- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 31, 1997
SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 0-13611 38-2078923
(State or Other Jurisdic- (Commission (IRS Employer
tion of Incorporation) File Number) Identification No.)
1000 REYNOLDS ROAD
CHARLOTTE, MICHIGAN 48813
(Address of Principal Executive Offices) (Zip Code)
(517) 543-6400
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
ITEM 7(C) FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) The following Financial Statements of Business Acquired required
by this Item follow on pages 3 to 38 and are filed as part of this report.
(i) Carpenter Industries, LLC (formerly Carpenter Manufacturing,
Inc.)
- Report of Independent Auditors
- Balance Sheets as of December 31, 1996 and 1995
- Statements of Operations for the Fiscal Years Ended December
31, 1996 and 1995
- Statement of Changes in Owners' Equity (Deficit) for the
Fiscal Years Ended December 31, 1996 and 1995
- Statements of Cash Flows for the Fiscal Years ended December
31, 1996 and 1995
- Notes to Financial Statements for the Fiscal Years ended
December 31, 1996 and 1995
(ii) Carpenter Manufacturing, Inc.
- Report of Independent Auditors
- Statements of Operations and Retained Deficit for the Fiscal
Years ended December 31, 1994 and 1993
- Balance Sheets as of December 31, 1994 and 1993
- Statements of Cash Flows for the Fiscal Years ended December
31, 1994 and 1993
- Notes to Financial Statements for the Fiscal Years ended
December 31, 1994 and 1993
(b) The PRO FORMA Financial Information required by this Item follows
on pages 39 to 41 and is filed as part of this report.
- PRO FORMA Consolidated Income Statements for the Fiscal Year
ended December 31, 1996 (unaudited)
- PRO FORMA Consolidated Balance Sheets for the Fiscal Year ended
December 31, 1996 (unaudited)
- Notes to PRO FORMA Financial Statements
(c) Exhibits:
23.1 Consent of Birk Gross Bell & Coulter, P.C. dated March 27, 1997.
23.2 Consent of Crowe, Chizek and Company dated March 31, 1997.
-2-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPARTAN MOTORS, INC.
Dated: March 31, 1997 By /S/ RICHARD J. SCHALTER
Richard J. Schalter
Secretary and Treasurer
-3-
[BIRK GROSS BELL & COULTER, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Carpenter Industries, Inc.
Richmond, Indiana
Board of Directors
Carpenter Industries, LLC
Indianapolis, Indiana
We have audited the accompanying balance sheets of Carpenter Industries,
LLC (formerly Carpenter Manufacturing, Inc.) as of December, 31, 1996 and
1995 and the related statements of operations, cash flows and changes in
owners' deficit for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statements presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carpenter Industries,
LLC as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 2, on January 6, 1997, the Company completed the sale
and transfer of substantially all its bus manufacturing operations into a
newly formed entity, Carpenter Industries, Inc.
/s/ Birk Gross Bell & Coulter, P.C.
March 2, 1997
-4-
CARPENTER INDUSTRIES, LLC
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
ASSETS
Current assets: 1996 1995
----------- -----------
Cash $ 14,112 $ 19,380
Accounts receivable, net of
allowance for doubtful accounts of $1,630,877;
1996 and $858,787; 1995 (Notes 6 and 7) 10,047,753 1,419,822
Inventories (Notes 6, 7 and 8) 27,573,282 32,413,078
Prepaid expenses and other current assets 1,315,585 340,092
Deferred tax asset (Note 10) -- 3,150,000
----------- -----------
Total current assets 38,950,732 37,342,372
----------- -----------
Property, plant and equipment
(Notes 3 and 8):
Land 323,157 98,590
Building and improvements 3,148,372 612,041
Machinery and equipment 6,178,264 5,972,955
----------- -----------
9,649,793 6,683,586
Less accumulated depreciation and
amortization (3,360,481) (2,410,741)
----------- -----------
6,289,312 4,272,845
=========== ===========
Other assets:
Investment in unconsolidated subsidiary
held for sale (Note 2) -- 38,802
Other assets 222,568 243,346
----------- -----------
222,568 282,148
----------- -----------
$45,462,612 $41,897,365
=========== ===========
-5-
LIABILITIES AND OWNERS' DEFICIT
1996 1995
----------- -----------
Current liabilities:
Amount due bank (Note 5) $ 1,234,046 $ 947,830
Line of credit (Note 6) 7,000,000 3,396,546
Notes payable (Note 7) 129,806 --
Note payable, Newcourt (Note 7) 36,285,278 31,665,285
Current portion of long-term debt (Note 8) 1,546,538 2,670,539
Current portion of capital leases (Note 3) 60,101 56,140
Accounts payable 12,119,537 10,763,684
Customer deposits 246,467 145,511
Accrued compensation and payroll taxes 359,678 530,044
Other accrued liabilities (Note 13) 3,661,081 3,327,548
Note payable, member (Note 7) 6,149,020 --
----------- -----------
Total current liabilities 68,791,552 53,503,127
----------- -----------
Long-term liabilities, net of current portion:
Long term debt (Note 8) 3,939,180 13,199,125
Capital leases (Note 3) 177,948 172,514
----------- -----------
4,117,128 13,371,639
----------- -----------
Commitments and contingencies
(Notes 2, 7, 13, 14 and 15) -- --
Owners' deficit (Note 2):
Common stock, no par value; 1,100 shares
authorized, and 350 shares issued and outstanding -- 200,000
LLC members capital 16,570,608 --
Accumulated deficit (44,016,676) (25,177,401)
----------- -----------
(27,446,068) (24,977,401)
----------- -----------
$45,462,612 $41,897,365
=========== ===========
See notes to financial statements.
-6-
CARPENTER INDUSTRIES, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
Sales $ 80,466,987 $ 88,387,121
Competitive allowance (12,424,101) (14,538,057)
------------ ------------
Net sales 68,042,886 73,849,064
Cost of goods sold 80,748,629 85,414,323
------------ ------------
Gross margin (loss) (12,705,743) (11,565,259)
Selling, general and administrative expenses 5,318,296 3,556,810
------------ ------------
Operating loss (18,024,039) (15,122,069)
Other income (expense):
Gain on sale of subsidiary (Note 2) 7,658,890 --
Interest expense (5,621,072) (3,548,013)
Other income (expense) 317,462 (352,814)
Equity in earnings of unconsolidated
subsidiary (Note 2) (8,473) 38,802
------------ ------------
2,346,807 (3,862,025)
------------ ------------
Loss before income taxes (15,677,232) (18,984,094)
Income taxes benefit (expense) (Note 10) (3,162,043) 3,150,000
------------ ------------
Net loss $(18,839,275) $(15,834,094)
============ ============
See notes to financial statements.
-7-
CARPENTER INDUSTRIES, LLC
STATEMENT OF CHANGES IN OWNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
ADDITIONAL
COMMON PAID IN MEMBERS ACCUMULATED
STOCK CAPITAL EQUITY DEFICIT
-------- ------------ ----------- ------------
Balance at December 31, 1994 $200,000 $ -- $ -- $ (9,343,307)
1995 net loss -- -- -- (15,834,094)
-------- ------------ ----------- ------------
Balance at December 31, 1995 200,000 -- -- (25,177,401)
Contribution of debt to paid in
capital, June 1996 (Note 2) -- 15,910,325 -- --
Liquidation of Carpenter
Manufacturing, Inc. and
contribution to Carpenter
Industries, LLC (Note 2) (200,000) (15,910,325) 16,110,325 --
Withdrawals of members capital,
November, 1996 -- -- (7,697,717) --
Contribution of debt to members
capital, December, 1996 -- -- 8,158,000 --
1996 net loss -- -- -- (18,839,275)
-------- ------------ ----------- ------------
Balance at December 31, 1996 $ -- $ -- $16,570,608 $(44,016,676)
======== ============ =========== ============
See notes to financial statements.
