Note: Consolidated Statements of Cash Flows include continuing operations and discontinued operations for all years presented.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 1 – GENERAL AND SUMMARY OF ACCOUNTING POLICIES
Nature of Operations. Spartan Motors, Inc. (the “Company”, “we”, or “us”) is a niche market leader in specialty vehicle manufacturing and assembly 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, luxury Class A diesel motor home chassis, military vehicles, and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture. Our operating activities are conducted through our wholly-owned operating subsidiary, Spartan Motors USA, Inc. (“Spartan USA”), with locations in Charlotte, Michigan; Ephrata, Pennsylvania; Pompano Beach, Florida; Bristol, Indiana; North Charleston, South Carolina; Kansas City, Missouri; Montebello, Carson, Union City and Roseville, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico.
On February 1, 2020, the Company completed its sale of the Emergency Response and Vehicle (“ERV”) business for $55,000 in cash, subject to certain post-closing adjustments. The ERV business consisted of the emergency response cab-chassis and apparatus operations in Charlotte, Michigan, and the Spartan apparatus operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. See “Note 2 – Discontinued Operations” for further discussion regarding this transaction.
On September 9, 2019, the Company entered into a Unit Purchase Agreement with Fortress Resources, LLC D/B/A Royal Truck Body (“Royal”), pursuant to which the Company acquired all the outstanding equity interests of Royal for $89,369 in cash. Royal is a leading California-based designer, manufacturer and installer of service truck bodies and accessories. Royal manufactures and assembles truck body options for various trades, service truck bodies, stake body trucks, contractor trucks, and dump bed trucks. Royal is the largest service body company in the western United States with its principal facility in Carson, California. Royal has additional manufacturing, assembly, and service space in branch locations in Union City and Roseville, California; Mesa, Arizona; and Dallas and Weatherford, Texas. This acquisition allows us to quickly expand our footprint in the western United States supporting our strategy of coast-to-coast manufacturing and distribution. Royal is part of our Specialty Chassis and Vehicle segment.
On June 12, 2019, the Company acquired certain assets and assumed certain liabilities of General Truck Body, Inc., located in Montebello, California, through the Company’s wholly-owned subsidiary, Spartan Motors GTB, LLC (“GTB”). GTB is a provider of upfit services for government and non-government vehicles. The acquisition will enable the Company to increase its product offerings to fleet customers, while further expanding its manufacturing capabilities in the U.S. market. Spartan Motors GTB, LLC is reported as part of the Fleet Vehicles and Services segment.
On December 17, 2018, the Company acquired all of the assets and assumed certain liabilities of Strobes-R-Us, Inc., located in Pompano Beach, Florida, through the Company’s majority-owned subsidiary, Spartan Upfit Services, Inc. dba Strobes-R-Us (“SRUS”). The total purchase price paid was $7,032, consisting of $5,200 in cash plus a $1,832 contingency for performance-based earn-out payments. SRUS is a premier provider of upfit services for government and non-government vehicles. The acquisition will enable the Company to increase its product offerings to fleet customers, while further expanding its manufacturing capabilities into the southeastern U.S. market. As part of this acquisition, Spartan acquired Strobes-R-Us’ state-of-the-art upfit facility and product showroom in Pompano Beach, Florida. Spartan Upfit Services, Inc. and the related noncontrolling interest is reported as part of the Fleet Vehicles and Services segment.
Principles of Consolidation. The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiary, Spartan USA and its subsidiaries. All inter-company transactions have been eliminated.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Non-Controlling Interest
At December 31, 2019, Spartan USA held a 50% share in Spartan-Gimaex, however, due to the management and operational structure of the joint venture, Spartan USA 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, Inc. The joint venture is not currently active and is in the process of being dissolved. At December 31, 2019, the Company holds an 80% share in SRUS, which is reported as a consolidated subsidiary of the Company within the Fleet Vehicles and Services segment.
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.
Revenue Recognition. Essentially all of our 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 features of the contract and the products supplied. Our contracts generally do not have any significant variable consideration. The collectability of consideration 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 12 – 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. Accordingly, no return reserve has been recorded. Instead, returns are recognized as a reduction of revenue at the time that they are received.
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
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 has been completed. Our receivables are generally collected in less than three months, in accordance with our underlying payment terms.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Specialty Chassis and Vehicles
We recognize revenue and the corresponding cost of products sold on the sale of motor home 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 to the customer.
Revenue and the corresponding cost of products sold associated with other specialty chassis is recognized over time based on the inputs completed for a given performance obligation during the reporting period. Other specialty chassis 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.
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. Amounts recorded in a business combination may change during 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 acquisitions requires us to make significant assumptions and estimates and, although we believe any estimates and assumptions we make are reasonable and appropriate at 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, 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, management makes certain assumptions regarding the risk 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. Past due accounts are written off when collectability is determined to be no longer assured.
Inventories are stated at the lower of first-in, first-out cost or net realizable value. Estimated inventory allowances for slow-moving inventory are based upon current assessments about 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.
Contract Assets arise upon the transfer of goods or services to a customer before the customer pays consideration. The Company will present 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.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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, three to 15 years for plant machinery and equipment, three to seven years for furniture and fixtures and three to five 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. See "Note 8 – Property, Plant and Equipment" for further information on our property and equipment.
Assets and Liabilities Held for Sale We classify assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the 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 are usual and customary for sales of such disposal groups; an active program to locate 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 circumstances beyond the Company's control extend the period of time 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 that the plan will be withdrawn.
We initially measure a disposal group that is classified 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 reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for 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.
Related Party Transactions. We purchase certain components used in the manufacture of our products and logistics services from parties that could be considered related to us because one or more of our executive officers or board members is also an executive officer or board member of the related party. See "Note 19– Related Party Transactions" for more information regarding our transactions with related parties.
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.
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.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
If 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 consists of our Utilimaster, Smeal and Royal Truck Body trade names, 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 sales based on our plans for Utilimaster, Smeal and Royal Truck Body 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 2 – Discontinued Operations” in the Notes to the Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further details on our goodwill and indefinite-lived intangible assets related to the ERV business. See “Note 7 – Goodwill and Intangible Assets” for further details on our goodwill and other intangible assets.
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 12 – 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. Sales associated with these deposits are 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 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.
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.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Interest and penalties attributable to income taxes are recorded as a component of income taxes. See "Note 10 – Taxes on Income" for further details on our income taxes.
Earnings Per Share. Basic 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 method. 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 number of shares outstanding for 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 diluted earnings per share calculations. See "Note 15 – Stock-Based Compensation" and "Note 17 – Earnings Per Share" for further details.
Stock-Based Compensation. Stock based compensation costs 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 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 stock-based compensation plans are described in more detail in "Note 15 – Stock Based Compensation".
Fair Value. We are required to disclose the estimated fair value of our financial instruments. The carrying value at December 31, 2019 and 2018 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.
