Date dividend declared | (1)Record date
| The line of credit revolver includes estimated interest payments; interest payments on the related variable rate debt were calculated using the effective interest rate of 3.0% at December 31, 2017.
|
| | (2)Payment date
| | Contingent payments are associated with the Smeal acquisition in January, 2017.Dividend per
share ($) | | | Nov. 5, 2021 | | Nov. 6, 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. Critical Accounting Policies and Estimates The following discussion of critical accounting policies and estimates is intended to supplement Note"Note 1 – GeneralNature of Operations and SummaryBasis of Accounting PoliciesPresentation," of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K. These policies were selected because they are broadly applicable within our operating units and they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related statement of income, asset and/or liability amounts. Revenue Recognition Revenue Recognition
We recognize revenue in accordance with authoritative guidelines, including those of the Securities and Exchange Commission (“SEC”). Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. In certain instances, risk of ownership and title passes when the product has been completed in accordance with purchase order specifications and has been tendered for delivery to the customer. On certain customer requested bill and hold transactions, revenue recognition occurs after the customer has been notified that the products have been completed according to the customer specifications, have passedEssentially all of our quality control inspections,revenue is generated through contracts with our customers. We may recognize revenue over time or at a point in time when or as obligations under the terms of a contract with our customer are satisfied, depending on the terms and are ready for delivery. All sales are shown netfeatures of returns, discountsthe contract and sales incentive programs, which historicallythe products supplied. Our contracts generally do not have not been significant.any significant variable consideration. The collectability of any related receivableconsideration on the contract is reasonably assured before revenue is recognized. On certain vehicles, payment may be received in advance of us satisfying our performance obligations. Such payments are recorded in Deposits from customers on the Consolidated Balance Sheets. The corresponding performance obligations are generally satisfied within one year of the contract inception. 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.
Accounts ReceivableRevenue for parts sales for both 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.
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 maintain an allowance for customer accounts that reduces receivables to amounts that arereceive 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 collected. In estimatingincurred in satisfying the allowance for doubtful accounts,obligations under the contract. Business Combinations When acquiring other businesses, we make certain assumptions regardingrecognize 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 riskexcess amount of uncollectable open receivable accounts. This risk factorany consideration transferred, which is applied tomeasured at fair value, over the balance on accounts that are aged over 90 days: generally, this reserve has an estimated range from 10-25%. The risk percentage applied toacquisition date fair values of the aged accountsidentifiable assets acquired and liabilities assumed. Amounts recorded in a business combination may change based onduring the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. Accounting for such as:acquisitions requires us to make significant assumptions and estimates and are adjusted during the measurement period for a period of up to one year after the acquisition date. Costs incurred to effect an acquisition, such as legal, accounting, valuation or other third-party costs, as well as internal general economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts from yearadministrative costs incurred are charged to year. However, generally our assumptions are consistent year-over-year and there has been little adjustment made to the percentages used. In addition,expense in the event there are certain known risk factors with an open account, we may increase the allowance to include estimated losses on such “specific” account balances. The “specific” reserves are identified by a periodic review of the aged accounts receivable. If there is an account in question, credit checks are made and there is communication with the customer, along with other means to try to assess if a specific reserve is required. The inclusion of the “specific” reserve has caused the greatest fluctuation in our allowance for doubtful accounts balance historically. Please see Note 1, General and Summary of Accounting Policies, in the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K and Appendix A included in this Form 10-K for further details and historical view of our allowance for doubtful accounts balance.periods incurred. 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. At December 31, 2017, we had recordedAs of October 1, 2021 the most recent annual goodwill at our Fleet Vehicles and Services, Emergency Response Vehicles and Specialty Chassis and Vehicles reportable segments. Theimpairment assessment date, two reporting units were determined for goodwill impairment testing: Fleet Vehicles and Services and Emergency ResponseSpecialty Vehicles, reportable segments were determined to bewhich is a change from the prior year where three reporting units were determined for goodwill impairment testing, while the reporting unit for the goodwill recorded in the Specialty Chassis and Vehicles segment was determined to be limited to the Reach Manufacturing component of that reportable segment. The goodwill recorded in these reporting units was evaluated for impairment as of October 1, 2017 using a discounted cash flow valuation.
At December 31, 2016, we had recorded goodwill at our testing: Fleet Vehicles and Services, reportable segment, which was also determinedSpecialty Vehicles, and Service Truck Bodies. As we continued integrating the newly acquired DuraMag business with the Royal operations in 2021, further similarities between these two businesses and the other Specialty Vehicles business were identified that allowed us to berun operations with shared manufacturing facilities, engineering resources and capital equipment. As a result, the entirety of goodwill at the former Service Truck Bodies reporting unit forwas combined into the Specialty Vehicles reporting unit. We qualitatively assessed goodwill impairment testing. The goodwill recorded inassigned to the Fleet Vehicles and Services and Specialty Vehicles reporting units and found no indicators of impairment. We completed a quantitative assessment of the Service Truck Bodies reporting unit was evaluated forimmediately before the reporting unit change and a qualitative assessment of the Special Vehicles reporting unit post reorganization and determined that no impairment as of October 1, 2016 using a discounted cash flow valuation.existed.
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 assets, which, as of December 31, 2017, consisted of our Utilimaster and Smeal trade names,assets by comparing the estimated fair value of the trade names with their carrying values. We estimate the fair value of our trade names based on estimates of future royalty payments that are avoided through our ownership of the trade name, discounted to their present value. In determining the estimated fair value of the trade names, we consider current and projected future levels of revenue based on our plans for Utilimaster and Smeal branded products, business trends, prospects and market and economic conditions. 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. In 2017, we elected to bypass the qualitative assessment and proceed to the quantitative goodwill impairment assessment for all of our reporting units. The estimated fair values of these reporting units exceeded their carrying values by 232%, 91% and 62%, respectively, as of October 1, 2017, the most recent annual assessment date. Based on the discounted cash flow valuations at October 1, 2017, an increase in the WACC for the reporting units of 500 basis points would not result in impairment.
The acquired Utilimaster and Smeal trade names have indefinite lives as it is anticipated that they will contribute to our cash flows indefinitely. The estimated fair values of our Utilimaster and Smeal trade names exceeded their associated carrying values of $2.9 million and $2.4 million, respectively, by 545% and 141%, respectively, as of October 1, 2017. Accordingly, there was no impairment recorded on these trade names. Based on the discounted cash flow valuations at October 1, 2017, an increase in the WACC used for these impairment analyses of 500 basis points would not result in impairment in the trade names.
At December 31, 2014, our indefinite lived intangible assets included the Classic Fire trade name. During the quarter ended September 30, 2015, we determined that, based on updated sales forecasts for our Classic line of emergency response vehicles, it was more likely than not that our Classic Fire trade name intangible asset was impaired. Accordingly, we conducted an impairment test by comparing the discounted future cash flows expected to result from our ownership of the trade name with its carrying cost at September 30, 2015. The result of this analysis showed that the carrying cost of the Classic Fire trade name, which was recorded as an asset of our Emergency Response Vehicles segment exceeded its fair value. Accordingly, an impairment charge of $0.6 million was recorded during the three months ended September 30, 2015 to reduce the carrying cost of the trade name to its estimated fair value.
See Note 5,“Note 6 – Goodwill and Intangible Assets,” in the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further details on our goodwill and indefinite-lived intangible assets. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived intangible assets. Such events may include, but are not limited to, the impact of the general economic environment; a material negative change in relationships with significant customers; or strategic decisions made in response to economic and competitive conditions; and other risk factors as detailed in Item 1A “Risk Factors” in this Annual Report on Form 10-K.Warranties
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 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 Note 10,"Note 11 – Commitments and Contingent Liabilities," in the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further information regarding warranties. 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,, which include state tax credit carryforwards, operating loss carryforwards and deductible temporary differences, be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. 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. 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 Note"Note 1, – GeneralNature of Operations and SummaryBasis of Accounting PoliciesPresentation," in the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K. Effect of Inflation
Inflation affects us in two principal ways. First, our revolving credit agreement is generally tied to the prime 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 prices of our products. However, we generally do not attempt to negotiate inflation-based price adjustment provisions into our contracts. Since order lead times can be as much as nine months, we have limited ability to pass on cost increases to our customers on a short-term basis. In addition, the markets 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 inflation through cost reductions and improved productivity.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Our primaryInterest Rate Risk
We are exposed to market risk exposure is a changerisks related to changes in interest rates and the effect of such a change on outstanding variable rate short-term and long-term debt. At December 31, 2017,2021, we had $17.8 million inno debt outstanding under our variable rate short-term and long-term debt agreements.revolving line of credit agreement. An increase of 100 basis points in interest rates would result in no additional interest expense of $0.2 million on an annualized basis for the floating rate debt that we incurred in January 2017 for the acquisition of Smeal.basis. We believe that we have sufficient financial resources to accommodate this hypothetical increase in interest rates. We do not enter into market-risk-sensitive instruments for trading or other purposes. 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, and interest rate relationships and commodity costs are primarily determined by market factors that are beyond our control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned “Forward-Looking Statements” before Part I of this Annual Report on Form 10-K for a discussion of the limitations on our responsibility for such statements. Item 8. | Financial Statements and Supplementary Data. |
Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders Spartan Motors, of The Shyft Group, Inc.
Charlotte, Michigan
OpinionOpinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetssheet of Spartan Motors,The Shyft Group, Inc. (the “Company”) and subsidiaries (the "Company") as of December 31, 2017 and 2016,2021, the related consolidated statements of operations, shareholders’shareholders' equity, and cash flows, for each of the three years in the periodyear ended December 31, 2017,2021, and the related notes and financial statementthe schedule as listed in the accompanying index inIndex at Item 15(a)(2) of this Form 10-K15 (collectively referred to as the “consolidated"financial statements"). We also have audited the Company’s internal control over financial statements”)reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries atas of December 31, 2017 and 2016,2021 and the results of theirits operations and theirits cash flows for each of the three years in the periodyear ended December 31, 2017,2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, Also, in accordance withour opinion, the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'smaintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021 based on criteria established in Internal Control –— Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2018 expressed an unqualified opinion thereon.COSO.
Basis for OpinionOpinions These consolidatedThe Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s consolidatedinternal control over financial statementsreporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(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.fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our auditsaudit of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatto respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /S/ BDO USA, LLP
We have served as the Company's auditor since 2007.
Grand Rapids, MI
March 1, 2018
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Spartan Motors, Inc.
Charlotte, Michigan
Opinion on Internal Control over Financial Reporting
We have audited Spartan Motors, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedules and our report dated March 1, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.
opinions. Definition and Limitations of Internal Control over Financial Reporting A company’scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting 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 necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 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. 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
– Internal communications to management and the Board of Directors.
– Forecasted information included in Company press releases, analyst and industry reports of the Company and companies in its peer group. • 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.
– developing a range of independent estimates and compared those to the rate used by management. /S/s/ Deloitte & Touche LLP Detroit, Michigan
February 24, 2022 We have served as the Company's auditor since 2021. 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP We served as the Company’s auditor from 2007 to 2020. Grand Rapids, MIMichigan March 1, 201825, 2021, except for Notes 4, 6 and 17, as to which the date is February 24, 2022 SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)thousands) | | | December 31, | | | December 31, | | | December 31, | | December 31, | | | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | ASSETS | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | Cash and cash equivalents | | $ | 33,523 | | | $ | 32,041 | | | $ | 37,158 | | | $ | 20,995 | | Accounts receivable, less allowance of $139 and $487 | | | 83,147 | | | | 65,441 | | | Accounts receivable, less allowance of $187 and $116 | | | 87,262 | | | 64,695 | | Contract assets | | | 21,483 | | | 9,414 | | Inventories | | | 77,692 | | | | 58,896 | | | 67,184 | | | 46,428 | | Income taxes receivable | | | - | | | | 1,287 | | | Other receivables – chassis pool agreements | | | 9,926 | | | 6,503 | | Other current assets | | | 4,425 | | | | 4,526 | | | | 10,813 | | | | 8,172 | | Total current assets | | | 198,787 | | | | 162,191 | | | 233,826 | | | 156,207 | | | | | | | | | | | | | Property, plant and equipment, net | | | 55,177 | | | | 53,116 | | | 61,057 | | | 45,734 | | Right of use assets – operating leases | | | 43,316 | | | 43,430 | | Goodwill | | | 27,417 | | | | 15,961 | | | 48,880 | | | 49,481 | | Intangible assets, net | | | 9,427 | | | | 6,385 | | | 52,981 | | | 56,386 | | Other assets | | | 3,072 | | | | 2,331 | | | 2,927 | | | 2,052 | | Net deferred tax asset | | | 7,284 | | | | 3,310 | | | Net deferred tax assets | | | | 4,880 | | | | 5,759 | | TOTAL ASSETS | | $ | 301,164 | | | $ | 243,294 | | | $ | 447,867 | | | $ | 359,049 | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | Accounts payable | | $ | 40,643 | | | $ | 31,336 | | | $ | 82,442 | | | $ | 47,487 | | Accrued warranty | | | 18,268 | | | | 19,334 | | | 5,975 | | | 5,633 | | Accrued compensation and related taxes | | | 13,264 | | | | 13,188 | | | 19,064 | | | 17,134 | | Deposits from customers | | | 25,422 | | | | 16,142 | | | 988 | | | 756 | | Operating lease liability | | | 7,934 | | | 7,508 | | Other current liabilities and accrued expenses | | | 12,071 | | | | 7,659 | | | 9,256 | | | 8,121 | | Short-term debt – chassis pool agreements | | | 9,926 | | | 6,503 | | Current portion of long-term debt | | | 64 | | | | 65 | | | | 252 | | | | 221 | | Total current liabilities | | | 109,732 | | | | 87,724 | | | 135,837 | | | 93,363 | | | | | | | | | | | | | Other non-current liabilities | | | 5,238 | | | | 2,544 | | | 8,108 | | | 5,447 | | Long-term operating lease liability | | | 36,329 | | | 36,662 | | Long-term debt, less current portion | | | 17,925 | | | | 74 | | | | 738 | | | | 23,418 | | Total liabilities | | | 132,895 | | | | 90,342 | | | 181,012 | | | 158,890 | | Commitments and contingencies | | | | | | | | | | Commitments and contingent liabilities | | | | | | | | | | Shareholders' equity: | | | | | | | | | | | | | Preferred stock, no par value: 2,000 shares authorized (none issued) | | | - | | | | - | | | Common stock, $0.01 par value; 80,000 shares authorized; 35,097 and 34,383 outstanding | | | 351 | | | | 344 | | | Additional paid in capital | | | 79,721 | | | | 76,837 | | | Preferred stock, no par value: 2,000 shares authorized (none issued) | | | 0 | | | 0 | | Common stock, no par value: 80,000 shares authorized; 35,416 and 35,344 outstanding | | | 95,375 | | | 91,044 | | Retained earnings | | | 88,855 | | | | 76,428 | | | | 171,379 | | | | 109,286 | | Total Spartan Motors, Inc. shareholders’ equity | | | 168,927 | | | | 153,609 | | | Total Shyft Group, Inc. shareholders’ equity | | | 266,754 | | | 200,330 | | Non-controlling interest | | | (658 | ) | | | (657 | ) | | | 101 | | | | (171 | ) | Total shareholders' equity | | | 168,269 | | | | 152,952 | | | | 266,855 | | | | 200,159 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 301,164 | | | $ | 243,294 | | | $ | 447,867 | | | $ | 359,049 | |