-8-
CARPENTER INDUSTRIES, LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss $(18,839,275) $(15,834,094)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 974,992 768,740
Gain on sale of subsidiary and other assets (7,944,669) --
Deferred tax provision 3,150,000 (3,150,000)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (8,627,931) 840,978
Inventories 4,839,796 (9,108,713)
Prepaid expenses and other current assets (975,493) 193,280
Other assets 20,778 (65,507)
Increase (decrease) in:
Accounts payable 1,355,853 1,030,322
Customer deposits 100,956 145,511
Accrued compensation and payroll taxes (170,366) (155,905)
Accrued expenses and other current liabilities 333,533 2,178,618
------------ ------------
Total adjustments (6,942,551) (7,322,676)
------------ ------------
Net cash used in operating activities (25,781,826) (23,156,770)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary 7,697,718 --
Proceeds from sale of property and equipment 359,100 --
Increase in investment in subsidiary -- (38,802)
Purchase of property and equipment (3,064,806) (2,706,778)
------------ ------------
Net cash provided by (used in) investing activities 4,992,012 (2,745,580)
------------ ------------
-9-
Cash flows from financing activities:
Debt borrowings 22,773,292 15,243,634
Withdrawal of capital (7,697,718) --
Net change in amount due bank and note payable 8,639,470 20,438,841
Payments on long-term debt (2,939,893) (9,941,391)
Borrowings from capital lease 75,924 205,467
Payments on capital leases (66,529) (41,490)
------------ ------------
Net cash provided by financing activities 20,784,546 25,905,061
------------ ------------
Net change in cash (5,268) 2,711
Cash, beginning of year 19,380 16,669
------------ ------------
Cash, end of year $ 14,112 $ 19,380
============ ============
Supplemental cash flow information:
Interest paid $ 5,267,681 $ 2,771,365
============ ============
Supplemental schedule of non-cash investing and financing transactions:
On June 27, 1996, the shareholders of Carpenter Manufacturing, Inc.
contributed all loans then outstanding to the Company as additional paid in
capital. The effect of this transaction was to reduce long-term debt and
increase paid in capital by $15,910,325.
In December 1996, the members of Carpenter Industries, LLC contributed to
capital $8,158,000 of outstanding loans. The effect of this transaction
was to increase members capital and decrease notes payable to $8,158,000.
See notes to financial statements.
-10-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF
BUSINESS:
DESCRIPTION OF BUSINESS.
Carpenter Industries, LLC, formerly Carpenter Manufacturing, Inc. (the
Company) is a manufacturer of school bus bodies. The bus bodies may
be attached to either a dealer-provided or a Company-provided chassis.
The bodies are sold, on an unsecured basis, through a nationwide
network of exclusive Carpenter dealers. The Company was originally
incorporated in Indiana in 1990 and was reorganized in June, 1996 and
is located in Richmond, Indiana, (headquarters and primary
manufacturing facility), and Mitchell, Indiana (manufacturing
facility). During 1995, the headquarters and primary manufacturing
facility moved to Richmond, Indiana (See Note 2).
CONSOLIDATION.
The financial statements include the accounts of Carpenter Industries,
LLC (Parent Company) only. The investment in a majority-owned
affiliate where control was "temporary" (Curtis International, Inc.)
was accounted for on the equity method. The Company's share of the
affiliates' earnings for 1995 and 1996, prior to the sale of the
investment are included in the statement of operations. This
investment was sold in November, 1996 (See Note 2).
BUSINESS, CREDIT AND OTHER CONCENTRATIONS.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade
receivables. The Company's customers are not concentrated in any one
specific geographic region. The credit risk associated with trade
receivables within this specific industry may be affected by changes
in economic or other conditions and may, accordingly, impact the
Company's overall credit risk. The Company reviews a customers
credit history before extending credit. A provision for doubtful
accounts is established based on review of specific customer accounts
as needed.
During 1996 and 1995, one customer accounted for approximately 15% and
13% of the Company's sales, respectively. One other customer
-11-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED):
accounted for approximately 15% of 1996 sales, while another customer
accounted for approximately 16% of 1995 sales.
The Company currently purchases a substantial portion of chassis for
the forward control style bus (a significant component of its product)
from one supplier. (See Note 2.) Company provided chassis for all
other bus styles are purchased from Ford, Chevrolet and GMC authorized
dealers.
INVENTORIES.
Inventories are stated at the lower of cost or market, cost being
determined based on standard cost which approximates the first-in,
first-out (FIFO) method.
Inventories consisted of the following at December 31, 1996 and 1995:
1996 1995
----------- -----------
Raw materials $12,902,085 $12,026,867
Chassis 8,809,534 8,023,688
Work in process on-line 870,006 260,405
Work in process off-line 8,217,542 14,328,003
Less reserve for obsolete inventory (3,225,885) (2,225,885)
----------- -----------
$27,573,282 $32,413,078
=========== ===========
PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment are recorded at cost less accumulated
depreciation. Expenditures for maintenance, repairs and minor
renewals are charged to expense in the period incurred. Improvements
-12-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED):
and major renewals are capitalized. The cost of property, plant and
equipment sold or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts, and the resulting gain
or loss is reflected in other income and expense. Depreciation is
provided for on a straight-line basis over the estimated useful lives
of the various classes of assets as follows:
Building and improvements 7 - 25 years
Machinery and equipment 3 - 7 years
Depreciation expense was $974,992 and $768,740 for the years ending
December 31, 1996 and 1995, respectively.
INCOME TAXES.
The Company is a Limited liability company (LLC). For income tax
purposes, an LLC is treated similar to a partnership. Accordingly,
income, losses and other tax-related transactions are recognized by
the individual members and no provision for state or federal taxes are
recognized in the accompanying financial statements for the period the
Company has operated as an LLC.
Prior to becoming an LLC, the Company accounted for income taxes in
accordance with Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" (SFAS 109), as required. SFAS 109
provides for current and deferred tax liabilities and assets utilizing
an asset and liability approach along with a valuation allowance as
appropriate. (See Note 10.)
ESTIMATES.
The timely preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
-13-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED):
disclosures. Actual results could differ from those estimates.
Estimates are used when accounting for allowances for doubtful
accounts, inventory obsolescence, product warranty, depreciation and
amortization, taxes and contingencies.
PRODUCT WARRANTIES.
Estimated future costs applicable to products sold under warranties
are charged to expense in the year of sale.
RECLASSIFICATIONS.
Certain amounts reported in 1995 have been reclassified to conform to
the 1996 classifications.
2. CORPORATE REORGANIZATION, RESTRUCTURING, ACQUISITIONS AND
DISPOSITIONS:
CORPORATE RESTRUCTURING.
PLANT RELOCATION. During 1995, the Board of Directors voted to
move its' major production operations from the Mitchell, Indiana,
facility to a plant leased in Richmond, Indiana. Production began in
Richmond during the fall of 1995. Costs associated with closing the
Mitchell production facility and related relocation costs have been
recorded in the results of operations for 1995.
On November 12, 1996, the Company purchased the Richmond facility
for $2,500,000 from the City of Richmond, Indiana.
CONTRIBUTION OF PAID IN CAPITAL. On June 27, 1996, the
shareholders of the Company agreed to contribute all outstanding loans
through June 22, 1996 as paid in capital to Carpenter. The Curtis
Publishing Company contributed $14,410,285 to paid in capital and Dr.
Buert R. SerVaas contributed $1,500,040 to paid in capital.
