.
However, disruption of dealer coverage within a specific local market could have an adverse impact on our business within the affected market. The loss or termination of a significant number of dealers could cause difficulties in marketing and distributing our products and have an adverse effect on our business, operating results or financial condition. In the event that a dealer in a strategic market experiences financial difficulty, we may choose to provide financial support, such as extending credit, to a dealership, reducing the risk of disruption, but increasing our financial exposure.
We may not be able to successfully implement and manage our growth strategy.
Our growth strategy includes expanding existing market share through product innovation, continued expansion into industrial and global markets, and merger or acquisition related activities.
We believe our future success depends in part on our research and development and engineering efforts, our ability to manufacture or source the products and customer acceptance of our products. As it relates to new markets, our success also depends on our ability to create and implement local supply chain, sales and distribution strategies to reach these markets.
The potential inability to successfully implement and manage our growth strategy could adversely affect our business and our results of operations. The successful implementation of our growth strategy will depend, in part, on our ability to integrate operations with acquired companies.
Our efforts to grow our business in emerging markets are subject to all of these risks plus additional, unique risks. In certain markets, the legal and political environment can be unstable and uncertain which could make it difficult for us to compete successfully and could expose us to liabilities.
We also make investments in new business development initiatives which, like many startups, could have a relatively high failure rate. We limit our investments in these initiatives and establish governance procedures to contain the associated risks, but losses could result and may be material. Our growth strategy also may involve acquisitions, joint venture alliances and additional arrangements of distribution. We may not be able to enter into acquisitions or joint venture arrangements on acceptable terms, and we may not successfully integrate these activities into our operations. We also may not be successful in implementing new distribution channels, and changes could create discord in our existing channels of distribution.
When we introduce new products, we may incur expenses that we did not anticipate, such as recall expenses, resulting in reduced earnings.
The introduction of new products is critical to our future success. We have additional costs when we introduce new products, such as initial labor or purchasing inefficiencies, but we may also incur unexpected expenses. For example, we may experience unexpected engineering or design issues that will force a recall of a new product or increase production costs of the product above levels needed to ensure profitability. In addition, we may make business decisions that include offering incentives to stimulate the sales of products not adequately accepted by the market, or to stimulate sales of older or less marketable products. The costs resulting from these types of problems could be substantial and have a significant adverse effect on our earnings.
Any negativenegative change in our relationship with our major customers could have significant adverse effects on revenues and profits.
Our financial success is directly related to the willingness of our customers to continue to purchase our products. Failure to fill customers’ orders in a timely manner or on the terms and conditions they may impose could harm our relationships with our customers. The importance of maintaining excellent relationships with our major customers may also give these customers leverage in our negotiations with them, including pricing and other supply terms, as well as post-sale disputes. This leverage may lead to increased costs to us or decreased margins. Furthermore, if any of our major customers experience a significant downturn in their business or fail to remain committed to our products or brands, then these customers may reduce or discontinue purchases from us, which could have an adverse effect on our business, results of operations and financial condition. There were no customersIn 2021, we had a single customer that accounted for 1025.1 percent or greater of consolidated salessales. Sales to our top 10 customers accounted for 60.6 percent of our sales.
We may not be able to remain competitive in 2017.the rapidly changing markets in which we compete.
The markets we serve are undergoing rapid transformation, particularly with respect to parcel delivery services and electric vehicle (EV) technologies. Our competitors include companies that have significantly greater resources than we do, including OEMs and certain of our customers, and which are highly motivated by market opportunities to deploy those resources. In addition to these established, mature competitors, we also face competition from new market entrants, including technology companies. As a result of these market opportunities, OEMs and other companies have taken actions to reduce costs, including through in-sourcing and supply base consolidation. We expect these trends to continue and even accelerate. Our business will be adversely affected if we are unable to adequately respond to these pressures or otherwise continue to compete in these markets.
The integration of businesses or assets we have acquired or may acquire in the future involves challenges that could disrupt our business and harm our financial condition.
As part of our growth strategy, we have pursued and expect we will continue to selectively pursue acquisitions of businesses or assets in order to diversify, expand our capabilities, enter new markets, or increase our market share. Integrating any newly acquired business or assets can be expensive and can require a great deal of management time and other resources. If we are unable to successfully integrate the newly acquired businesses with our existing business, we may not realize the synergies we expect from the acquisition and our business and results of operations may be adversely impacted.
Re-configuration or relocation of our production operations could negatively impact our earnings.
We may, from time to time, reconfigure our production lines or relocate production of products between buildings or locations or to new locations to maximize the efficient utilization of our existing production capacity or take advantage of opportunities to increase manufacturing efficiencies. Costs incurred to affect these reconfigurations or relocations may exceed our estimates, and efficiencies gained may be less than anticipated, each of which may have a negative impact on our results of operations and financial position.
Disruptions within our dealer network could adversely affect our business.
We rely, for certain of our products, on a network of independent dealers to market, deliver, provide training for, and service our products to and for customers. Our business is influenced by our ability to initiate and manage new and existing relationships with dealers.
From time to time, we or an individual dealer may choose to terminate the relationship, or the dealership could face financial difficulty leading to failure or difficulty in transitioning to new ownership. In addition, our competitors could engage in a strategy to attempt to acquire or convert our dealers to carry their products. We do not believe our business is dependent on any single dealer, the loss of which would have a sustained material adverse effect upon our business.
However, disruption of dealer coverage within a specific local market could have an adverse impact on our business within the affected market. The loss or termination of a significant number of dealers could cause difficulties in marketing and distributing our products and have an adverse effect on our business, operating results or financial condition. In the event that a dealer in a strategic market experiences financial difficulty, we may choose to provide financial support such as extending credit to a dealership, reducing the risk of disruption, but increasing our financial exposure.
We may not be able to successfully implement and manage our growth strategy.
Our growth strategy includes expanding existing market share through product innovation, continued expansion into industrial and global markets and merger or acquisition related activities. We believe our future success depends in part on our research and development and engineering efforts, our ability to manufacture or source the products and customer acceptance of our products. As it relates to new markets, our success also depends on our ability to create and implement local supply chain, sales and distribution strategies to reach these markets.
The potential inability to successfully implement and manage our growth strategy could adversely affect our business and our results of operations. The successful implementation of our growth strategy will depend, in part, on our ability to integrate operations with acquired companies.
Our efforts to grow our business in emerging markets are subject to all of these risks plus additional, unique risks. In certain markets, the legal and political environment can be unstable and uncertain which could make it difficult for us to compete successfully and could expose us to liabilities.
We also make investments in new business development initiatives which could have a relatively high failure rate. We limit our investments in these initiatives and establish governance procedures to contain the associated risks, but losses could result and may be material. Our growth strategy also may involve acquisitions, joint venture alliances and additional arrangements of distribution. We may not be able to enter into acquisitions or joint venture arrangements on acceptable terms, and we may not successfully integrate these activities into our operations. We also may not be successful in implementing new distribution channels, and changes could create discord in our existing channels of distribution.
Increased costs, including costs of raw materials, component parts and labor costs, potentially impacted by changes in labor rates and practices and/or new or increased tariffs or similar restrictions, could reduce our operating income.
Our results of operations may be significantly affected by the availability and pricing of manufacturing components and labor, changes in labor rates and practices, and increases in tariffs or similar restrictions on materials we import. Increases in costs of raw materials used in our products could affect the cost of our supply materials and components, as rising steel and aluminum prices as well as increased tariffs have impacted the cost of certain of our manufacturing components. Although we attempt to mitigate the effect of any escalation in components, labor costs, and tariffs by negotiating with current or new suppliers and by increasing productivity or, where possible, by increasing the sales prices of our products, we cannot be certain that we will be able to do so without it having an adverse impact on the competitiveness of our products and, therefore, our sales volume. If we cannot successfully offset increases in our manufacturing costs, this could have a material adverse impact on our margins, operating income and cash flows. Our profit margins may decrease if prices of purchased component parts, labor rates, and/or tariffs increase, and we are unable to pass on those increases to our customers.
Implementing new information systems could interfere with our business or operations.
We are in the process of implementing new information systems infrastructure and applications that impact multiple locations. These projects require significant investment of capital and human resources, the re-engineering of many processes of our business, and the attention of many employees and managers who would otherwise be focused on other aspects of our business. Should the systems not be implemented successfully, we may incur impairment charges that could materially impact our financial results. If the systems do not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations negatively affected, including our ability to report accurate and timely financial results.
Disruption of our supply base could affect our ability to obtain component parts.
We increasingly rely on component parts from global sources in order to manufacture our products. Disruption of this supply base due to international political events, natural disasters, the ongoing COVID-19 pandemic, or other factors could affect our ability to obtain component parts at acceptable prices, or at all, and have a negative impact on our sales, results of operations and financial position.
When we introduce new products, we may incur expenses that we did not anticipate, such as recall expenses, resulting in reduced earnings.
The introduction of new products is critical to our future success. We have additional costs when we introduce new products, such as initial labor or purchasing inefficiencies, but we may also incur unexpected expenses. For example, we may experience unexpected engineering or design issues that will force a recall of a new product or increase production costs of the product above levels needed to ensure profitability. In addition, we may make business decisions that include offering incentives to stimulate the sales of products not adequately accepted by the market, or to stimulate sales of older or less marketable products. The costs resulting from these types of problems could be substantial and have a significant adverse effect on our earnings.
We depend on a small group of suppliers for some of our components, and the loss of any of these suppliers could affect our ability to obtain components at competitive prices, whichwhich would decrease our sales or earnings.
Most chassis emergency response vehicle, aerial ladder and specialty vehicle commodity components are readily available from a variety of sources. However, a few proprietary or specialty components are produced by a small group of suppliers.
In addition, we generally do not purchase chassis for our delivery vehicles. Rather, we accept shipments of vehicle chassis owned by dealers or end-users for the purpose of installing and/or manufacturing our specialized truck bodies on such chassis. There are four primary sources for commercial chassis, and we have established relationships with all major chassis manufacturers.
Changes in our relationships with these suppliers, shortages, production delays, their ability to secure components required for chassis production or work stoppagesstoppages by the employees of such suppliers could have a material adverse effect on our ability to timely manufacture our products and secure sales. If we cannot obtain an adequate supply of components or commercial chassis, this could result in a decrease in our sales and earnings.
Our business could be adversely affected by the decision of our employees to unionize.
Currently, none of our U.S. employees are represented by a collective bargaining agreement. If in the future our employees decide to unionize, this would increase our operating costs and potentially force us to alter the way we operate causing an adverse effect on our operating results.
The ability to hire or retain management and other key personnel is critical to our continued success, and the loss of or inability to hire such personnel could have a material adverse effect on our business, financial condition and results of operations.
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. As all key personnel devote their full time to our business, the loss of any member of our management team, or other key persons, or the inability to hire key persons, could have an adverse effect on us. If we lose key members of our senior management team or are unable to effect successful transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with international sales and contracts could have a negative effect on our business.
In 2021, 2020, and 2019, we derived 1.2%, 1.4%, and 2.8% of our revenue from sales to, or related to, end customers outside the United States. We face numerous risks associated with conducting international operations, any of which could negatively affect our financial performance, including changes in foreign country regulatory requirements, the strength of the U.S. dollar compared to foreign currencies, import/export restrictions, the imposition of foreign tariffs and other trade barriers and disruptions in the shipping of exported products.
Additionally, as a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, which may place us at a competitive disadvantage to foreign companies that are not subject to similar regulations.
DisruptionChanges in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate, may adversely affect interest charged on our supply baseoutstanding debt.
The interest rate charged on our outstanding borrowings pursuant to our credit facility is currently based on LIBOR, as described in "Note 13 – Debt" below. On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR by the end of 2021. On November 30, 2020, the ICE Benchmark Administration Limited (ICE) announced plans to delay the phase out of LIBOR to June 30, 2023. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Secured Overnight Funding Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Our credit facility provides for the transition to a replacement for LIBOR, and it also provides for an alternative to LIBOR. When LIBOR ceases to exist, our interest expense may increase. It is also possible that the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR with SOFR or any other reference rate. Increased interest expense and/or disruption in the financial market could affecthave a material adverse effect on our business, financial condition, or results of operations.
More General Risks Applicable to Our Industry
General economic, market, and/or political conditions, whether on a global, national, or more regional scale, could have a negative effect on our business.
Concerns regarding acts of terrorism, armed conflicts, natural disasters, budget shortfalls, cyber events, civil unrest, governmental actions, and epidemics have in the past and could in the future create significant uncertainties that may have material and adverse effects on consumer demand (particularly the specialty and motorhome markets), shipping and transportation, the availability of manufacturing components, commodity prices and our ability to obtain component parts.
We increasingly rely on component partsengage in overseas markets as tariffs are implemented. An economic recession, whether resulting from global sources in order to manufacture our products. Disruptionone of this supply base due to international politicalthese events or natural disasters could affect our ability to obtain component parts at acceptable prices, or at all, andothers, would have a negativematerial adverse impact on our sales,financial condition and results of operations.
If there is a rise in the frequency and size of product liability, warranty and other claims against us, including wrongful death claims, our business, results of operations and financial position.condition may be harmed.
We are frequently subject, in the ordinary course of business, to litigation involving product liability and other claims, including wrongful death claims, related to personal injury and warranties. We insure our product liability claims in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for such insurance to rise significantly. It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance. In addition, a major product recall or increased levels of warranty claims could have a material adverse effect on our results of operations.
Changes to laws and regulations governing our business could have a material impact on our operations.
Our manufactured products and the industriesindustries in which we operate are subject to extensive federal and state regulations. Changes to any of these regulations or the implementation of new regulations could significantly increase the costs of manufacturing, purchasing, operating or selling our products and could have a material adverse effect on our results of operations. Our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of sales or production, or cessation of operations.
Certain U.S. tax laws currently afford favorable tax treatment for financing the purchase and sale of recreational vehicles that are used as the equivalent of second homes. These laws and regulations have historically been amended frequently, and it is likely that further amendments and additional regulations will be applicable to us and our products in the future. Amendments to these laws and regulations and the implementation of new regulations could have a material adverse effect on our results of operations.
Our operations are subject to a variety of federal and state environmental regulations relating to noise pollution and the use, generation, storage, treatment, emission and disposal of hazardous materials and wastes. Although we believe that we are currently in material compliance with applicable environmental regulations, ourOur failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, costly cleanup or capital expenditures. Climate change regulations at the federal, state or local level could require us to change our manufacturing processes or product portfolio or undertake other activities that may require us to incur additional expense, which may be material.
Our operating results may fluctuate significantly on a quarter-to-quarter basis.
Our quarterly operating results depend on a variety of factors including the timing and volume of orders, the completion of product inspections and acceptance by our customers, and various restructuring initiatives that may be undertaken from time to time. In addition, our Fleet Vehicles and Services segment experiences seasonality whereby product shipments in the first and fourth quarters are generally lower than other quarters as a result of the busy holiday delivery operations experienced by some of its largest customers. Accordingly, our financial results may be subject to significant and/or unanticipated quarter-to-quarter fluctuations.
Our businesses are cyclical, and this can lead to fluctuations in our operating results.
The industries in which we operate are highly cyclical and there can be substantial fluctuations in our manufacturing, shipments and operating results, and the results for any prior period may not be indicative of results for any future period. Companies within these industries are subject to volatility in operating results due to external factors such as economic, demographic and political changes. Factors affecting the manufacture of chassis, emergency response vehicles, aerial ladders, specialty vehicles, delivery vehicles and other of our products include but are not limited to:
● | Commodity | |
● | Fuel availability and prices. | |
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● | Unemployment trends; | |
● | International tensions and hostilities; | |
● | General economic conditions; | |
● | Various tax incentives; | |
● | Strength of the U.S. dollar compared to foreign currencies; | |
● | Overall consumer confidence and the level of discretionary consumer spending; | |
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● | Interest rates and the availability of financing. |
Economic, legal and other factors could impact our customers’customers’ ability to pay accounts receivable balances due from them.
In the ordinary course of business, customers are granted terms related to the sale of goods and services delivered to them. These terms typically include a period of time between when the goods and services are tendered for delivery to the customer and when the customer needs to pay for these goods and services. The amounts due under these payment terms are listed as accounts receivable on our balance sheet. Prior to collection of these accounts receivable, our customers could encounter drops in sales, unexpected increases in expenses, or other factors which could impact their ability to continue as a going concern and which could affect the collectability of these amounts. Writing off uncollectible accounts receivable could have a material adverse effect on our earnings and cash flow as the Company haswe have major customers with material accounts receivable balances at any given time.
Our business operations could be disrupted if our information technology systems fail to perform adequately or experience a security breachbreach.