See accompanying Notes to Consolidated Financial Statements. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSOPERATIONS
(In thousands, except per share data) | | | Year Ended December 31, | | | Year Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | Sales | | $ | 707,098 | | | $ | 590,777 | | | $ | 550,414 | | | $ | 991,792 | | | $ | 675,973 | | | $ | 756,542 | | Cost of products sold | | | 617,655 | | | | 518,113 | | | | 502,783 | | | | 792,527 | | | | 529,696 | | | | 639,515 | | Restructuring charges | | | 208 | | | | 136 | | | | 519 | | | Gross profit | | | 89,235 | | | | 72,528 | | | | 47,112 | | | | 199,265 | | | | 146,277 | | | | 117,027 | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | Research and development | | | 6,523 | | | | 6,772 | | | | 4,560 | | | 8,541 | | | 4,361 | | | 4,864 | | Selling, general and administrative | | | 65,497 | | | | 56,172 | | | | 52,695 | | | | 106,672 | | | | 93,068 | | | | 64,549 | | Restructuring charges | | | 1,044 | | | | 959 | | | | 2,336 | | | Total operating expenses | | | 73,064 | | | | 63,903 | | | | 59,591 | | | | 115,213 | | | | 97,429 | | | | 69,413 | | | | | | | | | | | | | | | | | Operating income (loss) | | | 16,171 | | | | 8,625 | | | | (12,479 | ) | | Operating income | | | | 84,052 | | | | 48,848 | | | | 47,614 | | | | | | Other income (expense): | | | | | | | | | | | | | | Interest expense | | | (864 | ) | | | (410 | ) | | | (365 | ) | | (414 | ) | | (1,293 | ) | | (1,839 | ) | Interest and other income | | | 717 | | �� | | 488 | | | | 244 | | | | 842 | | | | 601 | | | | 1,370 | | | | | | | | | | | | | | Total other income (expense) | | | (147 | ) | | | 78 | | | | (121 | ) | | 428 | | | (692 | ) | | (469 | ) | | | | | | | | | | | | | | | | Income (loss) before taxes | | | 16,024 | | | | 8,703 | | | | (12,600 | ) | | Income from continuing operations before income taxes | | | 84,480 | | | 48,156 | | | 47,145 | | Income tax expense | | | | 14,506 | | | | 9,867 | | | | 10,355 | | Income from continuing operations | | | 69,974 | | | 38,289 | | | 36,790 | | Income (loss) from discontinued operations, net of income taxes | | | | 181 | | | | (5,123 | ) | | | (49,216 | ) | Net income (loss) | | | 70,155 | | | 33,166 | | | (12,426 | ) | Less: net income attributable to non-controlling interest | | | | 1,230 | | | | 347 | | | | 140 | | | | | | | | | | | | | | | | | Income tax expense | | | 90 | | | | 100 | | | | 4,880 | | | Net income (loss) attributable to Shyft Group, Inc. | | | $ | 68,925 | | | $ | 32,819 | | | $ | (12,566 | ) | | | | | | | | | | | | | | | | Net earnings (loss) | | | 15,934 | | | | 8,603 | | | | (17,480 | ) | | | | | | | | | | | | | | | | | Less: net loss attributable to non-controlling interest | | | (1 | ) | | | (7 | ) | | | (508 | ) | | | | | | | | | | | | | | | | | Net earnings (loss) attributable to Spartan Motors, Inc. | | $ | 15,935 | | | $ | 8,610 | | | $ | (16,972 | ) | | | | | | | | | | | | | | | | | Basic net earnings (loss) per share | | $ | 0.46 | | | $ | 0.25 | | | $ | (0.50 | ) | | | | | | | | | | | | | | | | | Diluted net earnings (loss) per share | | $ | 0.46 | | | $ | 0.25 | | | $ | (0.50 | ) | | Basic earnings (loss) per share | | | | | | | | Continuing operations | | | $ | 1.94 | | | $ | 1.07 | | | $ | 1.03 | | Discontinued operations | | | | 0.01 | | | | (0.14 | ) | | | (1.39 | ) | Basic earnings per share | | | $ | 1.95 | | | $ | 0.93 | | | $ | (0.36 | ) | Diluted earnings (loss) per share | | | | | | | | Continuing operations | | | $ | 1.91 | | | $ | 1.05 | | | $ | 1.03 | | Discontinued operations | | | | 0 | | | | (0.14 | ) | | | (1.39 | ) | Diluted earnings per share | | | $ | 1.91 | | | $ | 0.91 | | | $ | (0.36 | ) | | | | | | | | | | | | | | | | Basic weighted average common shares outstanding | | | 34,949 | | | | 34,405 | | | | 33,826 | | | | 35,333 | | | | 35,479 | | | | 35,318 | | | | | | | | | | | | | | | | | Diluted weighted average common shares outstanding | | | 34,949 | | | | 34,405 | | | | 33,826 | | | | 36,097 | | | | 36,039 | | | | 35,416 | |
See accompanying Notes to Consolidated Financial Statements THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands, except per share data) | | | Number of Shares | | | Common Stock | | | Additional Paid In Capital | | | Retained Earnings | | | Non- Controlling Interest | | | Total Shareholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2019 | | | 35,321 | | | | 353 | | | | 82,816 | | | | 103,571 | | | | (658 | ) | | | 186,082 | | Transition adjustment for adoption of new lease standard | | | 0 | | | | 0 | | | | 0 | | | | (113 | ) | | | 0 | | | | (113 | ) | Balance at January 1, 2019, Adjusted | | | 35,321 | | | | 353 | | | | 82,816 | | | | 103,458 | | | | (658 | ) | | | 185,969 | | Issuance of common stock and tax impact of stock incentive plan | | | 28 | | | | 0 | | | | (766 | ) | | | - | | | | - | | | | (766 | ) | Dividends declared ($0.10 per share) | | | - | | | | - | | | | 0 | | | | (3,572 | ) | | | - | | | | (3,572 | ) | Purchase and retirement of common stock | | | (101 | ) | | | (1 | ) | | | (236 | ) | | | (556 | ) | | | - | | | | (793 | ) | Cancellation of common stock related to investment in subsidiary | | | - | | | | 0 | | | | (1,946 | ) | | | 0 | | | | 0 | | | | (1,946 | ) | Issuance of restricted stock, net of cancellation | | | 96 | | | | 1 | | | | (1 | ) | | | 0 | | | | 0 | | | | 0 | | Stock-based compensation expense | | | - | | | | 0 | | | | 5,281 | | | | 0 | | | | 0 | | | | 5,281 | | Net income (loss) | | | - | | | | - | | | | 0 | | | | (12,566 | ) | | | 140 | | | | (12,426 | ) | Balance at December 31, 2019 | | | 35,344 | | | $ | 353 | | | $ | 85,148 | | | $ | 86,764 | | | $ | (518 | ) | | $ | 171,747 | | Issuance of common stock and tax impact of stock incentive plan | | | 14 | | | | 0 | | | | (1,534 | ) | | | - | | | | - | | | | (1,534 | ) | Dividends declared ($0.10 per share) | | | - | | | | - | | | | 0 | | | | (3,565 | ) | | | - | | | | (3,565 | ) | Purchase and retirement of common stock | | | (300 | ) | | | (3 | ) | | | (768 | ) | | | (6,732 | ) | | | 0 | | | | (7,503 | ) | Issuance of restricted stock, net of cancellation | | | 286 | | | | 2 | | | | (2 | ) | | | 0 | | | | 0 | | | | 0 | | Stock-based compensation expense | | | - | | | | 0 | | | | 7,848 | | | | 0 | | | | 0 | | | | 7,848 | | | Reclassification upon removal of par value on common stock | | | - | | | | 90,692 | | | | (90,692 | ) | | | 0 | | | | 0 | | | | 0 | | Net income | | | - | | | | - | | | | 0 | | | | 32,819 | | | | 347 | | | | 33,166 | | Balance at December 31, 2020 | | | 35,344 | | | $ | 91,044 | | | $ | 0 | | | $ | 109,286 | | | $ | (171 | ) | | $ | 200,159 | | Issuance of common stock and tax impact of stock incentive plan | | | 11 | | | | (2,950 | ) | | | 0 | | | | - | | | | - | | | | (2,950 | ) | Dividends declared ($0.10 per share) | | | - | | | | - | | | | 0 | | | | (3,744 | ) | | | - | | | | (3,744 | ) | Purchase and retirement of common stock | | | (100) | | | | (260 | ) | | | 0 | | | | (3,088 | ) | | | 0 | | | | (3,348 | ) | | Purchase of non-controlling interest | | | - | | | | (1,204 | ) | | | 0 | | | | 0 | | | | (958 | ) | | | (2,162 | ) | Issuance of restricted stock, net of cancellation | | | 161 | | | | - | | | | 0 | | | | - | | | | - | | | | - | | Stock-based compensation expense | | | - | | | | 8,745 | | | | 0 | | | | 0 | | | | 0 | | | | 8,745 | | Net income | | | - | | | | - | | | | 0 | | | | 68,925 | | | | 1,230 | | | | 70,155 | | Balance at December 31, 2021 | | | 35,416 | | | $ | 95,375 | | | $ | 0 | | | $ | 171,379 | | | $ | 101 | | | $ | 266,855 | |
See accompanying Notes to Consolidated Financial Statements. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, CASH FLOWS2017, 2016and 2015
(In thousands, except per share data)thousands) | | | Number of | | | Common | | | Additional | | | Retained | | | Non-Controlling | | | Total Shareholders' | | | | | Shares | | | Stock | | | Paid In Capital | | | Earnings | | | Interest | | | Equity | | Balance at December 31, 2014 | | | 34,094 | | | $ | 341 | | | $ | 75,695 | | | $ | 92,724 | | | $ | (142 | ) | | $ | 168,618 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock and the tax impact of stock incentive plan transactions | | | 13 | | | | - | | | | (419 | ) | | | - | | | | - | | | | (419 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($0.10 per share) | | | - | | | | - | | | | - | | | | (3,426 | ) | | | - | | | | (3,426 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of cancellation | | | 164 | | | | 2 | | | | (2 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation expense related to restricted stock | | | - | | | | - | | | | 1,198 | | | | - | | | | - | | | | 1,198 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | (16,972 | ) | | | (508 | ) | | | (17,480 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | | | 34,271 | | | | 343 | | | | 76,472 | | | | 72,326 | | | | (650 | ) | | | 148,491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock and the tax impact of stock incentive plan transactions | | | 16 | | | | - | | | | (234 | ) | | | - | | | | - | | | | (234 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($0.10 per share) | | | - | | | | - | | | | - | | | | (3,444 | ) | | | - | | | | (3,444 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase and retirement of common stock | | | (422 | ) | | | (4 | ) | | | (932 | ) | | | (1,064 | ) | | | - | | | | (2,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of cancellation | | | 518 | | | | 5 | | | | (5 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation expense related to restricted stock | | | - | | | | - | | | | 1,536 | | | | - | | | | - | | | | 1,536 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) | | | - | | | | - | | | | - | | | | 8,610 | | | | (7 | ) | | | 8,603 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | | 34,383 | | | | 344 | | | | 76,837 | | | | 76,428 | | | | (657 | ) | | | 152,952 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock related to stock incentive plan transactions | | | 29 | | | | - | | | | (645 | ) | | | - | | | | - | | | | (645 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($0.10 per share) | | | - | | | | - | | | | - | | | | (3,508 | ) | | | - | | | | (3,508 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of cancellation | | | 685 | | | | 7 | | | | (7 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation expense related to restricted stock | | | - | | | | - | | | | 3,536 | | | | - | | | | - | | | | 3,536 | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) | | | - | | | | - | | | | - | | | | 15,935 | | | | (1 | ) | | | 15,934 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | 35,097 | | | $ | 351 | | | $ | 79,721 | | | $ | 88,855 | | | $ | (658 | ) | | $ | 168,269 | |
| | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | Cash flows from operating activities: | | | | | | | | | | | | | Net income (loss) | | $ | 70,155 | | | $ | 33,166 | | | $ | (12,426 | ) | Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | | | | | | | | | Depreciation and amortization | | | 11,356 | | | | 14,187 | | | | 11,180 | | Deferred income taxes | | | 880 | | | | 19,790 | | | | (18,225 | ) | Non-cash stock based compensation expense | | | 8,745 | | | | 7,848 | | | | 5,281 | | Loss on sale of business | | | 0 | | | | 3,852 | | | | 0 | | Loss (gain) on disposal of assets | | | (110) | | | | 82 | | | | (14 | ) | Loss from write-off of construction in process | | | 0 | | | | 2,430 | | | | 0 | | Impairment of goodwill and intangible assets | | | 0 | | | | 0 | | | | 13,856 | | Impairment of assets held for sale | | | 0 | | | | 0 | | | | 39,275 | | Changes in fair value of contingent consideration | | | 0 | | | | (599 | ) | | | 0 | | Changes in accounts receivable and contract assets | | | (34,522 | ) | | | (6,037 | ) | | | 12,700 | | Changes in inventories | | | (20,756 | ) | | | 12,834 | | | | (14,783 | ) | Changes in accounts payable | | | 34,954 | | | | (10,674 | ) | | | (20,404 | ) | Changes in accrued compensation and related taxes | | | 1,930 | | | | 971 | | | | 7,737 | | Changes in accrued warranty | | | 53 | | | | (60 | ) | | | 853 | | Changes in other assets and liabilities | | | 1,324 | | | | (13,458 | ) | | | 9,151 | | Net cash provided by operating activities | | | 74,009 | | | | 64,332 | | | | 34,181 | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (23,002 | ) | | | (14,534 | ) | | | (10,042 | ) | Proceeds from sale of property, plant and equipment | | | 22 | | | | 0 | | | | 15 | | Acquisition of businesses, net of cash acquired | | | 904 | | | | (18,050 | ) | | | (88,938 | ) | Proceeds from sale of business | | | 0 | | | | 47,500 | | | | 0 | | Net cash provided by (used in) investing activities | | | (22,076 | ) | | | 14,916 | | | | (98,965 | ) | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Proceeds from long-term debt | | | 45,000 | | | | 16,000 | | | | 92,000 | | Payments on long-term debt | | | (67,400 | ) | | | (81,000 | ) | | | (30,175 | ) | | Payments of debt issuance costs | | | (1,360 | ) | | | 0 | | | | 0 | | Payments of dividends | | | (3,551 | ) | | | (3,565 | ) | | | (3,572 | ) | Purchase and retirement of common stock | | | (3,348 | ) | | | (7,503 | ) | | | (793 | ) | Exercise and vesting of stock incentive awards | | | (2,949 | ) | | | (1,534 | ) | | | (766 | ) | | Purchase of non-controlling interest | | | (2,162 | ) | | | 0 | | | | 0 | | Net cash provided by (used in) financing activities | | | (35,770 | ) | | | (77,602 | ) | | | 56,694 | | | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 16,163 | | | | 1,646 | | | | (8,090 | ) | Cash and cash equivalents at beginning of year | | | 20,995 | | | | 19,349 | | | | 27,439 | | Cash and cash equivalents at end of year | | $ | 37,158 | | | $ | 20,995 | | | $ | 19,349 | |
Note: Consolidated Statements of Cash Flows include continuing operations and discontinued operations for all years presented. See accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Year Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | Cash flows from operating activities: | | | | | | | | | | | | | Net earnings (loss) | | $ | 15,934 | | | $ | 8,603 | | | $ | (17,480 | ) | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities | | | | | | | | | | | | | Depreciation and amortization | | | 9,937 | | | | 7,903 | | | | 7,437 | | Gain on disposal of assets | | | (13 | ) | | | (13 | ) | | | (24 | ) | Impairment of assets | | | - | | | | 406 | | | | 2,234 | | Accruals for warranty | | | 9,099 | | | | 12,989 | | | | 15,388 | | Deferred income taxes | | | (3,974 | ) | | | (2,666 | ) | | | 5,147 | | Stock based compensation related to stock awards | | | 3,536 | | | | 1,536 | | | | 1,198 | | | Decrease (increase) in operating assets, net of effects of acquisition: | | | | | | | | | | | | | Accounts receivable | | | (18,576 | ) | | | (8,824 | ) | | | (8,255 | ) | Inventories | | | 42,920 | | | | 1,662 | | | | 10,605 | | Income taxes receivable | | | 1,287 | | | | 468 | | | | (59 | ) | Other assets | | | 851 | | | | (1,020 | ) | | | 155 | | Increase (decrease) in operating liabilities, net of effects of acquisition: | | | | | | | | | | | | | Accounts payable | | | 5,366 | | | | 4,018 | | | | 4,556 | | Cash paid for warranty repairs | | | (13,854 | ) | | | (10,265 | ) | | | (8,015 | ) | Accrued compensation and related taxes | | | (1,530 | ) | | | 4,504 | | | | 458 | | Deposits from customers | | | (33,648 | ) | | | 3,047 | | | | 1,571 | | Payment of contingent consideration on acquisitions | | | - | | | | - | | | | (1,338 | ) | Other current liabilities and accrued expenses | | | 240 | | | | 1,056 | | | | (707 | ) | Other long-term liabilities | | | 1,725 | | | | - | | | | - | | Taxes on income | | | 2,716 | | | | (76 | ) | | | (15 | ) | Total adjustments | | | 6,082 | | | | 14,725 | | | | 30,336 | | Net cash provided by operating activities | | | 22,016 | | | | 23,328 | | | | 12,856 | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (5,340 | ) | | | (13,410 | ) | | | (4,895 | ) | Proceeds from sale of property, plant and equipment | | | 13 | | | | 25 | | | | 208 | | Acquisition of business, net of cash acquired | | | (28,903 | ) | | | - | | | | - | | Net cash used in investing activities | | | (34,230 | ) | | | (13,385 | ) | | | (4,687 | ) | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Borrowings under credit facilities | | | - | | | | - | | | | 15,244 | | Payments on credit facilities | | | - | | | | - | | | | (15,244 | ) | Proceeds from long-term debt | | | 32,919 | | | | 10 | | | | - | | Payments on long-term debt | | | (15,070 | ) | | | (5,058 | ) | | | (75 | ) | Payment of contingent consideration on acquisitions | | | - | | | | - | | | | (162 | ) | Purchase and retirement of common stock | | | - | | | | (2,000 | ) | | | - | | Net cash used in the exercise, vesting or cancellation of stock incentive awards | | | (645 | ) | | | (111 | ) | | | (375 | ) | Payment of dividends | | | (3,508 | ) | | | (3,444 | ) | | | (3,426 | ) | Net cash provided by (used in) financing activities | | | 13,696 | | | | (10,603 | ) | | | (4,038 | ) | | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 1,482 | | | | (660 | ) | | | 4,131 | | Cash and cash equivalents at beginning of year | | | 32,041 | | | | 32,701 | | | | 28,570 | | Cash and cash equivalents at end of year | | $ | 33,523 | | | $ | 32,041 | | | $ | 32,701 | |
See accompanying Notes to Consolidated Financial Statements.
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 1 - GENERAL– NATURE OF OPERATIONS AND SUMMARYBASIS OF ACCOUNTING POLICIESPRESENTATION Nature of Operations. Spartan Motors, Inc. (theAs used herein, the term “Company”, “we”, “us” or “us”) is“our” refers to The Shyft Group, Inc. and its subsidiaries unless designated or identified otherwise.
Nature of Operations We are a custom engineerniche market leader in specialty vehicle manufacturing and manufacturer of specializedassembly 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 mobile retail and utility trades, service and vocational truck bodies, luxury Class A diesel motor vehiclehome chassis and bodies.contract manufacturing and assembly services. We have various subsidiariesalso supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that are manufacturers of bodies for various markets including fleet vehicles and emergency response vehicles. Our principal chassis markets are emergency response vehicles, motor homes and other specialty vehicles. we manufacture as well as truck accessories. COVID-19 Pandemic On January 1, 2017,March 11, 2020, Spartan USA acquired substantiallythe 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 assetsimpacts from COVID-19 and certain liabilitiesrelated responses continue to evolve within our global supply chain and customer base. The Company is taking a variety of Smeal Fire Apparatus Co., Smeal Properties, Inc., Ladder Tower Co.,measures to maintain operations with as minimal impact as possible to promote the safety and U.S. Tanker Co. When used in this Annual Reportsecurity of our employees, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on Form 10-K, “Smeal” refersvisitor access to the assets, liabilities, and operations acquired from such entities. facilities. The assets acquired consistfull impact 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 operating activities are conducted through our wholly-owned operating subsidiary, Spartan Motors USA, Inc. (“Spartan USA”), with locations in Charlotte, Michigan; Brandon, South Dakota; Snyder and Neligh, Nebraska; Delavan, Wisconsin; Ephrata, Pennsylvania; Bristol, Indiana; Kansas City, Missouri; and Saltillo, Mexico.