PLAN OF LIQUIDATION AND ORGANIZATION OF CARPENTER INDUSTRIES,
LLC. On June 28, 1996, the shareholders and directors of Carpenter
-14-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. CORPORATE REORGANIZATION, RESTRUCTURING, ACQUISITIONS AND DISPOSITIONS
(CONTINUED):
Manufacturing, Inc. adopted a Plan of Complete Liquidation of
Carpenter Manufacturing, Inc., with all assets distributed, in kind to
the shareholders, subject to all debts and liabilities of the Company.
In addition, a liquidating trust was set up to pay claims and receive
any uncollected claims, contingent assets or other assets of the
Company which may be converted to cash or distributed directly to the
shareholders within the terms of the Trust.
On June 28, 1996, the former shareholders of Carpenter
Manufacturing, Inc., formed Carpenter Industries, LLC (LLC), an
Indiana limited liability company to engage in the business of
manufacturing buses and other automotive products. The former
shareholders of Carpenter Manufacturing, Inc. (now the LLC members)
contributed to LLC these assets subject to all debts and liabilities
for their respective percentage interests as members in the LLC.
Carpenter Industries, LLC is continuing the business formerly
operated by Carpenter Manufacturing, Inc. This transaction was
accounted for as a reorganization of entities under common control in
accordance with APB No. 16. Consequently, it has no material effect
on the recorded amounts (historical cost) or presentation of the
Company's financial statements.
ACQUISITION AND SALE OF UNCONSOLIDATED SUBSIDIARY. Effective
January 1, 1995, the Company acquired an 80% interest in Curtis
International, Inc. and its foreign subsidiaries (CII) from the
Curtis Publishing Company (Curtis), a related party (owned 100% by Dr.
Buert R. SerVaas), in exchange for 150 newly issued shares of
Carpenter Manufacturing, Inc. This transaction was treated as a
reorganization of affiliated entities with common ownership and
control. Furthermore, the shares of Carpenter Manufacturing, Inc.
had no determinable fair market value, consequently the original
investment was recorded at no cost.
On November 21, 1996, the Company sold their interest in CII to
the 20% minority shareholder of CII for $7,697,717. The gain on the
sale of this investment was $7,658,890. Since control of CII was
temporary, the investment was accounted for using the equity method as
of December 31, 1995 in accordance with Statement of Financial
-15-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. CORPORATE REORGANIZATION, RESTRUCTURING, ACQUISITIONS AND DISPOSITIONS
(CONTINUED):
Accounting Standards No. 94 and was classified as an asset held for
sale in the accompanying balance sheet.
The Company's 80% share of the income (loss) from the investment
in CII in 1996 and 1995 was $(8,473) and $38,802, respectively.
NET ASSET SALE AND REORGANIZATION (SUBSEQUENT EVENTS).
On January 6, 1997, the Company completed the transfer of
substantially all bus manufacturing operations located in Richmond,
Indiana into a newly formed entity, Carpenter Industries, Inc. as
part of a tax free reorganization. Carpenter Industries, LLC was
renamed Curtis Coach & Equipment, LLC. The manufacturing facility in
Mitchell, Indiana, where certain tool and die, parts fabrication and
bus rework operations are conducted were not transferred and remain as
continuing operations of Curtis Coach & Equipment, LLC. In addition,
certain semi-finished buses and related parts (approximately 490
buses) were excluded from the assets transferred along with associated
direct floor plan inventory debt payable to Newcourt Financial USA,
Inc. (See Notes 7 and 15.) In exchange for the transfer of the bus
manufacturing operations, the Company received a 33 1/3 percent equity
interest in Carpenter Industries, Inc. Carpenter Industries, Inc.
agreed to assume all liabilities of the Company except liabilities
related to the Mitchell facilities, the Newcourt inventory financing
arrangement on all semi-finished buses as well as product warranty and
liability claims on such semi-finished buses. Recovery Equity
Investors, II, L.P. purchased a 33 1/3 percent interest in Carpenter
Industries, Inc., for $10,000,000. Spartan Motors, Inc., a major
supplier of chassis for the forward control style bus, purchased a
33 1/3 percent interest in Carpenter Industries, Inc., for an
additional $10,000,000.
The following condensed Pro-forma balance sheet of Carpenter
Industries, LLC as of December 31, 1996, illustrates the effects of
the sale and transfer of substantially all assets, subject to
liabilities from LLC to Carpenter Industries, Inc.:
-16-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. CORPORATE REORGANIZATION, RESTRUCTURING, ACQUISITIONS AND DISPOSITIONS
(CONTINUED):
Pro-Forma Balance Sheet
Carpenter Industries, LLC
December 31, 1996
(Amounts in Thousands)
PRO-FORMA
HISTORICAL ADJUSTMENTS PRO-FORMA
---------- ----------- ---------
ASSETS
Current assets $38,951 $(30,643) $ 8,308
Property, plant and
equipment, net 6,289 (5,883) 406
Other assets 223 (223) --
------- -------- --------
Total assets $45,463 $(36,749) $ 8,714
======= ======== ========
LIABILITIES AND OWNERS' DEFICIT
Current liabilities $68,792 $(58,092) $ 10,700
Non-current liabilities 4,117 (4,117) --
------- -------- --------
Total liabilities 72,909 (62,209) 10,700
------- -------- --------
LLC members' capital 16,571 -- 16,571
Accumulated deficit (44,017) 25,460 (18,557)
------- -------- --------
Total owners' deficit (27,446) 25,460 (1,986)
------- -------- --------
Total liabilities and
owners' deficit $45,463 $(36,749) $ 8,714
======= ======== ========
-17-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
3. CAPITAL LEASE OBLIGATIONS:
Certain of the Company's equipment leases qualify as capital leases.
The Company has included these leases in property, plant and equipment
as follows:
Machinery and equipment $ 374,595
Accumulated amortization (126,320)
---------
Net leased machinery and equipment $ 248,275
=========
The following is a schedule by year of future minimum lease payments
under these capital leases together with the present value of net
minimum lease payments at December 31, 1996:
YEAR AMOUNT
---- ------
1997 $ 67,625
1998 73,596
1999 66,703
2000 62,921
2001 1,505
--------
Total minimum lease payments 272,350
Amounts representing interest (34,301)
--------
Present value of minimum lease payments $238,049
========
-18-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
4. OPERATING LEASES:
The Company leases property and equipment under operating lease
agreements. Leases generally provide that the Company shall pay the
cost of utilities, insurance, taxes and maintenance except for the
building lease in Richmond, Indiana under which the City of Richmond
was required to pay under the terms of the lease. This lease was
terminated on November 12, 1996 when the Company purchased the
building (See Notes 2 and 8). Rent expense for the years ended
December 31, 1996 and 1995 was $341,329 and $547,527 which includes
$208,824 and $188,157, respectively, paid to SerVaas, Inc., a related
party. (See Notes 2 and 9.)
A summary of the future minimum operating lease obligations follows:
YEAR ENDING DECEMBER 31,
------------------------
1997 $ 60,611
1998 45,970
1999 42,096
2000 27,983
2001 1,217
--------
$177,877
========
5. AMOUNTS DUE BANK:
Amounts due bank represent amounts for checks written and released but
not presented to the bank for payment.
-19-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
6. LINE OF CREDIT:
At December 31, 1996, the Company had available a line of credit
provided as a joint facility with Wayne Bank, N.A. and Peoples Bank,
N.A. This credit facility provided for borrowings equal to the lesser
of $7,000,000 or the borrowing base as defined. Interest is payable
monthly at prime plus 1% and prime plus 1.25% for Wayne Bank, N.A. and
Peoples Bank, N.A., respectively (9.25% and 9.5%, respectively at
December 31, 1996). Borrowings under this facility are collateralized
by raw material inventory and accounts receivable, and all general
intangibles and guaranteed by SerVaas, Inc., Dr. Buert R. SerVaas and
Timothy S. Durham. At December 31, 1996, the Company had $7,000,000
outstanding under this facility.