We rely on our information technology systems to effectively manage our business data, communications, supply chain, product engineering, manufacturing, accounting and other business processes. While we believe we have robust processes in place to protect our information technology systems, ifIf these systems are damaged, cease to function properly or are subject to a cyber-security breach such as ransomware, phishing, infection with viruses or intentional attacks aimed at theft or destruction of sensitive data, we may suffer an interruption in our ability to manage and operate the business, and our results of operations and financial condition may be adversely affected.
ImplementingLike most corporations, our information systems are a new enterprise resource planning system could interferetarget of attacks. In addition, third-party providers of data hosting or cloud services, as well as our suppliers, may experience cyber-security incidents that may involve data we share with them. There can be no assurance that such incidents will not have a material adverse effect on us in the future. In order to address risks to our business or operations.information systems, we continue to make investments in personnel, technologies and training of personnel.
We are in the process of implementing a new enterprise resource planning (ERP) system. The ERP system was implemented at our first location in 2017, with the remaining locations expected to be implemented throughout 2018 to 2020. This project requires significant investment of capital and human resources, the re-engineering of many processes of our business, and the attention of many associates and managers who would otherwise be focused on other aspects of our business. Should the system not be implemented successfully, we may incur impairment charges that could materially impact our financial results. If the system does not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations negatively affected, including our ability to report accurate and timely financial results.
Global political conditions could have a negative effect on our business.
Concerns regarding acts of terrorism, armed conflicts, natural disasters and budget shortfalls have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand (particularly the specialty and motor home markets), shipping and transportation, the availability of manufacturing components, commodity prices and our ability to engage in overseas markets.
Risks associated with international sales and contracts could have a negative effect on our business.
In 2017, 2016 and 2015 we derived 11.5%, 5.4% and 7.3% of our revenue from sales to, or related to, end customers outside the United States. We expect that international sales will continue to account for a meaningful amount of our total revenue, especially in our emergency response vehicles segment. Accordingly, we face numerous risks associated with conducting international operations, any of which could negatively affect our financial performance, including changes in foreign country regulatory requirements, the strength of the U.S. dollar compared to foreign currencies, import/export restrictions, the imposition of foreign tariffs and other trade barriers and disruptions in the shipping of exported products.
Additionally, as a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, which may place us at a competitive disadvantage to foreign companies that are not subject to similar regulations.
Fuel shortages, or higher prices for fuel, could have a negative effect on sales.
Gasoline or diesel fuel is required for the operation of the specialty vehicles we manufacture. There can be no assurance that the supply of these petroleum products will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Increases in gasoline and diesel prices and speculation about potential fuel shortages have had an unfavorable effect on consumer demand for motor homes from time to time in the past and may continue to do so in the future. This, in turn, may have a material adverse effect on our sales volume. Increases in the price of oil also can result in significant increases in the price of many of the components in our products, which may have an adverse impact on margins or sales volumes.
Our operating results may fluctuate significantly on a quarter-to-quarter basis.
Our quarterly operating results depend on a variety of factors including the timing and volume of orders, the completion of product inspections and acceptance by our customers, and various restructuring initiatives that may be undertaken from time to time. In addition, our Fleet Vehicles and Services segment experiences seasonality whereby product shipments in the first and fourth quarters are generally lower than other quarters as a result of the busy holiday delivery operations experienced by some of its largest customers. Accordingly, our financial results may be subject to significant and/or unanticipated quarter-to-quarter fluctuations.
We could incur asset impairmentimpairment charges for goodwill, intangible assets or other long-lived assets.
We have a significant amount of goodwill, intangible assets and other long-lived assets. At least annually, we review goodwill and non-amortizing intangible assets for impairment. Identifiable intangible assets, goodwill and other long-lived assets are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows. In 2016 and 2015 we recorded asset impairment charges totaling $0.4 and $2.2 million against an asset group related to certain locations of our Emergency Response Vehicles segment. If the operating performance at one or more of our reporting units fails to meet future forecasts, or if future cash flow estimates decline, we could be required, under current U.S. accounting rules, to record additional impairment charges for our goodwill, intangible assets or other long-lived assets. Any write-off of a material portion of such assets could negatively affect our results of operations or financial position. See “Note 2 – Discontinued Operations” and “Note 6 – Goodwill and Intangible Assets” of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further discussion of goodwill, intangibles and other long-lived assets.
Risk Applicable to Our Securities
Our stock price has been and may continue to be volatile, which may result in losses to our shareholders.
The market price of the Company’sour common stock has been and may continue to be subject to wide fluctuations in response to, among other things, quarterly fluctuations in operating results, a failure to meet published estimates of or changes in earnings estimates by securities analysts, sales of common stock by existing holders,stockholders, loss of key personnel, market conditions in our industries, shortages of key product inventory components and general economic conditions.
If there is a rise in the frequency and size of product liability, warranty and other claims against us, including wrongful death claims, our business, results of operations and financial condition may be harmed.
We are frequently subject, in the ordinary course of business, to litigation involving product liability and other claims, including wrongful death claims, related to personal injury and warranties. We partially self-insure our product liability claims and purchase excess product liability insurance in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for such insurance to rise significantly. It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance. In addition, a major product recall or increased levels of warranty claims could have a material adverse effect on our results of operations.
In 2015 we entered into a settlement agreement with the National Highway Traffic Safety Administration (“NHTSA”) pertaining to our early warning and defect reporting. The terms of the agreement include certain performance obligations that, if not completed satisfactorily, could subject us to additional fines of up to $5 million.
Increased costs, including costs of raw materials, component parts and labor costs, potentially impacted by changes in labor rates and practices, could reduce our operating income.
Our results of operations may be significantly affected by the availability and pricing of manufacturing components and labor, as well as changes in labor rates and practices. Increases in costs of raw materials used in our products could affect the cost of our supply materials and components, as rising steel and aluminum prices have impacted the cost of certain of our manufacturing components. Although we attempt to mitigate the effect of any escalation in components and labor costs by negotiating with current or new suppliers and by increasing productivity or, where necessary, by increasing the sales prices of our products, we cannot be certain that we will be able to do so without it having an adverse impact on the competitiveness of our products and, therefore, our sales volume. If we cannot successfully offset increases in our manufacturing costs, this could have a material adverse impact on our margins, operating income and cash flows. Our profit margins may decrease if prices of purchased component parts or labor rates increase and we are unable to pass on those increases to our customers. Even if we were able to offset higher manufacturing costs by increasing the sales prices of our products, the realization of any such increases often lags behind the rise in manufacturing costs, especially in our operations, due in part to our commitment to give our customers and dealers price protection with respect to previously placed customer orders.
Item 1B. | Unresolved Staff Comments. |
None.
Item 2. | Properties. |
We operate facilities in a total of 17 locations, 16 throughout the U.S. and one location in Mexico. The following table sets forth information concerningnumber of physical locations we operate has grown significantly in recent years as part of our strategy to develop coast-to-coast manufacturing and distribution capabilities.
Our Fleet Vehicles and Services segment operates facilities in Bristol, Indiana; Charlotte, Michigan; Landisville, Pennsylvania; North Charleston, South Carolina; Kansas City, Missouri; and Saltillo, Mexico. All of these facilities are leased except for facilities in Charlotte, which are owned by the propertiesCompany.
Our Specialty Vehicles segment operates facilities in Charlotte, Michigan; Carson, McClellan Park, and Montebello, California; Dallas and Weatherford, Texas; Mesa, Arizona; Waterville, Maine; and Pompano Beach and West Palm Beach, Florida. All of these facilities are leased except for the Charlotte and Pompano Beach facilities, which are owned by the Company.
In addition, our corporate headquarters are located in an office building and showroom in Novi, Michigan, that we own or lease. We also have certain corporate functions that operate out of our campus in Charlotte and Plymouth, Michigan.
We consider our properties to generally be in good condition, well maintained, and suitable and adequate to meet our business requirements for the foreseeable future. In 2017, our manufacturing plants, takenWe do not anticipate difficulty in renewing existing leases as a whole, operated moderately below capacity.they expire or in finding alternative facilities.
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Item 3. | Legal |
At December 31, 2017,2021, we were parties, both as plaintiff or defendant, to a number of lawsuits and claims arising out of the normal conduct of our businesses. Our management does not currently expect our financial position, future operating results or cash flows to be materially affected by the final outcome of these legal proceedings.
Item 4. | Mine Safety Disclosures. |
Not applicableapplicable.
PART II
Item 5. | Market |
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SPAR.“SHYF.”
The following table sets forth the high and low sale prices for our common stock for the periods indicated, all as reported by the NASDAQ Global Select Market:
High | Low | |||||||
Year Ended December 31, 2017: | ||||||||
Fourth Quarter | $ | 18.10 | $ | 11.10 | ||||
Third Quarter | 11.25 | 8.50 | ||||||
Second Quarter | 9.28 | 7.45 | ||||||
First Quarter | 9.40 | 6.45 | ||||||
Year Ended December 31, 2016: | ||||||||
Fourth Quarter | $ | 10.50 | $ | 7.20 | ||||
Third Quarter | 9.95 | 6.16 | ||||||
Second Quarter | 6.50 | 3.95 | ||||||
First Quarter | 4.12 | 2.61 |
We paid dividends on our outstanding common shares in 2017, 20162021 and 20152020 as shown in the table below.
Date dividend declared | Record date | Payment date | Dividend per share ($) | Total dividend paid ($000) | ||||||||
Oct. 24, 2017 | Nov. 15, 2017 | Dec. 15, 2017 | $ | 0.05 | $ | 1,753 | ||||||
May 2, 2017 | May 15, 2017 | June 15, 2017 | 0.05 | 1,755 | ||||||||
Nov. 2, 2016 | Nov. 15, 2016 | Dec. 15, 2016 | 0.05 | 1,720 | ||||||||
April 28, 2016 | May 19, 2016 | June 23, 2016 | 0.05 | 1,724 | ||||||||
Oct. 26, 2015 | Nov. 12, 2015 | Dec. 17, 2015 | 0.05 | 1,713 | ||||||||
May 8, 2015 | May 21, 2015 | June 25, 2015 | 0.05 | 1,713 |
Date dividend declared | Record date | Payment date | Dividend per share ($) | ||||
Nov. 5, 2021 | Nov. 16, 2021 | Dec. 16, 2021 | 0.025 | ||||
Aug. 6, 2021 | Aug. 18, 2021 | Sep. 15, 2021 | 0.025 | ||||
May 7, 2021 | May 18, 2021 | June 18, 2021 | 0.025 | ||||
Feb. 15, 2021 | Feb. 25, 2021 | Mar. 25, 2021 | 0.025 | ||||
Nov. 6, 2020 | Nov. 18, 2020 | Dec. 18, 2020 | 0.025 | ||||
Aug. 6, 2020 | Aug. 18, 2020 | Sep. 18, 2020 | 0.025 | ||||
May. 8, 2020 | May 18, 2020 | Jun. 18, 2020 | 0.050 |
On February 3, 2022, our Board of Directors authorized an increase in the Company’s quarterly dividend from $0.025 to $0.05 per share payable on or before March 17, 2022, to shareholders of record at the close of business on February 17, 2022.
No assurance, however, can be given that any future distributions will be made or, if made, as to the amounts or timing of any future distributions as such distributions are subject to earnings, financial condition, liquidity, capital requirements, and such other factors as our Board of Directors deems relevant. The number of shareholders of record of our common stock on February 23, 201814, 2022 was 333.273. See Item 12 below for information concerning our equity compensation plans.
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on the NasdaqNASDAQ Composite Index and a company-selected peer groupthe Dow Jones U.S. Commercial Vehicles & Trucks Total Stock Market Index for the period beginning on December 31, 20122016 and ending on the last day of 2017.2021. The graph assumes an investment of $100 in our stock, the NasdaqNASDAQ Composite Index, and the company-selected peer groupDow Jones U.S. Commercial Vehicles & Trucks Total Stock Market Index on December 31, 2012,2016, and further assumes the reinvestment of all dividends. Stock price performance, presented for the period from December 31, 20122016 to December 31, 2017,2021, is not necessarily indicative of future results.
The company-selected peer group was determined based on a custom peer group of companies in the specialty manufacturing and automotive industries, against whom we compete for sales or management talent, which was identified for the purpose of benchmarking officer salaries in 2014. The peer group includes: LCI Industries, Inc. (formerly, Drew Industries, Inc.); Standard Motor Products, Inc.; Winnebago Industries, Inc.; Federal Signal Corp.; Methode Electronics, Inc.; Shiloh Industries, Inc.; Commercial Vehicle Group, Inc.; Altra Industrial Motion Corp.; Alamo Group, Inc.; ESCO Technologies, Inc.; Miller Industries, Inc.; and Twin Disc, Inc.
12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | |||||||||||||||||||
Spartan Motors, Inc. | $ | 100.00 | $ | 138.46 | $ | 110.74 | $ | 67.00 | $ | 202.21 | $ | 347.38 | ||||||||||||
NASDAQ Stock Market | $ | 100.00 | $ | 140.10 | $ | 160.32 | $ | 171.53 | $ | 186.63 | $ | 202.36 | ||||||||||||
Peer Group | $ | 100.00 | $ | 162.79 | $ | 157.35 | $ | 151.75 | $ | 222.37 | $ | 274.90 |
12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | |||||||||||||||||||
The Shyft Group, Inc. | $ | 100.00 | $ | 171.79 | $ | 79.60 | $ | 200.73 | $ | 316.81 | $ | 549.80 | ||||||||||||
NASDAQ Composite Index | $ | 100.00 | $ | 129.64 | $ | 125.96 | $ | 172.18 | $ | 249.51 | $ | 304.85 | ||||||||||||
Dow Jones U.S. Commercial Vehicles & Trucks Total Stock Market Index | $ | 100.00 | $ | 147.21 | $ | 123.26 | $ | 155.54 | $ | 200.33 | $ | 235.69 |
The stock price performance graph and related information shall not be deemed “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate this information by reference.
Issuer Purchases of Equity Securities
On October 19, 2011, our Board of Directors authorized management to repurchase up to a total of 1.0 million shares of our common stock in open market transactions, contingent upon market conditions. During the second quarter of 2016, we repurchased a total of 422,000 shares of our common stock at an average price of $4.74 per share under this authorization. We did not repurchase any shares in 2015.
On April 28, 2016, our Board of Directors terminated the 2011 repurchase authorization effective June 30, 2016, and authorized the repurchase of up to 1.0 million additional shares of our common stock in open market transactions. At December 31, 20172021 there were 1.00.4 million shares remaining under this repurchase authorization. IfIn January 2022, we were to repurchaserepurchased the remaining 1.00.4 million shares for $18.9 million.
On February 17, 2022, our Board of stock underDirectors authorized the repurchase program, it would cost us $15.2of up to $250.0 million based on the closing price of our common stock on February 23, 2018.in open market transactions. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.
During the quarter ended December 31, 2021, no shares were repurchased under this authorization. A summary of our purchases of our common stock during the fourth quarter of fiscal year 20172021 is as follows:
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October 2021 | - | $ | - | - | 408,994 | |||||||||||
November 2021 | 544 | 43.00 | - | 408,994 | ||||||||||||
December 2021 | - | - | - | 408,994 | ||||||||||||
Total | 544 | 408,994 |
(2) This column reflects the number of shares that may yet be purchased pursuant to the April 28, 2016 Board of Directors authorization described above. |
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Item 6. |
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The selected financial data shown below for each of the five years in the period ended December 31, 2017 has been derived from our Consolidated Financial Statements. 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.