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, Missouri and Saltillo, Mexico locations sell and install equipment used in fleet vehicles. Our Brandon, South Dakota, Snyder and Neligh, Nebraska, Delavan, Wisconsin and Ephrata, Pennsylvania locations manufacture emergency response vehicles under the Spartan, Smeal, US Tanker and Ladder Tower Company brand names. Our Charlotte, Michigan location manufactures heavy duty chassis and vehicles and supplies aftermarket parts and accessories under the Spartan Chassis and Spartan brand names. Spartan USA is also a participant in Spartan-Gimaex Innovations, LLC (“Spartan-Gimaex”), a COVID-50/5019 joint venture with Gimaex Holding, Inc. that was formedoutbreak continues 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 determinedevolve as of the date of this Form filing. 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-1019-K. 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.
Principles of Consolidation. The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiary, Spartan USA.The Shyft Group USA, Inc. and its subsidiaries. All intercompanyinter-company transactions have been eliminated.
Non-Controlling Interest Interest.At December 31, 2021, 2017, SpartanThe Shyft Group USA, Inc. held a 50% share in Spartan-Gimaex, however, due to the management and operational structure of the joint venture, SpartanThe Shyft Group USA, Inc. was considered to have had the ability to control the operations of Spartan-Gimaex. Accordingly, Spartan-Gimaex is reported as a consolidated subsidiary of Spartan Motors,The Shyft Group, Inc., within The joint venture is not currently active and the Emergency Response Vehicles segment.liquidation is substantially complete. In December 2021, the Company purchased the remaining 20% ownership interest in Strobes-R-Us ("SRUS") for $2,162 and, thus, there was 0 non-controlling interest in SRUS as of 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. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Revenue Recognition. We recognize revenue in accordance with Accounting Standards Codification Topic (“ASC”) 605. Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. In certain instances, risk of ownership and title passes when the product has been completed in accordance with purchase order specifications and has been tendered for delivery to the customer. On certain customer requested bill and hold transactions, revenue recognition occurs prior to the products being delivered to the buyer. We enter into such transactions when there is a valid business reason and the buyer has committed to the purchase. At the time revenue is recognized, the customer has been notified that the products have been completed according to their specifications, the products have passedEssentially all of our quality control inspectionsrevenue is generated through contracts with our customers. We may recognize revenue over time or at a point in time when or as obligations under the terms of a contract with our customer are satisfied, depending on the terms and are ready for deliveryfeatures of the contract and the customer has accepted all of the risks of ownership. All sales are shown net of returns, discounts and sales incentive programs, which historically haveproducts supplied. Our contracts generally do not been significant. Rebates for certain product sales, which are known and accrued at time of sale, are reflected as a reduction of revenue. Service revenue is immaterial at less than one percent of total sales.have any significant variable consideration. The collectability of any related receivableconsideration on the contract is reasonably assured before revenue is recognized. On certain vehicles, payment may be received in advance of us satisfying our performance obligations. Such payments are recorded in Deposits from customers on the Consolidated Balance Sheets. The corresponding performance obligations are generally satisfied within one year of the contract inception. In such cases, we have elected to apply the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. The financing impact on contracts that contain performance obligations that are not expected to be satisfied within one year are expected to be immaterial to our consolidated financial statements. 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. 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. Acquisition gain, when recognizable,Amounts recorded in a business combination may change during the measurement period, which is measureda period not to exceed one year from the date of acquisition, as the excess ofadditional information about conditions existing at the acquisition date fair values of the identifiable assets acquired and liabilities assumed over the acquisition date fair value of any consideration transferred.becomes available. Accounting for such acquisitions requires us to make significant assumptions and estimates and although we believe any estimates and assumptions we make are reasonable and appropriate atadjusted during the time they are made, unanticipated events and circumstances may arise that affect their accuracy, which may cause actual results to differ from those estimated by us. When necessary, we will adjust the values of the assets acquired and liabilities assumed against the goodwill or acquisition gain, as initially recorded,measurement period for a period of up to one year after the acquisition date. 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 makes certain assumptions regardingconsiders relevant information about past events, current conditions and reasonable and supportable forecasts that affect the riskcollectability of uncollectable open receivable accounts. This risk factor is applied to the balance on accounts that are aged over 90 days: generally, this reserve has an estimated range from 10-25%. The risk percentage applied to the aged accounts may change based on conditions such as: general economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts from year to year. However, generally our assumptions are consistent year-over-year and there has been little adjustment made to the percentages used. In addition, in the event there are certain known risk factors with an open account, we may increase the allowance to include estimated losses on such “specific” account balances. The “specific” reserves are identified by a periodic review of the aged accounts receivable. If there is an account in question, credit checks are made and there is communication with the customer, along with other means to try to assess if a specific reserve is required. The inclusion of the “specific” reserve has caused the greatest fluctuation in the allowance for doubtful accounts balance historically. Past due accounts are written off when collectability is determined to be no longer assured.financial assets.
Inventories are stated at the lower of first-in, first-out cost or net realizable value. Estimated inventory allowances forNet realizable value is the estimated selling price in the ordinary course of business less cost to sell and considers our current assessment of general market and economic conditions, slow-moving inventory, are based upon current assessments aboutand future demands, market conditions and related management initiatives. If market conditions are less favorable than those projected by management, additional inventory allowances may be required.demands. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
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, 3three to 15 years for plant machinery and equipment, 3three to 7seven years for furniture and fixtures and 3three to 5five years for vehicles. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repair costs are charged to earnings, while expenditures that increase asset lives are capitalized. We review our property, plant and equipment, along with all other long-lived assets that have finite lives, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Assets held-for-sale are recorded at the lower of historical depreciated cost or the estimated fair value less costs to sell. See Note"Note 6,7 –Property,, Plant and Equipment" for further information on our property and equipment. Related Party Transactions.
Assets and Liabilities Held for Sale We purchase certain components usedclassify assets and liabilities (disposal groups) to be sold as held for sale in the manufactureperiod in which all of our products from partiesthe following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject only to terms that could be considered relatedare usual and customary for sales of such disposal groups; an active program to us becauselocate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or morecircumstances beyond the Company's control extend the period of our executive officerstime required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or board membersthat the plan will be withdrawn. We initially measure a disposal group that is alsoclassified as held for sale at the lower of its carrying value or fair value less costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. We assess the fair value of a disposal group each reporting period it remains classified as held for sale and any subsequent changes are reported as an executive officer or board memberadjustment to the carrying value of the related party. See Notedisposal group, as long as the new carrying value does 17,not Related Party Transactions,exceed the carrying value of the disposal group at the time it was initially classified as held for more information regarding our transactions with related parties.sale. 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. 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. IfIf we elect to bypass the qualitative assessment for a reporting unit, or if after completing the assessment we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test, whereby we compare 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 estimated fair value, an impairment loss is recognized in an amount equal to the excess, up to the carrying value of the goodwill.
We evaluate the recoverability of our indefinite lived intangible assets, which consistassets by comparing the estimated fair value of the trade names with their carrying values. We estimate the fair value of our Utilimaster and Smeal trade names based on estimates of future royalty payments that are avoided through our ownership of the trade names,name, discounted to their present value. In determining the estimated fair value of the trade names, we consider current and projected future levels of revenuesales based on our plans for Utilimaster and Smeal,those branded products, business trends, prospects and market and economic conditions. 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 Note “Note 5,2– Discontinued Operations”for further details on our goodwill and indefinite-lived intangible assets related to the ERV business. See “Note 6– Goodwill and Intangible Assets” for further details on our goodwill and other intangible assets. SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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 Note"Note 10,11– Commitments and Contingent Liabilities," for further information regarding warranties. 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. RevenueSales associated with these deposits isare recognized over time based on the inputs completed for a given performance obligation during the reporting period or deferred and recognized upon shipment of the related product to the customer.customer depending on the terms of the contract.
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.
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 Note "Note 8,9 –Taxes on Income," for further details on our income taxes.
Earnings (Loss) Per Share. Basic earnings per share is based on the weighted average number of common shares share equivalents of stock appreciation rights (“SAR”s) and participating securities outstanding during the period. Diluted earnings per share also include the dilutive effect of additional potential common shares issuable from stock optionsstock-based awards and are determined using the treasury stock method. Basic earnings per share represents net earnings divided by basic weighted average number of common shares outstanding during the period, including the average dilutive effect of our SARs outstanding during the period determined using the treasury stock method.period. Diluted earnings per share represents net earnings divided by diluted weighted average number of common shares outstanding, which includes the average dilutive effect of our stock optionsall potentially dilutive securities that are outstanding during the period. Our unvested restricted stock awardsunits and performance stock units are included in the number of shares outstanding for both basic and diluted earnings per share calculations, unless a net loss is reported, in which situation unvested stock awards are excluded from the number of shares outstanding for both basic and diluted earnings per share calculations. See Note"Note 15,14–Stock-Based Compensation" and "Note 16– Earnings Per Share" for further details.
Stock-Based Compensation. Stock Incentive Plans. Share based payment compensation costscost for equity-based awards is measured on the grant date based on the estimated fair value of the award at that date, and is recognized over the requisite service period, net of estimated forfeitures. Fair value of stock option and stock appreciation rights awards are estimated using a closed option valuation (Black-Scholes) model. Fair value of restricted stock awards, restricted stock units and performance stock units subject to a performance condition is based upon the quoted market price of the common stock on the date of grant. Fair value of performance stock units subject to a market condition is calculated using the Monte Carlo simulation model. Our incentive stock stock-based compensation plans are described in more detail in Note"Note 13,14– Stock Based Compensation". SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Fair Value. We are required to disclose the estimated fair value of our financial instruments. The carrying value at December 31, 20172021 and 20162020 of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short-term nature. The carrying value of variable rate debt instruments approximate their fair value based on their relative terms and market rates. Reclassifications. Certain immaterial amounts in the prior periods’ financial statements have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on previously reported Net earnings (loss), Total assets, Total shareholders’ equity or cash flows.
Segment Reporting. We identify our reportable segments based on our management structure and the financial data utilized by the 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 and Specialty Chassis and Vehicles. More detailed information about our reportable segments can be found in Note"Note 16,17– Business Segments".
Supplemental Disclosures of Cash Flow Information. Cash paid for interest was $592, $1,757, and $1,844 for $619,2021, $3092020, and $374 for 2017,2016 and 2015.2019. Cash paid (received) for income taxes, net of refunds, was $12,199, $608, and $4,942 for $0,2021, $2,232 and $(18) for 2017,20162020 and 2015.2019. Non-cash investing in 20172021 included $1,511 of capital expenditures and $1,496 in $7,3912020. forgiveness of accounts receivableThe Company has Chassis Pool Agreements, where it participates in conjunction with our acquisition of Smeal.a chassis converter pool that is a non-cash arrangement and is offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. See Note"Note 213 – Debt" for further information about this acquisition. New Accounting Standards
In February 2017 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.2017-05,Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) (“ASU 2017-05”). ASU 2017-05 is intended to provide guidance for when gains and losses on nonfinancial assets should be applied to a financial asset by defining the term “nonfinancial asset”. ASU 2017-05 will go into effect when the revenue standard issued in ASU 2014-09 becomes effective. We believe that the adoption of the provisions of ASU 2017-05 will not have a material impact on our consolidated financial position, results of operations or cash flows.
In January 2017, the FASB issued Accounting Standards Update No.2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the carrying amount of the goodwill. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. Our adoption of ASU 2017-04 for our goodwill impairment testing performed as of October 1, 2017 did not have an impact on our consolidated financial position, results of operations or cash flows.
In January 2017, the FASB issued Accounting Standards Update 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance to entities to assist with evaluating when a set of transferred assets and activities (collectively, the "set") is a business and provides a screen to determine when a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the financial statements have not been issued. The adoption of the provisions of ASU 2017-01 had no impact on our consolidated financial position, results of operations or cash flows.
In August 2016, the FASB issued Accounting Standards Update No.2016-15,Statement of Cash Flows (Topic 230) (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in current practice regarding the manner in which certain cash receipts and cash payments are presented and classified in the cash flow statement. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We early adopted ASU 2016-15, effective with the third quarter of 2017, which did not have an impact on our consolidated financial position, results of operations or cash flows through December 31, 2017.Chassis Pool Agreements.
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) In
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 June 2016,January 1, 2021, the FASB issued Accounting Standards Updatewe adopted ASU 20162019-13,12 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to introduce a revised approachand all related amendments, which simplifies the accounting for income taxes by removing certain exceptions to the recognitiongeneral principles of Topic 740 and measurementimproving consistent application of credit losses, emphasizing an updated model based on expected losses rather than incurred losses.GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. We believe that that the adoption of the provisions of ASU 20162019-1312 willdid not have a material impact on our consolidated financial position, results of operations or cash flows. 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: | | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | Sales | | $ | 0 | | | $ | 19,167 | | | $ | 261,860 | | Cost of products sold | | | 0 | | | | 18,678 | | | | 245,785 | | Gross profit | | | 0 | | | | 489 | | | | 16,075 | | Operating expenses | | | 0 | | | | 4,484 | | | | 28,864 | | Operating loss | | | 0 | | | | (3,995 | ) | | | (12,789 | ) | Loss on asset impairments | | | 0 | | | | 0 | | | | 53,131 | | Other income (expense) | | | 243 | | | | (3,383 | ) | | | 1,021 | | Income (loss) from discontinued operations before taxes | | | 243 | | | | (7,378 | ) | | | (64,899 | ) | Income tax (expense) benefit | | | (62 | ) | | | 2,255 | | | | 15,683 | | Net income (loss) from discontinued operations | | $ | 181 | | | $ | (5,123 | ) | | $ | (49,216 | ) |
In March 2016, the FASB issued Accounting Standards Updateannual goodwill and intangible assets impairment test as of No.October 1, 2019, we determined that the fair value of our ERV business and Smeal trade name were less than their carrying values due to under-performance in 2019 2016-09,Compensation – Stock Compensation (“ASU 2016-09”). ASU 2016-09 simplifieswhich was expected to continue in future periods. As a result, we recorded impairment expense of $13,856 to write off the accounting for a stock payment’s tax consequences by requiring the recognition of the income tax effects of awards in the income statement when the awards vest or are settled. It also allows a company to elect to account for forfeitures as they occur rather than on an estimated basisgoodwill and revisesindefinite lived intangible assets. In conjunction with the classification of certain tax payments related to stock compensation on the statementERV business as held for sale as of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. Our adoption of ASU 2016-09 for the year ending December 31, 20172019, resulted inwe recorded a reductionloss of income tax expense of $394, which under previous accounting guidance would have been recorded$39,275 to additional paid in capital. In February 2016, write down the FASB issued Accounting Standards Update No.2016-02,Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginningcarrying values of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our consolidated financial position, results of operations or cash flows. Upon adoption, we expect to recognize right of useassociated assets and liabilities to their fair values less estimated costs to sell of $3,604. As of December 31, 2021 and 2020, due to the sale of the ERV business, there were no assets or liabilities related to discontinued operations on the consolidated statement of financial position for leases currently classified as operating leases.
In July 2015, the FASB issued Accounting Standards Update 2015-11,Inventory (Topic 330) – Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires entities that measure inventory using the FIFO or average cost methods to measure inventory at the lower of cost or net realizable value to more closely align the measurement of inventory in GAAP with International Financial Reporting Standards. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. ASU 2015-11 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Our adoption of ASU 2015-11 did not have an impact on our consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued Accounting Standards Update 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Subsequently the FASB provided additional guidance to clarify certain aspects of the standard in Accounting Standards Updates No.2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net); No.2016-10,Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing; and No.2016-12,Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients. ASU 2014-09, as amended is based on the principle that revenue should be recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.Consolidated Balance Sheets.
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) We substantially completed our assessment of
Total depreciation and amortization and capital expenditures for the impacts ofdiscontinued operations for the new revenue standard during theyears ended fourthDecember 31, 2021, 2020 quarter. We have determined that the adoption of ASUand 20142019:- | | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | Depreciation and amortization | | $ | 0 | | | $ | 284 | | | $ | 5,106 | | Capital expenditures | | $ | 0 | | | $ | 84 | | | $ | 2,431 | |
NOTE 093 will result in a change in the timing of revenue recognition for a significant portion of our contracts. For contracts related to substantially all of our Emergency Response Vehicle segment sales, certain of our Fleet Vehicles and Services segment sales, and certain of our Specialty Chassis and Vehicles segment sales (primarily related to our contract manufacturing operations), we will recognize revenue over time (during the production period) rather than at the point in time that the product is delivered to the customer. These contracts meet the criteria for recognizing revenue over time contracts either because 1) our performance creates or enhances an asset that the customer controls, or 2) our performance does not create an asset with an alternative use (due to significant customization of our products), and, based on our rights under the contract, we have an enforceable right to payment for our performance completed to date during the production period. We expect to utilize the practical expedient to not recognize the effects of financing when we receive customer deposits for contracts that will be fulfilled in less than one year. We expect that the disclosures in the notes to our consolidated financial statements related to revenue recognition will be significantly expanded under the new standard, specifically regarding the quantitative and qualitative information about performance obligations, and changes in contract assets and liabilities. – ACQUISITION ACTIVITIES We adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective approach. As a result, in the first quarter of 2018 we expect to record a transition adjustment to increase retained earnings by approximately $4,900, reflecting the cumulative impact for the accounting change. This adjustment reflects the acceleration of approximately $38,000 in revenues and $33,100 in cost of products sold.
We are unable to precisely quantify the impact to revenue, gross profit or net income for future periods since revenue and gross profit recognized in those periods will depend on the actual production levels in those periods, but we expect the increase in revenue, gross profit and net income from recognizing revenue on these contracts over time in 2018 to be similar to the amounts included in the transition adjustment.