At December 31, 1995, the Company had outstanding $3,396,546 under a
credit facility with Star Bank. This facility was refinanced on March
5, 1996.
7. NOTES PAYABLE:
SHORT-TERM NOTES:
Note payable officer, unsecured no stated
interest rate. Paid in full, January, 1997. $ 19,806
Note payable to former distributor, payable
in monthly installments of $15,000 plus
interest at 10% through August, 1997. 110,00
--------
$129,806
========
NOTE PAYABLE, NEWCOURT.
The note payable to Newcourt Financial USA, Inc. (Newcourt)
permits borrowings secured by bus body units in advance of shipment
under the Company line of credit. In addition, the agreement permits
the Company to borrow additional amounts to finance bus bodies
-20-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. NOTES PAYABLE (CONTINUED):
manufactured for specific dealers from lines of credit held by these
dealers. The Company pays monthly interest payments on all bus units
financed at prime plus 1.5% (9.75% at December 31, 1996) until date of
shipment. Subsequent to shipment, the Company pays interest on the
Company line units until such time the debt is paid in accordance with
the terms described below. In addition, the Company pays interest on
the "Dealer line" units for a period of thirty to sixty days after
shipment based on the terms with the individual dealers. Newcourt
also advances borrowings to the Company for chassis purchased from
one of its primary suppliers (Spartan Motors, Inc.), with those
monies going directly to Spartan Motors, Inc.
The Company also borrows on the Newcourt facility to purchase
Chevrolet and GMC chassis from various dealers. All advances
described above are due and payable the earlier of: 1) receipt of
proceeds from the sale by the Company; 2) three hundred sixty days
after the date of the loan. This loan is guaranteed by SerVaas, Inc.
and The Curtis Publishing Company.
As of December 31, 1996, the Company had delivered certain buses
without remitting payment to Newcourt within specified terms and
uncollected monies on certain open accounts receivable from its
dealers on buses sold and financed by Newcourt under the terms of its
credit lines. Such amounts totalling $6,132,644 had not been
disbursed to Newcourt as required under the terms of the loan
agreement as described above. The members of the LLC have provided a
note receivable backed by an irrevocable letter of credit for
$3,000,000 to Newcourt to secure this amount.
The agreement with Newcourt also includes a repurchase and
remarketing provision. Under this provision, the Company may be
required by Newcourt to repurchase previously sold units on which
dealers have defaulted. As of December 31, 1996, the total amount
subject to repurchase obligation for Carpenter sold bus bodies was
approximately $5,900,000. Historically, losses under this repurchase
provision have not been significant.
-21-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. NOTES PAYABLE (CONTINUED):
NOTE PAYABLE, MEMBER.
The note payable to member of $6,149,020 at December 31, 1996 is
due January 13, 1997. This note was renewed on January 13, 1997 at
an interest rate of 2% over prime, payable on demand and is unsecured.
8. LONG-TERM DEBT AT DECEMBER 31, 1996 AND 1995 CONSISTS OF:
1996 1995
---------- -----------
Various notes payable to SerVaas, Inc., and
Dr. Buert R. SerVaas; subordinated to Wayne
Bank & Trust; debt contributed as paid in
capital in June, 1996 (See Note 2). $ -- $11,120,548
Notes payable to Harsco Corporation; one requires
quarterly installments of $38,298; the other monthly
installments of $84,545; both including interest at
8%; due August 1999 and June 1997, respectively;
secured by equipment and inventory purchased
and guaranteed by SerVaas, Inc. $ 831,559 $ 1,893,220
Term notes, payable in monthly payments of
$3,385 and $2,050, including interest at the
Wall Street Journal published rate plus 1% (9.25%
at December 31, 1996) and 4%, respectively;
secured by specified equipment and guaranteed
by Dr. Buert SerVaas, Tim Durham (President
to Carpenter Industries, LLC) and SerVaas, Inc. 245,350 286,790
Payable to Creditors' Committee of Carpenter
Body Works, Inc., single payment of $500,000 due
April, 1996; unsecured; noninterest-bearing with
interest imputed at 11.5%; plus interest at a rate of
15% after June 1, 1996. (See Note 14). 543,750 473,183
-22-
Distributorship settlement to EDM Corporation;
$100,417 due March, 1996 and additional $100,000
due in monthly payments of $4,387 including interest
at 5% commencing March, 1996; due February, 1998.
(See Note 14). 55,403 200,417
Note payable to Newcourt Financial Corporation;
monthly installments of $30,907 including interest
at 8.56%; due December, 2000. Secured by
equipment and guaranteed by SerVaas, Inc. 1,247,881 1,499,374
Note payable to the City of Richmond; interest only
at 4.5% for 120 months principal due in balloon
payment November 12, 2006; secured by first
mortgage on property. 2,500,000 --
Notes payable to vendors, and bank interest from
10-12%; paid off in 1996. -- 381,084
Various other notes payables, monthly installments
ranging from $548 to $638 including interest from
8.4% to 9.5% through April 2001, one note requires
a balloon payment of $18,223 due November 13,
2000, loans secured by vehicles. 61,775 15,048
---------- -----------
5,485,718 15,869,644
Current maturities 1,546,538 2,670,539
---------- -----------
Long-term debt, net $3,939,180 $13,199,125
========== ===========
-23-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
8. LONG-TERM DEBT AT DECEMBER 31, 1996 AND 1995 CONSISTS OF (CONTINUED):
Scheduled principal payments are due on the outstanding long-term debt
as follows:
YEAR AMOUNT
---- ----------
1997 $1,546,538
1998 509,102
1999 467,051
2000 436,801
2001 26,226
Thereafter 2,500,000
----------
$5,485,718
==========
9. RELATED PARTY TRANSACTIONS:
During 1996 and 1995, the Company had certain transactions with
various companies which share common management and ownership. These
transactions consisted primarily of working capital loans to
supplement operations (see Notes 2 and 8) and direct expense
reimbursements. In addition, the Company has two leases with SerVaas,
Inc., that have been classified as operating leases (see Note 4). The
Company also had a note payable to an officer of $19,806 at December
31, 1996 and a note payable to a member (owner) of $6,149,020 (See
Note 7).
10. INCOME TAXES:
On June 28, 1996, the Company was reorganized as a Limited Liability
Company (LLC) (See Note 2). The members of an LLC are taxed
individually on the Company's taxable income as a Partnership.
Accordingly, no provision for income taxes relating to the period
after June of 1996 are included in the financial statements.
-24-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
10. INCOME TAXES (CONTINUED):
Prior to June 28, 1996, deferred tax assets and liabilities were
recognized for the expected future tax consequences of events that had
been recognized in the Company's financial statements or tax returns
when it was in corporate form in accordance with SFAS No. 109.
The provision for income tax (expense) benefit includes:
1996 1995
----------- ----------
State tax related to corporate tax returns $ (12,043) $ --
Reduction of deferred tax asset valuation
allowance for the realization of a net
operating loss carryforward -- 3,150,000
Federal income tax expense recognized
upon corporate liquidation and sale
of subsidiary (3,150,000) --
----------- ----------
$(3,162,043) $3,150,000
=========== ==========
The deferred tax asset of $3,150,000 was recognized based on the tax
impact of the corporate liquidation and reorganization as described in
Note 2 which resulted in utilizing approximately $7,683,000 of the net
operating loss carryforwards. This amount was recognized as federal
income tax expense upon corporate liquidation in June 1996.
-25-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
11. DEFINED CONTRIBUTION PLAN:
The Company sponsors a defined contribution profit sharing plan with
401(k) provisions for all employees of the corporation who have met
certain requirements for participation. Employees may make
contributions to the plan up to the lesser of 15% of their annual
salary or the maximum allowable by the Internal Revenue Code ($9,500
in 1996). The Company may make discretionary contributions to the
plan as determined by the Board of Directors. The Company made
contributions to the plan totalling $62,254 in the year ended December
31, 1996 and no contributions to the plan for the year ended
December 31, 1995.