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2017 (1) | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Sales | $ | 707,098 | $ | 590,777 | $ | 550,414 | $ | 506,764 | $ | 469,538 | ||||||||||
Cost of products sold (2) | 617,655 | 518,113 | 502,783 | 450,702 | 424,312 | |||||||||||||||
Restructuring charges | 208 | 136 | 519 | 808 | - | |||||||||||||||
Gross profit | 89,235 | 72,528 | 47,112 | 55,254 | 45,226 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 6,523 | 6,772 | 4,560 | 3,851 | 3,074 | |||||||||||||||
Selling, general and administrative | 65,497 | 56,172 | 52,695 | 51,205 | 45,496 | |||||||||||||||
Goodwill impairment | - | - | - | - | 4,854 | |||||||||||||||
Restructuring charges | 1,044 | 959 | 2,336 | 1,349 | - | |||||||||||||||
Operating income (loss) | 16,171 | 8,625 | (12,479 | ) | (1,151 | ) | (8,198 | ) | ||||||||||||
Other income (expense), net | (147 | ) | 78 | (121 | ) | 77 | 348 | |||||||||||||
Income (loss) before taxes | 16,024 | 8,703 | (12,600 | ) | (1,074 | ) | (7,850 | ) | ||||||||||||
Income tax expense (benefit) (3) | 90 | 100 | 4,880 | (2,103 | ) | (1,881 | ) | |||||||||||||
Net earnings (loss) | 15,934 | 8,603 | (17,480 | ) | 1,029 | (5,969 | ) | |||||||||||||
Less: Net earnings (loss) attributable to non-controlling interest | (1 | ) | (7 | ) | (508 | ) | (144 | ) | 2 | |||||||||||
Net earnings (loss) attributable to Spartan Motors, Inc. | $ | 15,935 | $ | 8,610 | $ | (16,972 | ) | $ | 1,173 | $ | (5,971 | ) | ||||||||
Basic earnings (loss) per share | $ | 0.46 | $ | 0.25 | $ | (0.50 | ) | $ | 0.03 | $ | (0.18 | ) | ||||||||
Diluted earnings (loss) per share | $ | 0.46 | $ | 0.25 | $ | (0.50 | ) | $ | 0.03 | $ | (0.18 | ) | ||||||||
Cash dividends per common share | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | ||||||||||
Basic weighted average common shares outstanding | 34,949 | 34,405 | 33,826 | 34,251 | 33,550 | |||||||||||||||
Diluted weighted average common shares outstanding | 34,949 | 34,405 | 33,826 | 34,256 | 33,550 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Net working capital (4) | $ | 89,055 | $ | 74,467 | $ | 82,764 | $ | 92,832 | $ | 93,839 | ||||||||||
Total assets (4) | 301,164 | 243,294 | 228,151 | 236,807 | 250,073 | |||||||||||||||
Long-term debt, including current portion | 17,989 | 139 | 5,187 | 5,261 | 5,340 | |||||||||||||||
Shareholders’ equity | 168,269 | 152,952 | 148,491 | 168,618 | 171,551 |
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Item 7. |
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General
Spartan Motors,The Shyft Group, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte,Novi, Michigan. Spartan Motors began development of its first product that same year and shipped its first fire truck chassis in October 1975.
We are a leading, niche market engineerleader in specialty vehicle manufacturing and manufacturerassembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments) and recreational vehicle industries. Our products include walk-in vans and truck bodies used in e-commerce/parcel delivery, upfit equipment used in the heavy-duty, purpose-built specialty vehicles market. Our operating activities are conducted through our wholly-owned operating subsidiary, Spartan Motors USA, Inc. (“Spartan USA”), with locations in Charlotte, Michigan; Brandon, South Dakota; Ephrata, Pennsylvania; Snydermobile retail and Neligh, Nebraska; Delavan, Wisconsin;utility trades, service and Bristol, Indiana along withvocational truck bodies, luxury Class A diesel motor home chassis and contract manufacturing in Kansas City, Missouri and Saltillo, Mexico.
On January 1, 2017, Spartan USA acquired substantially all of the assetsassembly services. We also supply replacement parts and certain liabilities of Smeal Fire Apparatus Co., Smeal Properties, Inc., Ladder Tower Co.,offer repair, maintenance, field service and U.S. Tanker Co. When used in this Annual Report on Form 10-K, “Smeal” refers to the assets, liabilities, and operations acquired from such entities. The assets acquired consist of the assets used by the former owners of Smeal in the operation of its business designing, manufacturing, and distributing emergency response vehicle bodies and aerial devicesrefurbishment services for the fire service industry. Smeal has operations in Snyder and Neligh, Nebraska; Delavan, Wisconsin; and Ephrata, Pennsylvania and is operatedvehicles that we manufacture as part of our Emergency Response Vehicles segment.well as truck accessories.
Our Bristol, Indiana location manufactures vehicles, used in the parcel delivery, mobile retail and trades and construction industries, and supplies related aftermarket parts and services under the Utilimaster brand name. Our Kansas City, Missouriare sold to commercial users, original equipment manufacturers (OEMs), dealers, individual end users, and Saltillo, Mexico locations sellmunicipalities and install equipment used in fleet vehicles. Our Charlotte, Michigan location manufactures heavy duty chassis and vehicles and supplies aftermarket parts and accessories under the Spartan Chassis and Spartan brand names. Our Brandon, South Dakota; Snyder and Neligh, Nebraska; Delavan, Wisconsin; and Ephrata, Pennsylvania locations manufacture emergency response vehicles under the Spartan, Smeal, U.S. Tanker and Ladder Tower brand names. Spartan USA is also a participant in Spartan-Gimaex Innovations, LLC (“Spartan-Gimaex”), a 50/50 joint venture with Gimaex Holding, Inc. that was formed to provide emergency response vehicles for the domestic and international markets. Spartan-Gimaex is reported as a consolidated subsidiary of Spartan Motors, Inc. In February 2015, Spartan USA and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the joint venture. In June 2015, Spartan USA and Gimaex Holding, Inc. entered into court proceedings to determine the terms of the dissolution. In February 2017, by agreement of the parties, the court proceeding was dismissed with prejudice and the judge entered an order to this effect as the parties agreed to seek a dissolution plan on their own. No dissolution terms have been determined as of the date of this Form 10-K.
Our business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of custom vehicle products.other governmental entities. Our diversification across several sectors provides numerous opportunities while reducing overall risk.risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business model provides the agilitystructure is agile and able to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth. Our growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market is an excellent example of our ability to generate growth and profitability by quickly fulfilling customer needs.
We have an innovative team focused on building lasting relationships with our customers. This is accomplished by striving to deliver premium custom vehicles, vehicle components, and services. We believe we can best carry out our long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under our credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The pandemic has had a significant impact on macroeconomic conditions. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines. As a result, certain of our manufacturing facilities were temporarily suspended or cut back on operating levels and shifts as a result of government orders. Since June 30, 2020 and throughout 2021, all of our facilities were at full or modified production levels. However, additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to evolve within our global supply chain and customer base. The Company is taking a variety of measures to maintain operations with as minimal impact as possible to promote the safety and security of our employees, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on visitor access to facilities.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this filing, including the resurgence of COVID-19 and its variants in regions recovering from the impacts of the pandemic, the effectiveness of COVID-19 vaccines, and the speed at which populations are vaccinated around the globe, the impact of COVID-19 on economic activity, and regulatory actions taken to contain its impact on public health and the global economy. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for future periods.
Executive Overview
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The following table shows our sales by market for the years ended December 31, 2017, 20162021, 2020 and 20152019 as a percentage of total sales:
2017 | 2016 | 2015 | ||||||||||
Fleet vehicles | 35.5 | % | 47.1 | % | 41.4 | % | ||||||
Motor home chassis | 17.6 | % | 16.6 | % | 18.8 | % | ||||||
Other vehicles | 2.6 | % | 2.6 | % | 1.7 | % | ||||||
Total business/consumer | 55.7 | % | 66.3 | % | 61.9 | % | ||||||
Emergency response vehicles | 41.5 | % | 29.7 | % | 34.0 | % | ||||||
Defense vehicles | 0.0 | % | 1.0 | % | 0.7 | % | ||||||
Aftermarket parts and accessories | 2.8 | % | 3.0 | % | 3.4 | % | ||||||
Total government | 44.3 | % | 33.7 | % | 38.1 | % |
2021 | 2020 | 2019 | ||||||||||
Fleet vehicles sales | 63.0 | % | 63.3 | % | 64.2 | % | ||||||
Motor home chassis sales | 17.0 | % | 16.0 | % | 16.8 | % | ||||||
Other specialty vehicles sales | 14.6 | % | 14.0 | % | 8.1 | % | ||||||
Aftermarket parts and accessories sales | 5.4 | % | 6.7 | % | 10.9 | % | ||||||
Total sales | 100.0 | % | 100.0 | % | 100.0 | % |
We continue to focus on growthseek out opportunities to grow the business, both organically and by acquisition, by expanding our market share inrelationships with existing markets, pursuingcustomers, seeking out new commercial opportunities through our alliance with Isuzu and other manufacturersbusiness wins, and pursuing acquisitions in a strategic acquisitions that enable us to expand into existing or new markets as opportunities occur.fashion.
We believe we are well positioned to take advantage of long-term opportunities as a result of:and continue our efforts to bring product innovations to each of the markets we serve. Some of our recent innovations and strategic developments include:
● | In June 2021, we announced the creation of Shyft Innovations™, our dedicated corporate mobility research and development team, initially focused on introducing a Class 3 purpose-built flat modular EV chassis to any specialty vehicle body builder. The EV-powered chassis features customizable length and wheelbase, making it well suited for a variety of vehicle types. The chassis’ modular design will accommodate multiple gross vehicle weight rating classifications, based on build out and usage. With this high degree of configurability, the all-electric chassis is adaptable to last mile delivery, work truck, mass transit, recreational vehicle, and other emerging EV markets. |
● | The introduction of the Velocity F2™, a Class 2 walk-in van built on a Ford Transit chassis. The Velocity F2 combines nimbleness, comfort, and fuel efficiency with the cargo space, access, and load capacity similar to a traditional walk-in delivery van. The Velocity F2 gives parcel delivery fleets the added flexibility to manage their driver pool and optimize routing, consistent with increased demand. |
● | The introduction of the Velocity M3™ walk-in van which is built on a Mercedes-Benz Sprinter cab and chassis, blends the fuel efficiency, driver ergonomics, and safety provisions of a cargo van cab and chassis with the expansive cargo space of a traditional walk-in van. The Velocity M3 builds upon advancements from the Utilimaster Reach®, with a lighter body design, improved payload, better fuel efficiency, and maximized cargo space. |
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Our Spartan Select and 180 truck programs, designed to provide the custom apparatus that emergency response professionals need with unprecedented order-to-delivery cycle times as short as 180 days.
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The expansion of our alliance with Isuzu to include the assembly of Isuzu’s new F-Series truck. This expanded relationship demonstrates Isuzu’s confidence in Spartan’s quality, people, flexibility and expertise and provides another positive example of our successful execution of our multi-year plan for improving performance.
● | The strength of our balance sheet |
The following section provides a narrative discussion about our financial condition and results of operations. Certain amounts in the narrative may not sum due to rounding. The comments that follow should be read in conjunction with our Consolidated Financial Statements and related Notes thereto appearing in Item 8 of this Form 10-K.
Results of Operations
The discussion of our 2020 consolidated operating results compared to our 2019 consolidated operating results is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of our 2020 Annual Report on Form 10-K filed March 25, 2021 and is incorporated by reference into this MD&A.
The following table sets forth, for the periods indicated, the components of our consolidated statements of income,operations, as a percentage of revenuessales (percentages may not sum due to rounding):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2021 | 2020 | ||||||||||||||||
Sales | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
Cost of products sold | 87.4 | 87.7 | 91.4 | 79.9 | 78.4 | |||||||||||||||
Gross profit | 12.6 | 12.3 | 8.6 | 20.1 | 21.6 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 0.9 | 1.1 | 0.8 | 0.9 | 0.6 | |||||||||||||||
Selling, general and administrative | 9.4 | 9.7 | 10.0 | 10.8 | 13.8 | |||||||||||||||
Operating income (loss) | 2.3 | 1.5 | (2.3 | ) | ||||||||||||||||
Other income, net | - | - | - | |||||||||||||||||
Income (loss) before taxes on income | 2.3 | 1.5 | (2.3 | ) | ||||||||||||||||
Income tax expense (benefit) | - | - | 0.9 | |||||||||||||||||
Net earnings (loss) | 2.3 | 1.5 | (3.2 | ) | ||||||||||||||||
Operating income | 8.5 | 7.2 | ||||||||||||||||||
Other expense, net | - | (0.1 | ) | |||||||||||||||||
Income from continuing operations before income taxes | 8.5 | 7.1 | ||||||||||||||||||
Income tax expense | 1.5 | 1.5 | ||||||||||||||||||
Income from continuing operations | 7.1 | 5.7 | ||||||||||||||||||
Loss from discontinued operations, net of income taxes | - | (0.8 | ) | |||||||||||||||||
Non-controlling interest | - | - | (0.1 | ) | 0.1 | 0.1 | ||||||||||||||
Net earnings (loss) attributable to Spartan Motors, Inc. | 2.3 | 1.5 | (3.1 | ) | ||||||||||||||||
Net income attributable to The Shyft Group, Inc. | 6.9 | 4.9 |
Year Ended December 31, 201Sales7 compared to Year Ended December 31, 2016
Revenue
Consolidated sales for the year ended December 31, 20172021 increased by $116.3$315.8 million, or 19.7%46.7% to $707.1$991.8 million from $590.8$676.0 million in 2016,2020. This increase reflects favorable sales volume driven by our acquisition of Smeal on January 1, 2017. Revenuestrong demand, acquired business and favorable pricing versus lower sales in the COVID-19 impacted prior year. Sales in our Emergency Response Vehicles segment increased by $119.9 million, mainly due to our acquisition of Smeal. Revenue in our Fleet Vehicles and Services segment decreased by $27.3 million, mainly due to a reduction in equipment up-fit orders received in 2017, while revenue in our Specialty Chassis and VehiclesFVS segment increased by $24.0$196.0 million, driven by strong shipments of motor home chassis. These changes in revenue are discussed more fully in the discussion of our segments below.
Cost of Products Sold
Cost of products sold increased by $99.7 million, or 19.2%, to $617.9 million for the year ended December 31, 2017 from $518.2 million in 2016, primarily due to increased sales volume in 2017 driven by our acquisition of Smeal on January 1, 2017.
Gross Profit
Gross profit increased by $16.7 million, or 23.0%, to $89.2 million in 2017 from $72.5 million in 2016. Savings from increased operational efficiency in 2017 contributed $13.8 million to the increase, while the Smeal acquisition and higher overall non-Smeal sales volume contributed $7.1 million and $3.0 million, respectively, to the increase. Lower recall and warranty related charges in 2017 contributed $5.4 million to the increase while pricing adjustments impacting 2017 sales contributed $1.5 million to the increase. These increases were partially offset by a reduction in gross profit of $14.1 million due to a less favorable overall product mix in 2017 compared to 2016.
Gross Margin
Gross margin increased by 30 basis points to 12.6% in 2017 from 12.3% in 2016. Operational efficiency added 170 basis points to gross margin in 2017, while reduction of recall and warranty expense added 70 basis points and pricing adjustments added 20 basis points. These increases were largely offset by a 200 basis point decrease due to the unfavorable product mix in 2017.
Operating Expenses
Operating expenses for the year ended December 31, 2017 increased by $9.2 million, or 14.4%, to $73.1 million from $63.9 million in 2016. Research and development expense decreased by $0.3 million in 2017, due to lower engineering project spending, mainly related to our discontinuation from the bidding process for the USPS next generation vehicle. Selling, general and administrative expense increased by $9.3 million, to $65.5 million in 2017 from $56.2 million in 2016. $6.0 million of this increase was due our acquisition of Smeal on January 1, 2017, while $3.0 million was due to an increase in legal and professional fees, largely related to acquisition activities, and $0.3 million was due to an increase in information technology related spending. Restructuring charges recorded in 2017 were relatively flat with 2016, as we continued with various operational improvement projects.
Income Tax Expense
Income tax expense forvehicle sales driven by the year ended December 31, 2017 was flat with the prior year at $0.1 million. Our effective tax rate in 2017 was 0.6%, compared to 1.1% in 2016.
In 2017 higher income before taxes caused a $2.7 million increase to federal income taxes at the statutory rate as compared to 2016. This increase to current income tax expense was favorably offset by three items that had not occurred in 2016: a $1.0 million benefit from the write-offintroduction of the tax basis of stock owned by the CompanyVelocity F2, class 2 walk-in van in an inactive, wholly-owned subsidiary that had been deemed worthless; $0.5 million adjustment related to the domestic manufacturing deduction;2021 and a $0.4 million credit from the adoption in 2017 of new accounting guidance regarding the treatment of tax windfalls caused by the vesting of certain stock compensation.
The write-off of the worthless stock in the inactive subsidiary caused us to forfeit certain state credit and net operating loss carry-forwards recordedfavorable pricing. Sales in our deferred tax assets at $3.0 million, which were written off to deferred income tax expense. These carry-forwards had been fully offset by a valuation allowance, which was consequently reduced by $3.0 million. During 2017 we had determined that it was more likely than not that the benefit from our deferred tax assets would be realizable, and recorded an additional $6.5 million reduction to our valuation allowance. Therefore, in 2017 we reduced our valuation allowance by $9.5 million in total, $6.6 million greater than the reduction recorded in 2016. Partially offsetting that reduction was a $3.0 million decrease to the deferred tax assets due to the reduction in the federal corporate income tax rate from 35% to 21%. This rate reduction was a component of the Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017 and effective January 1, 2018. The re-measurement of our deferred tax assets to the new rate was recorded in accordance with current accounting guidance as deferred income tax expense.
Net Earnings
Net earnings for the year ended December 31, 2017SV segment increased by $7.3$119.8 million or 84.9%, to $15.9 million compared to $8.6 milliondriven by higher sales in 2016. Driving this increase were the increase in gross profit of $16.7 million, which was partially offsetother specialty chassis and vehicle sales and by the $9.2 million increase in operating expenses as discussed above.