Segment Reporting. We identify our reportable segments based on our management structure and the financial data utilized by the chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: Fleet Vehicles and Services and Specialty Chassis and Vehicles. More detailed information about our reportable segments can be found in "Note 18 – Business Segments".
Supplemental Disclosures of Cash Flow Information. Cash paid for interest was $1,844, $630 and $619 for 2019, 2018 and 2017. Cash paid for income taxes, net of refunds, was $4,942, $5,054 and $0 for 2019, 2018 and 2017. Non-cash investing in 2018 included the issuance of the Company’s stock in the amount of $1,950, which was reversed in 2019, and a contingent liability for the value of future consideration of $1,832 in conjunction with our acquisition of SRUS. See "Note 3 – Acquisition Activities" for further information about the acquisition.
New Accounting Standards
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and improving consistent application of 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, 2020 and early adoption is permitted. The adoption of the provisions of ASU 2019-12 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The adoption of the provisions of ASU 2016-13 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In February 2016, 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 beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach. See the “Adoption of Lease Accounting Policy” section below and "Note 9 – Leases" for a description of the impact of the adoption of the provisions of ASU 2016-02 on our consolidated financial position, results of operations and cash flows
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Except for the changes below, we have consistently applied the accounting policies to all periods presented in these consolidated financial statements.
Adoption of Lease Accounting Policy
We applied ASU 2016-02 and all related amendments (“ASC 842”) using the modified retrospective method by recognizing the cumulative effect of adoption as an adjustment to the opening balance of retained earnings at January 1, 2019. Therefore, the comparative information has not been adjusted and continues to be reported under prior leasing guidance. In addition, we elected to apply the following package of practical expedients on a consistent basis permitting entities not to reassess: (i) whether any expired or existing contracts are or contain a lease; (ii) lease classification for any expired or existing leases and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance. As a result, as of January 1, 2019 we recorded ROU assets of $13,582 for operating leases and $675 for financing leases. We also recorded operating lease liabilities of $13,716 and finance lease liabilities of $696. The decrease to retained earnings was $113, net of the tax effect of $42 reflecting the cumulative impact of the accounting change. The standard did not have a material effect on consolidated net income (loss) or cash flows.
We determine if an arrangement is a lease at inception. Operating leases are included in ROU assets - operating leases, Operating lease liability, and Long-term operating lease liability on our Consolidated Balance Sheets. Finance leases are included in Other assets, Other current liabilities and accrued expenses and Other non-current liabilities on our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. We include options to extend or terminate the lease in our lease term when it is reasonably certain that we will exercise that option. Lease expense for lease payments on operating leases is recognized on a straight-line basis over the lease term.
We do not record a ROU asset or lease liability for leases with an expected term of 12 months or less. Expenses for these leases are recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are accounted for separately for leases related to real property. For leases related to personal property we account for lease and non-lease components associated with a lease as a single lease component.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 2 – DISCONTINUED OPERATIONS
On February 1, 2020, we completed the sale of our ERV business for $55,000 in cash, subject to certain post-closing adjustments. 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 ERV business met the accounting criteria for held for sale classification as of December 31, 2019. 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, 2019, 2018 and 2017.
The Loss from discontinued operations presented in the Consolidated Statement of Operations for the years ended December 31, 2019, 2018 and 2017:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
261,860
|
|
|
$
|
245,637
|
|
|
$
|
302,850
|
|
Cost of products sold
|
|
|
245,785
|
|
|
|
220,526
|
|
|
|
276,567
|
|
Gross profit
|
|
|
16,075
|
|
|
|
25,111
|
|
|
|
26,283
|
|
Operating expenses
|
|
|
28,864
|
|
|
|
31,516
|
|
|
|
29,461
|
|
Operating loss
|
|
|
(12,789
|
)
|
|
|
(6,405
|
)
|
|
|
(3,178
|
)
|
Loss on asset impairments
|
|
|
53,131
|
|
|
|
-
|
|
|
|
-
|
|
Other income (expense)
|
|
|
1,021
|
|
|
|
2,228
|
|
|
|
(651
|
)
|
Loss from discontinued operations before taxes
|
|
|
(64,899
|
)
|
|
|
(4,177
|
)
|
|
|
(3,829
|
)
|
Income tax benefit
|
|
|
15,683
|
|
|
|
1,073
|
|
|
|
2,292
|
|
Net loss from discontinued operations
|
|
$
|
(49,216
|
)
|
|
$
|
(3,104
|
)
|
|
$
|
(1,537
|
)
|
In the annual goodwill and intangible assets impairment test as of 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 which was expected to continue in future periods. As a result, we recorded impairment expense of $13,856 to write off the goodwill and indefinite lived intangible assets. In conjunction with the classification of the ERV business as held for sale as of December 31, 2019, we recorded a loss of $39,275 to write down the carrying values of the associated assets and liabilities to their fair values less estimated costs to sell of $3,604. The assets and liabilities of the discontinued operations are presented separately under the captions “Current assets held for sale”, “Noncurrent assets held for sale” and “Current liabilities held for sale” in the Consolidated Balance Sheets as of December 31, 2019 and 2018.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019 (1)
|
|
|
2018 (1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
30,760
|
|
|
$
|
38,792
|
|
Contract assets
|
|
|
36,740
|
|
|
|
26,798
|
|
Inventories
|
|
|
32,329
|
|
|
|
30,779
|
|
Other current assets
|
|
|
1,142
|
|
|
|
1,118
|
|
Property, plant and equipment,
|
|
|
21,967
|
|
|
|
24,082
|
|
Right of use assets – operating leases
|
|
|
5,960
|
|
|
|
-
|
|
Goodwill
|
|
|
-
|
|
|
|
11,456
|
|
Intangible assets
|
|
|
1,050
|
|
|
|
3,600
|
|
Other noncurrent assets
|
|
|
52
|
|
|
|
52
|
|
Impairment of carrying value
|
|
|
(39,275
|
)
|
|
|
-
|
|
Total assets held for sale
|
|
$
|
90,725
|
|
|
$
|
136,677
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019(1)
|
|
|
2018(1)
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,213
|
|
|
|
3,015
|
|
Accrued warranty
|
|
|
11,347
|
|
|
|
11,683
|
|
Accrued compensation and related taxes
|
|
|
3,047
|
|
|
|
2,842
|
|
Deposits from customers
|
|
|
21,409
|
|
|
|
21,761
|
|
Operating lease liability
|
|
|
727
|
|
|
|
-
|
|
Other current liabilities
|
|
|
3,495
|
|
|
|
3,776
|
|
Long-term operating lease liability
|
|
|
5,363
|
|
|
|
-
|
|
Total liabilities held for sale
|
|
$
|
49,601
|
|
|
$
|
43,077
|
|
(1) As of December 31, 2019, assets and liabilities held for sale were classified as current. As of December 31, 2018, current and noncurrent assets held for sale were $97,487 and $39,190, respectively, and current liabilities held for sale was $43,077.