12. SELF INSURED HEALTH PLAN:
The Company self insures its group health plan. The annual liability
for each employee is limited to $125,000 by a stop loss insurance
policy. The Company is liable for claims that have occurred but are
unreported and unprocessed. Such claims as of December 31, 1996 and
1995 have been estimated at $250,052 and $335,100, respectively and
have been recorded in the financial statements.
13. POSTRETIREMENT HEALTHCARE AND OTHER BENEFITS:
The Company provides certain healthcare and life insurance benefits
for certain retired employees under the terms of a collective
bargaining agreement for the Mitchell, Indiana location.
In December, 1990, the Financial Accounting Standards Board issued
guidance which requires companies to accrue such costs during employee
service periods. The total estimated unfunded post retirement benefit
expense accrued at December 13, 1996 and 1995 is $245,000.
-26-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
14. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENT.
In the normal course of business, the Company enters into
agreements to purchase materials for use in the manufacture of its
buses. As of December 31, 1996, such commitments include the purchase
of a number of chassis used for small bus production. The chassis are
located at both the Richmond, Indiana facility and with a manufacturer
of small buses in Canada which the Company uses as a supplier. Under
this arrangement, upon sale of a bus built on one of the provided
chassis, the Company is invoiced for the chassis cost plus a fee
charged by the chassis dealer. At December 31, 1996, the Company had
on hand approximately 200 chassis subject to this arrangement. Total
costs to purchase these chassis upon completion of bus units they are
to be built on is approximately $3,400,000. Costs related to this
arrangement to be paid upon purchase of the chassis of approximately
$191,000 has been included in the 1996 financial statements.
EMPLOYMENT MATTERS.
The Company is the defendant in several lawsuits involving
employment matters including allegations regarding hiring and
termination procedures. Management believes these suits will be
settled without a material effect on the financial statements.
Accordingly, no provision for potential liability relating to these
suits have been recorded in the financial statements.
CREDITORS' COMMITTEE OF CARPENTER BODY WORKS, INC.
On November 6, 1996, the Creditors' Committee of Carpenter Body
Works, Inc sued the Company for nonpayment of a promissory note of
$500,000 plus interest at 15% from June 1, 1996. The full amount of
the liability has been recorded, and the Company is currently
negotiating a settlement of this action.
SETTLED LITIGATION.
During 1996, the Company settled a $400,000 lawsuit relating to
damages awarded to the plaintiff arising out of a 1991 accident
involving a Carpenter bus. The Company's product liability insurance
-27-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
14. COMMITMENTS AND CONTINGENCIES (CONTINUED):
is covering all amounts incurred related to this suit in excess of
$250,000. The financial statements include a provision in the amount
of $51,448 as of December 31, 1996 for the Company's unpaid portion of
losses expected under the self insured retention clause of the policy.
This amount has been recorded in other accrued liabilities.
During 1996, the Company reached a settlement in a suit involving
a former distributor of the Company relating to the termination of the
plaintiff's distributorship. The settlement of $200,417 has been
included in the 1995 results of operations and recorded as long-term
debt. (See Note 8).
In addition, during 1996, the Company's insurance carrier settled
a suit on the Company's behalf relating to an action filed in 1995.
The settlement amount paid by the insurance company of $79,500 is
below the Company's self insured retention amount and the insurer has
made a demand on the Company for payment of $79,500. Management's
position is that the settlement was excessive and to date the Company
has not paid the insurance company. The financial statements include
a provision recorded in other accrued liabilities of $79,500 related
to this settlement.
OTHER LITIGATION.
The Company is also a defendant in a lawsuit filed by a former
Carpenter distributor on July 26, 1996 alleging "constructive
termination" of its distributorship, and seeking actual and punitive
damages. The Plaintiffs initial demand was $25,000,000. The Company
has filed an answer denying liability under all counts brought by the
plaintiff and the parties are currently involved in discovery efforts.
Management believes the suit is without merit and intends to
vigorously defend its position against all claims. However, it is not
possible to predict at this time the extent of the Company's
liability, if any. Therefore, no provision for any liability relating
to this suit has been included in the financial statements.
The Company is a defendant in several additional lawsuits
relating to product liability claims. Plaintiffs alleged damages from
-28-
CARPENTER INDUSTRIES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
14. COMMITMENTS AND CONTINGENCIES (CONTINUED):
$15,000 to $250,000. Certain of these suits are covered under the
provisions of the Company's product liability insurance. The Company
also has reached an agreement with a supplier to be indemnified in one
suit. While it is not feasible to predict the outcome of these suits,
management believes the ultimate outcome will not have a material
effect on the Company's financial statements. Accordingly, no
provision for any potential liability relating to these suits have
been included in the financial statements.
COLLECTIVE BARGAINING AGREEMENTS.
Approximately 80% of the Company's non-management employees are
covered by collective bargaining agreements that expire December,
1999, and are renewable from year to year unless either party desires
to terminate the agreement sixty days prior to the expiration date or
any subsequent anniversary date.
GENERAL.
In the normal court of business, the Company is subject to
various claims, assessments and litigation. In the opinion of
management, losses, if any, resulting from current litigation and
other contingencies would not have a material effect on the
accompanying financial statements.
15. SUBSEQUENT EVENTS:
As described in Note 2 to the financial statements, the Company sold
substantially all of its assets subject to its liabilities. Assets
retained by the Company included approximately 490 semi-finished buses
and the related Newcourt floor plan debt of approximately $10,417,000.
The terms of the asset sale agreement requires the Company to complete
the semi-finished buses which are then sold to Carpenter Industries,
Inc. (CII). Upon completion of a bus and sale to CII, the related
Newcourt floor plan debt transfers to CII. The Company does remain
contingently liable for buses completed and considered undeliverable.
As of the date of this report, the Company has approximately 209 semi-
finished buses and $5,847,000 of related floor plan debt remaining.
-29-
CROWE CHIZEK
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Carpenter Manufacturing, Inc.
Mitchell, Indiana
We have audited the accompanying balance sheets of Carpenter Manufacturing,
Inc. as of December 31, 1994 and 1993, and the related statements of
operations and retained deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carpenter
Manufacturing, Inc. as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Crowe, Chizek and Company
Crowe, Chizek and Company
Indianapolis, Indiana
March 10, 1995, except for
Notes 4, 5 and 10 as to which
the date is March 5, 1996.
-30-
CARPENTER MANUFACTURING, INC.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
Years ended December 31, 1994 and 1993
1994 1993
---- ----
% to % to
AMOUNT SALES AMOUNT SALES
------ ----- ------ -----
GROSS SALES $ 97,043,998 100.0% $ 78,031,825 100.0%
Competitive allowance (14,346,886) (14.8) (10,726,611) (13.7)
------------ ----- ------------ -----
NET SALES 82,697,112 85.2 67,305,214 86.3
Cost of goods sold 81,496,521 84.0 67,331,702 86.3
------------ ----- ------------ -----
GROSS MARGIN 1,200,591 1.2 (26,488) -
Selling, general and administrative
expenses 3,143,280 3.2 2,444,695 3.1
------------ ----- ------------ -----
OPERATING LOSS (1,942,689) (2.0) (2,471,183) (3.1)
Other income (expense)
Miscellaneous income 300,634 .3 190,810 .2
Loss on sale of receivables
(Note 2) - - (551,187) (.7)
Loss on arbitration settlement
(Note 10) (286,687) (.3) - -
Interest expense (1,966,137) (2.0) (1,625,933) (2.1)
------------ ----- ------------ -----
(1,952,190) (2.0) (1,986,310) (2.6)
------------ ----- ------------ -----
LOSS BEFORE INCOME TAXES (3,894,879) (4.0) (4,457,493) (5.7)
Income taxes (Note 9) - - - -
------------ ----- ------------ -----
NET LOSS (3,894,879) (4.0)% (4,457,493) (5.7)%
===== =====
Retained deficit at beginning of
year (5,448,428) (990,935)
------------ ------------
RETAINED DEFICIT AT END OF YEAR $ (9,343,307) $ (5,448,428)
============ ============
See accompanying notes to financial statements.