Net Loss Attributable to Non-Controlling Interest
Net losssales attributable to non-controlling interest consists of the portion of the after-tax loss related to the Spartan-Gimaex joint venture that is attributable to our joint venture partner, and was immaterial for the years ended December 31, 2017 and 2016.
Net Earnings Attributable to Spartan Motors, Inc.
Net earnings attributable to Spartan Motors, Inc. for the year ended December 31, 2017 increased by $7.3 million to $15.9 million compared to $8.6 million in 2016. Driving this increase were the increases in gross profit of $16.7 million, which was partially offset by the $9.2 million increase in operating expenses as discussed above. On a per share basis, net earnings increased by $0.21 to $0.46 per share in 2017 compared to $0.25 per share in 2016, due to the factors discussed above.
Year Ended December 31, 2016compared to Year Ended December 31, 2015
Revenue
Consolidated sales for the year ended December 31, 2016 increased by $40.4 million, or 7.3% to $590.8 million from $550.4 million in 2015, driven by a $50.7 million increase in our Fleet Vehicles and Services segment. This increase was partially offset by decreases of $10.2 million in our Emergency Response Vehicles segment and $0.1 million in our Specialty Chassis and Vehicles segment.business acquisitions. These changes in revenuesales are discussed more fully in the discussion of our segments below.
Cost of Products Sold
Cost of products sold increased by $14.9$262.8 million, or 3.0%49.6%, to $518.2$792.5 million for the year ended December 31, 20152021 from $503.3$529.7 million in 2015, primarily2020. Cost of products sold increased $251.5 million due to higher sales volumes and mix including acquired business, $2.3 million of pre-production costs and $22.8 million due to higher material, labor, and other costs. These costs increases were partially offset by productivity and other cost reductions of $13.8 million. As a percentage of sales, cost of products sold increased sales volumeto 79.9% in 2016.2021, compared to 78.4% in 2020.
Gross Profit
Gross profit increased by $25.4$53.0 million, or 53.9%36.2%, to $72.5$199.3 million in 20162021 from $47.1$146.3 million in 2015.2020. The increase was mainlydue to favorable volume of $65.7 million and productivity and cost reductions of $13.8 million. These increases were partially offset by higher material, labor, and other costs of $22.8 million, pre-production costs of $2.3 million, and unfavorable product mix and pricing of $1.5 million. Gross margin decreased to 20.1% in 2021 from 21.6% over the year ended in 2020 due to the higher equipment up-fit and other specialty chassis sales in 2016. Also contributing to the increase was an approximately $4.0 million increase resulting from improved manufacturing performance in our Emergency Response Vehicles segment, along with reductions of $1.7 million in accruals for warranty and recalls, $0.7 million in asset impairment charges and $0.4 million in restructuring charges recorded in 2016 compared to 2015. In addition, we incurred $1.0 million of charges related to the wind-down of our Spartan-Gimaex joint venture in 2015 that did not recur in 2016.items mentioned above.
Gross Margin
Gross margin increased by 370 basis points to 12.3% in 2016 from 8.6% in 2015, mainly driven by a more favorable product mix resulting from the increase in equipment up-fit and other specialty chassis sales in 2016.
Operating Expenses
Operating expenses for the year ended December 31, 20162021 increased by $4.3$17.8 million, or 7.2%18.3%, to $63.9$115.2 million from $59.6$97.4 million in 2015.2020. Research and development expense increased by $2.2$4.2 million in 2016, with approximately equal amounts due to charges incurred for testing2021 primarily related to product recalls in our Emergency Response Vehicles segment, newthe electric vehicle development expenses incurred in our Fleet Vehicles and Services segment, and increased engineering management and administrative costs experienced in 2016.initiatives. Selling, general and administrative expense increased by $3.5$13.6 million, or 14.6 %, to $106.7 million in 2016 compared to 2015.2021 from $93.1 million in 2020. This increase was primarily due to a $4.4$14.6 million increase in incentive compensation in 2016 based on company performance, along with $0.8 million of costsexpense related to the Smealgrowth and acquisition that closed on January 1, 2017versus cost reduction actions taken in 2020 and a $0.5 million increase in legal fees in 2016.higher professional services of $4.5 million. These increases were partially offset by chargesthe accelerated depreciation of $1.2the ERP system and write-off of related construction in process of $5.5 million for asset impairments and $1.0 million for a NHTSA penalty recorded in 2015the second quarter of 2020 that did not recur in 2016. Restructuring charges recorded in 2016 were $1.4 million lower than those recorded in 2015 as the activities related to our Emergency Response Vehicles segment restructuring initiated in 2015 wound down.2021.
Other Income Taxand Expense
Income taxInterest expense for the year ended December 31, 20162021 decreased by $4.8$0.9 million, or 68.0%, to expense of $0.1$0.4 million compared to $4.9from $1.3 million in 2015. Our effective tax rate in 20162021 The decrease was 1.1% compared to (38.7)% in 2015. Our effective tax rate in 2016 was impacted by a $2.9 million reduction to our deferred tax asset valuation allowance as a result of the taxable income generated in 2016. Our effective tax rate in 2015 was heavily impacted by an increase in the valuation allowances for various deferred tax assets.
During the year ended December 31, 2015, we recorded an increase to our deferred tax asset valuation allowance, representing the portion of our deferred tax assets, net of the deferred tax liabilities, that, based on an assessment of available positive and negative evidence, may not be realizable in future periods. During the year ended December 31, 2016, we reversed a portion of the deferred tax asset valuation allowance as a result of the taxable income we generated.
Net Earnings
Net earnings for the year ended December 31, 2016 increased by $26.1 million to income of $8.6 million compared to a loss of $17.5 million in 2015. Driving this increase were the increases in gross profit of $25.4 million and decrease of $4.8 million in taxes, which were offset by the $4.3 million increase in operating expenses as discussed above.
Net Loss Attributable to Non-Controlling Interest
Net loss attributable to non-controlling interest consists of the portion of the after-tax loss relateddue to the Spartan-Gimaex joint venture that is attributable to our joint venture partner. Net loss attributable to non-controlling interest decreased by $0.5paydown of debt principal. Interest and other income was $0.8 million for the year ended December 31, 20162021 compared to the year ended December 31, 2015 due to charges recorded in 2015 related to the wind-downinterest and other income of the joint venture that did not reoccur in 2016.
Net Earnings Attributable to Spartan Motors, Inc.
Net earnings attributable to Spartan Motors, Inc.$0.6 million for the year ended December 31, 20162020.
Income Tax Expense
Income tax expense from continuing operations for the year ended December 31, 2021 was $14.5 million as compared to the prior year at $9.9 million. Our effective tax rate in 2021 was 17.2%, compared to 20.5% in 2020.
The lower Income tax rate for the year ended December 31, 2021 as compared to the prior year primarily reflects the favorable impact of increased R&D credits from years 2015-2020. The Company recorded additional R&D credits of $3.8 million for the six-year period as a result of the conclusion of a study in the fourth quarter of 2021 and has filed the appropriate amended tax returns.
Income from Continuing Operations
Income from continuing operations for the year ended December 31, 2021 increased by $25.6$31.7 million, or 82.8%, to income of $8.6$70.0 million compared to a loss of $17.0$38.3 million in 2015.2020. On a diluted per share basis, net earningsincome from continuing operations increased by $0.75$0.86 to income of $0.25$1.91 in 2021 compared to $1.05 per share in 20162020. Driving this increase were the factors noted above.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Income from discontinued operations for the year ended December 31, 2021 increased to $0.2 million compared to $5.1 million loss in 2020. The increase is primarily attributable to the divestiture of ERV on February 1, 2020 compared to a lossfull year of $0.50 per shareresults in 2015, due to2021 without the factors discussed above.divested business.
Our Segments
We identify ourAs of October 1, 2021, the composition of both reportable segments based on our management structurechanged due to an internal reorganization as certain businesses previously managed and thereported within FVS are now a part of SV. Corresponding items of segment information for earlier periods have been recast.
This report presents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial data utilizedmeasure. This non-GAAP measure is calculated by our chief operating decision makersexcluding items that we believe to assess segment performance and allocate resources among our operating units. We have three reportable segments: Fleet Vehicles and Services, Emergency Response Vehicles and Specialty Chassis and Vehicles. As a result of a realignmentbe infrequent or not indicative of our underlying operating segments completed during the second quarter of 2017,performance, as well as certain fleet vehicles are now manufactured by our Specialty Chassis and Vehicles segment and sold via intercompany transactions to our Fleet Vehicles and Services segment, which then sells the vehicles to the final customer. Segment results from prior periods are shown reflecting the estimated impact of this realignment as if it had been in place for those periods.
As a result of a realignment of our operating segments completed during the second quarter of 2016, aftermarket parts and accessories related to emergency response vehicles, which were formerly reported under the Specialty Chassis and Vehicles segment, are now included in the Emergency Response Vehicles segment. Segment results from 2015 are shown reflecting the change.
Beginning in 2017, we evaluate the performance of our reportable segments based on Adjusted EBITDA.non-cash expenses. We define Adjusted EBITDA is defined as earningsincome from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations.
We present the non-GAAP measure Adjusted EBITDA because we consider it to be an important supplemental measure of our performance. The presentation of Adjusted EBITDA enables investors to better understand our operations by other adjustments made in orderremoving items that we believe are not representative of our continuing operations and may distort our longer-term operating trends. We believe this measure to present comparablebe useful to improve the comparability of our results from period to period. These adjustments include restructuring chargesperiod and items relatedwith our competitors, as well as to our acquisition of Smeal, such as expenses incurred to complete the acquisition, the impact of fair value adjustments to inventory acquiredshow ongoing results from Smeal, and the impact on the timing of the recognition of gross profit for our chassisoperations distinct from items that are utilized by our recently acquired Smeal operations. We exclude these items from earnings in our Adjusted EBITDA measure because we believe they will be incurred infrequently and/infrequent or are otherwise not indicative of a segment's regular, ongoingour continuing operating performance. For those reasons,We believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.
Our management uses Adjusted EBITDA to evaluate the performance of and allocate resources to our segments. Adjusted EBITDA is also used, as a performance metricalong with other financial and non-financial measures, for purposes of determining annual incentive compensation for our executivemanagement team and long-term incentive compensation program, as discussed infor certain members of our proxy statementmanagement team.
The following table reconciles Income from continuing operations to Adjusted EBITDA for our 2017 annual meeting of shareholders, which proxy statement was filed with the SEC on April 13, 2017.periods indicated.
Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||
Income from continuing operations | $ | 69,974 | $ | 38,289 | ||||
Net (income) attributable to non-controlling interest | (1,230 | ) | (347 | ) | ||||
Interest expense | 414 | 1,293 | ||||||
Income tax expense | 14,506 | 9,867 | ||||||
Depreciation and amortization expense | 11,356 | 13,903 | ||||||
Restructuring and other related charges | 505 | 1,873 | ||||||
Acquisition related expenses and adjustments | 1,585 | 1,332 | ||||||
Non-cash stock-based compensation expense | 8,745 | 7,706 | ||||||
Loss from write-off of construction in process | - | 2,430 | ||||||
Loss from liquidation of JV | 643 | - | ||||||
Non-recurring professional fees | 1,568 | - | ||||||
Adjusted EBITDA | $ | 108,066 | $ | 76,346 |
Our Fleet Vehicles and ServicesFVS segment consists of our operations at our Bristol, Indiana location, and beginning in 2018 certain operations at our Ephrata, Pennsylvania location, along with our operations at our up-fit centers in KansasIndiana; Charlotte, Michigan; Kansas City, MissouriMissouri; Landisville, Pennsylvania; North Charleston, South Carolina; and Saltillo, Mexico andlocations. This segment focuses on designing and manufacturing walk-in vans for the parcel delivery, mobile retail, and trades and construction industries, andindustries; the production of commercial truck bodies, and distributessupply of related aftermarket parts and accessories.services under the Utilimaster brand name.
Our Emergency Response Vehicles segment consists of the emergency response chassis operations at our Charlotte, Michigan location and our operations at our Brandon, South Dakota; Snyder and Neligh, Nebraska; Delavan, Wisconsin; and Ephrata, Pennsylvania locations, along with our Spartan-Gimaex joint venture. This segment engineers and manufactures emergency response chassis and apparatus.
Our Specialty Chassis and VehiclesSV segment consists of our Charlotte, Michigan operations that engineer and manufacture motor home chassis, defense vehicles and other specialty chassis and distribute related aftermarket parts and assemblies.
Appropriate expense amounts We also provide vocation-specific equipment upfit services, which are allocated tomarketed and sold under the three reportable segmentsStrobes-R-Us brand, through our manufacturing operations in Pompano and are includedWest Palm Beach, Florida. Our service truck bodies operations include locations in their reported operating income or loss.Carson, McClellan Park, and Montebello, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Waterville, Maine.
The accounting policies of the segments are the same as those described, or referred to, in Note"Note 1 - – GeneralNature of Operations and SummaryBasis of Accounting PoliciesPresentation.. Assets and related depreciation expense in the column labeled “Eliminations and other” pertain to capital assets maintained at the corporate level. Eliminations for inter-segment sales are shown in the column labeled “Eliminations and other”. Segment loss from operations in the “Eliminations and other” column contains corporate related expenses not allocable to the operating segments." Interest expense and Taxes on income are not included in the information utilized by the chief operating decision makersmaker to assess segment performance and allocate resources, and accordingly, are excluded from the segment results presented below. Appropriate expense amounts are allocated to the two reportable segments and are included in their reported operating income or loss.
For certain financial information related to each segment,, see Note 16,"Note 17 – Business Segments," of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K.
Fleet Vehicles and Services
Segment Financial Data (Dollars in Thousands) | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||||||||||||||
Sales | $ | 251,095 | 100.0 | % | $ | 278,389 | 100.0 | % | $ | 227,683 | 100.0 | % | $ | 659,432 | 100.0 | % | $ | 463,455 | 100.0 | % | $ | 557,702 | 100.0 | % | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 26,958 | 10.7 | % | $ | 31,237 | 11.2. | % | $ | 17,569 | 7.7 | % | $ | 108,621 | 16.5 | % | $ | 83,292 | 18.0 | % | $ | 59,227 | 10.6 | % | ||||||||||||||||||||||||
Segment assets | $ | 60,550 | $ | 65,277 | $ | 70,491 | $ | 174,799 | $ | 118,444 | $ | 137,446 |
Year ended December 31, 20172021 compared to year ended December 31, 20162020
Sales in our Fleet Vehicles and ServicesFVS segment decreasedincreased by $27.3$195.9 million, or 9.8%42.3%, to $251.1$659.4 million in 20172021 from $278.4$463.5 million in 2016. $28.7 million of the decrease2020. This increase was primarily due to lower equipment up-fita $191.8 million net increase in sales volume and mix driven by an order from 2016 that did not extend into 2017, partially offset bystrong demand for the Velocity F2, class 2 walk-in van, and a more$4.2 million increase in favorable mix of vehicle sales driven by a change in our truck body sales strategy. International sales accounted for 5.1% of revenue in our Fleet Vehicles and Services segment in 2017.pricing.
Adjusted EBITDA forin our Fleet Vehicles and ServicesFVS segment was $27.0$108.6 million for the year ended December 31, 2017, a decrease2021, an increase of $4.2$25.3 million compared to $31.2$83.3 million for the year ended December 31, 2016. $12.1 million of this decrease2020. This increase was due to lower parts$39.0 million in higher sales volumes, other productivity and up-fit sales in 2017, which wascost reductions of $12.7 million, and favorable pricing of $4.2 million, partially offset by an increase in operational efficiency related to vehicle production. [JW1] higher material and labor costs of $13.7 million, unfavorable mix of $9.8 million, $2.3 million of pre-production costs, and $4.8 million of increased operating expense.
Order backlog for our Fleet Vehicles and ServicesFVS segment increased by $178.2$437.9 million, or 198.9%103.9%, to $267.7$859.4 million in 2017at December 31, 2021 compared to $89.5$421.5 million in 2016, mainly dueat December 31, 2020, driven by new orders for walk-in vans. Our backlog enables visibility into future sales which can normally range from two to twelve months depending on the award of a $214 million contractproduct. This visibility allows us to supply truck bodies to the United States Postal Service we received in September, 2017 which was partially offset by an $35.9 million decrease in the backlog for other fleet vehicles.more effectively plan and predict our sales and production activity.
Year ended December 31, 20162020 compared to year ended December 31, 20152019
Sales in our Fleet Vehicles and ServicesFVS segment increaseddecreased by $50.7$94.2 million, or 22.3%or 16.9%, to $278.4$463.5 million in 20162020 from $227.7$557.7 million in 2015. $37.3 million of the increase2019. This decrease was due to higher aftermarket parts and accessories sales, driven by higher demand for equipment up-fit. $10.0 million was due to increased vehicle unit volume, while $3.4 million was due to a more favorable mix of vehicle sales driven by a change$91.4 million decrease in our truck bodypass-through chassis revenue and a decrease of $2.8 million in vehicle sales strategy. International sales accounted for 1.9% of revenue in our Fleet Vehicles and Services segment in 2016.mainly due to lower unit volumes.