|
|
Total depreciation and amortization and capital expenditures for the discontinued operations for the years ended December 31, 2019, 2018 and 2017:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
5,106
|
|
|
$
|
4,156
|
|
|
$
|
3,905
|
|
Capital expenditures
|
|
$
|
2,431
|
|
|
$
|
4,332
|
|
|
$
|
1,364
|
|
NOTE 3 – ACQUISITION ACTIVITIES
2019 Acquisition
On September 9, 2019, the Company completed the acquisition of Fortress Resources, LLC D/B/A Royal Truck Body (“Royal”) pursuant to which the Company acquired all the outstanding equity interests of Royal. The Company paid $89,369 in cash. The purchase price is subject to certain customary post-closing adjustments. The acquisition was financed using $89,369 borrowed from our existing $175,000 line of credit, as set forth in the Second Amended and Restated Credit Agreement, dated as of August 8, 2018. Included in our results since the September 9, 2019 acquisition are net sales of $17,073 and operating income of $2,382 for the year ended December 31, 2019.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Royal is a leading California-based designer, manufacturer and installer of service truck bodies and accessories. Royal manufactures and assembles truck body options for various trades, service truck bodies, stake body trucks, contractor trucks, and dump bed trucks. Royal is the largest service body company in the western United States with its principal facility in Carson, California. Royal has additional manufacturing, assembly, and service space in branch locations in Union City and Roseville, California; Mesa, Arizona; and Dallas and Weatherford, Texas. This acquisition allows us to quickly expand our footprint in the western United States supporting our strategy of coast-to-coast manufacturing and distribution. Royal is part of our Specialty Chassis & Vehicle segment.
During the year ended 2019, we recorded pretax charges totaling $1,691 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 “Eliminations and Other” column in the business segment table in "Note 18 – Business Segments."
Purchase Price Allocation
This 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, trade names and trademarks, patented technology and non-competition agreements. The preliminary excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired of $27,476 was recorded as goodwill, which is expected to be deductible for tax purposes. The preliminary goodwill recognized is subject to a final net working capital adjustment.
The fair value of the net assets acquired was based on a preliminary valuation and the estimates and assumptions are subject to change within the measurement period. The Company is working with the buyer to finalize the working capital adjustments which may impact goodwill. The Company will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the acquisition date.
The preliminary allocation of purchase price to assets acquired and liabilities assumed was as follows:
Cash and cash equivalents
|
|
$
|
431
|
|
Accounts receivable, less allowance
|
|
|
5,019
|
|
Contract assets
|
|
|
1,499
|
|
Inventory
|
|
|
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
|
|
|
47,150
|
|
Goodwill
|
|
|
27,476
|
|
Total assets acquired
|
|
|
116,199
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,658
|
|
Customer prepayments
|
|
|
255
|
|
Accrued warranty
|
|
|
98
|
|
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
|
|
|
26,830
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
89,369
|
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Goodwill Assigned
Intangible assets totaling $47,150 have provisionally 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 (in thousands):
|
|
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
|
|
|
|
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 preliminarily recorded from the Royal acquisition, is $666 for 2019, and estimated to be $2,665, $2,665, $3,162, and $3,072 for the years 2020 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.
Pro Forma Results (Unaudited)
The following table provides unaudited pro forma net sales and results of operations for the years ended December 31, 2019 and 2018. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as changes in the depreciation and amortization expense on the Royal 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 planned integration of Royal. Accordingly, such pro forma amounts are not necessarily indicative of the results that would have occurred nor are they indicative of the future operating results of the combined company.
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Pro forma results of operations from continuing operations
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
789,585
|
|
|
$
|
612,337
|
|
Net income
|
|
$
|
36,760
|
|
|
$
|
19,158
|
|
Diluted earnings per share
|
|
$
|
1.04
|
|
|
$
|
0.54
|
|
2018 Acquisition
On December 17, 2018, the Company acquired the assets and assumed certain liabilities of Strobes-R-Us, Inc. through the Company’s majority-owned subsidiary, Spartan Upfit Services, Inc. dba Strobes-R-Us (“SRUS”). SRUS is a premier provider of upfit services for government and non-government vehicles. The acquisition enables the Company to increase its product offerings to fleet customers, while further expanding its manufacturing capabilities into the southeastern U.S. market. As part of this acquisition, Spartan acquired Strobes-R-Us’ state-of-the-art upfit facility and product showroom in Pompano Beach, Florida.
Purchase Price Allocation
The total purchase price paid for our acquisition of SRUS was $7,032 consisting of $5,200 in cash, plus a $1,832 contingency for performance-based earn-out payments.
This acquisition was accounted for using the acquisition method of accounting, which requires the purchase price to be allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. The excess of the estimated purchase price over the preliminary estimated fair values of the net tangible and intangible assets acquired of $195 was recorded as goodwill. During 2019, we made certain adjustments to our purchase price allocation related to the deferred tax asset, stock compensation, identified intangible assets, step-up valuation of fixed assets, and a revaluation of contingent consideration, which resulted in a $6,211 decrease in goodwill. The Company has finalized the purchase price allocation within the measurement period, which was to occur no later than one year following the acquisition date.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The allocation of purchase price to assets acquired and liabilities assumed was as follows:
Accounts receivable
|
|
$
|
1,165
|
|
Inventory
|
|
|
893
|
|
Other current assets
|
|
|
3
|
|
Property, plant and equipment
|
|
|
1,911
|
|
Other Assets
|
|
|
192
|
|
Intangible assets
|
|
|
3,100
|
|
Goodwill
|
|
|
195
|
|
Total assets acquired
|
|
|
7,459
|
|
|
|
|
|
|
Accounts payable
|
|
|
382
|
|
Other current liabilities
|
|
|
45
|
|
Total liabilities assumed
|
|
|
427
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
7,032
|
|
Contingent Consideration
Pursuant to the purchase agreement, the former owners of the SRUS business may receive additional consideration through 2021 in the form of certain performance-based earn-out payments, up to an aggregate maximum of $3,250. The purchase agreement specifies annual payments for each calendar year beginning in 2019 through and including 2021 contingent upon earnings for that calendar year exceeding predetermined thresholds. In accordance with accounting guidance for business combinations, at the date of sale the Company recorded a contingent liability of $1,832 for the value of the future consideration, which is ultimately its best estimate of the likelihood of the payments discounted to their present value.
NOTE 4 – REVENUE
Contract Assets and Liabilities
The tables below disclose changes in contract assets and liabilities as of the periods indicated.