-31-
CARPENTER MANUFACTURING, INC.
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
---- ----
ASSETS
Current assets
Cash $ 16,670 $ 45,812
Accounts receivable, net of allowance for
doubtful accounts of $54,000 in 1994
and $30,000 in 1993 (Notes 2 and 4) 2,260,800 2,530,704
Inventories (Notes 1 and 4) 23,304,365 22,170,688
Prepaid expenses 471,914 523,411
Notes receivable (Note 3) 15,174 33,952
Other current assets 46,285 248,308
------------ ------------
26,115,208 25,552,875
Property, plant and equipment (Notes 4, 5, and 6)
Land 98,590 98,590
Building and improvements 642,086 633,462
Machinery and equipment 3,110,599 2,854,781
Construction in process 376,958 -
------------ ------------
4,228,233 3,586,833
Accumulated depreciation 1,845,477 1,255,460
------------ ------------
2,382,756 2,331,373
Other assets
Organization costs - net of amortization 21,799 43,596
Covenant not to compete - net of amortization 6,667 26,667
Other assets 101,402 137,489
------------ ------------
129,868 207,752
------------ ------------
$ 28,627,832 $ 28,092,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
Current liabilities
Note payable to bank (Note 4) $ 14,462,706 $ 16,298,617
Current portion of long-term debt (Note 5) 339,174 214,518
Current portion of capital leases (Note 6) 41,951 64,699
Accounts payable 9,733,361 10,509,033
Accounts payable, related party (Note 8) 1,108,114 -
-32-
Accrued compensation and payroll taxes 685,950 552,385
Other current liabilities 1,148,932 1,001,951
------------ ------------
27,520,188 28,641,203
Long-term liabilities
Long-term debt - net of current portion (Note 5) 10,228,247 4,634,026
Capital leases - net of current portion (Note 6) 22,704 65,199
------------ ------------
10,250,951 4,699,225
Shareholder's equity (deficit)
Common stock, no par value; 1,100 shares
authorized and 200 shares issued and
outstanding 200,000 200,000
Retained deficit (9,343,307) (5,448,428)
------------ ------------
(9,143,307) (5,248,428)
------------ ------------
$ 28,627,832 $ 28,092,000
============ ============
See accompanying notes to financial statements.
-33-
CARPENTER MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994 and 1993
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,894,879) $ (4,457,593)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization 700,816 607,609
Bad debt expense 32,577 55,745
Capitalized interest expense 168,197 357,537
Gain on sale of property and equipment (36,582) (77,662)
Changes in assets and liabilities
Accounts receivable 237,327 (10,563)
Inventories (1,133,677) (2,031,176)
Unbilled receivables - 531,045
Prepaid expenses 51,497 (43,708)
Other current assets 202,023 (194,748)
Other assets 36,087 (79,488)
Accounts payable 332,442 3,109,431
Accrued compensation and payroll taxes 133,565 39,349
Other current liabilities 146,981 441,041
------------ ------------
Net cash from operating activities (3,023,626) (1,753,081)
CASH FLOWS FROM INVESTING ACTIVITIES
Note receivable collections 18,778 128,130
Purchase of property and equipment (903,028) (1,559,252)
Proceeds from sale of property and equipment 229,208 918,808
------------ ------------
Net cash from investing activities (655,042) (512,314)
CASH FLOWS FROM FINANCING ACTIVITIES
Checks written in excess of bank balance - (364,722)
Net change in note payable to bank (1,835,911) 16,298,617
Net change in note payable to bank - (15,100,000)
Long-term debt borrowings 5,777,078 3,259,215
Payments on long-term debt (226,398) (1,714,794)
Payments on capital leases (65,243) (67,109)
------------ ------------
Net cash from financing activities 3,649,526 2,311,207
------------ ------------
Net change in cash (29,142) 45,812
-34-
Cash at beginning of year 45,812 -
------------ ------------
CASH AT END OF YEAR $ 16,670 $ 45,812
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year for
Interest $ 1,966,137 $ 1,625,933
Income taxes $ - $ 38,378
See accompanying notes to financial statements.
-35-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY: Carpenter Manufacturing, Inc. (the Company) is a
manufacturer of school bus bodies and chassis. The bodies may be attached
to either a dealer-provided or a company-produced chassis. The buses are
sold, on an unsecured basis, through a nationwide network of exclusive
Carpenter dealers. The Company was incorporated in 1990 and is located in
Mitchell, Indiana (headquarters and primary manufacturing facility) and
Richmond, Indiana (chassis manufacturing facility) (Note 10).
ACCOUNTS RECEIVABLE: A provision for credit losses on customer accounts is
made in amounts required to maintain an adequate allowance to cover
anticipated losses. The customer accounts are charged against the
allowance when they are determined to be uncollectible.
INVENTORIES: Inventories are stated at the lower of cost or market, cost
being determined by the first-in, first-out (FIFO) method.
Inventories consisted of the following at December 31, 1994 and 1993:
1994 1993
---- ----
Raw materials $ 6,812,071 $ 6,421,126
Work in process on-line 1,942,397 1,462,624
Work in process off-line 7,116,053 8,123,927
Finished chassis 5,644,075 3,241,443
Finished bodies 1,789,769 2,921,568
------------ ------------
$ 23,304,365 $ 22,170,688
============ ============
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost less accumulated depreciation. Expenditures for maintenance, repairs
and minor renewals are charged to expense in the period incurred.
Betterments and major renewals are capitalized. The cost of property,
plant and equipment sold or otherwise disposed of and the accumulated
depreciation applicable thereto are eliminated from the accounts, and the
resulting gain or loss is reflected in current earnings. Depreciation is
-36-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provided for on a straight-line basis over the estimated useful lives of
the various classes of assets as follows:
Buildings and improvements 7 - 25 years
Machinery and equipment 3 - 7 years
Depreciation expense was $659,019 and $565,812 for the years ended December
31, 1994 and 1993.
ORGANIZATIONAL COSTS: Costs incurred in the formation of the Company have
been capitalized and are being amortized on a straight-line basis over 60
months. Amortization expense was $21,797 for the years ended December 31,
1994 and 1993.
COVENANT NOT TO COMPETE: As part of the purchase of Carpenter Body Works,
Inc. in April 1990, the Company entered into a covenant not to compete with
an officer of the predecessor company. The covenant requires the Company
to pay the officer $1,667 each month for the 60 month term of the
agreement. The $100,000 covenant is being amortized on a straight-line
basis over the five year term of the agreement. Amortization expense was
$20,000 for the years ended December 31, 1994 and 1993.
INCOME TAXES: Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the bases of assets and liabilities for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available
to offset future taxable income and tax credits that are available to
offset future federal income taxes.
A valuation allowance is recorded, if necessary, to reduce net deferred tax
assets to the amount considered more likely than not to be realizable.
PRODUCT WARRANTIES: Estimated future costs applicable to products sold
under warranties are charged to expense in the year of sale.
-37-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF CASH FLOWS: The statement of cash flows has been prepared
using a definition of cash that includes deposits with an original maturity
of three months or less.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1993
financial statements to conform to the 1994 presentation. These
reclassifications had no effect on the 1993 net income or shareholder's
equity.