Adjusted EBITDA forin our Fleet Vehicles and ServicesFVS segment was $31.2$83.3 million for the year ended December 31, 2016,2020, an increase of $13.6$24.1 million compared to $17.6$59.2 million for the year ended December 31, 2015, driven2019. Product mix contributed $22.0 million and productivity improvements and cost reductions generated $5.6 million. These increases were partially offset by an increase in parts$3.5 million of higher selling, general and equipment up-fit sales in 2016.administrative expenses.
Order backlog for our Fleet Vehicles and ServicesFVS segment decreasedincreased by $6.6$118.6 million, or 6.8%39.2%, to $89.5$421.5 million in 2016at December 31, 2020 compared to $96.1$302.9 million in 2015,at December 31, 2019, driven by a $25.5 million decrease in equipment up-fit orders, which was partially offset by an $18.9 million increase in vehicle backlog. In January 2017, we received $37.0 million in new orders for our Fleetwalk-in vans offset by the build out of the USPS contract that originated in 2017 and was completed in 2019.
Specialty Vehicles and Services segment, a 21.9% increase from January 2016.
Segment Financial Data (Dollars in Thousands) | Year Ended December 31, | |||||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
Sales | $ | 332,360 | 100.0 | % | $ | 212,518 | 100.0 | % | $ | 204,118 | 100.0 | % | ||||||||||||
Adjusted EBITDA | $ | 32,668 | 9.8 | % | $ | 20,900 | 9.8 | % | $ | 22,152 | 10.9 | % | ||||||||||||
Segment assets | $ | 202,302 | $ | 190,306 | $ | 154,469 |
Emergency Response Vehicles
Segment Financial Data (Dollars in Thousands) | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
Sales | $ | 302,850 | 100.0 | % | $ | 182,981 | 100.0 | % | $ | 193,220 | 100.0 | % | ||||||||||||
Adjusted EBITDA | $ | 3,192 | 1.1 | % | $ | (7,542 | ) | (4.1 | %) | $ | (8,689 | ) | (4.5 | %) | ||||||||||
Segment assets | $ | 133,546 | $ | 77,887 | $ | 76,030 |
Year ended December 31, 20172021 compared to year ended December 31, 20162020
Sales in our Emergency Response VehiclesSV segment increased by $119.9$119.8 million or 65.5%56.4%, from 2016 to 2017 driven by the acquisition of Smeal$332.4 million in January of 2017, along with a $2.02021 compared to $212.5 million in 2020. This increase was due to pricing changesa sales volume increases in 2017. These increases were partially offset by a $5.2 million decrease due to lower volume outside of the Smeal acquisitionmotor chassis and a $1.6 million decrease due to the product mix sold in 2017. International sales accounted for 22.4% of revenue in our Emergency Response Vehicles segment in 2017.
service bodies including acquired business and favorable pricing.
Adjusted EBITDA for our Emergency Response VehiclesSV segment was $3.2$32.7 million for the year ended December 31, 2017,2021, an increase of $10.7$11.8 million compared to $(7.5)$20.9 million for the year ended December 31, 2016. The acquisition2020. This increase was due to $17.7 million in higher sales volumes including acquired business and favorable pricing and mix of Smeal added $3.3$4.3 million. These increases were partially offset by higher material and labor costs of $9.1 million while volume and operational productivity improvements added $3.5$1.1 million of higher operating expenses due to the increase in adjusted EBITDA, respectively. Pricing changes impacting 2017 revenue added $2.0 million, while lower warranty related costs added $1.9 million to the increase in adjusted EBITDA.
acquisition.
Order backlog for our Emergency Response VehiclesSV segment increased by $93.7$47.0 million, or 67.0%82.3%, to $233.6$104.1 million at December 31, 20172021 compared to $139.9$57.1 million at December 31, 2020. This increase was due to an increase in 2016, driven by the acquisition of Smeal in January of 2017.Class A diesel motor home market demand and service body orders. Our backlog enables visibility into future sales which can normally range from less than one month to twelve months depending on the product. This visibility allows us to more effectively plan and predict our sales and production activity.
Year ended December 31, 20162020 compared to year ended December 31, 20152019
Sales in our Emergency Response VehiclesSV segment decreasedincreased by $10.2$8.4 million or 5.3%4.1%, from 2015 to 2016. A $23.2$212.5 million in 2020 compared to $204.1 million in 2019. This increase was driven by sales decrease dueattributable to lower unit volumebusiness acquisitions of $43.5 million and was partially offset by a $13.0decrease of $35.1 million in other specialty vehicle sales increase due to the product mix sold in 2016, which included fewer low content fire trucks. International sales accounted for 13.5% of revenue in our Emergency Response Vehicles segment in 2016. There were no significant changes in the pricing of the products in our Emergency Response Vehicles segment during 2016.lower unit volumes.
Adjusted EBITDA for our Emergency Response VehiclesSV segment was $(7.5)$20.9 million for the year ended December 31, 2016, an increase2020, a decrease of $1.2$1.3 million compared to $(8.7)$22.2 million for the year ended December 31, 2015, mainly due2019. This decrease was driven by $6.7 million attributable to reduced selling expensevolume in 2016 resultingmotor home chassis and $2.8 million attributable to mix. This decrease was partially offset by $1.3 million from headcount reductions.overhead reductions and $6.9 million from business acquisitions.
Order backlog for our Emergency Response VehiclesSV segment decreasedincreased by $16.4$23.3 million, or 10.5%69.2%, to $139.9$57.1 million at December 31, 20162020 compared to $156.3 million in 2015, driven by a more selective bid process established in 2016 as part of our turnaround strategy.
Specialty Chassis and Vehicles
Segment Financial Data (Dollars in Thousands) | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
Sales | $ | 158,810 | 100.0 | % | $ | 134,754 | 100.0 | % | $ | 132,507 | 100.0 | % | ||||||||||||
Adjusted EBITDA | $ | 14,058 | 8.9 | % | $ | 8,334 | 6.2 | % | $ | 8,833 | 6.7 | % | ||||||||||||
Segment assets | $ | 33,700 | $ | 28,825 | $ | 24,032 |
Year ended December 31, 2017compared to year ended December 31, 2016
Sales in our Specialty Chassis and Vehicles segment increased by $24.0 million, to $158.8 million in 2017 compared to $134.8 million in 2016. Motor home chassis sales increased by $26.6 million due to higher unit volumes, which was partially offset by a $0.5 million decrease due to pricing that impacted 2017 sales. Other specialty vehicle sales decreased by $2.7 million, driven by defense sales in 2016 that did not recur in 2017. These increases were partially offset by a decrease of $0.2 million in aftermarket parts and accessories sales due to decreased unit volumes.
Adjusted EBITDA for our Specialty Chassis and Vehicles segment was $14.1 million for the year ended December 31, 2017, an increase of $5.8 million compared to $8.3 million for the year ended December 31, 2016. Operational efficiencies in 2017 resulted in an increase of $4.0 million, while higher unit volume, mainly in motor home chassis, added $2.2 million to the increase in adjusted EBITDA. These increases were partially offset by a $0.5 million decrease due to pricing adjustments that impacted 2017.
Order backlog for our Specialty Chassis and Vehicles segment increased by $13.8 million, or 69.0%, to $33.8 million at December 31, 2017 compared to $20.0 million at December 31, 2016.2019. This increase was due to a $14.5 millionan increase in backlog forthe Class A diesel motor home chassis, which was partially offset by a $0.7 million decrease in aftermarket partsmarket demand and accessories backlog in 2016.
Year ended December 31, 2016 compared to year ended December 31, 2015
Sales in our Specialty Chassis and Vehicles segment increased by $2.3 million, to $134.8 million in 2016 compared to $132.5 million in 2015. Other specialty vehicles sales increased by $9.7 million due to increased unit volumes. This increase was partially offset by decreases in motor home chassis and aftermarket parts and accessories sales of $5.3 million and $2.1 million, respectively, driven by lower unit volumes in 2016.
Adjusted EBITDA for our Specialty Chassis and Vehicles segment was $8.3 million for the year ended December 31, 2016, a decrease of $0.5 million compared to $8.8 million for the year ended December 31, 2016, mainly due to the decrease in marketing and branding expenses in 2016.
Order backlog for our Specialty Chassis and Vehicles segment increased by $1.6 million, or 8.7%, to $20.0 million at December 31, 2016 compared to $18.4 million at December 31, 2015. This increase was due to a $6.3 million increase in backlog for motor home chassis and a $0.3 million increase in aftermarket parts and accessories backlog, which were partially offset by a decrease of $4.9 million in backlog for defense vehicles due to the fulfillment of defense orders on hand in 2016.
Financial Condition
Balance sheet at December 31, 2017 compared to December 31, 2016
Accounts receivable increased by $17.7 million, or 27.1%, to $83.1 million at December 31, 2017, compared to $65.4 million at December 31, 2016. $16.1 million of the increase was due to accounts receivable acquired through our acquisition of Smeal, with the remainder of the increase due to the timing of invoicing.
Inventory increased by $18.8 million, or 31.9%, to $77.7 million at December 31, 2017 compared to $58.9 million at December 31, 2016 mainly due to the addition of Smeal inventory of $26.1 million at December 31, 2017, offset by a decrease of $7.3 million in our Emergency Response Vehicles segment due to a continued focus on inventory reduction actions.service body orders.
Property, plant and equipment, net increased by $2.1 million, or 4.0%, to $55.2 million at December 31, 2017 compared to $53.1 million at December 31, 2016 mainly due to the acquisition of Smeal during the year which resulted in assumption of $5.8 million along with additional purchases of $5.3 million during the year. These increases were offset by depreciation.
Goodwill increased by $11.4 million, or 71.3%, to $27.4 million at December 31, 2017 compared to $16.0 million at December 31, 2016 due to the Smeal acquisition.
Intangible assets increased by $3.0 million, or 46.9%, to $9.4 million at December 31, 2017 compared to $6.4 million at December 31, 2016 due to an increase of $3.9 million from trade-names and certain non-patented technology acquired from Smeal, partially offset by amortization during the period.
Net deferred tax assets increased by $4.0 million or 121.2%, to $7.3 million at December 31, 2017 from $3.3 million at December 31, 2016 primarily as a result of three factors. A $9.5 million increase resulted from the reduction of our valuation allowance recorded during the year as it was deemed more likely than not that we would realize the benefit of the net deferred tax asset. This increase was offset by a $3.0 million decrease due to the forfeiture of certain state net operating loss and credit carry-forwards, and a $2.9 million reduction due to the new federal corporate income tax rate of 21% as legislated by the Tax Cuts and Jobs Act of 2017. Although the tax rate change is not effective until January 1, 2018, the enactment of the law in 2017 required us to revalue our net deferred tax asset from the 2017 statutory rate of 35% to the new 2018 statutory rate of 21%, in accordance with current accounting guidance.
Accounts payable increased by $9.3 million, or 29.7%, to $40.6 million at December 31, 2017 from $31.3 million at December 31, 2016. $2.1 million of the increase was due to accounts payable assumed through our acquisition of Smeal, with the remainder of the increase due to the timing of payments.
Accrued warranty decreased by $1.0 million, or 5.2%, to $18.3 million at December 31, 2017 from $19.3 million at December 31, 2016, due to payments for repairs made during the year of $13.8 million, offset by $7.5 million for accruals for warranties provided on vehicles produced during the year and additional accruals of $1.6 million for changes in existing warranties. In addition, we assumed $3.7 million in warranty obligations related to the acquisition of Smeal.
Deposits from customers increased by $9.3 million or 57.8% to $25.4 million at December 31, 2017 compared to $16.1 million at December 31, 2016. The increase was due to prepayments of $13.4 million remaining at December 31, 2017 related to Smeal, partially offset by more prepayments being applied to invoices for fulfilled orders than were received during 2017 for new orders in our Emergency Response Vehicles segment.
Other current liabilities and accrued expenses increased by $4.4 million, or 57.1%, to $12.1 million at December 31, 2017 from $7.7 million at December 31, 2016, with $2.4 million of the increase related to an increase in our accrued taxes, $1.8 million due to liabilities assumed through our acquisition of Smeal, and the remainder due to the timing of accruals for various expenses incurred but not yet invoiced.
Other non-current liabilities increased by $2.7 million, or 108.0%, to $5.2 million at December 31, 2017 from $2.5 million at December 31, 2016 due to a $1.7 million vendor rebate pre-payment received in 2017 along with an $0.7 million increase in our supplemental executive retirement plan liabilities and a $0.3 million increase in other liabilities.
Balance sheet at December 31, 2016 compared to December 31, 2015
Accounts receivable increased by $8.8 million, or 15.5%, to $65.4 million at December 31, 2016 from $56.6 million at December 31, 2015, with approximately equal parts of the increase due to increased sales late in the fourth quarter of 2016 compared to 2015 and the timing of payment receipts in late 2016 compared to late 2015. In January 2017, $7.4 million of our accounts receivable was forgiven as part of our acquisition of Smeal. Our receivable days sales outstanding decreased to 40 days sales at December 31, 2016 from 41 days at December 31, 2015 mainly due to increased sales compared to the previous year.
Inventory decreased by $1.7 million, or 2.8%, to $58.9 million at December 31, 2016 from $60.6 million at December 31, 2015, mainly due to completion and shipment of units and continued focus on inventory reduction actions.
Other current assets increased by $1.0 million, or 28.6%, to $4.5 million at December 31, 2016 from $3.5 million at December 31, 2015 mainly due to an increase in prepaid expenses during the period.
Net deferred tax asset increased by $2.7 million or 450.0%, to $3.3 million at December 31, 2016 from $0.6 million at December 31, 2015 as a result of the change in our valuation allowance during the year. The remaining residual value of $3.3 million represents that portion of our deferred income tax assets that could generate future tax losses and be successfully carried back and offset against current year taxable income to recover taxes paid.
Accounts payable increased by $4.0 million, or 14.7%, to $31.3 million at December 31, 2016 from $27.3 million at December 31, 2015, mainly due to increased sales volume which resulted in increased purchases to support production.
Accrued warranty increased by $2.7 million, or 16.3%, to $19.3 million at December 31, 2016 from $16.6 million at December 31, 2015, due to $5.7 million of accruals for warranties provided on vehicles produced during the year and additional accruals of $4.0 million for various repair campaigns in 2016 and $3.3 million for changes in existing warranties, offset by $10.3 million of payments for repairs made during the year.
Accrued compensation and related taxes increased by $4.5 million, or 51.7%, to $13.2 million at December 31, 2016 from $8.7 million at December 31, 2015, mainly due to an increase in incentive compensation accruals as a result of our financial performance during the year.
Deposits from customers increased by $3.0 million, or 22.9%, to $16.1 million at December 31, 2016 from $13.1 million at December 31, 2015, due to more customers electing to make deposits on orders in 2016. We receive deposits on orders at the option of our customers. Consequently, the amount of deposits on hand will vary from time to time.
Other current liabilities and accrued expenses increased by $1.1 million, or 16.7%, to $7.7 million at December 31, 2016 from $6.6 million at December 31, 2015 mainly due to the timing of accruals for various expenses incurred but not yet invoiced.
Liquidity and Capital Resources
Cash FlowsFlows
Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows appearing in Item 8 of this Form 10-K, are summarized in the following table (in thousands):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2021 | 2020 | ||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 22,016 | $ | 23,328 | $ | 12,856 | $ | 74,009 | $ | 64,332 | ||||||||||
Investing activities | (34,230 | ) | (13,385 | ) | (4,687 | ) | (22,076 | ) | 14,916 | |||||||||||
Financing activities | 13,696 | (10,603 | ) | (4,038 | ) | (35,770 | ) | (77,602 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 1,482 | $ | (660 | ) | $ | 4,131 | |||||||||||||
Net increase in cash and cash equivalents | $ | 16,163 | $ | 1,646 |
During 2017,2021, cash and cash equivalents increased by $1.5$16.2 million to a balance of $33.5$37.2 million as of December 31, 2017.2021. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance our foreseeable liquidity and capital needs.
needs, including potential future acquisitions.
Cash Flow from OperatingOperating Activities
We generated $22.0$74.0 million of cash from operating activities during the year ended December 31, 2017, a decrease2021, an increase in cash provided of $1.3$9.7 million from $23.3$64.3 million of cash generated from operating activities in 2016. Cash flow from operating activities decreased from 2016 due to $3.5 million increase in cash paid for warranty claims and a $5.2 million increase in cash utilized in the fulfilment of customer orders. These decreases which were partially offsetprovided by a $5.7 million increase in net income net of non-cash charges in 2017 and $1.7 million increase in cash generated through changes in other working capital items, mainly compensation related accruals.