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Contract Assets
|
|
|
|
|
|
|
|
|
Contract assets, beginning of year
|
|
$
|
9,229
|
|
|
$
|
5,200
|
|
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional
|
|
|
(9,229
|
)
|
|
|
(5,200
|
)
|
Contract assets recognized, net of reclassification to receivables
|
|
|
10,898
|
|
|
|
9,229
|
|
Contract assets, end of year
|
|
|
10,898
|
|
|
|
9,229
|
|
|
|
|
|
|
|
|
|
|
Contract Liabilities
|
|
|
|
|
|
|
|
|
Contract liabilities, beginning of year
|
|
|
871
|
|
|
|
201
|
|
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied
|
|
|
(871
|
)
|
|
|
(201
|
)
|
Cash received in advance and not recognized as revenue
|
|
|
2,640
|
|
|
|
871
|
|
Contract liabilities, end of year
|
|
|
2,640
|
|
|
|
871
|
|
The aggregate amount of the transaction price allocated to remaining performance obligations in existing contracts that are yet to be completed in the Fleet Vehicles and Services ("FVS") and Specialty Chassis and Vehicles ("SCV") segments are $305,796 and $30,777, respectively, with substantially all revenue expected to be recognized within one year as of December 31, 2019.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
In the following tables, revenue is disaggregated by primary geographical market and timing of revenue recognition for the years ended December 31, 2019, 2018 and 2017. The tables also include a reconciliation of the disaggregated revenue with the reportable segments.
|
|
Year Ended December 31, 2019
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Total
Reportable
Segments
|
|
|
Other
|
|
|
Total
|
|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
554,691
|
|
|
$
|
185,768
|
|
|
$
|
740,459
|
|
|
$
|
(5,278
|
)
|
|
$
|
735,181
|
|
Other
|
|
|
21,203
|
|
|
|
158
|
|
|
|
21,361
|
|
|
|
-
|
|
|
|
21,361
|
|
Total sales
|
|
$
|
575,894
|
|
|
$
|
185,926
|
|
|
$
|
761,820
|
|
|
$
|
(5,278
|
)
|
|
$
|
756,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products transferred at a point in time
|
|
$
|
164,437
|
|
|
$
|
137,894
|
|
|
$
|
302,331
|
|
|
$
|
(5,278
|
)
|
|
$
|
297,053
|
|
Products and services transferred over time
|
|
|
411,457
|
|
|
|
48,032
|
|
|
|
459,489
|
|
|
|
-
|
|
|
|
459,489
|
|
Total sales
|
|
$
|
575,894
|
|
|
$
|
185,926
|
|
|
$
|
761,820
|
|
|
$
|
(5,278
|
)
|
|
$
|
756,542
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Total
Reportable
Segments
|
|
|
Other
|
|
|
Total
|
|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
367,730
|
|
|
$
|
191,814
|
|
|
$
|
559,544
|
|
|
$
|
(10,221
|
)
|
|
$
|
549,323
|
|
Other
|
|
|
19,819
|
|
|
|
1,385
|
|
|
|
21,204
|
|
|
|
-
|
|
|
|
21,204
|
|
Total sales
|
|
$
|
387,549
|
|
|
$
|
193,199
|
|
|
$
|
580,748
|
|
|
$
|
(10,221
|
)
|
|
$
|
570,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products transferred at a point in time
|
|
$
|
113,576
|
|
|
$
|
160,408
|
|
|
$
|
273,984
|
|
|
$
|
(10,221
|
)
|
|
$
|
263,763
|
|
Products and services transferred over time
|
|
|
273,973
|
|
|
|
32,791
|
|
|
|
306,764
|
|
|
|
-
|
|
|
|
306,764
|
|
Total sales
|
|
$
|
387,549
|
|
|
$
|
193,199
|
|
|
$
|
580,748
|
|
|
$
|
(10,221
|
)
|
|
$
|
570,527
|
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
|
|
Year Ended December 31, 2017
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Total
Reportable
Segments
|
|
|
Other
|
|
|
Total
|
|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
238,267
|
|
|
$
|
158,246
|
|
|
$
|
396,513
|
|
|
$
|
(5,657
|
)
|
|
$
|
390,856
|
|
Other
|
|
|
12,828
|
|
|
|
564
|
|
|
|
13,392
|
|
|
|
-
|
|
|
|
13,392
|
|
Total sales
|
|
$
|
251,095
|
|
|
$
|
158,810
|
|
|
$
|
409,905
|
|
|
$
|
(5,657
|
)
|
|
$
|
404,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products transferred at a point in time
|
|
$
|
251,095
|
|
|
$
|
158,810
|
|
|
$
|
409,905
|
|
|
$
|
(5,657
|
)
|
|
$
|
404,248
|
|
Products and services transferred over time
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total sales
|
|
$
|
251,095
|
|
|
$
|
158,810
|
|
|
$
|
409,905
|
|
|
$
|
(5,657
|
)
|
|
$
|
404,248
|
|
NOTE 5 – INVENTORIES
Inventories are summarized as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Finished goods
|
|
$
|
4,764
|
|
|
$
|
5,347
|
|
Work in process
|
|
|
1,773
|
|
|
|
2,190
|
|
Raw materials and purchased components
|
|
|
57,679
|
|
|
|
33,418
|
|
Reserve for slow-moving inventory
|
|
|
(4,760
|
)
|
|
|
(1,742
|
)
|
Total Inventory
|
|
$
|
59,456
|
|
|
$
|
39,213
|
|
NOTE 6 – RESTRUCTURING CHARGES
We have incurred restructuring charges for a company-wide initiative to streamline operations. Restructuring charges included in our Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017, broken down by segment, are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
FVS
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
644
|
|
SCV
|
|
|
82
|
|
|
|
180
|
|
|
|
109
|
|
Other
|
|
|
-
|
|
|
|
482
|
|
|
|
45
|
|
Total restructuring charges
|
|
$
|
82
|
|
|
$
|
662
|
|
|
$
|
798
|
|
The following table summarizes the compensation related charges incurred under these initiatives through year ended December 31, 2019. The accrual balance for severance is reflected within Accrued compensation and related taxes on our Consolidated Balance Sheets.
|
|
Severance
2019
|
|
|
Severance
2018
|
|
Accrual balance January 1,
|
|
$
|
199
|
|
|
$
|
12
|
|
Accrual for severance
|
|
|
-
|
|
|
|
665
|
|
Payments and adjustments made in period
|
|
|
(199
|
)
|
|
|
(478
|
)
|
Accrual balance December 31,
|
|
$
|
-
|
|
|
$
|
199
|
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 7 – 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 1– General and Summary of Accounting Policies" for a description of our accounting policies regarding goodwill and other intangible assets.
As described in "Note 3 – Acquisition Activities" at December 31, 2019 and 2018, we had recorded goodwill at our Fleet Vehicles and Services and Specialty Chassis and Vehicles reportable segments. The FVS and SCV segments were determined to be reporting units for goodwill impairment testing. The goodwill recorded in these reporting units was evaluated for impairment as of October 1, 2019 using a discounted cash flow valuation, and it was determined that the estimated fair values of our Fleet Vehicles and Services, and Specialty Chassis and Vehicles reporting units exceeded their carrying values by 337% and 67%, respectively, as of October 1, 2019.
As discussed in "Note 1 – General and Summary of Accounting Policies" there are significant judgments inherent in our impairment assessments and discounted cash flow analyses. These discounted cash flow analyses are most sensitive to the WACC assumption.