NOTE 2– ACQUISITION ACTIVITIESDuraMag Acquisition
On JanuaryOctober 1, 2017,2020, we completed the acquisition ofCompany acquired substantially all of the assets and certain liabilities of SmealF3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading, aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded headache racks (also known as cab protection racks or rear racks). The Company paid $18,203 in cash, subject to a net working capital adjustment. The net working capital adjustment was finalized in January 2021, resulting in a decrease to the purchase price of $404. In addition, certain indemnity claims made by the Company pursuant to an Asset Purchase Agreement datedthe purchase agreement were settled in December 12, 2016.June 2021, resulting in a decrease to the purchase price of $500. The acquisition was partially financed by borrowing from our existing line of credit, as described in "Note 13–Debt". DuraMag is part of our Specialty Vehicle segment. During the year ended 2021 and 2020, we recorded pretax charges totaling $81 and $970, respectively, for legal expenses and other transaction costs related to the acquisition, which were reported in Selling, general and administrative expense on the Consolidated Statements of Operations. This acquisition brings significant scale to our Emergency Response Vehicles segment, expands the geographic reach of our dealer network and adds complementary products to our existing emergency response product portfolio.DuraMag Purchase Price Allocation
Sales and operating income included in our results since the January 1, 2017 acquisition are as follows:
| | | Year Ended December 31, 2017 | | Net sales | | $ | 124,669 | | Operating income | | | 2,070 | |
The above operating income amountsDuraMag acquisition was accounted for using the acquisition method of accounting with the purchase price allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. Identifiable intangible assets include customer relationships, DuraMag and Magnum trade names and trademarks, unpatented technology and non-competition agreements. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired of $5,401 was recorded as goodwill, which is expected to be deductible for tax purposes. The initial fair values of the net assets acquired were based on a one-time chargepreliminary valuation and the estimates and assumptions were subject to cost of products soldchange within the measurement period. In the third quarter of $1892021, the Company finalized the purchase price allocation for adjustments related to accrued warranty of $289. The valuation and the estimates and assumptions were finalized during the year ended December 31, 20172021, related toas the fair value step-up of inventories acquired from Smeal and sold during the period.measurement period has concluded. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Pro forma ResultsAs of Operation (Unaudited)December 31, 2021, the final allocation of purchase price to assets acquired and liabilities assumed is as follows:
Accounts receivable | | $ | 2,315 | | Inventories | | | 3,659 | | Other current assets | | | 15 | | Property, plant and equipment, net | | | 2,949 | | Right of use assets-operating leases | | | 8,469 | | Intangible assets | | | 5,590 | | Goodwill | | | 5,401 | | Total assets acquired | | | 28,398 | | | | | | | | Accounts payable | | | (1,662 | ) | | Accrued Warranty | | | (289 | ) | Accrued compensation and related taxes | | | (434 | ) | Current operating lease liabilities | | | (644 | ) | Other current liabilities and accrued expenses | | | (241 | ) | Long-term operating lease liability | | | (7,825 | ) | Long-term debt | | | (4 | ) | Total liabilities assumed | | | (11,099 | ) | | | | | | | Total purchase price | | $ | 17,299 | |
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: | | | Amount | | | Useful Life (in years) | Customer relationships | | $ | 2,200 | | | 15 | Trade names and trademarks | | | 2,420 | | | Indefinite | Unpatented technology | | | 540 | | | 9 | Non-competition agreements | | | 430 | | | 6 | | | | $ | 5,590 | | | |
The following table provides unaudited pro forma net salesCompany amortizes the customer relationships utilizing an accelerated approach and results of operationsunpatented technology and non-competition agreements assets utilizing a straight-line approach. Amortization expense, including the intangible assets recorded from the DuraMag acquisition, is $278 for 2021 and estimated to be $278, $299, and $295 for the years ended December 31, 2017 2022 through 2024, respectively. Goodwill consists of operational synergies that are expected to be realized in both the short and 2016, as if Smeal had been acquired on January1long-term and the opportunity to enter into new markets which will enable us to increase value to our customers and shareholders. Key areas of 2016. The unauditedexpected cost savings include an expanded dealer network, complementary product portfolios and manufacturing and supply chain work process improvements. Due to its insignificant size relative to the Company, supplemental pro forma results reflect certain adjustments related to the acquisition, such as changes in the depreciation and amortization expense on the Smeal assets acquired resulting from the fair valuation of assets acquired, expenses incurred to complete the acquisition and the impact of acquisition financing. The pro forma results do not include any anticipated cost synergies or other effects of the integration of Smeal. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated, nor are they indicative of the future operating resultsfinancial information of the combined company. | | | Years Ended | | | | | December 31, 2017 | | | December 31, 2016 | | Net sales | | $ | 707,098 | | | $ | 656,292 | | | | | | | | | | | | Net earnings attributable to Spartan Motors, Inc. | | $ | 18,792 | | | $ | 4,964 | | | | | | | | | | | | Diluted net earnings per share | | $ | 0.54 | | | $ | 0.14 | |
Purchase Price Allocation
The total purchase price paidentity for our acquisition of Smeal was $41,513, subject to a net working capital adjustment and the tax gross-up payment described below. The consideration paid consisted of $28,903 in cash, net of cash acquired of $3,825, and the forgiveness of certain liabilities owed by the former owners of Smeal to the Company in the amount of $7,391. Pursuant to the purchase agreement, the sellers may receive additional consideration in the form of a tax gross-up payment, which is payable no later than April 1, 2018, andprior reporting period is not expected to exceedprovided.
Royal Acquisition On $1,394.September 9, 2019, The consideration paid is subject to certain post-closing adjustments, including the Company completed the acquisition of Fortress Resources, LLC d/b/a net working capital adjustment that we expect to finalize in the first quarter of 2018. Smeal has been a significant chassis customer of Spartan USA. The price paidRoyal Truck Body pursuant to which the purchase agreementCompany acquired all the outstanding equity interests of Royal. The Company paid $89,217 in cash, which was the subjectfinanced by borrowing from our existing line of arm's length negotiation between Smeal and us.credit, as described in "Note 13–Debt". THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) This
Royal Purchase Price Allocation The Royal acquisition was accounted for using the purchaseacquisition method of accounting with the purchase price allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. Identifiable intangible assets include trade-namescustomer relationships, trade names and certain non-patented technology.trademarks, patented technology and non-competition agreements. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired of $11,456$27,476 was initially recorded as goodwill. Duringgoodwill, which is expected to be deductible for tax purposes. 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 2017,second wequarter of 2020, the Company agreed to a working capital adjustment with the seller and made certain adjustments to our purchase price allocation to adjust inventory, other current assets, accrued warranty and other liabilities, which resulted in a $1,787 increase in goodwill. We recorded an estimate for contingent consideration relateddecrease to goodwill of $152. The valuation and the tax gross-up payment, valued in accordance with accounting guidance for business combinationsestimates and fair value measurements atassumptions were finalized during the year ended $1,394.December 31, 2020, as the measurement period has concluded. TheAs of December 31,2020, the final allocation of purchase priceprice to assets acquired and liabilities assumed is as follows:
Cash | | $ | 3,825 | | | Accounts receivable | | | 6,523 | | | Inventory | | | 61,716 | | | Other current assets | | | 662 | | | Property, plant and equipment | | | 5,773 | | | | Cash and cash equivalents | | | $ | 431 | | Accounts receivable, less allowance | | | | 5,019 | | Contract assets | | | 1,499 | | | Inventories | | | 6,453 | | | Other receivables – chassis pool agreements | | | 10,424 | | Property, plant and equipment, net | | | 4,980 | | Right of use assets – operating leases | | | 12,767 | | Intangible assets | | | 3,900 | | | 47,150 | | Goodwill | | | 11,456 | | | | 27,324 | | Total assets acquired | | | 93,855 | | | 116,047 | | | | | | | | | Accounts payable | | | 3,941 | | | (1,658 | ) | Customer prepayments | | | 42,929 | | | (255 | ) | Accrued warranty | | | 3,689 | | | (98 | ) | Other liabilities | | | 1,783 | | | | Operating lease liabilities | | | (1,693 | ) | | Accrued compensation and related taxes | | | (569 | ) | | Other current liabilities and accrued expenses | | | (30 | ) | | Short-term debt – chassis pool agreements | | | (10,424 | ) | | Long-term operating lease liability | | | (11,074 | ) | | Long-term debt, less current portion | | | | (1,029 | ) | Total liabilities assumed | | | 52,342 | | | (26,830 | ) | | | | | | | | | | Total purchase price | | $ | 41,513 | | | $ | 89,217 | |
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: | | | Amount | | | Useful Life (in years) | Customer relationships | | $ | 30,000 | | | 15 | Trade names and trademarks | | | 13,000 | | | Indefinite | Patented technology | | | 2,200 | | | 8 | Non-competition agreements | | | 1,950 | | | 5 | | | | $ | 47,150 | | | |
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
The Company amortizes the customer relationships utilizing an accelerated approach and patented technology and non-competition agreements assets utilizing a straight-line approach. Amortization expense, including the intangible assets recorded from the Royal acquisition, is $2,665 and $2,665 for 2021 and 2020, respectively, and estimated to be $3,162, and $3,072 for the years 2022 through 2023, respectively.
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. | | | December 31, 2021 | | | December 31, 2020 | | Contract Assets | | | | | | | | | Contract assets, beginning of year | | $ | 9,414 | | | $ | 10,898 | | Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | | | (9,414 | ) | | | (10,898 | ) | Contract assets recognized, net of reclassification to receivables | | | 21,483 | | | | 9,414 | | Contract assets, end of year | | | 21,483 | | | | 9,414 | | | | | | | | | | | | Contract Liabilities | | | | | | | | | Contract liabilities, beginning of year | | | 756 | | | | 2,640 | | Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | | | (743 | ) | | | (2,640 | ) | Cash received in advance and not recognized as revenue | | | 975 | | | | 756 | | Contract liabilities, end of year | | | 988 | | | | 756 | |
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. THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Contingent Consideration
Pursuant toIn the purchase agreement, the former ownersfollowing tables, revenue is disaggregated by primary geographical market and timing of Smeal may receive additional consideration in the form of a tax gross-up payment. The purchase agreement specifies that Spartan will make a payment to the former owners of Smeal to cover certain state and federal tax liabilitiesrevenue recognition for the tax year ending December 31, 2017 that result from the transaction. The payment is expected to be $1,394.
Goodwill Assigned
The acquisition resulted in the recognition of $11,456 of goodwill, which is expected to be deductible for tax purposes.
Goodwill consists of expected synergies resulting from the acquisition and the estimated value of the workforce employed. Key areas of expected cost savings include an expanded dealer network; complementary product portfolios; manufacturing and supply chain work process improvements; and the elimination of redundant corporate overhead.
Financing for the Acquisition
Our acquisition of Smeal was financed using $32,800 borrowed from our existing $100,000 line of credit, as set forth in the Second Amended and Restated Credit Agreement, dated as of October 31, 2016, as amended by a First Amendment on December 1, 2017, by and among us and our affiliates, as borrowers; certain lenders; Wells Fargo Bank, National Association, as Administrative Agent; and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner.
Acquisition Related Expenses
During 2017 and 2016, we recorded pretax charges totaling $868 and $882 for legal expenses and other transaction costs related to the acquisition. These charges, which were expensed in accordance with the accounting guidance for business combinations, were recorded in “Selling, general and administrative” and reflected within the “Other” column in the business segment tables in Note 16,Business Segments.
NOTE 3 – INVENTORIES
Inventories are summarized as follows: | | December 31, | | | | | 2017 | | | 2016 | | | | | | | | | | | | Finished goods | | $ | 15,539 | | | $ | 12,743 | | Work in process | | | 15,980 | | | | 14,063 | | Raw materials and purchased components | | | 48,092 | | | | 35,458 | | Reserve for slow-moving inventory | | | (1,919 | ) | | | (3,368 | ) | | | | | | | | | | | Total Inventory | | $ | 77,692 | | | $ | 58,896 | |
We also have a number of demonstration units as part of our sales and training program. These demonstration units are included in the “Finished goods” line item above, and amounted to $7,435 and $3,558 at December 31,2017 and 2016. When the demonstration units are sold, the cost related to the demonstration unit is included in Cost of products sold on our Consolidated Statements of Operations. The decrease in the reserve during 2017 is the result of disposals of obsolete inventory and reduction of the reserve associated with this inventory.
NOTE 4 – RESTRUCTURING CHARGES
During the yearyears ended December 31, 2017,2021, we incurred restructuring charges related to a company-wide initiative to streamline operations and integrate our Smeal acquisition. During 20162020, and 2015,2019. we incurred restructuring charges related toThe tables also include a reconciliation of the relocation of our Ocala, Florida manufacturing operations to our Charlotte, Michigan and Brandon, South Dakota facilities, alongdisaggregated revenue with efforts undertaken to upgrade production processes at our Brandon, South Dakota and Ephrata, Pennsylvania locations.the reportable segments.
| | | Year Ended December 31, 2021 | | | | | FVS | | | SV | | | Total Reportable Segments | | | Other | | | Total | | Primary geographical markets | | | | | | | | | | | | | | | | | | | | | United States | | $ | 647,842 | | | $ | 332,293 | | | $ | 980,135 | | | $ | 0 | | | $ | 980,135 | | Other | | | 11,590 | | | | 67 | | | | 11,657 | | | | 0 | | | | 11,657 | | Total sales | | $ | 659,432 | | | $ | 332,360 | | | $ | 991,792 | | | $ | 0 | | | $ | 991,792 | | | | | | | | | | | | | | | | | | | | | | | | Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | Products transferred at a point in time | | $ | 34,558 | | | $ | 198,852 | | | $ | 233,410 | | | $ | 0 | | | $ | 233,410 | | Products and services transferred over time | | | 624,874 | | | | 133,508 | | | | 758,382 | | | | 0 | | | | 758,382 | | Total sales | | $ | 659,432 | | | $ | 332,360 | | | $ | 991,792 | | | $ | 0 | | | $ | 991,792 | |
| | | Year Ended December 31, 2020 | | | | | FVS | | | SV | | | Total Reportable Segments | | | Other | | | Total | | Primary geographical markets | | | | | | | | | | | | | | | | | | | | | United States | | $ | 454,403 | | | $ | 212,109 | | | $ | 666,512 | | | $ | 0 | | | $ | 666,512 | | Other | | | 9,055 | | | | 406 | | | | 9,461 | | | | 0 | | | | 9,461 | | Total sales | | $ | 463,458 | | | $ | 212,515 | | | $ | 675,973 | | | $ | 0 | | | $ | 675,973 | | | | | | | | | | | | | | | | | | | | | | | | Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | Products transferred at a point in time | | $ | 44,418 | | | $ | 127,801 | | | $ | 172,219 | | | $ | 0 | | | $ | 172,219 | | Products and services transferred over time | | | 419,040 | | | | 84,714 | | | | 503,754 | | | | 0 | | | | 503,754 | | Total sales | | $ | 463,458 | | | $ | 212,515 | | | $ | 675,973 | | | $ | 0 | | | $ | 675,973 | |
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Restructuring charges included in our Consolidated Statements of Operations for the year ended December 31, 2017, broken down by segment, are as follows:
| | | Year Ended December 31, 2019 | | | | | FVS | | | SV | | | Total Reportable Segments | | | Other | | | Total | | Primary geographical markets | | | | | | | | | | | | | | | | | | | | | United States | | $ | 536,499 | | | $ | 203,960 | | | $ | 740,459 | | | $ | (5,278 | ) | | $ | 735,181 | | Other | | | 21,203 | | | | 158 | | | | 21,361 | | | | 0 | | | | 21,361 | | Total sales | | $ | 557,702 | | | $ | 204,118 | | | $ | 761,820 | | | $ | (5,278 | ) | | $ | 756,542 | | | | | | | | | | | | | | | | | | | | | | | | Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | Products transferred at a point in time | | $ | 152,336 | | | $ | 149,995 | | | $ | 302,331 | | | $ | (5,278 | ) | | $ | 297,053 | | Products and services transferred over time | | | 405,366 | | | | 54,123 | | | | 459,489 | | | | 0 | | | | 459,489 | | Total sales | | $ | 557,702 | | | $ | 204,118 | | | $ | 761,820 | | | $ | (5,278 | ) | | $ | 756,542 | |
| | | December 31, 2017 | | | | | Fleet Vehicles and Services | | | Emergency Response Vehicles | | | Specialty Chassis and Vehicles | | | Other | | | Total | | Cost of products sold | | | | | | | | | | | | | | | | | | | | | Accrual for severance | | $ | 97 | | | $ | 43 | | | $ | 30 | | | $ | - | | | $ | 170 | | Production relocation | | | - | | | | 38 | | | | - | | | | - | | | | 38 | | | | | | | | | | | | | | | | | | | | | | | | General and Administrative | | | | | | | | | | | | | | | | | | | | | Accrual for severance | | | 547 | | | | 367 | | | | 79 | | | | 51 | | | | 1,044 | | Total restructuring | | $ | 644 | | | $ | 448 | | | $ | 109 | | | $ | 51 | | | $ | 1,252 | |
NOTE 5 – INVENTORIES During the years ended December 31, 2016 and 2015, we incurred restructuring charges related to efforts undertaken to upgrade production processes at our Brandon, South Dakota and Ephrata, Pennsylvania locations.Inventories are summarized as follows:
Restructuring charges included in our Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, which were all related to our Emergency Response Vehicles segment, are as follows:
| | | December 31, | | | | | 2021 | | | 2020 | | Finished goods | | $ | 2,990 | | | $ | 4,200 | | Work in process | | | 2,471 | | | | 1,908 | | Raw materials and purchased components | | | 61,723 | | | | 40,320 | | Total Inventories | | $ | 67,184 | | | $ | 46,428 | |
| | | December 31, 2016 | | | December 31, 2015 | | Cost of products sold | | | | | | | | | Inventory impairment | | $ | - | | | $ | 345 | | Production relocation/equipment impairment | | | 136 | | | | 174 | | Accrual for severance | | | - | | | | - | | Total cost of products sold | | | 136 | | | | 519 | | | | | | | | | | | | General and Administrative | | | | | | | | | Manufacturing process reengineering | | | 959 | | | | 2,336 | | Accrual for severance | | | - | | | | - | | Total general and administrative | | | 959 | | | | 2,336 | | Total restructuring | | $ | 1,095 | | | $ | 2,855 | |
The following table provides a summary of the compensation related charges incurred during the year ended December 31, 2017 as part of our restructuring initiatives, along with the related outstanding balances to be paid in relation to those expenses, which is reflected within Accrued compensation and related taxes on our Condensed Consolidated Balance Sheets.
| | | Severance | | Balance January 1, 2017 | | $ | - | | Accrual for severance | | | 643 | | Payments and adjustments made in period | | | (201 | ) | Balance March 31, 2017 | | | 442 | | Accrual for severance | | | 325 | | Payments and adjustments made in period | | | (540 | ) | Balance June 30, 2017 | | | 227 | | Accrual for severance | | | 232 | | Payments and adjustments made in period | | | (366 | ) | Balance September 30, 2017 | | | 93 | | Accrual for severance | | | 14 | | Payments and adjustments made in period | | | (95 | ) | Balance December 31, 2017 | | $ | 12 | |
There were no compensation related charges incurred during the years ended December 31, 2016 or 2015.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 56 – GOODWILL AND INTANGIBLE ASSETS 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 Note"Note 1 –General Nature of Operations and SummaryBasis of Accounting PoliciesPresentation" for a description of our accounting policies regarding goodwill and other intangible assets. As described in Note 2 - Acquisition Activities, we acquired substantially all of the assets and related liabilities of Smeal on January 1, 2017. The difference between the consideration paid and the acquisition-date fair value of the identifiable assets acquired and liabilities assumed was recognized as goodwill, as disclosed in the table below. The goodwill at Smeal was evaluated as part of the annual assessment which occurred as of October 1, 2017,2021 since there wasthe most recent annual goodwill impairment assessment date, notwo triggering event necessitating an earlier evaluation. During the second quarter of 2017, operations related to the manufacturing of our Reach delivery vehiclereporting units were reassigned to our Specialty Chassis and Vehicles segment from our Fleet Vehicles and Services segment to reflect the information and reports that our chief operating decision makers use to allocate resources to and assess the performance of our operating segments. As a result, a portion of thedetermined for goodwill assigned to our Fleet Vehicles and Services segment was reassigned to our Specialty Chassis and Vehicles segment using a relative fair value approach.