We generated $23.3 million of cash from operating activities during the year ended December 31, 2016, an increase of $10.4 million from $12.9 million of cash generated from operating activities in 2015.2020. Cash flow from operating activities increased from 2015 due to a $14.8$10.3 million increase in net income net ofadjusted for non-cash charges and credits in 2016, and $3.6 million of cash generated through changes in various working capital items, mainly compensation related accruals. These increases wereto operations partially offset by $8.0a $0.6 million decrease in the change in net working capital. The change in net working capital is primarily attributable to a $33.6 million decrease in the change in inventories, $28.5 million decrease in the change in receivables and contract assets partially offset by a $45.6 increase in payables, $14.8 million increase in other assets and liabilities.
The change in net working capital was primarily due to increased sales of $315.8 million, or 46.7% in 2021, compared to the same period in 2020, primarily driven by strong demand in the current period and the comparatively lower sales resulting from the impact of the COVID-19 pandemic in the comparative period. Receivables and contract assets increased by $34.5 million due to increased sales with accounts receivables being partially offset by improved timing of cash utilizedreceipts. Inventories increased by $20.8 million and payables increased by $35.0 million, both due to increased sales with payables being partially offset by the Company’s continued focus on extending payment terms with suppliers. As of December 31, 2021, contract assets increased $12.1 million to $21.5 million compared to $9.4 million in the fulfilment of customer orders.
In 2018 we expectprior year, primarily due to incur non-recurring cash outlays of $15 million to $16 million. This estimate includes approximately $5.6 million of cash investment to expand certainincreased production facilities, $3.7 million related to information technology upgrades, along with expenditures of $1.7 million for the replacement and upgrade of machinery and equipment used in operations. We plan to fund these cash outlays with borrowings from our existing $100 million line of credit along with cash generated from our operations in 2018.
industry wide supply chain constraints.
Cash Flow from Investing Activities
We utilized $34.2used $22.1 million in investing activities during the year ended December 31, 2017,2021, a $20.8$37.0 million increase compared to the $13.4$14.9 million utilizedgenerated during the year ended December 31, 2016. This2020. The increase in cash used in investing activities is mainly the result of our acquisition of Smeal on January 1, 2017.
We used $13.4primarily attributable to $47.5 million of cash for investing activities during the year ended December 31, 2016, an increase of $8.7 millionproceeds from the $4.7sale of the ERV business in 2020 not repeated in 2021, $8.5 million utilized in 2015, mainly for the construction of a new assembly plant in Charlotte, Michigan, along with the purchasepurchases of property, plant and equipment, used in our operations.
partially offset by $19.0 million of lower cost of business acquisition.
Cash Flow from Financing Activities
We generated $13.7used $35.8 million of cash through financing activities during the year ended December 31, 2017,2021, compared to $10.6$77.6 million utilizedused during the year ended December 31, 2016.2020. This increase is mainly due to the financing$41.8 million of our acquisition of Smeal from our existing $100 million line of credit on January 1, 2017.
Weless cash used $10.6 million in financing activities during the year ended December 31, 2016, a $6.6is primarily attributable to $29.0 million increase comparedof increased proceeds from long-term debt and to $13.6 million lower principal payments on long-term debt.
Effect of Inflation
Inflation affects us in two principal ways. First, our revolving credit agreement is generally tied to the $4.0 million utilized duringprime and LIBOR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, we attempt to cover increased costs of production and capital by adjusting the year ended December 31, 2015. This increase was driven byprices of a $5 million paymentour products. However, we generally do not attempt to negotiate inflation-based price adjustment provisions into our contracts. We have limited ability to pass on our outstanding debt and $2.0 million utilized to repurchase our common stock.
Recent Acquisition
On January 1, 2017, we completed the acquisition of substantially all of the assets and certain liabilities of Smeal pursuant to an Asset Purchase Agreement dated December 12, 2016. This acquisition brought significant scalecost increases to our Emergency Response Vehicles segment, expandedcustomers on a short-term basis. In addition, the geographic reachmarkets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. We strive to minimize the effect of our dealer networkinflation through cost reductions and added complementary productsimproved productivity. Refer to our existing emergency response product portfolio. See Note 2, Acquisition Activities in the Notes to Consolidated Financial Statements appearingCommodities Risk section in Item 8 of this Form 10-K for more information on this acquisition.
Restructuring Activities
During the years ended December 31, 2017, 2016 and 2015, we incurred $1.3 million, $1.1 million and $2.9 million of restructuring charges. The restructuring charges were incurred in 2017 for a company-wide initiative to streamline operations and integrate our Smeal acquisition. In 2016 and 2015, restructuring charges were incurred within our Emergency Response Vehicles segment related to the relocation of our Ocala, Florida manufacturing operations to our Charlotte, Michigan and Brandon, South Dakota facilities, along with efforts undertaken to upgrade production processes at our Brandon, South Dakota and Ephrata, Pennsylvania locations.
See Note 4, Restructuring Charges,in the Notes to Consolidated Financial Statements appearing in Item 87A of this Form 10-K for further information.
Working Capital
Our working capital is summarized in the following table (in thousands):
As of December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current assets | $ | 198,787 | $ | 162,191 | $ | 155,137 | ||||||
Current liabilities | 109,732 | 87,724 | 72,373 | |||||||||
Working capital | $ | 89,055 | $ | 74,467 | $ | 82,764 |
Working capital increased from December 31, 2016 to December 31, 2017, driven by changes in accounts receivable, inventory, accounts payable, and deposits from customers as described above.information regarding commodity cost fluctuations.
Working capital decreased from December 31, 2015 to December 31, 2016, driven by changes in accounts receivable, inventory, accounts payable, accrued warranty, accrued compensation and related taxes, and deposits from customers as described above.Contingent Liabilities
Contingent Liabilities
Spartan-Gimaex joint venture
In February 2015, Spartan USAthe Company and Gimaex Holding, Inc. mutually agreedinitiated discussions to begin discussions regarding the dissolution ofdissolve the Spartan-Gimaex joint venture. Further to legal proceedings initiated by the Company to dissolve and liquidate the joint venture, the court appointed the Company as liquidating trustee of the joint venture. As of December 2021, the liquidation is substantially complete, and the Company does not expect any material impact to our future operating results.
EPA Information Request
In June 2015, Spartan USA and Gimaex Holding, Inc. entered into court proceedingsMay 2020, the Company received a letter from the United States Environmental Protection Agency (“EPA”) requesting certain information as part of an EPA investigation regarding a potential failure to affix emissions labels on vehicles to determine the terms ofCompany’s compliance with applicable laws and regulations. This information request pertains to chassis, vocational vehicles, and vehicles that the dissolution. In FebruaryCompany manufactured or imported into the U.S. between January 1, 2017 by agreement of the parties, the court proceeding was dismissed with prejudice and the judge entered an order to this effect as the parties agreed to seek a dissolution plan on their own. No dissolution terms have been determined as of the date of this Form 10-K. In the fourth quarters of 2015 and 2014, we accrued charges totaling $1.0 million and $0.2 million to write down certain inventory items associated with this joint venture to their estimated fair values. Costs associated withCompany received the wind-down will be impacted by the final dissolution agreement.request in May 2020. The costs we have accrued so far represent the low end of the range of the estimated total charges that we believe we may incur relatedCompany responded to the wind-down. While we are unable to determineEPA’s request and furnished the final costrequested materials in the third quarter of the wind-down with certainty2020. An estimate of possible penalties or loss, if any, cannot be made at this time, we may incur additional charges, depending on the final terms of the dissolution, and such charges could be material to our results.time.
National Highway Traffic Safety Administration (“NHTSA”) penaltyDebt
In July 2015,
On November 30, 2021, we entered into a settlement agreement with the NHTSA pertaining to our early warning and defect reporting. Under the terms of the agreement, we paid a fine of $1.0 million in equal installments over three years, and will complete performance obligations including compliance and regulatory practice improvements, industry outreach, and recalls to remedy potential safety defects in certain of our chassis, which we expect to complete in July of 2018. The following table presents the charges recorded in the Consolidated Statement of Operations during the year ended December 31, 2015 as a result of this agreement (in thousands):
Cost of products sold | $ | 1,269 | ||
Selling, general and administrative | 1,000 | |||
$ | 2,269 |
Debt
On December 1, 2017, we entered into a First Amendment to our Secondan Amended and Restated Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, National Association,N.A. ("Wells Fargo"), as administrative agent, ("Wells Fargo"), and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A., PNC Bank, National Association and PNC Bank of America, N.A. (the "Lenders"). Certain of our other subsidiaries have executed guaranties guarantying the borrowers' obligations under the Credit Agreement.
Under the Credit Agreement, we may borrow up to $100$400.0 million from the Lenders under a three-year unsecuredsecured revolving credit facility.facility which matures November 30, 2026. We may also request an increase in the facility of up to $35$200.0 million in the aggregate, subject to customary conditions. The credit facility is also available for the issuance of letters of credit of up to $20$20.0 million and swing line loans of up to $15$10.0 million, and revolving loans, subject to certain limitations and restrictions. Interest rates on borrowings under theThis revolving credit facility are based oncarries an interest rate of either (i) the highest of the prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted London interbank market rate ("LIBOR")LIBOR plus 1.0%; or (ii) adjusted LIBOR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The Credit Agreement contains certain customary representations and covenants, including performance-based financial covenants on our part. The credit facility matures October 31, 2019, following which we have the option to renew the credit facility, subject to lender approval, for two successive one-year periods with an ultimate maturity date of October 31, 2021. Commitment fees range from 17.5 to 32.5 basis points on the unused portion of the line. In January 2017, we borrowed $32.8 million from our credit line to fund our acquisition of Smeal. At December 31, 2017 we had outstanding borrowings of $17.8 million against our credit line. We had no drawings against this credit line as of December 31, 2016. During the year ended December 31, 2017, and in future years, our revolving credit facility was utilized, and will continue to be utilized, to finance commercial chassis received under chassis bailment inventory agreements with General Motors Company (“GM”) and Chrysler Group, LLC (“Chrysler”). This funding is reflected as a reduction of the revolving credit facility available to us equal to the amount drawn by GM and Chrysler. See Note 10, Commitments and Contingent Liabilities, in the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further details about these chassis bailment inventory agreements. The applicable borrowing rate including the margin was 3.0%1.10% (or one-month LIBOR plus 1.5%1.00%) at December 31, 2017.2021. The credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At December 31, 2021 and December 31, 2020, we had outstanding letters of credit totaling $0.8 million and $0.5 million, respectively, related to our workers’ compensation insurance.
Under the terms of our credit agreement with our banks, we have the ability to issue lettersCredit Agreement, available borrowings (exclusive of credit totaling $20.0 million. Atoutstanding borrowings) totaled $376.8 million and $125.8 million at December 31, 20172021 and 2016, we had outstanding letters of credit totaling $754 and $1,599 related to certain emergency response vehicle contracts and our workers compensation insurance.
Under the terms of the primary line of credit agreement, as amended, we are requiredDecember 31, 2020, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial conditions, which limited our available borrowings under our line of credit to a total of approximately $66.4 million and $73.6 million at December 31, 2017 and 2016. The agreements prohibitcovenants; prohibits us from incurring additional indebtedness; limitlimits certain acquisitions, investments, advances or loans; limitlimits our ability to pay dividends in certain circumstances; and restrictrestricts substantial asset sales.sales, all subject to certain exceptions and baskets. At December 31, 2017,2021 and December 31, 2020, we were in compliance with all covenants in our credit agreement,Credit Agreement.
In the year ended December 31, 2021 the Company paid down $22.4 million of long-term debt, net of borrowings.
We are party to contractual obligations involving commitments to make payments to third parties, and basedsuch commitments require a material amount of cash. As part of our normal course of business, we enter into contracts with suppliers for purchases of certain raw materials, components, and services to facilitate adequate supply of these materials and services. These arrangements may contain fixed or minimum quantity purchase requirements.
Our current cash position, available borrowing capacity on our outlook for 2018,credit facilities, and the cash flows we expect to generate from continuing operations are expected to be ablesufficient to meet these covenants over the next twelve months.finance our foreseeable operating and capital needs, including day to day operations, capital expenditures, research and development, investments in information technology systems, dividends and potential future acquisitions.
We had capital leaseOur future contractual obligations, outstanding of $0.2 million and $0.1 million as of December 31, 2017 and 2016, due and payable over the next five years.described above, are summarized below.
Payments Due by Period (in thousands) | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
Debt (1) | $ | 1,224 | 241 | 185 | 38 | 760 | ||||||||||||||
Operating lease obligations | 50,658 | 8,072 | 14,703 | 10,804 | 17,079 | |||||||||||||||
Purchase obligations | 11,741 | 11,741 | - | - | - | |||||||||||||||
Total contractual obligations | $ | 63,623 | $ | 20,054 | $ | 14,888 | $ | 10,842 | $ | 17,839 |
(1) | Debt includes line of credit revolver estimated interest payments and payments on finance leases. The interest payments on the related variable rate debt were calculated using the effective interest rate of 1.0% at December 31, 2021. |
Equity Securities
On October 19, 2011, our Board of Directors authorized management to repurchase up to a total of 1.0 million shares of our common stock in open market transactions, contingent upon market conditions. During the second quarter of 2016, we repurchased a total of 422,000 shares of our common stock under this authorization. We did not repurchase any shares, under any repurchase authorizations, in 2017 or 2015.
On April 28, 2016, our Board of Directors terminated the 2011 repurchase authorization effective June 30, 2016, and authorized the repurchase of up to 1.0 million additional shares of our common stock in open market transactions. AtWe repurchased a total of 100,000, 300,000; and 101,006 shares of our common stock during the years ended December 31, 2017 there were 1.0 million shares remaining under this repurchase authorization. If2021, 2020 and 2019, respectively. In January 2022, we were to repurchaserepurchased the remaining 1.0 million408,994 shares for $18.9 million.
On February 17, 2022, our Board of stock underDirectors authorized the repurchase program, it would cost us $15.2of up to $250.0 million based on the closing price of our common stock on February 23, 2018.in open market transactions. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.
Dividends
We paid dividends on our outstanding common shares in 2017, 20162021 and 20152020 as shown in the table below.
Date dividend declared | Record date | Payment date | Dividend per share ($) | Total dividend paid ($000) | |||||||||||||
Oct. 24, 2017 | Nov. 15, 2017 | Dec. 15, 2017 | $ | 0.05 | $ | 1,753 | |||||||||||
May 2, 2017 | May 15, 2017 | June 15, 2017 | 0.05 | 1,755 | |||||||||||||
Nov. 2, 2016 | Nov. 15, 2016 | Dec. 15, 2016 | 0.05 | 1,720 | |||||||||||||
April 28, 2016 | May 19, 2016 | June 23, 2016 | 0.05 | 1,724 | |||||||||||||
Oct. 26, 2015 | Nov. 12, 2015 | Dec. 17, 2015 | 0.05 | 1,713 | |||||||||||||
May 8, 2015 | May 21, 2015 | June 25, 2015 | 0.05 | 1,713 |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, cash flows, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations and Commercial Commitments
Our future contractual obligations for agreements, including agreements to purchase materials in the normal course of business, are summarized below.
Payments Due by Period (in thousands) | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
Line of credit revolver (1) | $ | 18,868 | $ | 534 | $ | 18,334 | $ | - | $ | - | ||||||||||
Capital leases | 189 | 64 | 104 | 21 | - | |||||||||||||||
Operating leases | 7,715 | 2,494 | 3,589 | 1,632 | - | |||||||||||||||
Contingent payments (2) | 1,394 | 1,394 | - | - | - | |||||||||||||||
Purchase obligations | 59,071 | 59,071 | - | - | - | |||||||||||||||
Total contractual obligations | $ | 87,237 | $ | 63,557 | $ | 22,027 | $ | 1,653 | $ | - |
Date dividend
On February 3, 2022, our Board of Directors authorized an increase in the Company’s quarterly dividend from $0.025 to $0.05 per share payable on or before March 17, 2022, to shareholders of record at the close of business on February 17, 2022.
Critical Accounting Policies and Estimates
The following discussion of critical accounting policies and estimates is intended to supplement 31 Revenue Recognition
Revenue for upfit and field service contracts and walk-in vans and truck bodies built on a chassis owned and controlled by the customer is recognized over time, as equipment is installed in the customer’s vehicle, repairs and enhancements are made to the customer’s vehicles, or as the vehicles are built. For certain of our vehicles and chassis, we sell separately priced service contracts that provide roadside assistance or extend certain warranty coverage beyond our base warranty agreements. These separately priced contracts range from one to six years from the date of the shipment of the related vehicle or chassis. We Business Combinations When acquiring other businesses, we Accounting for such
Goodwill and Other Indefinite-Lived Intangible Assets
In accordance with authoritative guidance on goodwill and other indefinite-lived intangible assets, such assets are tested for impairment at least annually, and written down when and to the extent impaired. We perform our annual impairment test for goodwill and indefinite-lived intangible assets as of October 1 of each year, or more frequently if an event occurs or conditions change that would more likely than not reduce the fair value of the asset below its carrying value.