The change in the carrying amount of goodwill for the year ended December 31, 2019 and 2018 were as follows (in thousands):
|
|
FVS
|
|
|
SCV
|
|
|
Total
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
Goodwill, beginning of year
|
|
$
|
21,729
|
|
|
$
|
15,323
|
|
|
$
|
638
|
|
|
$
|
638
|
|
|
$
|
22,367
|
|
|
$
|
15,961
|
Acquisition and measurement period adjustments
|
|
|
(6,211
|
)
|
|
|
6,406
|
|
|
|
27,476
|
|
|
|
-
|
|
|
|
21,265
|
|
|
|
6,406
|
Goodwill, end of year
|
|
$
|
15,518
|
|
|
$
|
21,729
|
|
|
$
|
28,114
|
|
|
$
|
638
|
|
|
$
|
43,632
|
|
|
$
|
22,367
|
Other Intangible Assets
At December 31, 2019, we had other intangible assets associated with our FVS segment, including customer and dealer relationships, non-compete agreements, an acquired product development project and trade names. The non-compete agreement, acquired product development project 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. Our Utilimaster and Strobes-R-Us trade names have an indefinite life and are not amortized.
At December 31, 2019, we had other intangible assets associated with our SCV segment, including customer relationships, trade names and trademarks, patented technology and non-competition agreements. We amortize the customer relationships utilizing an accelerated approach over an estimated remaining life of 15 years. Patented technology and non-competition agreements are amortized utilizing a straight-line approach over the estimated useful lives of eight years and five years, respectively. The Royal trade names and trademarks are considered to have indefinite lives and are not amortized
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
We evaluate the recoverability of our indefinite lived intangible assets, which, as of October 1, 2019, consisted of our Utilimaster, Strobes-R-Us and Royal trade names, 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 sales based on our plans for these trade name branded products, business trends, prospects and market and economic conditions. Because the evaluation of Royal’s intangible assets including the trade name was assessed as of September 9, 2019, and this amount was determined to approximate the fair value as of October 1, 2019, updated testing was not performed nor was deemed necessary. The fair value of our Utilimaster and Strobes-R-Us trade names exceeded their carrying values, and therefore do not result in an impairment
The following table provides information regarding our other intangible assets:
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
Customer relationships
|
|
$
|
37,570
|
|
|
$
|
4,943
|
|
|
$
|
32,627
|
|
|
$
|
6,170
|
|
|
$
|
4,029
|
|
|
$
|
2,141
|
|
Acquired product development project
|
|
|
1,860
|
|
|
|
1,860
|
|
|
|
-
|
|
|
|
1,860
|
|
|
|
1,860
|
|
|
|
-
|
|
Patented technology
|
|
|
2,200
|
|
|
|
69
|
|
|
|
2,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-compete agreements
|
|
|
2,950
|
|
|
|
617
|
|
|
|
2,333
|
|
|
|
400
|
|
|
|
400
|
|
|
|
-
|
|
Backlog
|
|
|
320
|
|
|
|
320
|
|
|
|
-
|
|
|
|
320
|
|
|
|
320
|
|
|
|
-
|
|
Trade Names
|
|
|
16,970
|
|
|
|
-
|
|
|
|
16,970
|
|
|
|
2,870
|
|
|
|
-
|
|
|
|
2,870
|
|
|
|
$
|
61,870
|
|
|
$
|
7,809
|
|
|
$
|
54,061
|
|
|
$
|
11,620
|
|
|
$
|
6,609
|
|
|
$
|
5,011
|
|
We recorded $1,200, $320 and $683 of intangible asset amortization expense during 2019, 2018 and 2017.
The estimated remaining amortization associated with finite-lived intangible assets is expected to be expensed as follows:
|
|
Amount
|
|
2020
|
|
$
|
3,151
|
|
2021
|
|
|
3,127
|
|
2022
|
|
|
3,624
|
|
2023
|
|
|
3,511
|
|
2024
|
|
|
3,181
|
|
Thereafter
|
|
|
20,496
|
|
Total
|
|
$
|
37,090
|
|
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classifications as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Land and improvements
|
|
$
|
8,692
|
|
|
$
|
7,791
|
|
Buildings and improvements
|
|
|
38,653
|
|
|
|
36,087
|
|
Plant machinery and equipment
|
|
|
33,348
|
|
|
|
27,267
|
|
Furniture and fixtures
|
|
|
21,416
|
|
|
|
19,947
|
|
Vehicles
|
|
|
1,872
|
|
|
|
1,558
|
|
Construction in process
|
|
|
3,527
|
|
|
|
1,157
|
|
Subtotal
|
|
|
107,508
|
|
|
|
93,807
|
|
Less accumulated depreciation
|
|
|
(67,434
|
)
|
|
|
(61,322
|
)
|
Total property, plant and equipment, net
|
|
$
|
40,074
|
|
|
$
|
32,485
|
|
We recorded depreciation expense of $5,892, $6,393 and $5,994 during 2019, 2018 and 2017. There were no capitalized interest costs in 2019 or 2018.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 9 – LEASES
We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of one year to 17 years, some of which include options to extend the leases for up to 10 years. Our leases do not contain residual value guarantees. As of December 31, 2019, assets recorded under finance leases were immaterial (See "Note 14 – Debt"). Lease expense totaled $4,146, $2,794 and $2,196 for the years ended December 31, 2019, 2018 and 2017.
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,
2019
|
|
|
|
|
|
|
Operating leases
|
|
$
|
3,928
|
|
Short-term leases(1)
|
|
|
218
|
|
Total lease expense
|
|
$
|
4,146
|
|
(1) Includes expenses for month-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 weighted average discount rate were as follows:
|
|
Year ended
December 31,
2019
|
|
Weighted average remaining lease term of operating leases (in years)
|
|
|
8.4
|
|
Weighted average discount rate of operating leases
|
|
|
3.8
|
%
|
Supplemental cash flow information related to leases was as follows:
|
|
Year ended
December 31,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flow for operating leases
|
|
$
|
4,544
|
|
|
|
|
|
|
|
|
|
|
|
Right of use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
10,493
|
|
|
|
|
|
|
Finance leases
|
|
$
|
-
|
|
Maturities of operating lease liabilities as of December 31, 2019 are as follows:
Years ending December 31:
|
|
|
|
|
2020
|
|
$
|
5,937
|
|
2021
|
|
|
5,054
|
|
2022
|
|
|
4,614
|
|
2023
|
|
|
4,619
|
|
2024
|
|
|
4,390
|
|
Thereafter
|
|
|
13,337
|
|
Total lease payments
|
|
|
37,951
|
|
Less: imputed interest
|
|
|
5,622
|
|
Total lease liabilities
|
|
$
|
32,329
|
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 10 – TAXES ON INCOME
Income taxes consist of the following:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income from continuing operations
|
|
$
|
10,355
|
|
|
$
|
3,334
|
|
|
$
|
2,382
|
|
Income tax benefits from discontinued operations
|
|
|
(15,683
|
)
|
|
|
(1,073
|
)
|
|
|
(2,292
|
)
|
Total taxes on income
|
|
$
|
(5,328
|
)
|
|
$
|
2,261
|
|
|
$
|
90
|
|
Income taxes from continuing operations consist of the following:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Current (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,883
|
|
|
$
|
2,819
|
|
|
$
|
5,831
|
|
State
|
|
|
1,664
|
|
|
|
758
|
|
|
|
240
|
|
Foreign
|
|
|
128
|
|
|
|
67
|
|
|
|
-
|
|
Total current
|
|
|
11,675
|
|
|
|
3,644
|
|
|
|
6,071
|
|
Deferred (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(705
|
)
|
|
|
(316
|
)
|
|
|
(1,333
|
)
|
State
|
|
|
(615
|
)
|
|
|
6
|
|
|
|
(2,356
|
)
|
Total deferred
|
|
|
(1,320
|
)
|
|
|
(310
|
)
|
|
|
(3,689
|
)
|
Total taxes on income
|
|
$
|
10,355
|
|
|
$
|
3,334
|
|
|
$
|
2,382
|
|
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act made broad and complex changes to the U.S. tax code that impacted 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 included, but are not limited to, the acceleration of depreciation for certain assets placed into service after September 27, 2017, additional limitations on executive compensation, the repeal of the domestic manufacturing deduction and the new foreign derived intangible income deduction.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided 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.