At December 31, 2017, we had recorded goodwill at our Fleet Vehicles and Services, Emergency Response Vehicles and Specialty Chassis and Vehicles reportable segments. Theimpairment testing: Fleet Vehicles and Services and Emergency ResponseSpecialty Vehicles, reportable segments were determined to bewhich is a change from the prior year where three reporting units were determined for goodwill impairment testing, while the reporting unit for the goodwill recorded in the Specialty Chassis and Vehicles segment was determined to be limited to the Reach Manufacturing component of that reportable segment. The goodwill recorded in these reporting units was evaluated for impairment as of October 1,2017 using a discounted cash flow valuation.
At December 31, 2016, we had recorded goodwill at ourtesting: Fleet Vehicles and Services, reportable segment, which was also determinedSpecialty Vehicles, and Service Truck Bodies. As we continued integrating the newly acquired DuraMag business with the Royal operations in 2021, further similarities between these two businesses and the other Specialty Vehicles business were identified that allowed us to berun operations with shared manufacturing facilities, engineering resources and capital equipment. As a result, the entirety of goodwill at former Service Truck Bodies reporting unit forwas combined into the Specialty Vehicles reporting unit. We qualitatively assessed goodwill impairment testing. The goodwill recorded inassigned to the Fleet Vehicles and Services and Specialty Vehicles reporting units and found no indicators of impairment. We completed a quantitative assessment of the Service Truck Bodies reporting unit was evaluated forimmediately before the reporting unit change and a qualitative assessment of the Special Vehicles reporting unit post reorganization and determined that no impairment as of October 1,2016 using a discounted cash flow valuation.existed.
The estimated fair values of our Fleet Vehicles and Services, Emergency Response Vehicles and Reach reporting units exceeded their carrying value by approximately 232%,91% and 62%, respectively at October 1, 2017, indicating that the goodwill was not impaired. Based on the discounted cash flow valuations at October 1, 2017, an increase in the weighted average cost of capital (“WACC”) used for these reporting units of 500 basis points would not result in impairment. As discussed in Note"Note 1 – GeneralNature of Operations and SummaryBasis of Accounting PoliciesPresentation," there are significant judgments inherent in our impairment assessments and discounted cash flow analyses. These discounted cash flow analyses are most sensitive to the WACCweighted-average cost of capital ("WACC") assumption.
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) Our goodwill by
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 is as follows: | | | Fleet Vehicles and Services | | | Emergency Response Vehicles | | | Specialty Vehicles and Chassis | | | Total | | | | | December 31, | | | December 31, | | | December 31, | | | December 31, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Goodwill, beginning of year | | $ | 15,961 | | | $ | 15,961 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 15,961 | | | $ | 15,961 | | Acquisition of Smeal | | | - | | | | - | | | | 11,456 | | | | - | | | | - | | | | - | | | | 11,456 | | | | - | | Reassignment of goodwill | | | (638 | ) | | | - | | | | - | | | | - | | | | 638 | | | | - | | | | - | | | | - | | Goodwill, end of year | | $ | 15,323 | | | $ | 15,961 | | | $ | 11,456 | | | $ | - | | | $ | 638 | | | $ | - | | | $ | 27,417 | | | $ | 15,961 | |
information for earlier periods have been recast. Other Intangible AssetsThe change in the carrying amount of goodwill for the year ended December 31, 2021 and 2020 were as follows (in thousands):
| | | FVS | | | SV | | | Total | | | | | December 31, | | | December 31, | | | December 31, | | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | Goodwill, beginning of year | | $ | 15,323 | | | $ | 15,323 | | | $ | 34,158 | | | $ | 28,309 | | | $ | 49,481 | | | $ | 43,632 | | Acquisition and measurement period adjustments | | | 0 | | | | 0 | | | | (601 | ) | | | 5,849 | | | | (601 | ) | | | 5,849 | | Goodwill, end of year | | $ | 15,323 | | | $ | 15,323 | | | $ | 33,557 | | | $ | 34,158 | | | $ | 48,880 | | | $ | 49,481 | |
Fleet Vehicles and Services segment intangible assets
OtherIntangible Assets At December 31, 2017,2021, we had other intangible assets, associated with our Fleet Vehicles and Services segment, including customer and dealer relationships, non-compete agreements, an acquired product development project and a trade name. Thenames, trademarks, unpatented technology, patented technology. Certain non-compete agreement, acquired product development projectagreements and certain other intangible assets are being amortized over their expected remaining useful lives based on the pattern of estimated after-tax operating income generated, or on a straight-line basis. OurUnpatented technology, patented technology and certain non-compete agreements are amortized utilizing a straight-line approach over the estimated useful lives. We amortize the customer relationships utilizing an accelerated approach over the estimated remaining life. The Royal, DuraMag, Magnum, Utilimaster, and Strobes-R-Us trade name has annames and trademarks are considered to have indefinite life,lives and isare not amortized. We test our trade name for impairment at least annually, and test other intangible assets for impairment if impairment indicators are present. We testedevaluate the recoverability of our Utilimaster trade name for impairment,indefinite lived intangible assets, which, as of October 1, 20172021, consisted of our Royal, DuraMag, and 2016,Magnum trade names, by estimatingcomparing the estimated fair value of the trade namenames with their carrying values. We estimate the fair value of our trade names based on estimates of future royalty payments that are avoided through our ownership of the trade name, discounted to their present value. TheIn determining the estimated fair value of our Utilimaster trade name at October 1, 2017 exceeded its carrying cost by 545%. Accordingly, there was no impairment recorded on this trade name. Based on the discounted cash flow valuation at October 1, 2017, an increase in the WACC used for this impairment analysis of 500 basis points would not result in impairment of the trade name. Emergency Response Vehicles segment intangible assets
With the acquisition of Smeal, we acquired other intangible assets besides goodwill. We recorded $3,900 in intangible assets from the acquisition. The intangible assets consist of unpatented technology and various trade names. The unpatented technology will be amortized using the straight-line method over its estimated remaining useful life of 10 years, consistent with the pattern of economic benefits estimated to be received. The trade names are considered to have indefinite lives, and as such will not be amortized but will be tested for impairment annually or if events or changes in circumstances indicate that it is more likely than not that the trade names are impaired.
We tested our Smeal trade name for impairment, as of October 1, 2017, by estimating the fair value of the trade namenames, we consider current and projected future levels of sales based on estimates of future royalty payments that are avoided through our ownership of theplans for these trade name discounted to their present value.branded products, business trends, prospects and market and economic conditions. The estimated fair value of our SmealRoyal, DuraMag, and Magnum trade name at October 1, 2017 names exceeded itstheir carrying cost by 136%. Accordingly, there was no impairment recorded on this trade name. Based on the discounted cash flow valuation at October 1, 2017, an increase in the WACC used for this impairment analysis of 500 basis points wouldvalues, and therefore do not result in impairmentan impairment. We qualitatively assessed Utilimaster and Strobes-R-Us trade names and trademarks and found no indicators of the trade name.impairment.
The following table provides information regarding our other intangible assets: | | | As of December 31, 2021 | | | As of December 31, 2020 | | | | | Gross carrying amount | | | Accumulated amortization | | | Net | | | Gross carrying amount | | | Accumulated amortization | | | Net | | Customer relationships | | $ | 39,080 | | | $ | 9,188 | | | $ | 29,892 | | | $ | 39,770 | | | $ | 7,390 | | | $ | 32,380 | | Unpatented technology | | | 540 | | | | 75 | | | | 465 | | | | 540 | | | | 15 | | | | 525 | | Patented technology | | | 2,200 | | | | 619 | | | | 1,581 | | | | 2,200 | | | | 344 | | | | 1,856 | | Non-compete agreements | | | 2,980 | | | | 1,327 | | | | 1,653 | | | | 3,380 | | | | 1,145 | | | | 2,235 | | Trade Names | | | 19,390 | | | | 0 | | | | 19,390 | | | | 19,390 | | | | 0 | | | | 19,390 | | | | | $ | 64,190 | | | $ | 11,209 | | | $ | 52,981 | | | $ | 65,280 | | | $ | 8,894 | | | $ | 56,386 | |
We recorded $3,405, $3,265, and $1,200 of intangible asset amortization expense during 2021,2020 and 2019. | | | As of December 31, 2017 | | | As of December 31, 2016 | | | | | Gross carrying amount | | | Accumulated amortization | | | Net | | | Gross carrying amount | | | Accumulated amortization | | | Net | | Customer and dealer relationships | | $ | 6,170 | | | $ | 3,709 | | | $ | 2,461 | | | $ | 6,170 | | | $ | 3,348 | | | $ | 2,822 | | Acquired product development project | | | 1,860 | | | | 1,514 | | | | 346 | | | | 1,860 | | | | 1,167 | | | | 693 | | Unpatented technology | | | 1,500 | | | | 150 | | | | 1,350 | | | | - | | | | - | | | | - | | Non-compete agreements | | | 400 | | | | 400 | | | | - | | | | 400 | | | | 400 | | | | - | | Backlog | | | 320 | | | | 320 | | | | - | | | | 320 | | | | 320 | | | | - | | Trade Names | | | 5,270 | | | | - | | | | 5,270 | | | | 2,870 | | | | - | | | | 2,870 | | | | | $ | 15,520 | | | $ | 6,093 | | | $ | 9,427 | | | $ | 11,620 | | | $ | 5,235 | | | $ | 6,385 | |
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) We recorded $858,$708 and $872 of intangible asset amortization expense during 2017,2016 and 2015.
The estimated remaining amortization associated with finite-lived intangible assets is expected to be expensed as follows: | | | Amount | | | | | | | | 2018 | | $ | 816 | | 2019 | | | 449 | | 2020 | | | 423 | | 2021 | | | 399 | | 2022 | | | 375 | | Thereafter | | | 1,695 | | Total | | $ | 4,157 | |
| | | Amount | | 2022 | | $ | 3,903 | | 2023 | | | 3,810 | | 2024 | | | 3,477 | | | 2025 | | | 3,070 | | | 2026 | | | 2,944 | | Thereafter | | | 16,387 | | Total | | $ | 33,591 | |
NOTE 67 - – PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized by major classifications as follows: | | | December 31, | | | | | | 2017 | | | 2016 | | | December 31, | | | | | | | | | | | | | 2021 | | | 2020 | | Land and improvements | | $ | 7,754 | | | $ | 8,049 | | | $ | 9,810 | | | $ | 8,721 | | Buildings and improvements | | | 66,227 | | | | 63,418 | | | 45,724 | | | 40,077 | | Plant machinery and equipment | | | 39,800 | | | | 34,879 | | | 49,305 | | | 41,054 | | Furniture and fixtures | | | 22,285 | | | | 12,954 | | | 20,421 | | | 16,259 | | Vehicles | | | 3,063 | | | | 2,912 | | | 2,607 | | | 2,404 | | Construction in process | | | 1,770 | | | | 7,876 | | | | 12,700 | | | | 8,724 | | Subtotal | | | 140,899 | | | | 130,088 | | | 140,567 | | | 117,239 | | Less accumulated depreciation | | | (85,722 | ) | | | (76,972 | ) | | | (79,510 | ) | | | (71,505 | ) | Total property, plant and equipment, net | | $ | 55,177 | | | $ | 53,116 | | | $ | 61,057 | | | $ | 45,734 | |
We recorded depreciation expense of $$7,977, $10,638, and $5,892 during 9,055,2021, $7,1952020, and $6,5652019, during 2017,2016 and 2015.respectively. There were no0 capitalized interest costs in 20172021,2020, or 2016.2019. In the second quarter of 2020, we committed to a plan to phase out the use of an ERP system at certain locations and determined that the estimated useful lives for the related assets had shortened. As a result, in 2020, we recorded depreciation expense of $3,060 attributable to accelerated depreciation and a loss of $2,430 from the write-off of related construction in process. The total after-tax impact on Income from continuing operations was an expense of $4,365 for 2020. Construction in progress includesNOTE $7908 and $6,624 at December 31, 2017 and 2016 for the implementation of our ERP system. The decrease construction in progress in 2017 was the result of our first phase of implementation that was completed during the year. Additional phases of implementation are expected to go live in 2018 through 2020.– LEASES
We review our long-lived assets that have finite livesoperating and finance leases for impairment whenever events or changes in circumstances indicate that their carrying amounts may land, buildings and certain equipment. Our leases have remaining lease terms of one year to 18 years, some of which include options to extend the leases for up to 15 years. Our leases do not be recoverable.contain residual value guarantees. As of December 31, 2021 and 2020, assets recorded under finance leases were immaterial (See "Note 13 – Debt"). Lease expense totaled $8,679, $6,913, and $4,146 for the years ended December 31, 2021, 2020 and 2019, respectively. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) When reviewing long-lived assets
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: | | | Year ended December 31, 2021 | | | Year ended December 31, 2020 | | Operating leases | | $ | 8,233 | | | $ | 6,699 | | Short-term leases (1) | | | 446 | | | | 214 | | Total lease expense | | $ | 8,679 | | | $ | 6,913 | |
(1) Includes expenses for impairment, we group our long-lived assets with other assetsmonth-to-month equipment leases, which are classified as short-term as the Company is not reasonably certain to renew the lease term beyond one month. The weighted average remaining lease term and liabilities at the lowest level for which identifiableweighted average discount rate were as follows: | | | Year ended December 31, 2021 | | | Year ended December 31, 2020 | | Weighted average remaining lease term of operating leases (in years) | | | 8.9 | | | | 9.4 | | Weighted average discount rate of operating leases | | | 3.0 | % | | | 3.1 | % |
Supplemental cash flows are largely independent of the cash flows of other assets and liabilities. During the three months ended September 30, 2016, we determined that an asset groupflow information related to certain locationsleases was as follows: | | | Year ended December 31, 2021 | | | Year ended December 31, 2020 | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | Operating cash flow for operating leases | | $ | 7,958 | | | $ | 6,338 | | | | | | | | | | | | Right of use assets obtained in exchange for lease obligations: | | | | | | | | | Operating leases | | $ | 7,137 | | | $ | 16,829 | | Finance leases | | $ | 271 | | | $ | 141 | |
Maturities of our Emergency Response Vehicles segment may be impaired due to operating losses recorded in recent years, along with uncertainty regarding future financial performance at these locations. Accordingly, we conducted an impairment test on this asset grouplease liabilities as of September 30, 2016 by comparing the non-discounted cash flows expected to result from the use and eventual disposition of the asset group with its carrying value, resulting in a determination that the asset group was impaired. We estimated the fair value of our tangible long-lived assets of this asset group based on assessments or recent sale prices of similar assets. Impairment charges recorded within Cost of goods sold in the Consolidated Statement of Operations to adjust the carrying cost of these long-lived tangible assets to their estimated fair value at September 30, 2016 were $406 for machinery and equipment. No additional charges were recorded in 2016 or for the year ended December 31, 2017.2021
NOTE 7 - LEASES
We lease certain office equipment, computer hardware, manufacturing equipment and manufacturing and warehouse space under operating lease agreements. Building leases generally provide that we pay the cost of utilities, insurance, taxes and maintenance. Rent expense for the years ended December 31,2017,2016 and 2015 was $2,989,$3,086 and $2,876.