NOTE 2 - RECEIVABLES SOLD WITH RECOURSE
During 1993, the Company sold certain receivables with recourse to a
financing institution for cash in the amount of $13,834,845. The
transaction resulted in a loss in the amount of $551,187. As of December
31, 1993, all of the receivable balance has been collected. During 1994,
no such transactions occurred.
NOTE 3 - NOTES RECEIVABLE
Notes receivable consist of various notes from Company dealers. The
original maturities of the dealer notes range from one to three years and
accrue interest at varying rates. An allowance for uncollectible notes
receivable is considered unnecessary as management believes all amounts are
collectible.
NOTE 4 - NOTE PAYABLE TO BANK
On December 21, 1993, the Company refinanced its line of credit with Star
Bank, Cincinnati, N.A. (Star Bank). The maximum borrowing under the line
of credit agreement which expires in December 1995 was $18,550,000 with
$14,462,706 and $16,298,617 outstanding at December 31, 1994 and 1993,
respectively. Interest on the loan balance accrues at the bank's prime
rate plus one and three-quarters percent. The bank loans made under this
financing agreement, which included a $550,000 term note (see Note 5), are
secured by equipment, inventory, accounts receivable and general
intangibles of the Company. The financing agreement has also been
guaranteed by Dr. Beurt R. SerVaas, Beurt R. SerVaas Revocable Trust and
SerVaas, Inc. Borrowing against the line of credit is limited to specific
percentages of eligible accounts receivable and inventory.
Terms of the bank borrowings include restrictions on certain capital
expenditures, minimum gross earnings levels and also require maintenance of
-38-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 4 - NOTE PAYABLE TO BANK (CONTINUED)
a specified minimum tangible net worth, ratio of total liabilities to
tangible net worth, turnover ratios, and fixed charge coverage.
At December 31, 1994, the Company was in technical default of several
restrictive covenants contained in the line-of-credit agreement. The
line-of-credit and Star Bank term debt (Note 5) was refinanced with
another institution on March 5, 1996.
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 consists of the following:
1994 1993
---- ----
Term loan from Star Bank guaranteed by Dr. Beurt R. SerVaas,
Beurt R. SerVaas Revocable Trust, and SerVaas, Inc.; payable
in monthly installments of $15,278 plus interest at prime plus
1.75%; due January 1, 1997. This term note is cross collateralized
with the note payable to Star Bank and is subject to the restrictive
covenants described in Note 4. $ 381,945 $ 550,000
Refinancing of trade account payable due E.I. Du Pont DeNemours &
Co., Inc. The Company agreed to use Du Pont finishes exclusively
over the term of the loan; interest at 11% payable by adding a
surcharge of 5% to future purchases; due April 1996. 49,649 103,456
Payable to Creditors' Committee of Carpenter Body Works,
Inc. formed pursuant to the Creditors' Extension Agreement;
unsecured; subordinated to Star Bank; noninterest-bearing with
interest imputed at 11.5%; single payment of $500,000 due
April 1996. $ 427,428 $ 387,264
Mortgage loan payable to Bank of Mitchell secured by real
estate; interest at 10.5%; monthly payments of $883 including
interest; due October 1995. 90,976 91,490
Revolving loan from SerVaas, Inc.; unsecured; subordinated
to Star Bank, interest at prime plus 1.75%; due December 1996.
Interest for period May 1, 1994 through December 31, 1994 was
forgiven. 9,170,327 3,711,003
-39-
Revolving loan from Carpenter Financial, Inc.; unsecured;
interest at 8%; due May 1996. 281,018 5,331
Term loan from First National Bank of Mitchell secured by
specific vehicles, interest at 8.9%; monthly payments of
$638 including interest; due May 1997. 16,078 -
Term loan from the City of Richmond, Indiana secured by
certain fixed assets; interest at 4.0%; monthly payments of
$2,050 including interest; due December 2001. 150,000 -
------------ ------------
10,567,421 4,848,544
Current maturities 339,174 214,518
------------ ------------
Long-term debt, net $ 10,228,247 $ 4,634,026
============ ============
Scheduled principal payments are due on the outstanding long-term debt as
follows:
YEAR AMOUNT
---- ------
1995 $ 339,174
1996 10,098,516
1997 38,924
1998 21,361
1999 22,231
Thereafter 47,215
------------
$ 10,567,421
------------
NOTE 6 - CAPITAL LEASES
Certain of the Company's equipment leases qualify as capital leases. The
Company has included these leases in property, plant and equipment as
follows:
-40-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 6 - CAPITAL LEASES (CONTINUED)
1994 1993
---- ----
Machinery and equipment $ 171,558 $ 288,920
Accumulated depreciation 97,003 114,720
--------- ---------
Net leased machinery and equipment $ 74,555 $ 174,200
========= =========
The following is a schedule by year of future minimum lease payments under
these capital leases together with the present value of net minimum lease
payments at December 31, 1994:
YEAR AMOUNT
---- ------
1995 $ 46,848
1996 10,860
1997 8,527
1998 6,893
--------
Total minimum lease payments 73,128
Amount representing interest 8,473
--------
Present value of minimum
lease payments $ 64,655
========
NOTE 7 - OPERATING LEASES
The Company leases property and equipment under operating lease agreements.
All leases generally provide that the Company shall pay the cost of
utilities, insurance, taxes and maintenance. Rent expense for the years
ended December 31, 1994 and 1993 totaled $432,551 and $142,354,
respectively (Note 8).
-41-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 7 - OPERATING LEASES (CONTINUED)
A summary of future minimum operating lease obligations follows:
1995 $ 468,510
1996 402,994
1997 316,933
1998 294,316
1999 290,945
Thereafter 176,500
-----------
$ 1,950,198
===========
NOTE 8 - RELATED PARTY TRANSACTIONS
During 1994 and 1993, the Company had the following account balances and
transactions with various companies which share common management and
ownership:
1994 1993
---- ----
Accounts payable - trade $ 33,908 $ 34,761
------------ -----------
Accounts payable - other $ 1,108,114 $ -
------------ -----------
Sales $ 11,677,145 $ 1,246,485
------------ -----------
Dealer incentives $ 164,196 $ -
------------ -----------
Rents (Note 7) $ 68,948 $ -
------------ -----------
Consulting and other purchased services $ 18,663 $ 122,401
------------ -----------
-42-
Interest expense $ 168,197 $ 357,537
------------ -----------
Notes payable $ 9,451,345 $ 3,716,334
------------ -----------
During 1994, the Company entered into an agreement with Carpenter
Acceptance Corporation (CAC), a related party, to sell complete and
partially completed buses to CAC as a Company dealer. Under the agreement,
the units are sold to CAC without recourse and the Company has no real or
contingent liability associated with the debt used by CAC to purchase the
units. The agreement does require the Company to pay a Dealer Incentive
fee to CAC based on the volume of purchases made and certain costs
incurred. However, CAC has no obligation to purchase specific units nor
are they committed to any minimum purchase obligation.
NOTE 9 - INCOME TAXES
The net deferred taxes in the accompanying balance sheet include the
following at December 31:
1994 1993
---- ----
Deferred tax liabilities $ (158,300) $ (170,901)
Deferred tax assets 3,347,800 2,316,480
Valuation allowance for deferred
tax assets (3,189,500) (2,145,579)
------------ ------------
Net deferred taxes $ - $ -
============ ============
Change in valuation allowance $ 1,043,921 $ 1,841,531
============ ============
Temporary differences resulting in the deferred tax assets and liabilities
are depreciation, valuation allowances and accrued expenses.