In accordance with SAB 118, we 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 as of December 31, 2017. In 2018 we completed the accounting for the effect of the 2017 Tax Act within the measurement period under the SEC guidance and reflected a net $373 decrease in the 2018 income tax expense.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Differences between the expected income tax expense derived from applying the federal statutory income tax rate to earnings from continuing operations before taxes on income and the actual tax expense are as follows:
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percen-
tage
|
|
|
Amount
|
|
|
Percen-
tage
|
|
|
Amount
|
|
|
Percen-
tage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes at the statutory rate
|
|
$
|
9,901
|
|
|
|
21.0
|
%
|
|
$
|
4,505
|
|
|
|
21.0
|
%
|
|
$
|
6,949
|
|
|
|
35.0
|
%
|
State tax expense, net of federal income tax benefit
|
|
|
577
|
|
|
|
1.2
|
|
|
|
486
|
|
|
|
2.3
|
|
|
|
416
|
|
|
|
2.1
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax re-measurement due to Tax Act
|
|
|
-
|
|
|
|
-
|
|
|
|
(373
|
)
|
|
|
(1.7
|
)
|
|
|
2,963
|
|
|
|
14.9
|
|
Other deferred income tax adjustment
|
|
|
(75
|
)
|
|
|
(0.2
|
)
|
|
|
13
|
|
|
|
-
|
|
|
|
338
|
|
|
|
1.7
|
|
Non-deductible compensation
|
|
|
511
|
|
|
|
1.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other nondeductible expenses
|
|
|
115
|
|
|
|
0.2
|
|
|
|
91
|
|
|
|
0.4
|
|
|
|
98
|
|
|
|
0.5
|
|
Foreign derived intangible income deduction
|
|
|
(45
|
)
|
|
|
(0.1
|
)
|
|
|
(35
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
-
|
|
Domestic manufacturing deduction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(465
|
)
|
|
|
(2.3
|
)
|
Stock based compensation
|
|
|
(136
|
)
|
|
|
(0.3
|
)
|
|
|
(1,207
|
)
|
|
|
(5.6
|
)
|
|
|
(381
|
)
|
|
|
(1.9
|
)
|
Worthless stock deduction of dissolved subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(966
|
)
|
|
|
(4.9
|
)
|
Forfeiture of state net operating loss and credit carry-forwards from dissolution of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,039
|
|
|
|
15.3
|
|
Foreign tax expense
|
|
|
128
|
|
|
|
0.3
|
|
|
|
67
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance adjustment
|
|
|
135
|
|
|
|
0.3
|
|
|
|
60
|
|
|
|
0.3
|
|
|
|
(9,544
|
)
|
|
|
(48.0
|
)
|
Unrecognized tax benefit adjustment
|
|
|
(61
|
)
|
|
|
(0.1
|
)
|
|
|
332
|
|
|
|
1.6
|
|
|
|
206
|
|
|
|
1.0
|
|
Federal research and development
tax credit
|
|
|
(591
|
)
|
|
|
(1.3
|
)
|
|
|
(349
|
)
|
|
|
(1.6
|
)
|
|
|
(328
|
)
|
|
|
(1.7
|
)
|
Foreign tax credit
|
|
|
(38
|
)
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(66
|
)
|
|
|
(0.1
|
)
|
|
|
(189
|
)
|
|
|
(0.9
|
)
|
|
|
57
|
|
|
|
0.3
|
|
Total
|
|
$
|
10,355
|
|
|
|
22.0
|
%
|
|
$
|
3,334
|
|
|
|
15.6
|
%
|
|
$
|
2,382
|
|
|
|
12.0
|
%
|
SPARTAN MOTORS, 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,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Loss on asset impairment for discontinued operations
|
|
$
|
12,764
|
|
|
$
|
-
|
|
Warranty reserve
|
|
|
3,782
|
|
|
|
3,257
|
|
Inventory costs and reserves
|
|
|
2,661
|
|
|
|
1,801
|
|
Contract assets
|
|
|
7,217
|
|
|
|
1,694
|
|
Stock-based compensation
|
|
|
1,195
|
|
|
|
984
|
|
Net operating loss carry-forwards, net of federal income tax benefit
|
|
|
449
|
|
|
|
723
|
|
Compensation related accruals
|
|
|
698
|
|
|
|
589
|
|
Credit carry-forwards net of federal income tax benefit
|
|
|
1,027
|
|
|
|
506
|
|
Other
|
|
|
916
|
|
|
|
611
|
|
Total deferred income tax assets
|
|
$
|
30,709
|
|
|
$
|
10,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(2,666
|
)
|
|
$
|
(1,479
|
)
|
Intangible assets
|
|
|
(1,974
|
)
|
|
|
(1,205
|
)
|
Prepaid expenses
|
|
|
(295
|
)
|
|
|
(222
|
)
|
Total deferred income tax liabilities
|
|
$
|
(4,935
|
)
|
|
$
|
(2,906
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
25,774
|
|
|
$
|
7,259
|
|
Valuation allowance
|
|
|
(254
|
)
|
|
|
(118
|
)
|
Net deferred tax asset
|
|
$
|
25,520
|
|
|
$
|
7,141
|
|
Based upon an assessment of the available positive and negative evidence at December 31, 2019, the net deferred tax asset is more likely than not to be realized based on the consideration of deferred tax liability reversals and future taxable income. The valuation allowance for net deferred income tax assets relates to the impact of the limitation on executive compensation deductibility to Stock based compensation, and a state net operating loss carryforward.