Future minimum operating lease commitments under non-cancelable leases are as follows:
Year | | Future Minimum Operating Lease Payments | | 2018 | | $ | 2,494 | | 2019 | | | 1,915 | | 2020 | | | 1,674 | | 2021 | | | 1,483 | | 2022 | | | 149 | | Thereafter | | | - | | | | | | | | Total | | $ | 7,715 | |
We lease certain office equipment, computer hardware and material handling equipment under capital lease agreements. Cost and accumulated depreciation of capitalized leased assets included in machinery and equipment are $728 and $548, respectively, at December 31,2017. Future minimum capital lease commitments under non-cancelable leases are as follows:
Year | | Future Minimum Capital Lease Payments | | 2018 | | $ | 70 | | 2019 | | | 59 | | 2020 | | | 26 | | 2021 | | | 26 | | 2022 | | | 21 | | Thereafter | | | - | | | | | | | | Total lease obligations, including imputed interest | | | 202 | | | | | | | | Less imputed interest charges | | | (13 | ) | | | | | | | Total outstanding capital lease obligations | | $ | 189 | |
Years ending December 31: | | | | | 2022 | | $ | 8,072 | | 2023 | | | 7,565 | | 2024 | | | 7,138 | | 2025 | | | 6,247 | | 2026 | | | 4,557 | | Thereafter | | | 17,079 | | Total lease payments | | | 50,658 | | Less: imputed interest | | | (6,395 | ) | Total lease liabilities | | $ | 44,263 | |
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 9 – TAXES ON INCOME Income taxes consist of the following: | | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | Taxes on income from continuing operations | | $ | 14,506 | | | $ | 9,867 | | | $ | 10,355 | | Income tax expense (benefit) from discontinued operations | | | 62 | | | | (2,255 | ) | | | (15,683 | ) | Total taxes on income | | $ | 14,568 | | | $ | 7,612 | | | $ | (5,328 | ) |
Income taxes from continuing operations consist of the following: | | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | Current (benefit): | | | | | | | | | | | | | Federal | | $ | 10,891 | | | $ | 8,191 | | | $ | 9,883 | | State | | | 2,745 | | | | 2,474 | | | | 1,664 | | Foreign | | | 286 | | | | 156 | | | | 128 | | Total current | | | 13,922 | | | | 10,821 | | | | 11,675 | | Deferred (benefit): | | | | | | | | | | | | | Federal | | | 554 | | | | (975 | ) | | | (705 | ) | State | | | 30 | | | | 21 | | | | (615 | ) | Total deferred | | | 584 | | | | (954 | ) | | | (1,320 | ) | Total taxes on income | | $ | 14,506 | | | $ | 9,867 | | | $ | 10,355 | |
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. THE SHYFT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 8 - TAXES ON INCOME
Income taxes consist of the following:
| | | Year Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | Current (credit): | | | | | | | | | | | | | Federal | | $ | 3,809 | | | $ | 2,203 | | | $ | (520 | ) | State | | | 255 | | | | 563 | | | | 253 | | Total current | | | 4,064 | | | | 2,766 | | | | (267 | ) | Deferred (credit): | | | | | | | | | | | | | Federal | | | (1,743 | ) | | | (2,666 | ) | | | 3,994 | | State | | | (2,231 | ) | | | - | | | | 1,153 | | Total deferred | | | (3,974 | ) | | | (2,666 | ) | | | 5,147 | | Total taxes on income | | $ | 90 | | | $ | 100 | | | $ | 4,880 | |
The current tax expense amounts in 2016 and 2015 differ from the actual amounts payable to the taxing authorities due to the tax impact associated with stock incentive plan transactions under the plans described in Note 13,Stock Based Compensation. These adjustments were an addition of $123 and $44 in 2016 and 2015. These adjustments to current taxes on income were recognized as adjustments of additional paid-in capital. Commencing January 1, 2017, all such adjustments are recognized as current taxes on income.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act makes broad and complex changes to the U.S. tax code that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. Other changes provided by the 2017 Tax Act include, but are not limited to the acceleration of depreciation for certain assets placed into service after September 27, 2017. Prospective changes beginning in 2018 from the Tax Act include: additional limitations on executive compensation, the repeal of the domestic manufacturing deduction and capitalization of research and development expenditures.
The SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. We recognized the income tax effects of the Tax Act in our 2017 financial statements in accordance with SAB 118, in the reporting period in which the Tax Act was signed into law. We did not identify items for which the income tax effects of the Tax Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017.
In accordance with SAB 118, we have recorded a provisional amount of $2,963 of the deferred tax expense in connection with the re-measurement of certain deferred tax assets and liabilities and we will continue to refine the measurement of the net deferred tax balance during the preparation of the 2017 tax return as additional guidance and information become available.
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: | | | Year Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | | | Amount | | | Percentage | | | Amount | | | Percentage | | | Amount | | | Percentage | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal income taxes at the statutory rate | | $ | 5,609 | | | | 35.00 | % | | $ | 2,959 | | | | 34.00 | % | | $ | (4,284 | ) | | | 34.00 | % | Increase (decrease) in income taxes resulting from: | | | | | | | | | | | | | | | | | | | | | | | | | Deferred income tax re-measurement due to Tax Act | | | 2,963 | | | | 18.49 | | | | - | | | | - | | | | - | | | | - | | Other deferred income tax adjustment | | | (241 | ) | | | (1.50 | ) | | | (51 | ) | | | (0.59 | ) | | | (156 | ) | | | 1.24 | | Non-deductible compensation | | | - | | | | - | | | | 459 | | | | 5.27 | | | | - | | | | - | | Non-deductible NHTSA penalty | | | - | | | | - | | | | - | | | | - | | | | 340 | | | | (2.70 | ) | Other nondeductible expenses | | | 156 | | | | 0.97 | | | | 226 | | | | 2.60 | | | | 176 | | | | (1.39 | ) | Domestic manufacturing deduction | | | (504 | ) | | | (3.15 | ) | | | - | | | | - | | | | - | | | | - | | Stock based compensation | | | (394 | ) | | | (2.46 | ) | | | - | | | | - | | | | - | | | | - | | Worthless stock deduction of dissolved subsidiary | | | (966 | ) | | | (6.03 | ) | | | | | | | | | | | | | | | | | State tax expense, net of federal income tax benefit | | | 547 | | | | 3.41 | | | | 68 | | | | 0.78 | | | | (79 | ) | | | 0.63 | | Forfeiture of state net operating loss and credit carry-forwards from dissolution of subsidiary | | | 3,039 | | | | 18.97 | | | | - | | | | - | | | | - | | | | - | | Valuation allowance adjustment | | | (9,544 | ) | | | (59.56 | ) | | | (2,932 | ) | | | (33.69 | ) | | | 9,472 | | | | (75.17 | ) | Unrecognized tax benefit adjustment | | | 314 | | | | 1.96 | | | | 129 | | | | 1.48 | | | | (162 | ) | | | 1.29 | | Federal research and development tax credit | | | (753 | ) | | | (4.70 | ) | | | (801 | ) | | | (9.20 | ) | | | (364 | ) | | | 2.89 | | Other | | | (136 | ) | | | (0.84 | ) | | | 43 | | | | 0.50 | | | | (63 | ) | | | 0.48 | | Total | | $ | 90 | | | | 0.56 | % | | $ | 100 | | | | 1.15 | % | | $ | 4,880 | | | | (38.73 | )% |
| | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | Federal income taxes at the statutory rate | | $ | 17,741 | | | $ | 10,113 | | | $ | 9,901 | | State tax expense, net of federal income tax benefit | | | 2,481 | | | | 1,895 | | | | 577 | | Increase (decrease) in income taxes resulting from: | | | | | | | | | | | | | Tax rate benefit from NOL carryback due to CARES Act | | | 0 | | | | (2,610 | ) | | | 0 | | | Other deferred income tax adjustment | | | 0 | | | | 174 | | | | (75 | ) | Non-deductible compensation | | | 958 | | | | 1,162 | | | | 511 | | | Other non-deductible expenses | | | 0 | | | | 94 | | | | 115 | | | Foreign derived intangible income deduction | | | 0 | | | | 0 | | | | (45 | ) | Stock based compensation | | | (1,504 | ) | | | (666 | ) | | | (136 | ) | | Foreign tax expense | | | 0 | | | | 156 | | | | 128 | | Valuation allowance adjustment | | | (82 | ) | | | (254 | ) | | | 135 | | | Unrecognized tax benefit adjustment | | | 0 | | | | (14 | ) | | | (61 | ) | Federal research and development tax credit | | | (4,413 | ) | | | (329 | ) | | | (591 | ) | | Foreign tax credit | | | 0 | | | | (32 | ) | | | (38 | ) | Other | | | (675 | ) | | | 178 | | | | (66 | ) | Total | | $ | 14,506 | | | $ | 9,867 | | | $ | 10,355 | |
SPARTAN MOTORS,
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: | | | December 31, | | | December 31, | | | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | Deferred income tax assets: | | | | | | | | | | Operating lease liability | | | $ | 10,917 | | | $ | 11,073 | | Warranty reserve | | $ | 3,595 | | | $ | 7,246 | | | 1,330 | | | 1,239 | | Credit carry-forwards, net of federal income tax benefit | | | 317 | | | | 3,199 | | | Inventory costs and reserves | | | 1,792 | | | | 2,194 | | | 1,862 | | | 2,066 | | | Deferment of employer's portion Social Security tax payment | | | 526 | | | 979 | | Contract assets | | | 2,518 | | | 732 | | Stock-based compensation | | | 1,361 | | | 853 | | | Net operating loss carry-forwards, net of federal income tax benefit | | | 880 | | | 1,664 | | Compensation related accruals | | | 663 | | | | 1,512 | | | 609 | | | 549 | | Net operating loss carry-forwards, net of federal income tax benefit | | | 954 | | | | 1,029 | | | Stock based compensation | | | 1,061 | | | | 615 | | | Vendor compensation | | | 507 | | | | - | | | | Credit carry-forwards net of federal income tax benefit | | | 1,332 | | | 1,018 | | Other | | | 409 | | | | 773 | | | | 837 | | | | 445 | | Total deferred income tax assets | | $ | 9,298 | | | $ | 16,568 | | | $ | 22,172 | | $ | 20,618 | | | | | | | | | | | | | | | | | | | | | | | | Deferred income tax liabilities: | | | | | | | | | | Right of use assets | | | $ | (10,682 | ) | | $ | (10,912 | ) | Depreciation | | $ | (1,230 | ) | | $ | (2,294 | ) | | (4,846 | ) | | (2,832 | ) | Intangible assets | | | (574 | ) | | | (840 | ) | | (1,693 | ) | | (879 | ) | Prepaid insurance | | | (152 | ) | | | (522 | ) | | Prepaid expenses | | | | (71 | ) | | | (154 | ) | Total deferred income tax liabilities | | $ | (1,956 | ) | | $ | (3,656 | ) | | $ | (17,292 | ) | | $ | (14,777 | ) | | | | | | | | | | | | Net deferred income tax assets | | $ | 7,342 | | | $ | 12,912 | | | $ | 4,880 | | $ | 5,841 | | Valuation allowance | | | (58 | ) | | | (9,602 | ) | | | 0 | | | (82 | ) | Net deferred tax asset | | $ | 7,284 | | | $ | 3,310 | | | $ | 4,880 | | | $ | 5,759 | |
Based upon an assessment of the available positive and negative evidence at December 31, 2016,2021, we determined whether sufficientthe total deferred income tax assets are more likely than not to be realized based on the consideration of deferred tax liability reversals and projected future taxable income. The valuation allowance for net deferred income would be generated to realize the benefit of the deferred tax assets relates to a state credit carryforward as of December 31, 2016 2020.and recorded a valuation allowance of $9,602 against a portion of the deferred tax assets. A significant portion of negative evidence considered was the cumulative loss incurred over the three-year period ending December 31, 2016. During 2017, the Company determined that based on recent operating results, as well as an assessment of expected future operating results, the realization of its remaining deferred tax assets is more likely than not. As a result, the Company reversed substantially the entire valuation allowance during 2017. The release of the valuation allowance was determined in accordance with the provisions of ASC 740, “Income Taxes,” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
At December 31, 2021 31,2017and 2016,2020, we had state deferred income tax assets related to state tax net operating loss carry-forwards of $1,114, which expire between years $1,2072027-2042, and $1,560,$2,106, which begin expiring in 2019.2021, Also, as ofrespectively. At December 31, 2021 31,2017and 2016,2020, we had deferred income tax assets related to state tax credit carry-forwards of $2,289 which expire between years $4022022-2031, and $4,846,$1,289, which begin expiring in 2026.2021, Due to accumulated losses in several state jurisdictions, we had recorded valuation allowances against certain deferred income tax assets aggregating $58 and $4,228 atrespectively. At December 31, 20172020, and 2016. During 2017due to a current year loss in a certain state NOL and credit carry-forwards were forfeited due to the dissolution of a dormant, wholly-owned subsidiary. As of December 31, 2016, jurisdiction, we had recorded a100% valuation allowance against these carry-forwards. Therefore, the resultant adjustment to deferred tax assets related to the same state’s credit carryforward of $3,039 was fully offset by a reduction in the valuation allowance.$82.
A reconciliation of the change in the unrecognized tax benefits (“UTB”) for the three years ended December 31, 2021, 2017,20162020 and 20152019 is as follows: | | | 2017 | | | 2016 | | | 2015 | | | 2021 | | | 2020 | | | 2019 | | Balance at January 1, | | $ | 345 | | | $ | 349 | | | $ | 481 | | | $ | 1,234 | | | $ | 1,270 | | | $ | 827 | | Increase (decrease) related to prior year tax positions | | | 168 | | | | (24 | ) | | | (73 | ) | | 2,935 | | | (109 | ) | | 103 | | Increase related to current year tax positions | | | 118 | | | | 20 | | | | 91 | | | 1,161 | | | 101 | | | 578 | | Settlement | | | - | | | | - | | | | (110 | ) | | Expiration of statute | | | (66 | ) | | | - | | | | (40 | ) | | | (83 | ) | | | (28 | ) | | | (238 | ) | Balance at December 31, | | $ | 565 | | | $ | 345 | | | $ | 349 | | | $ | 5,247 | | | $ | 1,234 | | | $ | 1,270 | |
As of December 31, 2021, 31,2017,we had an ending UTB balance of $565$5,247 along with $279$530 of interest and penalties, for a total liability of $847, with $117 recorded as a current liability and $730$5,777, of which $5,301 is recorded as a non-current liability based on the applicable statutes of limitations.and $476 as a credit offsetting deferred tax assets. The change in interest and penalties amounted to an increase of $94$199 in 2017,2021, an increase of $133$92 in 2016,2020, and a decrease of $30$209 in 2015,2019, which were reflected in Income tax expense within our Consolidated StatementsStatement of Operations. The total amount of UTB that, if recognized, would impact our effective tax rate is $4,989 in 2021, $1,234 in 2020, and $1,270 in 2019. 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, 2017,2021, we are no longer subject to examination by federal taxing authorities for 20132016 and earlier years. years, however federal carryforwards from 2016 and earlier are open to adjustment. We also file tax returns in a number ofseveral states and those jurisdictions remain subject to audit in accordance with relevant state statutes. These audits can involve complex issues that may require an extended period of time to resolve and may cover multiple years. To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of our reserves, our effective income tax rate in a given fiscal period could be impacted. However, we do not expect such impacts to be material to our financial statements. An unfavorable tax settlement would may require use of our cash and could result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement could result in a reduction in our effective income tax rate in the period of resolution. We do not expect the total amount of unrecognized tax benefitsUTB to significantly increase or decrease over the next twelve months. NOTE 910 - – TRANSACTIONS WITH MAJOR CUSTOMERS Major customers are defined as those with sales greater than 10 percent of consolidated sales in a given year. There were noWe had certain customers that accounted forwhose sales individually represented 10 percent or greatermore of consolidatedthe Company's total sales in 2017.as follows: We had one customer classified as a major customer in 2016 and 2015, which was a customer of the Specialty Chassis and Vehicles segment. Information about our major customer is as follows:
| Year | | Number of major customers | | | Combined percentage of consolidated sales | | | Segment | | 2021 | | | 1 | | | | 25.1 | % | | FVS | | 2020 | | | 1 | | | | 29.3 | % | | FVS | | 2019 | | | 2 | | | | 37.9 | % | | FVS |
2016 | | | 2015 | |
Sales
| | | Accounts
Receivable
(at year end) | | |
Sales
| | | Accounts
Receivable
(at year end) | | | | | | | | | | | | | | | | | | | $ | 70,954 | | | $ | 7,169 | | | $ | 78,749 | | | $ | 8,512 | |
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 1011 - – COMMITMENTS AND CONTINGENT LIABILITIES Under the terms of our credit agreement with our banks, we have the ability to issue letters of credit totaling $20,000. At December 31,2017 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.
At December 31, 2021, 31,2017,we and our subsidiaries were parties, both as plaintiff and defendant, to a number of lawsuits and claims arising out of the normal course of our business.businesses. In the opinion of management, our financial position, future operating results or cash flows will not be materially affected by the final outcome of these legal proceedings. Spartan-Gimaex joint venture
In February2015, Spartan USA and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the Spartan-Gimaex 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-Q. Costs associated with the wind-down will be impacted by the final dissolution agreement. In accordance with accounting guidance, 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 related to the wind-down. While we are unable to determine the final cost of the wind-down with certainty at this time, we may incur additional charges, depending on the final terms of the dissolution, and such charges could be material to our future operating results.
National Highway Traffic Safety Administration (“NHTSA”) penalty
In July 2015, we entered into a settlement agreement with the NHTSA pertaining to our early warning and defect reporting. Under the terms of the agreement we will pay a fine of $1,000 in equal installments over three years, and will complete performance obligations including compliance and regulatory practice improvements, industry outreach, and recalls to remedy safety defects in certain of our chassis. The following table presents the charges recorded in the Condensed Consolidated Statement of Operations during the year ended December 31, 2015 as a result of this agreement:
Cost of products sold | | $ | 1,269 | | Selling, general and administrative | | | 1,000 | | | | | $ | 2,269 | |
Chassis Agreements
Our Fleet Vehicles and Services segment assembles van and truck bodies onto original equipment manufacturer (“OEM”) chassis. The majority of such OEM chassis are purchased directly by our customers from the OEM and drop-shipped to our facilities. We are a bailee of most other chassis under converter pool agreements with the OEMs, as described below. Chassis possessed under converter pool agreements are invoiced to the customer by the OEM or its affiliated financial institution based upon the terms of the converter pool agreements. On an annual basis, we purchase and take title to an immaterial number of chassis that ultimately are recorded as sales and cost of sales. Converter pool chassis obtained from the OEMs are based upon estimated future requirements and, to a lesser extent, confirmed orders from customers. Although each manufacturer’s agreement has different terms and conditions, the agreements generally provide that the manufacturer will provide a supply of chassis to be maintained at our production facility under the conditions that we will store such chassis, will not make any additions or modifications to such chassis and will not move, sell or otherwise dispose of such chassis, except under the terms of the agreement. The manufacturer does not transfer the certificate of origin to us and, accordingly, we account for the chassis in our possession as bailed inventory belonging to the manufacturer.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
We are party to chassis bailment inventory agreements with General Motors Company (“GM”) and Chrysler Group, LLC (“Chrysler”) which allow GM and Chrysler to draw up to $10,000 against our revolving credit line for chassis placed at our facilities. As a result of these agreements, there was $57 and $784 outstanding on our revolving credit line at December 31, 2017 and 2016. Under the terms of the bailment inventory agreements, these chassis never become our property, and the amount drawn against the credit line will be repaid by a GM or Chrysler dealer at the time an order is placed for one of our bodies, utilizing a GM or Chrysler chassis. As such, the chassis, and the related draw on the line of credit, are not reflected in the accompanying Consolidated Balance Sheets. See Note 12Debt, for further information on our revolving line of credit.
Warranty Related We provide limited warranties against assembly/construction defects for periods generally ranging from two years to the life of the product.defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for a specified period following the date of sale. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles. 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 provision and liability to reflect actual experience. The amount of warranty liability accrued reflects our best estimate 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. Our estimates are based on historical experience, the number of units involved and the extent of features and components included in product models.
Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. MaterialInfrequently, a material warranty issuesissue can arise which areis beyond the scope of our historical experience. We provide for any such warranty issues as they become known and are estimable. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters beyond the scope of our historical experience. An estimate of possible penalty or loss, if any, cannot be made at this time. Changes in our warranty liability during the years ended December 31, 20172021 and 20162020 were as follows: | | | 2021 | | | 2020 | | Balance of accrued warranty at January 1 | | $ | 5,633 | | | $ | 5,694 | | Provisions for current period sales | | | 2,211 | | | | 3,587 | | Cash settlements | | | (4,234 | ) | | | (3,205 | ) | Changes in liability for pre-existing warranties | | | 2,076 | | | | (443 | ) | Acquisitions | | | 289 | | | | 0 | | Balance of accrued warranty at December 31 | | $ | 5,975 | | | $ | 5,633 | |
| | | 2017 | | | 2016 | | Balance of accrued warranty at January 1 | | $ | 19,334 | | | $ | 16,610 | | Warranties issued during the period | | | 7,539 | | | | 5,705 | | Cash settlements made during the period | | | (13,854 | ) | | | (10,265 | ) | Changes in liability for pre-existing warranties during the period, including expirations | | | 1,560 | | | | 7,284 | | Assumed warranties outstanding at Smeal on January 1, 2017 | | | 3,689 | | | | - | | Balance of accrued warranty at December 31 | | $ | 18,268 | | | $ | 19,334 | |
NOTE 11 - COMPENSATION INCENTIVE PLANS
We sponsor defined contribution retirement plans which cover all associates who meet length of service and minimum age requirements. Our matching contributions vest over 5 years and were $1,055,$796 and $707 in 2017,2016 and 2015. These amounts are expensed as incurred.
The Spartan Motors, Inc. Incentive Compensation Plan encompasses a quarterly and an annual bonus program. The quarterly program covers certain of our full-time employees. The cash bonuses paid under the quarterly program are equal for all participants. Amounts expensed for the quarterly bonus were $2,193,$3,298 and $1,898 for 2017,2016 and 2015.
The annual bonus provides that executive officers and certain designated managers may earn cash bonuses based on our achievement of pre-defined financial and operational objectives. Amounts expensed for the annual bonus were $4,890,$6,470 and $1,789 for 2017,2016 and 2015.
SPARTAN MOTORS,
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 1132- – DEBT Short-term debt consists of the following: | | | December 31,
2021 | | | December 31,
2020 | | Chassis pool agreements | | $ | 9,926 | | | $ | 6,503 | | Total short-term debt | | $ | 9,926 | | | $ | 6,503 | |
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. 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: | | | December 31,
2017 | | | December 31,
2016 | | | December 31,
2021 | | | December 31,
2020 | | Line of credit revolver (1): | | $ | 17,800 | | | $ | -- | | | Capital lease obligations (See Note 7 – Leases) | | | 189 | | | | 139 | | | Line of credit revolver: | | | $ | 0 | | | $ | 22,400 | | Finance lease obligations | | | 450 | | | 473 | | Other | | | | 540 | | | | 766 | | Total debt | | | 17,989 | | | | 139 | | | 990 | | | 23,639 | | Less current portion of long-term debt | | | (64 | ) | | | (65 | ) | | | (252 | ) | | | (221 | ) | Total long-term debt | | $ | 17,925 | | | $ | 74 | | | $ | 738 | | | $ | 23,418 | |
| (1Line of Credit Revolver On November 30, 2021, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, N.A. ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A., PNC Bank, National Association and 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 $400,000 from the Lenders under a secured revolving credit facility which matures November 30, 2026. We may also request an increase in the facility of up to $200,000 in the aggregate, subject to customary conditions. The credit facility is also available for the issuance of letters of credit of up to $20,000 and swing line loans of up to $10,000, subject to certain limitations and restrictions. This revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted 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 applicable borrowing rate including the margin was 1.10% (or one-month LIBOR plus 1.00%) at December 31, 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 $760 and $525, respectively, related to our workers’ compensation insurance.
| On December 1, 2017, we entered into a First Amendment to the Second Amended and Restated Credit Agreement (the "Credit Agreement") by and among us, certain of our subsidiaries, Wells Fargo Bank, National Association, as administrative agent ("Wells Fargo"), and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A. and PNC Bank (the "Lenders"). Under the Credit Agreement, we may borrow up to $100,000 from the Lenders under a three-year unsecured revolving credit facility. 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. We may also request an increase in the facility of up to $35,000 in the aggregate, subject to customary conditions. This line carries an interest rate of the higher of either (i) the highest of prime rate, the federal funds effective rate plus 0.5%, or the one month adjusted LIBOR plus 1.00%; or (ii) adjusted LIBOR plus margin based upon our ratio of debt to earnings from time to time. In January 2017, we borrowed $32,800 from our credit line to fund our acquisition of Smeal. At December 31, 2017 we had outstanding borrowings of $17,800 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 GM and 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 for further details about these chassis bailment inventory agreements. The applicable borrowing rate including margin was 3.0% (or one-month LIBOR plus 1.5%) at December 31,2017.
|
Under the terms of the primary lineour Credit Agreement, available borrowings (exclusive of credit agreement, as amended, we are requiredoutstanding borrowings) totaled $376,776 and $125,836 at December 31, 2021 and December 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 $66,400 and $73,600 at December 31, 2017 and 2016. The agreement alsocovenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales.sales, all subject to certain exceptions and baskets. At December 31, 2021 31,2017and 2016,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 $22,400 of long-term debt, net of borrowings. NOTE 1143 - – STOCK BASED COMPENSATION We have stock incentive plans covering certain employees and non-employee directors. Shares reserved for stock awards under these plans total 2,856,250.4,056,250. Total shares remaining available for stock incentive grants under these plans totaled 2,057,2901,666,736 at DecDecember ember 31, 2017.2021. We are currently authorized to grant new stock options, restricted stock, restricted stock units, stock appreciation rights and commonperformance stock units under our Stock Incentive Plan of 2016. Stock Options and Stock Appreciation Rights. Granted options and Stock Appreciation Rights (SARs) are generally exercisable for a period of 10 years from the grant date. The exercise price for all options and the base price for all SARs granted have been equal to the market price at the date of grant. Dividends are not paid on unexercised options or SARs. SARs have historically been settled with shares of common stock upon exercise.
We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the fair value of the stock on the date of exercise over the exercise price of the options. As required, we report any excess tax benefits in our Consolidated Statement of Cash Flows as operating cash flows. Excess tax benefits derive from the difference between the tax deduction and the fair market value of the option as determined by the Black-Scholes valuation model.
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) No options were granted in 2017,2016 or 2015, and there was no related compensation expense nor income tax benefit recognized in the corresponding income statements. We have had no outstanding options since December 31, 2015. The total intrinsic value of options exercised during years ended December 31,2017,2016 and 2015, were $0,$0 and $0.
Restricted Stock SARs activity for the year ended December31,2017 is as follows:
| | |
Total Number
of SARs
(000) | | |
Weighted
Average
Grant Date
Fair Value
| | |
Total
Intrinsic
Value
| | | Weighted
Average
Remaining
Contractual
Term (Years) | | SARs outstanding and exercisable at December 31, 2016 | | | 93 | | | $ | 3.20 | | | | | | | | | | Granted and vested | | | - | | | | - | | | | | | | | | | Exercised | | | (61 | ) | | | 3.20 | | | | | | | | | | Cancelled | | | (32 | ) | | | 3.20 | | | | | | | | | | SARs outstanding and exercisable at December 31, 2017 | | | - | | | $ | - | | | $ | - | | | | - | |
No SARs were granted in 2017,2016 or 2015, and there was no related compensation expense nor income tax benefit recognized in the corresponding income statements. The total intrinsic value of SARs exercised during the years ended December 31,2017,2016 and 2015 was $305,$14 and $0.
Restricted Stock Awards.We issue restricted stock, at no cash cost, to our directors, officers and key employees. Shares awarded entitle the shareholder to all rights of common stock ownership except that the shares are subject to the risk of forfeiture and may not be sold, transferred, pledged, exchanged or otherwise disposed of during the vesting period, which is generally three to five years. The unearned stock-based compensation related to restricted stock awards, using the market price on the date of grant, is being amortized to compensation expense over the applicable vesting periods. Cash dividends are paid on unvested restricted stock grants and all such dividends vest immediately.
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 yearyears ended December31, 2017,2021,2020, and 2019, is as follows: | | |
Total
Number of
Non-vested
Shares
(000) | | |
Weighted
Average
Grant Date
Fair Value
| | | Weighted
Average
Remaining
Vesting Life
(Years) | | | Total
Number of
Non-vested
Shares (000) | | | Weighted
Average
Grant Date
Fair Value | | | Weighted
Average
Remaining
Vesting Life
(Years) | | Non-vested shares outstanding at December 31, 2016 | | | 666 | | | $ | 4.25 | | | | | | | | Non-vested shares outstanding at January 1, 2019 | | | 977 | | | $ | 7.97 | | | | | Granted | | | 822 | | | | 7.65 | | | | | | | 279 | | | 9.38 | | | | | Vested | | | (299 | ) | | | 4.53 | | | | | | | (467 | ) | | 7.50 | | | | | Forfeited | | | (61 | ) | | | 6.60 | | | | | | | | (78 | ) | | 12.13 | | | | | Non-vested shares outstanding at December 31, 2017 | | | 1,128 | | | | 6.53 | | | | 0.89 | | | Non-vested shares outstanding at December 31, 2019 | | | | 711 | | | 8.58 | | | 0.9 | | Granted | | | 172 | | | 13.07 | | | | | Vested | | | (460 | ) | | 8.42 | | | | | Forfeited | | | | (53 | ) | | 11.85 | | | | | Non-vested shares outstanding at December 31, 2020 | | | | 370 | | | | 10.02 | | | 1.0 | | Granted | | | 85 | | 36.76 | | | | Vested | | | (230 | ) | | 11.26 | | | | Forfeited | | | | (35 | ) | | 20.45 | | | | Non-vested shares outstanding at December 31, 2021 | | | | 190 | | | $ | 21.81 | | | 1.0 | |
The weighted-average grant date fair value of non-vestednon-vested shares granted was $7.65,$4.01$36.76, $13.07, and $4.86$9.38 for the years ended December 31, 2017,2021, 20162020 and 2015.2019. During 2021,2020 and 2019, we recorded compensation expense, net of cancellations, of $2,542, $2,637, and $3,983, related to restricted stock awards and direct stock grants. The total income tax benefit related to restricted stock awards was $595, $453, and $759 for 2021,2020 and 2019. For the years ended December 31, 2021, 2020 and 2019, restricted shares vested with a fair market value of $1,929, $3,876, and $3,507. As of December 31,2021, we had unearned stock-based compensation of $2,904 associated with these restricted stock grants, which will be recognized over a weighted average of 1.5 years. 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. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) During
30,770, 74,319, and 87,260 of the performance units granted in 2017,2021, 20162020, and 2015,2019, we recorded compensation expense,respectively, are earned based on our three-year cumulative GAAP net income, subject to such adjustments as approved by the Company’s Human Resources and Compensation Committee in its sole discretion (Net Income PSUs), which is a performance condition. 7,814, 28,505, and NaN of cancellations, ofthe performance units granted in $3,536,2021, $1,5362020, and $1,198,2019, relatedrespectively, were based on certain performance criteria, subject to restrictedsuch adjustments as approved by the Company’s Human Resources and Compensation Committee in its sole discretion (Exceptional Performance PSUs), which is a performance condition. The number of shares that may be earned under the Net Income PSUs and Exceptional Performance PSUs can range from 0% to 200% of the target amount. The Net Income PSUs and Exceptional Performance PSUs are expensed and recorded in Common stock awards and direct stock grants. The total income tax benefit recognized inon the Consolidated StatementsBalance Sheets over the performance period based on the probability that the performance conditions will be met. The expense recorded will be adjusted as the estimate of Operations relatedthe total number of Net Income PSUs and Exceptional Performance PSUs that will ultimately be earned changes. The grant date fair value per unit is equal to restrictedthe closing price of the Company’s stock awards wason the date of grant. 46,156, 111,475, and 130,888 of the performance units granted in $1,238,2021, $5382020, and $4192019, respectively, are earned based on achievement of certain total shareholder return results relative to a comparison group of companies ("TSR PSUs"), which is a market condition. The number of shares that may be earned under the TSR PSUs can range from 0% to 200% of the target amount. The TSR PSUs are expensed and recorded in Common stock on the Consolidated Balance Sheets over the performance period. 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 2017,2021, $18.08 per unit in 20162020, and $13.71 per unit in 2015.2019. For The Monte Carlo simulation was computed using the following assumptions: | | | Granted in 2021 | | Granted in 2020 | | Granted in 2019 | Three-year risk-free interest rate (1) | | | 0.29 | % | | | 0.27 | % | | | 2.37 | % | Expected term (in years) | | | 2.8 | | | | 2.7 | | | | 2.7 | | Estimated volatility (2) | | | 61.9 | % | | | 58.2 | % | | | 53.7 | % |
(1) | Based on the U.S. government bond benchmark on the grant date. |
(2) | Represents the historical price volatility of the Company’s common stock for the three-year period preceding the grant date. |
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, 2017,2021, 20162020, and 2015,2019, is as follows: | | | Total Number of Non-vested Shares (000) | | | Weighted- Average Grant Date Fair Value per Unit | | | Non-vested as of January 1, 2019 | | | 0 | | | $ | 0 | | | Granted | | | 218 | | | | 11.82 | | | Non-vested as of December 31, 2019 | | | 218 | | | | 11.82 | | | Granted | | | 214 | | | | 15.28 | | | Forfeited | | | (22 | ) | | | 11.82 | | Non-vested as of December 31, 2020 | | | 410 | | | | 13.63 | | Granted | | | 85 | | | | 48.08 | | | Forfeited | | | (12 | ) | | | 26.94 | | Non-vested as of December 31, 2021 | | | 483 | | | $ | 19.33 | |
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 vested with a fair marketof common stock. RSUs are expensed and recorded in Common stockon the Consolidated Balance Sheets over the requisite service period based on the value of $1,356,$1,248 and $1,528. When the fair value of restrictedunderlying shares is lower on the date of grant. Upon vesting, than that previously expensedthe dividend equivalents are paid in the form of cash at the discretion of the Human Resources and Compensation Committee. The RSU expense and associated tax benefit for book purposes, an excess tax liability is booked. all outstanding awards for the year ended December 31, 2021 was $2,540 and $499, respectively, for the year ended December 31, 2020 was $1,752 and $362, respectively, and for the year ended December 31, 2019 was $656 and $130, respectively. As of December 31, 2021 31,2017, we had unearned stock-basedthere was $3,159 of remaining unrecognized compensation of $4,399 associated with these restricted stock grants,cost related to non-vested RSUs, which willis expected to be recognized over a weighted averageweighted-average period of 0.891.4 years. The RSU activity for the years ended December 31, 2021, 2020, and 2019, is as follows: | | | Total Number of Non-vested Shares (000) | | | Weighted- Average Grant Date Fair Value per Unit | | | Non-vested as of January 1, 2019 | | | 0 | | | $ | 0 | | | Granted | | | 182 | | | | 8.98 | | | Non-vested as of December 31, 2019 | | | 182 | | | | 8.98 | | | Granted | | | 194 | | | | 13.45 | | | Forfeited | | | (6 | ) | | | 16.17 | | | Vested | | | (158 | ) | | | 9.56 | | Non-vested as of December 31, 2020 | | | 212 | | | | 12.43 | | Granted | | | 111 | | | | 36.76 | | | Forfeited | | | (3 | ) | | | 37.09 | | | Vested | | | (119 | ) | | | 14.08 | | Non-vested as of December 31, 2021 | | | 201 | | | $ | 24.51 | |
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 95%90% of the fair market value of the shares on the purchase date. A maximum of 750,000 shares are authorized for purchase until the ESPP termination date of February 24, 2021, or earlier termination of the ESPP.purchase. During the years ended December 31, 20172021, 2020,and 2016,2019, we received proceeds of $98$389, $198, and $86$231 for the purchase of 9,00011,000, 12,000, and 13,00022,000 shares under the ESPP. NOTE 1154 – SHAREHOLDERS EQUITY InOn October 2011, our Board of Directors authorized the repurchase of up to 1 million shares of the Company’s common stock. In April 28, 2016, our Board of Directors authorized the repurchase of up to 11.0 million additional shares of our common stock and terminated the in open market transactions.
October 2011 authorization effective
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, 20172021 and 20162020 under thesethe share repurchase programs.program. Year Ended December 31, | | Shares purchased (000) | | | Purchase value | | | Remaining shares allowable to be purchased | | 2021 | | | 100 | | | $ | 3,348 | | | | 409 | | 2020 | | | 300 | | | | 7,503 | | | | 509 | |
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. Share purchase programs | | | 2017 | | | 2016 | | | | | | Authorized amount (shares) (000) | | Date approved by board | | Program termination
date | | | Shares purchased (000) | | | Purchase value | | | Shares purchased (000) | | | Purchase value | | | Remaining shares allowable to be purchased | | | 1,000 | | October, 2011 | | | June 30, 2016 | | | | - | | | $ | - | | | | 422 | | | $ | 2,000 | | | | - | | | 1,000 | | April, 2016 | | | N/A | | | | - | | | $ | - | | | | - | | | $ | - | | | | 1,000 | |
NOTENOTE 1165 – EARNINGS PER SHARE
The table below reconciles basic weighted average common shares outstanding to diluted weighted average shares outstanding for 2017,2021, 20162020, and 20152019 (in thousands). TheBasic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share also include the dilutive effect of additional potential common shares issuable from stock-based awards and are determined using the treasury stock awards noted as antidilutive were notmethod. Basic earnings per share represents net earnings divided by basic weighted average number of common shares outstanding during the period. Diluted earnings per share represents net earnings divided by diluted weighted average number of common shares outstanding, which includes the average dilutive effect of all potentially dilutive securities that are outstanding during the period. Our unvested restricted stock units and performance stock units are included in the diluted (in the casenumber of stock options) or basic (in the case of unvested restricted stock awards) weighted average common shares outstanding. Although these stock awards were not included in our calculation of basic oroutstanding for diluted earnings per share (“EPS”), they may havecalculations, unless a dilutive effect onnet loss is reported, in which situation unvested stock awards are excluded from the EPS calculation in future periods if the pricenumber of our common stock increases.shares outstanding for diluted earnings per share calculations. | | Year Ended December 31,
| | | | 2017
| | | 2016
| | | 2015
| | Basic weighted average common shares outstanding
| | | 34,949 | | | | 34,405 | | | | 33,826 | | | | | | | | | | | | | | | Diluted weighted average common shares outstanding
| | | 34,949 | | | | 34,405 | | | | 33,826 | | | | | | | | | | | | | | | Antidilutive stock awards:
| | | | | | | | | | | | | Unvested restricted stock awards
| | | - | | | | - | | | | 403 | |
| | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | Basic weighted average common shares outstanding | | | 35,333 | | | | 35,479 | | | | 35,318 | | Plus dilutive effect of Restricted Stock Units and Performance Stock Units | | | 764 | | | | 560 | | | | 98 | | Diluted weighted average common shares outstanding | | | 36,097 | | | | 36,039 | | | | 35,416 | |
NOTE 1176 - – BUSINESS 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, and Specialty Chassis and Vehicles. SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) As a result of a realignment of our operating segments completed during the second quarter of 2017, 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. Another realignment of our operating segments was completed during the second quarter of 2016, whereby 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. Appropriate expense amounts are allocated to the three reportable segments and are included in their reported operating income or loss.