As of December 31, 1994, the Company had net operating losses available for
carry forward as follows:
-43-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 9 - INCOME TAXES (CONTINUED)
YEAR OF NET OPERATING
EXPIRATION LOSSES
---------- ------
2007 $ 391,414
2008 1,538
2008 4,250,378
2010 2,278,879
-----------
$ 6,922,209
===========
NOTE 10 - SUBSEQUENT EVENTS
ARBITRATION SETTLEMENT - During March 1995, a dispute regarding royalties
due under a 1992 purchase agreement was settled in arbitration resulting in
an additional liability to the Company of $286,687. The liability has been
accrued at December 31, 1994.
CAPITAL RESTRUCTURING - Effective January 1, 1995, the Company entered into
a transaction with The Curtis Publishing Company, a related party, whereby
150 shares of newly issued stock in Carpenter Manufacturing, Inc. were
exchanged for 800 shares of stock in Curtis International, Inc., a related
party, owned by The Curtis Publishing Company. This will result in
Carpenter Manufacturing, Inc. owning 80% of the outstanding stock of Curtis
International, Inc. The acquisition will be accounted for as a pooling of
interests.
Below is a summary of the pro forma condensed consolidated results of
operations and Carpenter Manufacturing, Inc. and Curtis International, Inc.
for the years ended December 31, 1994 and 1993 and the pro forma condensed
consolidated statement of financial position of the Companies as of
December 31, 1994 and 1993.
-44-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)
OPERATIONAL DATA
1994 1993
---- ----
Revenues $ 163,821,291 $ 141,104,370
Net loss (1,102,916) (4,184,951)
FINANCIAL POSITION DATA
1994 1993
---- ----
ASSETS
Current assets $ 45,243,454 $ 43,192,064
Property - net 32,235,369 34,095,944
Other long-term assets 149,045 335,981
------------ ------------
$ 77,627,868 $ 77,623,989
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities $ 55,468,490 $ 55,462,279
Long-term debt 6,463,836 11,520,567
Other long-term liabilities 4,808,348 4,110,358
Subordinated debt 9,170,327 3,711,003
Shareholders' equity 1,716,867 2,819,782
------------ ------------
$ 77,627,868 $ 77,623,989
============ ============
SALE OF PRODUCT LINE: During March 1995, the Company agreed to sell
approximately $1,400,000 of inventory and materials related to the
production of certain bus chassis. No loss is anticipated on the sale.
RELOCATION: During 1995, the Company decided to close its Mitchell,
Indiana facility and consolidated all manufacturing and administrative
activity in Richmond, Indiana.
-45-
CARPENTER MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)
REFINANCING: The Company refinanced its line-of-credit agreement and term
debt with Star Bank on March 5, 1996 (Notes 4 and 5).
NOTE 11 - DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution profit sharing plan with 401(k)
provisions for all employees of the corporation who have met certain
requirements for participation. Employees may make contributions to the
plan up to the lesser of 15% of their annual salary or $9,240 in 1994 and
$8,994 in 1993. The Company may make discretionary contributions from net
profits or accumulated earnings as determined by the Board of Directors. The
Company made no contributions to the plan for the years ended December 31,
1994 or 1993.
NOTE 12 - SELF-INSURED HEALTH PLAN
The Company self insures its group health plan. The annual liability for each
employee is limited to $125,000 by a stop loss insurance policy.
NOTE 13 - POSTRETIREMENT HEALTHCARE AND OTHER BENEFITS
The Company provides certain healthcare and life insurance benefits for retired
employees. Substantially all of the Company's employees may become eligible
for those benefits if they reach normal retirement age while working for the
Company. The cost of retiree healthcare and life insurance benefits is
recognized as expense as claims are paid.
In December 1990, the Financial Accounting Standards Board issued new guidance
which requires companies to accrue such costs during employee service periods.
The Company is required to adopt this new guidance in 1995.
NOTE 14 - CONTINGENCIES
In the normal course of business, the Company is subject to various claims,
assessments and litigation. In the opinion of management, losses, if any,
resulting from current litigation and other contingencies would not have a
material effect on the accompanying financial statements.
-46-
SPARTAN MOTORS, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
HISTORICAL PRO FORMA PRO FORMA
1996 ADJUSTMENTS 1996
---------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Net Sales $ 174,677 $ 174,677
Other Income 1,149 $ (25) 1,124
--------- -------- ---------
Total 175,826 (25) 175,801
Cost and Expenses
Cost of Products Sold 148,629 148,629
Research and Development 4,194 4,194
Selling, General and Administrative 14,264 14,264
Interest 464 284 748
Loss on Closure of Mexican
Subsidiary 4,423 4,423
--------- -------- ---------
Total 171,974 284 172,258
Equity in loss of Carpenter Industries LLC
(33 1/3% owned) -- 6,280 6,280
Income from Operations before Income --------- -------- ---------
Taxes 3,852 (6,589) (2,737)
Taxes on Income 1,532 (117) 1,415
--------- -------- ---------
Net Earnings $ 2,320 $ (6,472) $ (4,152)
========= ======== =========
Earnings per Share 0.18 (0.33)
Weighted Average Common Shares
Outstanding 12,541
-47-
SPARTAN MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
HISTORICAL PRO FORMA PRO FORMA
1996 ADJUSTMENTS 1996
---------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Cash $ 4,912 4,912
Marketable Securities 8,956 $ (5,000) 3,956
Accounts Receivable 26,300 26,300
Inventories 24,284 24,284
Federal Taxes Receivable Net of valuation 925 925
Other Current Assets 1,064 1,064
Deferred Tax Benefit 1,472 -- 1,472
-------- -------- --------
Total Current Assets 67,912 (5,000) 62,912
Property Plan and Equipment 11,403 11,403
Other Assets 368 368
Investment in Carpenter Industries -- 3,528 3,528
-------- -------- --------
Total Assets $ 79,683 $ (1,472) 78,212
======== ======== ========
LIABILITIES
Notes Payable to Bank
Accounts Payable $ 6,264 6,264
Accrued Warranty Expense 2,003 2,003
Accrued Customer Rebates 480 480
Other Current Liabilities and Accruals 2,059 2,059
Accrued Compensation & Related Taxes 1,034 1,034
Accrued Vacation 645 645
Current Portion of LTD 586 $ 1,000 1,586
-------- -------- --------
Total Current Liabilities $ 13,072 $ 1,000 14,072
Long Term Debt less: Current 5,207 4,000 9,207
SHAREHOLDERS' EQUITY
Common Stock 124 124
Additional Paid in Capital 21,066
Retained Earnings 40,195 (6,472) 33,723
Valuation Allowance 20 20
Cumulative Translation adjustment -- --
-------- -------- --------
-48-
Total Shareholders' Equity 61,405 (6,472) 33,867
-------- -------- --------
-------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 79,683 $ (1,472) $ 57,145
======== ======== ========
-49-
NOTES TO PRO FORMA
FINANCIAL STATEMENTS
NOTE 1
The following adjustments have been made to reflect the pro forma
effect of the acquisition of 33% of Carpenter Industries as if the
acquisition was consummated as of January 1, 1996.
Income Statement $ -000
Interest Expense on $5,000,000 indebtedness (284)
Five year term debt at 75 basis points above Libor.
Interest Income reduction on $5,000,000 of (325)
marketable securities at 6.5%
Management fees to Spartan from Carpenter 300
per agreement.
Income tax effect on above adjustments at 38% 117
33% of 1996 earnings of Carpenter Industries (6,280)
-------
Net change based on Pro Forma (6,472)
-------
Balance Sheet
Marketable Securities liquidated to fund 50% (5,000)
of acquisition.
Long term debt to finance 50% of acquisition 5,000
Retained Earnings to reflect decrease in Income (6,471)
-50-
EXHIBIT INDEX
EXHIBIT DOCUMENT
- ------- --------
23.1 Consent of Birk Gross Bell & Coulter, P.C. dated March 27,
1997.
23.2 Consent of Crowe, Chizek and Company dated March 31, 1997.
-51-