At December 31, 2019 and 2018, we had state deferred income tax assets related to state tax net operating loss carry-forwards, of $569 and $915, which begin expiring in 2020. Also, as of December 31, 2019 and 2018, we had deferred income tax assets related to state tax credit carry-forwards of $1,300 and $640, which begin expiring in 2021. Due to accumulated losses in a certain state jurisdiction, we had recorded valuation allowances against certain deferred income tax assets of $0 and $20 at December 31, 2019 and 2018.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
A reconciliation of the change in the unrecognized tax benefits (“UTB”) for the three years ended December 31, 2019, 2018 and 2017 is as follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Balance at January 1,
|
|
$
|
827
|
|
|
$
|
565
|
|
|
$
|
345
|
|
Increase (decrease) related to prior year tax positions
|
|
|
103
|
|
|
|
35
|
|
|
|
168
|
|
Increase related to current year tax positions
|
|
|
578
|
|
|
|
319
|
|
|
|
118
|
|
Expiration of statute
|
|
|
(238
|
)
|
|
|
(92
|
)
|
|
|
(66
|
)
|
Balance at December 31,
|
|
$
|
1,270
|
|
|
$
|
827
|
|
|
$
|
565
|
|
As of December 31, 2019, we had an ending UTB balance of $1,270 along with $213 of interest and penalties, for a total liability of $1,483 recorded as a non-current liability. The change in interest and penalties amounted to a decrease of $209 in 2019, and increases of $143 in 2018, and $94 in 2017, which were reflected in Income tax expense within our Consolidated Statements of Operations.
As of December 31, 2019, we are no longer subject to examination by federal taxing authorities for 2015 and earlier years.
We also file tax returns in several 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 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 benefits to significantly increase or decrease over the next twelve months.
NOTE 11 – TRANSACTIONS WITH MAJOR CUSTOMERS
Major customers are defined as those with sales greater than 10 percent of consolidated sales in a given year. We had certain customers whose sales individually represented 10% or more of the Company's total sales as follows:
Year
|
|
Number of major customers
|
|
Combined percentage of consolidated sales
|
|
Segment
|
2019
|
|
2
|
|
37.9
|
%
|
FVS
|
2018
|
|
4
|
|
51.7
|
%
|
FVS and SCV
|
2017
|
|
2
|
|
29.3
|
%
|
SCV
|
NOTE 12 – 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. We had outstanding letters of credit totaling $525 at December 31, 2019 and 2018 related to our worker's compensation insurance.
At December 31, 2019, 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. 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 February 2015, 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. In late 2019, Spartan USA initiated additional court proceedings to dissolve and liquidate the joint venture, but no dissolution terms have been determined as of the date of this Form 10-K. 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 are not expected to be material to our future operating results. We recorded charges totaling $216 to write down certain inventory items associated with this joint venture to their estimated fair values during the year ended December 31, 2019.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Warranty Related
We provide limited warranties against assembly/construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for a specified period following the date of sale. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles.
Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Infrequently, a material warranty issue can arise which is 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.
Changes in our warranty liability during the years ended December 31, 2019 and 2018 were as follows:
|
|
2019
|
|
|
2018
|
|
Balance of accrued warranty at January 1
|
|
$
|
4,407
|
|
|
$
|
4,340
|
|
Provisions for current period sales
|
|
|
4,383
|
|
|
|
2,537
|
|
Cash settlements
|
|
|
(3,489
|
)
|
|
|
(3,013
|
)
|
Changes in liability for pre-existing warranties
|
|
|
295
|
|
|
|
543
|
|
Acquisitions
|
|
|
98
|
|
|
|
-
|
|
Balance of accrued warranty at December 31
|
|
$
|
5,694
|
|
|
$
|
4,407
|
|
NOTE 13 – DEFINED CONTRIBUTION 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 $1,654, $1,606 and $676 in 2019, 2018 and 2017. These amounts are expensed as incurred.
NOTE 14 – DEBT
Short-term debt consists of the following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Chassis pool agreements
|
|
$
|
8,162
|
|
|
$
|
-
|
|
Total short-term debt
|
|
$
|
8,162
|
|
|
$
|
-
|
|
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, 2019, the Company’s outstanding chassis converter pool with manufacturers totaled $8,162 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.
SPARTAN MOTORS, 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,
2019
|
|
|
December 31,
2018
|
|
Line of credit revolver (1):
|
|
$
|
87,400
|
|
|
$
|
25,460
|
|
Finance lease obligations
|
|
|
496
|
|
|
|
147
|
|
Other
|
|
|
951
|
|
|
|
-
|
|
Total debt
|
|
|
88,847
|
|
|
|
25,607
|
|
Less current portion of long-term debt
|
|
|
(177
|
)
|
|
|
(60
|
)
|
Total long-term debt
|
|
$
|
88,670
|
|
|
$
|
25,547
|
|
|
(1)
|
On August 8, 2018, we entered into a Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A. and PNC Bank National Association (the "Lenders"). Subsequently, the Credit Agreement was amended on May 14, 2019, September 9, 2019 and September 25, 2019 and certain of our other subsidiaries executed guaranties guarantying the borrowers' obligations under the Credit Agreement.
As a result, at December 31, 2019, under the Credit Agreement, as amended, we may borrow up to $175,000 from the Lenders under a secured revolving credit facility which matures August 8, 2023. We may also request an increase in the facility of up to $50,000 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 $30,000, 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 margin was 3.7500% (or one-month LIBOR plus 1.25%) at December 31, 2019. 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.
Under the terms of our Credit Agreement, we have the ability to issue letters of credit totaling $20,000. At December 31, 2019 and 2018, we had outstanding letters of credit totaling $525 related to our worker's compensation insurance.
Under the terms of our Credit Agreement, we are required to maintain certain financial ratios and other financial covenants, which limited our available borrowings (exclusive of outstanding borrowings) under our line of credit to a total of approximately $60,499 and $86,410 at December 31, 2019 and 2018, respectively. The Credit Agreement also 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, all subject to certain exceptions and baskets. At December 31, 2019 and December 31, 2018, we were in compliance with all covenants in our credit agreement.
Concurrent with the close of the sale of the ERV business and effective January 31, 2020, the Credit Agreement was further amended by a fourth amendment, which released certain of our subsidiaries that were sold as part of the ERV business pursuant to the Asset Purchase Agreement. The substantive business terms of the Credit Agreement remain in place and were not changed by the fourth amendment.
|
NOTE 15 – 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. Total shares remaining available for stock incentive grants under these plans totaled 1,412,446 at December 31, 2019. We are currently authorized to grant new stock options, restricted stock, restricted stock units, stock appreciation rights and performance stock units under our Stock Incentive Plan of 2016.