Beginning in 2017, weWe evaluate the performance of our reportable segments based on Adjusted EBITDA. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is defined as earningsincome from continuing operations before interest, income taxes, depreciation and amortization, as adjusted by other adjustments made in order to present comparable results from period to period. These adjustments include restructuring charges and items related to our acquisition of Smeal, such as expenses incurred to complete the acquisition,eliminate the impact of fair valuerestructuring charges, acquisition related expenses and adjustments, to inventory acquired from Smeal,non-cash stock-based compensation expenses, and the impact on the timing of the recognition of gross profit for our chassis that are utilized by our recently acquired Smeal operations. We exclude these items from earnings when presenting our Adjusted EBITDA measure because we believe they will be incurred infrequently and/or are otherwiseother gains and losses not indicativereflective of our ongoing operations.
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 segment's regular, ongoing operating performance. For those reasons, Adjusted EBITDA is also used as a performance metricpart of SV. Corresponding items of segment information for our executive compensation program, as discussed in our proxy statement for our 2017 annual meeting of shareholders, which proxy statement was filed with the SEC on April 13, 2017.earlier periods have been recast. 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,Indiana; Landisville, Pennsylvania; North Charleston, South Carolina; Charlotte, Michigan locations along with our operations at our up-fitupfit centers in Kansas City, MissouriMissouri; North Charleston, South Carolina; and Saltillo, Mexico andMexico. The segment focuses on designing and manufacturing walk-in vans for the parcel delivery, mobile retail, and trades and construction industries, and the production of commercial truck bodies, and distributesthe distribution of related aftermarket parts and accessories. 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 and distributes related aftermarket parts and accessories. Our Specialty Chassis and Vehicles SV 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. 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.
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 makers to assess segment performance and allocate resources, and accordingly, are excluded from the segment results presented below. Sales to customers outside the United States were $81,157,$31,716$11,657, $9,461, and $40,058$21,361 for the years ended December 31, 2017,2021, 20162020, and 2015,2019, or 11.5%1.2%,5.4% 1.4%, and 7.3%2.8%, respectively, of sales for those years. All of our long-lived assets are located in the United States. Sales and other financial information by business segment are as follows: Year Ended December31, 20120217 | | | Segment | | | | | | | | | Fleet Vehicles and Services | | | Emergency Response Vehicles | | | Specialty Chassis and Vehicles | | | Other | | | Consolidated | | Fleet vehicles sales | | $ | 207,666 | | | $ | - | | | $ | 5,657 | | | $ | (5,657 | ) | | $ | 207,666 | | Emergency response vehicles sales | | | - | | | | 293,559 | | | | - | | | | - | | | | 293,559 | | Motor home chassis sales | | | - | | | | - | | | | 124,584 | | | | - | | | | 124,584 | | Other specialty vehicles sales | | | - | | | | - | | | | 18,416 | | | | - | | | | 18,416 | | Aftermarket parts and accessories sales | | | 43,429 | | | | 9,291 | | | | 10,153 | | | | - | | | | 62,873 | | Total sales | | $ | 251,095 | | | $ | 302,850 | | | $ | 158,810 | | | $ | (5,657 | ) | | $ | 707,098 | | Depreciation and amortization expense | | $ | 3,361 | | | $ | 2,342 | | | $ | 1,314 | | | $ | 2,920 | | | $ | 9,937 | | Adjusted EBITDA | | | 26,958 | | | | 3,192 | | | | 14,058 | | | | (12,881 | ) | | | 31,327 | | Segment assets | | | 60,550 | | | | 133,546 | | | | 33,700 | | | | 73,368 | | | | 301,164 | | Capital expenditures | | | 562 | | | | 1,364 | | | | 386 | | | | 3,028 | | | | 5,340 | |
| | | Segment | | | | | FVS | | | SV | | | Eliminations and Other | | | Consolidated | | Fleet vehicles sales | | $ | 624,874 | | | $ | 0 | | | $ | 0 | | | $ | 624,874 | | Motor home chassis sales | | | 0 | | | | 168,166 | | | | 0 | | | | 168,166 | | Other specialty vehicles sales | | | 0 | | | | 145,134 | | | | 0 | | | | 145,134 | | Aftermarket parts and accessories sales | | | 34,558 | | | | 19,060 | | | | 0 | | | | 53,618 | | Total sales | | $ | 659,432 | | | $ | 332,360 | | | $ | 0 | | | $ | 991,792 | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | $ | 2,654 | | | $ | 6,832 | | | $ | 1,870 | | | $ | 11,356 | | Adjusted EBITDA | | | 108,621 | | | | 32,668 | | | | (33,223 | ) | | | 108,066 | | Segment assets | | | 174,799 | | | | 202,302 | | | | 70,766 | | | | 447,867 | | Capital expenditures | | | 16,647 | | | | 4,198 | | | | 2,163 | | | | 23,008 | |
SPARTAN MOTORS,THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data)
Year Ended December31, 20120206 | | | Segment | | | | | | | | | Fleet Vehicles and Services | | | Emergency Response Vehicles | | | Specialty Chassis and Vehicles | | | Other | | | Consolidated | | Fleet vehicles sales | | $ | 206,248 | | | $ | - | | | $ | 5,347 | | | $ | (5,347 | ) | | $ | 206,248 | | Emergency response vehicles sales | | | - | | | | 175,730 | | | | - | | | | - | | | | 175,730 | | Motor home chassis sales | | | - | | | | - | | | | 97,999 | | | | - | | | | 97,999 | | Other specialty vehicles sales | | | - | | | | - | | | | 21,074 | | | | - | | | | 21,074 | | Aftermarket parts and accessories sales | | | 72,141 | | | | 7,251 | | | | 10,334 | | | | - | | | | 89,726 | | Total sales | | $ | 278,389 | | | $ | 182,981 | | | $ | 134,754 | | | $ | (5,347 | ) | | $ | 590,777 | | Depreciation and amortization expense | | $ | 3,185 | | | $ | 1,143 | | | $ | 789 | | | $ | 2,786 | | | $ | 7,903 | | Adjusted EBITDA | | | 31,237 | | | | (7,542 | ) | | | 8,334 | | | | (9,159 | ) | | | 22,870 | | Segment assets | | | 65,277 | | | | 77,887 | | | | 28,825 | | | | 71,305 | | | | 243,294 | | Capital expenditures | | | 2,011 | | | | 1,558 | | | | 6,842 | | | | 2,999 | | | | 13,410 | |
| | | Segment | | | | | FVS | | | SV | | | Eliminations and Other | | | Consolidated | | Fleet vehicles sales | | $ | 428,499 | | | $ | 0 | | | $ | 0 | | | $ | 428,499 | | Motor home chassis sales | | | 0 | | | | 107,849 | | | | 0 | | | | 107,849 | | Other specialty vehicles sales | | | 0 | | | | 94,633 | | | | 0 | | | | 94,633 | | Aftermarket parts and accessories sales | | | 34,956 | | | | 10,036 | | | | 0 | | | | 44,992 | | Total sales | | $ | 463,455 | | | $ | 212,518 | | | $ | 0 | | | $ | 675,973 | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | $ | 3,018 | | | $ | 6,323 | | | $ | 4,562 | | | $ | 13,903 | | Adjusted EBITDA | | | 83,292 | | | | 20,900 | | | | (27,846 | ) | | | 76,346 | | Segment assets | | | 118,444 | | | | 190,306 | | | | 50,299 | | | | 359,049 | | Capital expenditures | | | 9,423 | | | | 4,263 | | | | 2,260 | | | | 15,946 | |
Year Ended December31, 20120195 | | | Segment | | | | | | | | | Fleet Vehicles and Services | | | Emergency Response Vehicles | | | Specialty Chassis and Vehicles | | | Other | | | Consolidated | | Fleet vehicles sales | | $ | 193,772 | | | $ | - | | | $ | 2,996 | | | $ | (2,996 | ) | | $ | 193,772 | | Emergency response vehicles sales | | | - | | | | 187,127 | | | | - | | | | - | | | | 187,127 | | Motor home chassis sales | | | - | | | | - | | | | 103,264 | | | | - | | | | 103,264 | | Other specialty vehicles sales | | | - | | | | - | | | | 13,849 | | | | - | | | | 13,849 | | Aftermarket parts and accessories sales | | | 33,911 | | | | 6,093 | | | | 12,398 | | | | - | | | | 52,402 | | Total sales | | $ | 227,683 | | | $ | 193,220 | | | $ | 132,507 | | | $ | (2,996 | ) | | $ | 550,414 | | Depreciation and amortization expense | | $ | 3,308 | | | $ | 914 | | | $ | 730 | | | $ | 2,485 | | | $ | 7,437 | | Adjusted EBITDA | | | 17,569 | | | | (8,689 | ) | | | 8,833 | | | | (5,538 | ) | | | 12,175 | | Segment assets | | | 70,491 | | | | 76,030 | | | | 24,032 | | | | 60,118 | | | | 230,671 | | Capital expenditures | | | 1,323 | | | | 1,010 | | | | 859 | | | | 1,703 | | | | 4,895 | |
| | | Segment | | | | | FVS | | | SV | | | Eliminations and Other | | | Consolidated | | Fleet vehicles sales | | $ | 485,831 | | | $ | 5,278 | | | $ | (5,278 | ) | | $ | 485,831 | | Motor home chassis sales | | | 0 | | | | 127,130 | | | | 0 | | | | 127,130 | | Other specialty vehicles sales | | | 0 | | | | 61,259 | | | | 0 | | | | 61,259 | | Aftermarket parts and accessories sales | | | 71,871 | | | | 10,451 | | | | 0 | | | | 82,322 | | Total sales | | $ | 557,702 | | | $ | 204,118 | | | $ | (5,278 | ) | | $ | 756,542 | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | $ | 2,168 | | | $ | 2,402 | | | $ | 1,503 | | | $ | 6,073 | | Adjusted EBITDA | | | 59,227 | | | | 22,152 | | | | (17,334 | ) | | | 64,045 | | Segment assets | | | 137,446 | | | | 154,469 | | | | 67,897 | | | | 359,812 | | Capital expenditures | | | 2,743 | | | | 2,328 | | | | 2,525 | | | | 7,596 | |
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The table below presents the reconciliation of our consolidated income before taxes to total segment Adjusted EBITDA. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income. Adjusted EBITDA may have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, although we have excluded certain charges in calculating Adjusted EBITDA, we may in the future incur expenses similar to these adjustments, despite our assessment that such expenses are infrequent and/or not indicative of our regular, ongoing operating performance. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or infrequent items.
| | | Year Ended December 31, 2017 | | | Year Ended December 31, 2016 | | | Year Ended December 31, 2015 | | Total segment adjusted EBITDA | | $ | 44,208 | | | $ | 32,029 | | | $ | 17,713 | | Add (subtract): | | | | | | | | | | | | | Interest expense | | | (864 | ) | | | (410 | ) | | | (365 | ) | Depreciation and amortization expense | | | (9,937 | ) | | | (7,903 | ) | | | (7,437 | ) | Restructuring expense | | | (1,252 | ) | | | (1,095 | ) | | | (2,855 | ) | Acquisition expense | | | (1,354 | ) | | | (882 | ) | | | - | | Impact of intercompany chassis shipments to Smeal | | | (2,073 | ) | | | - | | | | - | | Recall expense | | | 368 | | | | (3,457 | ) | | | (8,600 | ) | Impact of inventory fair value step-up | | | (189 | ) | | | - | | | | - | | Joint venture expenses | | | (2 | ) | | | (14 | ) | | | (1,015 | ) | Asset impairment | | | - | | | | (406 | ) | | | (2,234 | ) | NHTSA settlement | | | - | | | | - | | | | (2,269 | ) | Unallocated corporate expenses | | | (12,881 | ) | | | (9,159 | ) | | | (5,538 | ) | Consolidated income (loss) before taxes | | $ | 16,024 | | | $ | 8,703 | | | $ | (12,600 | ) |
NOTE 17 – RELATED PARTY TRANSACTIONS
On January 1, 2017, we completed the acquisition of substantially all of the assets and certain liabilities of Smeal Fire Apparatus Co., Smeal Properties, Inc., Ladder Tower Co., and U.S. Tanker Co. pursuant to an Asset Purchase Agreement dated December 12,2016 (see Note 2,Acquisition Activities for further information). As of December 31, 2016, the total amount of receivables due from the former owners of Smeal was $7,391. This balance was forgiven as part of the acquisition on January 1, 2017. Sales to the former owners of Smeal were $30,748 and $32,600 in 2016 and 2015.
John Forbes, who retired from Spartan Motors on June 30, 2017, served as the President of our Fleet Vehicles and Services segment as well as on the Board of Directors of Patrick Industries, Inc. During the year ended December 31, 2016, we made purchases of $4,009 from subsidiaries of Patrick Industries, Inc. for parts used in the manufacture of our products. These purchases were made through a competitive bid process at arms-length. Purchases made from Patrick Industries, Inc. during John Forbes employment at Spartan Motors during 2017 were immaterial.
Richard Dauch, who serves on the Spartan Motors Board of Directors, is the Chief Executive Officer of Accuride, Inc. During the years ended December 31, 2017 and 2016, we made purchases of $698 and $836 from Accuride Distributing, a subsidiary of Accuride, Inc., for parts used in the manufacture of our products. These purchases were made through a competitive bid process at arms-length.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December31,2017 and 2016 is as follows (full year amounts may not sum due to rounding):
| | | 2017 Quarter Ended | | | 2016 Quarter Ended | | | | | Mar 31 | | | June 30 | | | Sept 30 | | | Dec 31 | | | Mar 31 | | | June 30 | | | Sept 30 | | | Dec 31 | | Sales | | $ | 167,075 | | | $ | 169,739 | | | $ | 189,215 | | | $ | 181,068 | | | $ | 133,726 | | | $ | 162,537 | | | $ | 148,664 | | | $ | 145,850 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | 16,394 | | | | 19,501 | | | | 28,651 | | | | 24,689 | | | | 15,820 | | | | 20,807 | | | | 18,010 | | | | 17,890 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges | | | 642 | | | | 325 | | | | 232 | | | | 52 | | | | 339 | | | | 227 | | | | 304 | | | | 224 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings (loss) attributable to Spartan Motors, Inc. | | | (1,098 | ) | | | 1,124 | | | | 13,470 | | | | 2,439 | | | | 543 | | | | 4,379 | | | | 2,745 | | | | 942 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic net earnings (loss) per share | | | (0.03 | ) | | | 0.03 | | | | 0.38 | | | | 0.07 | | | | 0.02 | | | | 0.13 | | | | 0.08 | | | | 0.03 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted net earnings (loss) per share | | | (0.03 | ) | | | 0.03 | | | | 0.38 | | | | 0.07 | | | | 0.02 | | | | 0.13 | | | | 0.08 | | | | 0.03 | |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None. Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. An evaluation was performed under the supervision and
Our management, with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, ofhas evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as of December 31, 2017. Based on andamended (the “Exchange Act”)), as of the timeend of such evaluation, our management, including the Chief Executive Officerperiod covered by this Annual Report and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.December 31, 2021.
Management’sManagement’s Report on Internal Control Over Financial Reporting.Reporting
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 such term is definednecessary to permit preparation of financial statements in Exchange Act Rules 13a-15(f)accordance with generally accepted accounting principles, and 15d-15(f). that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Under the supervision of and with the participation of our management, including ourthe Chief Executive Officer and the Chief Financial Officer, wethe Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the framework in Internal Control - Control—Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO). Based on thatthis evaluation, our management concluded that ourthe Company's internal control over financial reporting was effective as of December 31, 2017. The2021. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of ourthe Company’s internal control over financial reporting as of December 31, 2017 has been audited by BDO USA, LLP, an independent registered public accounting firm,2021, as stated in its attestationtheir report which is included herein. Remediation of Previously Reported Material Weaknesses in Item 8Internal Control over Financial Reporting 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: | • | There was insufficient management review of certain non-routine journal entries and account reconciliations related to the divestiture within our Charlotte, MI location. | | • | The design and implementation of internal controls related to business combination accounting. Specifically, the controls over the DuraMag transaction were not designed effectively as it relates to the determination of the fair value of and accounting for assets acquired and liabilities assumed. |
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 incorporated into this Item 9A by reference.documented and maintained to support management’s conclusions over business combination accounting, fair value, asset acquisition and assumed liabilities resulting from a business combination. Business acquisition, divestiture, and business combination controls were evaluated, updated, and designed in 2021 to ensure fair value of and accounting for assets acquired and liabilities assumed are properly designed to mitigate the associated risks over the internal controls for financial reporting. 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 Overover Financial Reporting.Reporting NoIn response to the COVID-19 pandemic, we have required certain employees, some of whom are involved in the operation of our internal controls over financial reporting, to work from home. Despite this change and other than the remediation efforts discussed above, there have been no changes in our internal control over financial reporting were identified as havingthat occurred during the quarter ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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. Item 9B. | Other Information. |
None. Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not applicable. PART III Item 10. | Directors, Executive Officers, and Corporate Governance. |
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. |