32
We first assess qualitative factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and current and forecasted financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, we are not required to calculate the fair value of a reporting unit. We have the option to bypass this qualitative assessment and proceed to a quantitative goodwill impairment assessment. If we elect to bypass the qualitative assessment, or if after completing the assessment it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying value, we perform an impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of the reporting unit is determined by estimating the future cash flows of the reporting unit to which the goodwill relates, and then discounting the future cash flows at a market-participant-derived weighted-average cost of capital (“WACC”). In determining the estimated future cash flows, we consider current and projected future levels of income based on our plans for that business; business trends, prospects and market and economic conditions; and market-participant considerations. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill.
We evaluate the recoverability of our indefinite lived intangible
Significant judgments inherent in these analyses include assumptions about appropriate sales growth rates, WACC and the amount of expected future net cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the reporting units and trade name.
See
Our policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the warranty liability to reflect actual experience. The amount of warranty liability accrued reflects actual historical warranty cost, which is accumulated on specific identifiable units. From that point, there is a projection of the expected future cost of honoring our obligations under the warranty agreements. Historically, the cost of fulfilling our warranty obligations has principally involved replacement parts and labor for field retrofit campaigns and recalls, which increase the reserve. Our estimates are based on historical experience, the number of units involved, and the extent of features and components included in product models. See
Provision for Income Taxes
We account for income taxes under a method that requires deferred income tax assets and liabilities to be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Authoritative guidance also requires deferred income tax assets,
We evaluate the likelihood of realizing our deferred income tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets. 33
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Although management believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
Interest and penalties attributable to income taxes are recorded as a component of income taxes.
New and Pending Accounting Policies
See
We are exposed to market
The interest rate charged on our outstanding borrowings pursuant to our credit facility is currently based on LIBOR, as described in "Note 13 – Debt" below. On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR by the end of 2021. On November 30, 2020, the ICE Benchmark Administration Limited (ICE) announced plans to delay the phase out of LIBOR to June 30, 2023. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Secured Overnight Funding Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Our credit facility provides for the transition to a replacement for LIBOR, and it also provides for an alternative to LIBOR. When LIBOR ceases to exist, our interest expense is not expected to increase materially. It is also possible that the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR with SOFR or any other reference rate. Increased interest expense and/or disruption in the financial market could have a material adverse effect on our business, financial condition, or results of operations. Commodities Risk We are also exposed to changes in the prices of raw materials, primarily steel and aluminum, along with components that are made from these raw materials. We generally do not enter into derivative instruments for the purpose of managing exposures associated with fluctuations in steel and aluminum prices. We do, from time to time, engage in pre-buys of components that are impacted by changes in steel, aluminum and other commodity prices in order to mitigate our exposure to such price increases and align our costs with prices quoted in specific customer orders. We also actively manage our material supply sourcing and may employ various methods to limit risk associated with commodity cost fluctuations due to normal market conditions and other factors including tariffs. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part 1, Item 7 of this Form 10-K for information on the impacts of changes in input costs during the year ended December 31, 2021.
We do not believe that there has been a material change in the nature or categories of the primary market risk exposures or in the particular markets that present our primary risk of loss. As of the date of this report, we do not know of or expect any material changes in the general nature of our primary market risk exposure in the near term. In this discussion, “near term” means a period of one year following the date of the most recent balance sheet contained in this report.
Prevailing interest rates,
34
To the Board of Directors and Shareholders
We have audited the accompanying consolidated balance In our opinion, the
Basis for
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
Our
opinions. Definition and Limitations of Internal Control over Financial Reporting A
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
35 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of this critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Goodwill— Refer to Notes 1 and 6 to the consolidated financial statements Critical Audit Matter Description The Company conducts its annual goodwill impairment test on October 1 of each year, as well as whenever events or changes in circumstances indicate a possible impairment. The fair value of the reporting unit is determined by estimating the future cash flows of the reporting unit to which the goodwill relates, and then discounting the future cash flows at a market-participant-derived weighted average cost of capital (“WACC”). The fair value estimates contain uncertainties as they require management to make assumptions including, but not limited to future cash flows of its reporting units and an appropriate WACC. The Company performed a quantitative assessment of goodwill assigned to the Service Truck Bodies reporting unit prior to a reporting unit change that became effective October 1, 2021. The estimated fair value of the Service Truck Bodies reporting unit exceeded its carrying value. The goodwill balance of the Service Truck Bodies reporting unit was $33 million. Given the significant judgments made by management to estimate the fair value of the Service Truck Bodies reporting unit, and the difference between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s assumptions related to future cash flows and WACC required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to future cash flows and WACC for the Service Truck Bodies reporting unit included the following, among others: • We tested the effectiveness of controls over the Company’s goodwill impairment test and determination of related assumptions, including those over future cash flows and WACC. • We evaluated management’s ability to reasonably forecast future cash flows by comparing actual reporting unit results to management’s historical forecasts. • We evaluated the reasonableness of management’s forecast of future cash flows by comparing the estimate of future cash flows to: – Historical sales and EBITDA • With the assistance of our fair value specialists, we tested the underlying source information, and the mathematical accuracy of the estimate of future cash flows within the fair value calculations. • With the assistance of our fair value specialists, we evaluated the WACC by: – testing the underlying source information and the mathematical accuracy of the calculation. / Detroit, Michigan We have served as the Company's auditor since 2021. 36 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors The Shyft Group, Inc. Novi, Michigan Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of The Shyft Group Inc. (the “Company”) as of December 31, 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
/s/ BDO USA, LLP We served as the Company’s auditor from 2007 to 2020. Grand Rapids, March
37
(In
See accompanying Notes to Consolidated Financial Statements.
38
(In thousands, except per share data)
See accompanying Notes to Consolidated Financial Statements 39 THE SHYFT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands, except per share data)
See accompanying Notes to Consolidated Financial Statements.
40 CONSOLIDATED STATEMENTS OF (In
Note: Consolidated Statements of Cash Flows include continuing operations and discontinued operations for all years presented.
See accompanying Notes to Consolidated Financial Statements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 1
Nature of Operations We are a COVID-19 Pandemic
On The
Principles of Consolidation The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiary,
Non-Controlling Interest.At December 31, 2021,
Use of Estimates. In the preparation of our financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), management uses estimates and makes judgments and assumptions that affect asset and liability values and the amounts reported as income and expense during the periods presented. Certain of these estimates, judgments and assumptions, such as the allowance for credit losses, warranty expenses, impairment assessments of tangible and intangible assets, and the provision for income taxes, are particularly sensitive. If actual results are different from estimates used by management, they may have a material impact on the financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Revenue Recognition.
We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would have otherwise been deferred and amortized is one year or less. We use an observable price to allocate the stand-alone selling price to separate performance obligations within a contract or a cost-plus margin approach when an observable price is not available. The estimated costs to fulfill our base warranties are recognized as expense when the products are sold (see “Note 11 – Commitments and Contingent Liabilities” for further information on warranties). Our contracts with customers do not contain a provision for product returns, except for contracts related to certain parts sales. Revenue for parts sales for all segments is recognized at the time that control and risk of ownership has passed to the customer, which is generally when the ordered part is shipped to the customer. Historical return rates on parts sales have been immaterial. For certain of our vehicles and chassis, we sell separately priced service contracts that provide roadside assistance or extend certain warranty coverage beyond our base warranty agreements. These separately priced contracts range from one to six years from the date of the shipment of the related vehicle or chassis. We receive payment with the shipment of the related vehicle or at the inception of the extended service contract, if later, and recognize revenue over the coverage term of the agreement, generally on a straight-line basis, which approximates the pattern of costs expected to be incurred in satisfying the obligations under the contract. Distinct revenue recognition policies for our segments are as follows: Fleet Vehicles and Services ("FVS") Our walk-in vans and truck bodies are generally built on a chassis that is owned and controlled by the customer. Due to the customer ownership of the chassis, the performance obligation for these walk-in vans and truck bodies is satisfied as the vehicles are built. Accordingly, the revenue and corresponding cost of products sold associated with these contracts are recognized over time based on the inputs completed for a given performance obligation during the reporting period. Certain contracts will specify that a walk-in van or truck body is to be built on a chassis that we purchase and subsequently sell to the customer. The revenue on these contracts is recognized at the time that the performance obligation is satisfied, and control and risk of ownership has passed to the customer, which is generally upon shipment of the vehicle from our manufacturing facility to the customer or receipt of the vehicle by the customer, depending on contract terms. We have elected to treat shipping and handling costs subsequent to transfer of control as fulfillment activities and, accordingly, recognize these costs as the revenue is recognized. Revenue for upfit and field service contracts is recognized over time, as equipment is installed in the customer’s vehicle or as repairs and enhancements are made to the customer’s vehicles. Revenue and the corresponding cost of products sold is estimated based on the inputs completed for a given performance obligation. Our performance obligation for upfit and field service contracts is satisfied when the equipment installation or repairs and enhancements of the customer’s vehicle have been completed. Our receivables are generally collected in less than three months, in accordance with our underlying payment terms. Specialty Vehicles ("SV") We recognize revenue and the corresponding cost of products sold on the sale of motorhome chassis when the performance obligation is completed and control and risk of ownership of the chassis has passed to our customer, which is generally upon shipment of the chassis or vehicle to the customer. 43 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Revenue and the corresponding cost of products sold associated with other specialty vehicles is recognized over time based on the inputs completed for a given performance obligation during the reporting period. Other specialty vehicles are generally built on a chassis that is owned and controlled by the customer. Due to the customer ownership of the chassis, the performance obligations for other specialty chassis contracts are satisfied as the products are assembled. Our receivables will generally be collected in less than three months, in accordance with our underlying payment terms. Some of our service truck bodies are built on a chassis that is owned and controlled by the customer. Due to the customer ownership of the chassis, the performance obligation for these truck bodies is satisfied as the vehicles are built. Accordingly, the revenue and corresponding cost of products sold associated with these contracts are recognized over time based on the inputs completed for a given performance obligation during the reporting period. Certain contracts will specify that a truck body is to be built on a chassis that we purchase and subsequently sell to the customer. The revenue on these contracts is recognized at the time that the performance obligation is satisfied, and control and risk of ownership has passed to the customer, which is generally upon shipment of the vehicle from our manufacturing facility to the customer or receipt of the vehicle by the customer, depending on contract terms. We have elected to treat shipping and handling costs subsequent to transfer of control as fulfillment activities and, accordingly, recognize these costs as the revenue is recognized. Revenue for upfit and field service contracts is recognized over time, as equipment is installed in the customer’s vehicle or as repairs and enhancements are made to the customer’s vehicles. Revenue and the corresponding cost of products sold is estimated based on the inputs completed for a given performance obligation. Our performance obligation for upfit and field service contracts is satisfied when the equipment installation or repairs and enhancements of the customer’s vehicle have been completed. Our receivables are generally collected in less than three months, in accordance with our underlying payment terms. Business Combinations. When acquiring other businesses, we recognize identifiable assets acquired and liabilities assumed at their acquisition date estimated fair values, and separately from any goodwill that may be required to be recognized. Goodwill, when recognizable, is measured as the excess amount of any consideration transferred, which is measured at fair value, over the acquisition date fair values of the identifiable assets acquired and liabilities assumed.
Accounting for such acquisitions requires us to make significant assumptions and estimates and Costs incurred to effect an acquisition, such as legal, accounting, valuation or other third-party costs, as well as internal general and administrative costs incurred are charged to expense in the periods incurred.
Shipping and Handling of Products. Costs incurred related to the shipment and handling of products are classified in cost of products sold. Amounts billed to customers for shipping and handling of products are included in sales.
Cash and Cash Equivalents include cash on hand, cash on deposit, treasuries and money market funds. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable. Our receivables are subject to credit risk, and we do not typically require collateral on our accounts receivable. We perform periodic credit evaluations of our customers’ financial condition and generally require a security interest in the products sold. Receivables generally are due within 30 to 60 days. We maintain an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts consistent with it reflecting related lifetime expected credit losses, management
Inventories are stated at the lower of first-in, first-out cost or net realizable value.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Contract Assets arise upon the transfer of goods or services to a customer before the customer pays consideration. The Company presents the contract as either a contract asset or as a receivable, depending on the nature of the entity’s right to consideration for its performance. Contract assets are a right to consideration in exchange for goods or services that the Company has transferred to a customer, when the right is conditioned on something other than the passage of time. Property, Plant and Equipment is stated at cost and the related assets are depreciated over their estimated useful lives on a straight-line basis for financial statement purposes and an accelerated method for income tax purposes. Cost includes an amount of interest associated with significant capital projects. Estimated useful lives range from 20 years for buildings and improvements,
Assets and Liabilities Held for Sale We We initially measure a disposal group that is
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the Consolidated Balance Sheets. Depreciation is not recorded during the period in which the long-lived assets, included in the disposal group, are classified as held for sale. Additionally, we report the reporting results for a disposal group in discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations if the disposal represents a strategic shift that has or will have a major effect on our operations and financial results. Goodwill and Other Intangible Assets. Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment tests on an annual basis, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is allocated to the reporting unit from which it was created. A reporting unit is an operating segment or sub-segment to which goodwill is assigned when initially recorded. We review indefinite lived intangible assets annually for impairment by comparing the carrying value of those assets to their fair value.
45 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Other intangible assets with finite lives are amortized over their estimated useful lives and are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
We perform our annual goodwill and indefinite lived intangible assets impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. For goodwill we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Under authoritative guidance, we are not required to calculate the fair value of a reporting unit unless we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. We have the option to bypass the qualitative assessment and proceed to a quantitative impairment test.
We evaluate the recoverability of our indefinite lived intangible
Significant judgments inherent in these assessments and analyses include assumptions about macroeconomic and industry conditions, appropriate sales growth rates, WACC and the amount of expected future net cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change because of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the reporting units and trade names. See
Warranties. Our policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the warranty liability to reflect actual experience. The amount of warranty liability accrued reflects management’s best estimate of the expected future cost of honoring our obligations under the warranty agreements. Expense related to warranty liabilities accrued for product sales, as well as adjustments to pre-existing warranty liabilities, are reflected within Cost of products sold on our Consolidated Statements of Operations. Our estimates are based on historical experience, the number of units involved, and the extent of features and components included in product models. See Deposits from Customers. We sometimes receive advance payments from customers for product orders and record these amounts as liabilities. We accept such deposits when presented by customers seeking improved pricing in connection with orders that are placed for products to be manufactured and sold at a future date.
Research and Development. Our research and development costs, which consist of compensation costs, travel and entertainment, administrative expenses and new product development among other items, are expensed as incurred.
46 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Taxes on Income. We recognize deferred income tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax liabilities generally represent tax expense recognized for which payment has been deferred, or expenses which have been deducted in our tax returns, but which have not yet been recognized as an expense in our financial statements.
We establish valuation allowances for deferred income tax assets in accordance with GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, we consider the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
Interest and penalties attributable to income taxes are recorded as a component of income taxes. See
Earnings
Stock-Based Compensation. Stock
Fair Value. We are required to disclose the estimated fair value of our financial instruments. The carrying value at December 31,
Segment Reporting. We identify our reportable segments based on our management structure and the financial data utilized by the chief operating decision
Supplemental Disclosures of Cash Flow Information. Cash paid for interest was $592, $1,757, and $1,844 for
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Except for the changes below, we have consistently applied the accounting policies to all periods presented in these consolidated financial statements. Adoption of Simplifications to Accounting for Income Taxes Accounting Policy. Effective Adoption of Current Expected Credit Losses Accounting Policy. Effective January 1, 2020, we adopted ASU 2016- 13 and all related amendments, which require entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses, which recognized credit losses when it was probable a loss had been incurred. Credit losses under CECL are determined using a method that reflects lifetime expected credit losses by considering relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. We applied ASU 2016- 13 using the modified retrospective method and the cumulative effect of adoption was not material. Therefore, the comparative information has not been adjusted and continues to be reported under prior accounting guidance. NOTE 2 – DISCONTINUED OPERATIONS On February 1, 2020, we completed the sale of our ERV business for $55,000 cash subject to certain post-closing adjustments. In September 2020, the Company finalized the post-close net working capital adjustment and subsequently paid $7,500 on October 1, 2020. The Company recognized a loss on sale of $3,383 for the year ended December 31, 2020, which are portions of the Loss from discontinued operations, net of tax in the Consolidated Statements of Operations. The ERV business included the emergency response chassis operations in Charlotte, Michigan, and operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. The results of the ERV business have been reclassified to Loss from discontinued operations, net of tax in the Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019. We continue to have an open Transition Services Agreement with the buyer for the provision of certain transition support services, which will continue for certain services into 2022. The Loss from discontinued operations presented in the Consolidated Statement of Operations for the years ended December 31, 2021, 2020 and 2019 consisted of:
In
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Total depreciation and amortization and capital expenditures for the
NOTE
On
The The initial fair values of the net assets acquired were based on a
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
DuraMag Goodwill Assigned Intangible assets totaling $5,590 have been assigned to customer relationships, trade names and trademarks, unpatented technology and non-competition agreements as a result of the acquisition and consist of the following:
The Goodwill consists of operational synergies that are expected to be realized in both the short and Due to its insignificant size relative to the Company, supplemental pro forma
Royal Acquisition On 50 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Royal Purchase Price Allocation The Royal acquisition was accounted for using the The initial fair values of the net assets acquired were based on a preliminary valuation and the estimates and assumptions were subject to change within the measurement period. In the
Royal Goodwill Assigned Intangible assets totaling $47,150 have been assigned to customer relationships, trade names and trademarks, patented technology and non-competition agreements as a result of the acquisition and consist of the following:
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Goodwill consists of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter into new markets which will enable us to increase value to our customers and shareholders. Key areas of expected cost savings include an expanded dealer network, complementary product portfolios and manufacturing and supply chain work process improvements. NOTE 4 – REVENUE Contract Assets and Liabilities The tables below disclose changes in contract assets and liabilities as of the periods indicated.
As of October 1, 2021, the composition of both reportable segments changed due to an internal reorganization as certain businesses previously managed and reported within FVS are now a part of SV. Corresponding items of segment information for earlier periods have been recast. The aggregate amount of the transaction price allocated to remaining performance obligations in existing contracts that are yet to be completed in the FVS and SV segments are $859,442 and $104,117, respectively, with substantially all revenue expected to be recognized within one year as of December 31, 2021. For performance obligations that are satisfied over time, revenue is expected to be recognized evenly over the time period to complete the contract due to the assembly line nature of the business operations. For performance obligations that are satisfied at a point in time, revenue is expected to be recognized when the customer obtains control of the product, which is generally upon shipment from our facility. No amounts have been excluded from the transaction prices above related to the guidance on constraining estimates of variable consideration. 52 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
NOTE 5 – INVENTORIES
NOTE
Goodwill
We test goodwill for impairment at the reporting unit level on an annual basis as of October 1, or whenever an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. See “Goodwill and Other Intangible Assets” within
As
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
As of October 1, 2021, the composition of both reportable segments changed due to an internal reorganization as certain businesses previously managed and reported within FVS are now a part of SV. Corresponding items of segment
information for earlier periods have been recast.
OtherIntangible Assets At December 31,
We
The following table provides information regarding our other intangible assets:
We recorded $3,405, $3,265, and $1,200 of intangible asset amortization expense during 2021,2020 and 2019.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
The estimated remaining amortization associated with finite-lived intangible assets is expected to be expensed as follows:
NOTE
Property, plant and equipment are summarized by major classifications as follows:
We recorded depreciation expense of
We
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Operating lease expenses are classified as cost of products sold and operating expenses on the Consolidated Statements of Operations. The components of lease expense were as follows:
(1) Includes expenses for The weighted average remaining lease term and
Supplemental cash
Maturities of
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 9 – TAXES ON INCOME Income taxes consist of the following:
Income taxes from continuing operations consist of the following:
Enacted on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act amended certain provisions of the tax code to allow the five-year carryback of tax basis net operating losses (“NOL”) incurred in the years 2018 through 2020. The closing of the sale of the ERV business in 2020 put the Company into a tax basis NOL position for the year as a result of the reversal of deferred tax assets that were recorded in 2019. Under the CARES Act, the Company was able to carry back the NOL to offset taxable income incurred in years prior to 2018 when the federal corporate income tax rate was 35%, as compared to the 21% tax rate at which the deferred tax assets were originally recorded. Based upon current accounting guidance, which requires that the impact of tax law changes be recorded in continuing operations, we recorded a $2,610 tax benefit in continuing operations in 2020 resulting from the rate difference as a component of Income tax expense. 58 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Differences between the expected income tax expense derived from applying the federal statutory income tax rate to earnings from continuing operations before taxes on income and the actual tax expense are as follows:
59 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Temporary differences which give rise to deferred income tax assets (liabilities) are as follows:
Based upon an assessment of the available positive and negative evidence at December 31,
At December 31, 2021
A reconciliation of the change in the unrecognized tax benefits (“UTB”) for the three years ended December 31, 2021,
As of December 31, 2021, 60 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
The significant increase in UTB relates primarily to amounts claimed for the research and development credits. As of December 31,
We also file tax returns in
NOTE
Major customers are defined as those with sales greater than 10 percent of consolidated sales in a given year.
NOTE
At December 31, 2021,
Warranty Related
We provide limited warranties against assembly/construction
Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation.
Changes in our warranty liability during the years ended December 31,
61
THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Spartan-Gimaex Joint Venture In February 2015, the Company and Gimaex Holding, Inc. initiated discussions to dissolve the Spartan-Gimaex joint venture. Further to legal proceedings initiated by the Company to dissolve and liquidate the joint venture, the court appointed the Company as liquidating trustee of the joint venture. As of December 2021, the liquidation is substantially complete, and the Company does not expect any material impact to our future operating results. EPA Information Request In May 2020, the Company received a letter from the United States Environmental Protection Agency ("EPA") requesting certain information as part of an EPA investigation regarding a potential failure to affix emissions labels on vehicles to determine the Company's compliance with applicable laws and regulations. This information request pertains to chassis, vocational vehicles, and vehicles that the Company manufactured or imported into the U.S. between January 1, 2017 to the date the Company received the request in May 2020. The Company responded to the EPA's request and furnished the requested materials in the third quarter of 2020. An estimate of possible penalties or loss, if any, cannot be made at this time. NOTE 12 – DEFINED CONTRIBUTION PLANS We sponsor defined contribution retirement plans which cover all employees who meet length of service and minimum age requirements. Our matching contributions vest over five years and were $2,572, $1,762, and $1,654 in 2021,2020, and 2019. These amounts are expensed as incurred. NOTE
Short-term debt consists of the following:
Chassis Pool Agreements The Company obtains certain vehicle chassis for its walk-in vans, truck bodies and specialty vehicles directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled, nor expects to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2021 and December 31, 2020, the Company’s outstanding chassis converter pool with manufacturers totaled $9,926 and $6,503, respectively, and the Company has included this financing agreement on the Company’s Consolidated Balance Sheets within Other receivables – chassis pool agreements and Short-term debt – chassis pool agreements. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company. The chassis converter pool is a non-cash arrangement and is offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. 62 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Long-term debt consists of the following:
Under the terms of In the year ended December 31, 2021 the Company paid down $22,400 of long-term debt, net of borrowings.
NOTE
We have stock incentive plans covering certain employees and non-employee directors. Shares reserved for stock awards under these plans total
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Restricted Stock
We receive an excess tax benefit or liability during the period the restricted shares vest. The excess tax benefit (liability) is determined by the excess (shortfall) of the market price of the stock on date of vesting over (under) the grant date market price used to amortize the awards to compensation expense. As required, any excess tax benefits or liabilities are reported in the Consolidated Statements of Cash Flows as operating cash flows.
Restricted stock activity for the
The weighted-average grant date fair value of Performance Stock Units During the year ended December 31, 2021, 2020, and 2019, we granted 84,740, 214,299, and 218,148 performance stock units ("PSUs"), respectively, to certain employees, which are earned over a three-year service period. After completion of the performance period, the number of performance units earned will be issued as shares of common stock. The aggregate number of shares of common stock that ultimately may be issued under performance units where the performance period has not been completed can range from 0% to 200% of the target amount. The awards will generally be forfeited if a participant leaves the Company for reasons other than retirement, disability or death. A dividend equivalent is calculated based on the actual number of units earned at the end of the performance period equal to the dividends that would have been payable on the earned units had they been held during the entire performance period as common stock. At the end of the performance period, the dividend equivalents are paid in the form of cash at the discretion of the Human Resources and Compensation Committee.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
30,770, 74,319, and 87,260 of the performance units granted in 46,156, 111,475, and 130,888 of the performance units granted in The fair value of the TSR PSUs granted was calculated using the Monte Carlo simulation model which resulted in the grant date fair value for these TSR PSUs of $57.11 per unit in The Monte Carlo simulation was computed using the following assumptions:
The total PSU expense and associated tax benefit for all outstanding awards for the year ended December 31, 2021 was $3,663 and $310, respectively, for the year ended December 31, 2020 was $2,809 and $369, respectively, and for the year ended December 31, 2019 was $642 and $93, respectively. The PSU activity for the years ended December 31,
65 THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) As of December 31, 2021 there was $4,504 of remaining unrecognized compensation cost related to non-vested PSUs, which is expected to be recognized over a remaining weighted-average period of 1.6 years. Restricted Stock Units During the year ended December 31, 2021, 2020, and 2019, we awarded 110,599 and 194,445, and 182,333, restricted stock units ("RSUs"), respectively, to certain employees and Board members. These RSUs vest ratably over three years after the date of grant for employees and vest one year after date of grant for Board members, at which time the units will be issued as unrestricted shares The RSU expense and associated tax benefit for As of December 31, 2021
The RSU activity for the years ended December 31, 2021, 2020, and 2019, is as follows:
Employee Stock Purchase Plan We instituted an employee stock purchase plan (“ESPP”) beginning on October 1, 2011 whereby essentially all employees who meet certain service requirements can purchase our common stock on quarterly offering dates at
NOTE
THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
The following table represents our purchases of our common stock during the years ended December 31,
In January 2022, we repurchased the remaining 0.4 million shares for $18,884. On February 3, 2022, our Board of Directors authorized an increase in the Company’s quarterly dividend from $0.025 to $0.05 per share payable on or before March 17, 2022, to shareholders of record at the close of business on February 17, 2022. On February 17, 2022, our Board of Directors authorized the repurchase of up to $250,000 of our common stock in open market transactions. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage. Effective as of November 6, 2020, we amended our articles of incorporation to delete any reference to par value with respect to our common stock, which previously had a par value of $0.01 per share. The amendment was approved by our Board of Directors, pursuant to the authority granted it under the Michigan Business Corporation Act. As a result, we reclassified all amounts in Additional paid in capital to Common stock on our Consolidated Balance Sheets. On November 6, 2020, the Company filed a Certificate of Elimination of Series B Preferred Stock (the “Series B Preferred Stock”) with the State of Michigan, thereby removing the Certificate of Designation of such Series B Preferred Stock from the Company’s Restated Articles of Incorporation, as amended. NaN shares of the Series B Preferred Stock were outstanding nor were there any options, warrants, or other rights issued by the Company that could require the issuance of any such shares. The Certificate of Elimination became effective upon filing.
The table below reconciles basic weighted average common shares outstanding to diluted weighted average shares outstanding for
NOTE
We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
As of October 1, 2021, the composition of both reportable segments changed due to an internal reorganization as certain businesses previously managed and reported within FVS are now a
Our
Our
The accounting policies of the segments are the same as those described, or referred to, in
Sales to customers outside the United States were
Sales and other financial information by business segment are as follows:
Year Ended December31,
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Year Ended December31,
Year Ended December31,
69
None.
Evaluation of Disclosure Controls and Procedures.
Management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as Under the supervision of and with the participation of Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of Remediation of Previously Reported Material Weaknesses in As previously disclosed in our Annual Report on Form 10-K for the period ended December 31, 2020, the assessment of the Company’s internal control over financial reporting determined that a material weakness in our internal controls existed as of December 31, 2020, relating to internal controls over certain processes for non-routine divestiture and business combination transactions. Specifically:
These control deficiencies created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis, and therefore, we concluded that the deficiencies represented a material weakness in our internal control over financial reporting, and our internal control over financial reporting was not effective as of December 31, 2020. Throughout 2021, management increased accounting personnel to devote additional time and resources to internal controls over financial reporting to ensure sufficient management review specifically for the preparation, review, and approval of journal entries and account reconciliations at the Charlotte, MI location. Management conducted trainings on internal control over financial reporting for key business unit management and strengthened account reconciliation and journal entry policies and procedures within our Charlotte, MI location. Management evaluated the design, attributes, and precision of the management review controls related to key methodologies, assumptions and inputs used by the third-party specialist with respect to the acquisition valuation and the management review controls related to accounting for the opening balances of assets acquired and liabilities assumed. An acquisition valuation review checklist was implemented that includes specific review attributes to ensure sufficient evidence of review is Throughout fiscal year 2021, the Company completed the testing of the design and operating effectiveness of the new procedures and controls. As a result, as of December 31, 2021, management concluded that the Company had remediated the previously reported material weakness in the internal control over financial reporting. Inherent Limitations on Effectiveness of Controls An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Changes in Internal Control
We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize any impact it may have on their design and operating effectiveness.
None.
Not applicable. 70 PART III
Information regarding our executive officers is included in Part I of this Form 10-K under the heading “Information about our Executive Officers.” The Code of Ethics is available on the "Corporate Responsibility” portion of the Company's website under the "Policies and Charters" link. The Company's website address is www.theshyftgroup.com. |
The information required by this item with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance is contained under the captions “Spartan Motors’ Board of Directors and Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” inincorporated by reference from our definitive proxy statement for our annual meetingthe 2022 Annual Meeting of shareholders to be held on May 23, 2018, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017, and is incorporated herein by reference.Shareholders
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer and principal accounting officer. This Code of Ethics is posted under “Code of Ethics” on our website at www.spartanmotors.com. We have also adopted a Code of Ethics and Compliance applicable to all directors, officers and associates, which is posted under “Code of Conduct” on our website at www.spartanmotors.com. Any waiver from or amendment to a provision of either code will be disclosed on our website.
Item 11. | Executive Compensation. |
The information required by this item is contained under the captions “Executive Compensation,” “Compensation of Directors,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” inincorporated by reference from our definitive proxy statement for our annual meetingthe 2022 Annual Meeting of shareholders to be held on May 23, 2018, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017, and is incorporated herein by reference.Shareholders.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related |
The information required by this item (other than thatas set forth below) is contained under the caption “Ownership of Spartan Motors Stock” inincorporated by reference from our definitive proxy statement for our annual meetingthe 2022 Annual Meeting of shareholders to be held on May 23, 2018, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017, and is incorporated herein by reference.Shareholders
The following table provides information about our equity compensation plans regarding the number of securities to be issued under these plans upon the exercise of outstanding options, the weighted-average exercise prices of options outstanding under these plans, and the number of securities available for future issuance as of December 31, 2017.2021.
Equity Compensation Plan Information
Equity Compensation Plan Information | |||||||||||||
Plan category | Number of securities to exercise options, rights (a) | Weighted average | Number of securities equity compensation plans (excluding securities reflected in column (a)) (4) | ||||||||||
Equity compensation plans approved by security holders (1) | 683,323 | N/A (3) | 1,611,592 | ||||||||||
Equity compensation plans not approved by security holders (2) | - | N/A | 55,144 | ||||||||||
Total | 683,323 | N/A | 1,666,736 |
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(2) | Consists of |
(3) | The number of shares reflected in column (a) in the table above represents shares issuable pursuant to outstanding PSUs and RSUs, for which there is no exercise price. |
(4) | Each of the plans reflected in the above table contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in the |
The numbers of shares reflected in column (c) in the table above with respect to the 2016 Plan |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item is contained under the captions “Transactions with Related Persons” and “Spartan Motors’ Board of Directors and Executive Officers” inincorporated by reference from our definitive proxy statement for our annual meetingthe 2022 Annual Meeting of shareholders to be held on May 23, 2018, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017, and is incorporated herein by reference.
Shareholders.
Item 14. | Principal |
The information required by this item is contained under the caption “Independent Auditor Fees” inabout aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP [PCAOB ID No.34] incorporated by reference from our definitive proxy statement for our annual meetingthe 2022 Annual Meeting of shareholders to be held on May 23, 2018, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2017, and is incorporated herein by reference.Shareholders.
PART IV
Item 15. | Exhibits, Financial Statement Schedules. |
Item 15(a)(1). | List of Financial Statements. |
The following consolidated financial statements of the Company and its subsidiaries,, and reports of our registered independent public accounting firm, are filed as a part of this report under Item 8 - Financial Statements and Supplementary Data:
Independent Registered Public Accounting | ||
Independent Registered Public Accounting Firm’s Report on Consolidated Financial Statements – Years Ended December 31, | ||
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Consolidated Statements of Operations | ||
Consolidated Statements of | ||
Consolidated Statements of Cash Flows | ||
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Notes to Consolidated Financial Statements |