Restricted Stock
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.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Restricted stock activity for the year ended December 31, 2019, is as follows:
|
|
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, 2018
|
|
|
977
|
|
|
$
|
7.97
|
|
|
|
|
|
Granted
|
|
|
279
|
|
|
|
9.38
|
|
|
|
|
|
Vested
|
|
|
(467
|
)
|
|
|
7.50
|
|
|
|
|
|
Forfeited
|
|
|
(78
|
)
|
|
|
12.13
|
|
|
|
|
|
Non-vested shares outstanding at December 31, 2019
|
|
|
711
|
|
|
$
|
8.58
|
|
|
|
0.9
|
|
The weighted-average grant date fair value of non-vested shares granted was $9.38, $9.96 and $7.65 for the years ended December 31, 2019, 2018 and 2017. During 2019, 2018 and 2017, we recorded compensation expense, net of cancellations, of $3,983, $4,027 and $3,536, related to restricted stock awards and direct stock grants. The total income tax benefit recognized in the Consolidated Statements of Operations related to restricted stock awards was $759, $846 and $1,238 for 2019, 2018 and 2017. For the years ended December 31, 2019, 2018 and 2017, restricted shares vested with a fair market value of $3,507, $4,318 and $1,356. As of December 31, 2019, we had unearned stock-based compensation of $3,413 associated with these restricted stock grants, which will be recognized over a weighted average of 1.1 years.
Performance Stock Units
During the year ended December 31, 2019, we granted 218,148 performance stock units ("PSUs") 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 additional shares of Common Stock based on the then-current market value of the Common Stock.
87,260 of the performance units granted in 2019 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. The number of shares that may be earned under the Net Income PSUs can range from 0% to 200% of the target amount. The Net Income PSUs are expensed and recorded in Additional paid-in capital on the Consolidated Balance Sheets over the performance period based on the probability that the performance condition will be met. The expense recorded will be adjusted as the estimate of the total number of Net Income PSUs that will ultimately be earned changes. The grant date fair value per share of Net Income PSUs granted was $8.99. The grant date fair value per unit is equal to the closing price of the Company’s stock on the date of grant.
130,888 of the performance units granted in 2019 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 Additional paid-in capital on the Consolidated Balance Sheets over the performance period.
The fair value of the TSR PSUs was calculated using the Monte Carlo simulation model which resulted in the grant date fair value for these TSR PSUs of $13.71 per unit.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The Monte Carlo simulation was computed using the following assumptions:
Three-year risk-free interest rate (1)
|
|
|
2.37
|
%
|
Expected term (in years)
|
|
|
2.7
|
|
Estimated volatility (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, 2019 was $642 and $93, respectively. There was no PSU expense or associated tax benefit in the years ended December 31, 2018 and 2017.
The PSU activity for the year ended December 31, 2019 is as follows:
|
|
Total
|
|
|
Weighted-
Average
Grant Date
Fair Value
per Unit
|
|
Non-vested as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
218,148
|
|
|
|
11.82
|
|
Non-vested as of December 31, 2019
|
|
|
218,148
|
|
|
$
|
11.82
|
|
As of December 31, 2019, there was $1,936 of remaining unrecognized compensation cost related to non-vested PSUs, which is expected to be recognized over a remaining weighted-average period of 2.0 years.
Restricted Stock Units
During the year ended December 31, 2019, we awarded 182,333 restricted stock units ("RSUs") 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 of Common Stock. RSUs are expensed and recorded in Additional paid-in capital on the Consolidated Balance Sheets over the requisite service period based on the value of the underlying shares on the date of grant. At the time any RSUs vest and are settled through the issuance of Common Stock, the value of the dividends that would have been payable on the shares of Common Stock issued upon settlement of the vested RSUs had such shares been held during the entire vesting period will be paid to the employee or director in cash or, in the discretion of the Human Resources and Compensation Committee, in shares of Common Stock based on the then-current market value of the Common Stock.
The RSU expense and associated tax benefit for all outstanding awards for the year ended December 31, 2019 was $656 and $130, respectively. There was no RSU expense or associated tax benefit in the years ended December 31, 2018 and 2017.
As of December 31, 2019, there was $981 of remaining unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of 1.2 years.
The RSU activity for the year ended December 31, 2019 is as follows:
|
|
Total
|
|
|
Weighted-
Average
Grant Date
Fair Value
per Unit
|
|
Non-vested as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
182,333
|
|
|
|
8.98
|
|
Non-vested as of December 31, 2019
|
|
|
182,333
|
|
|
$
|
8.98
|
|
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 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. During the years ended December 31, 2019, 2018 and 2017, we received proceeds of $231, $214 and $98 for the purchase of 22,000, 20,000 and 9,000 shares under the ESPP.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 16 – SHAREHOLDERS EQUITY
On April 28, 2016, our Board of Directors authorized the repurchase of up to one million shares of our common stock in open market transactions.
The following table represents our purchases of our common stock during the years ended December 31, 2019 and 2018 under the share repurchase program.
Year Ended
December, 31
|
|
Shares
purchased
(000)
|
|
|
Purchase
value
|
|
|
Remaining shares
allowable to be
purchased
|
|
2018
|
|
|
90
|
|
|
$
|
656
|
|
|
|
910
|
|
2019
|
|
|
101
|
|
|
$
|
793
|
|
|
|
809
|
|
NOTE 17 – EARNINGS PER SHARE
The table below reconciles basic weighted average common shares outstanding to diluted weighted average shares outstanding for 2019, 2018 and 2017 (in thousands). The stock awards noted as antidilutive were not included in the diluted or basic weighted average common shares outstanding. Although these stock awards were not included in our calculation of basic or diluted earnings per share (“EPS”), they may have a dilutive effect on the EPS calculation in future periods if the price of our common stock increases.
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Basic weighted average common shares outstanding
|
|
|
35,318
|
|
|
|
35,187
|
|
|
|
34,949
|
|
Plus dilutive effect of Restricted Stock Units and Performance Stock Units
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted average common shares outstanding
|
|
|
35,416
|
|
|
|
35,187
|
|
|
|
34,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NOTE 18 – BUSINESS SEGMENTS
We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: Fleet Vehicles and Services and Specialty Chassis and Vehicles. The Emergency Response Vehicles segment met the held-for-sale criteria at December 31, 2019. Thus it is no longer considered a reportable segment and is reported as a discontinued operation instead.
We evaluate the performance of our reportable segments based on adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our continuing operating performance. In the fourth quarter of 2019, in connection with the divestiture of our ERV business, we refined the definition of adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations. Adjusted EBITDA for all prior years presented have been recast to conform to the current presentation.
Our FVS segment consists of our operations at our Bristol, Indiana location, and beginning in 2018 certain operations at our Ephrata, Pennsylvania location along with our operations at our upfit centers in Kansas City, Missouri; North Charleston, South Carolina; Pompano Beach, Florida; Montebello, California and Saltillo, Mexico. The segment focuses on designing and manufacturing walk-in vans for parcel delivery, mobile retail, and trades and construction industries, the production of commercial truck bodies, and the distribution of related aftermarket parts and accessories.
Our SCV 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. In addition, beginning in September 2019 with the acquisition of Royal, the SCV segment includes operations in Carson and Union City, California; Mesa, Arizona; and Dallas and Weatherford, Texas. Royal is a leading California-based designer, manufacturer and installer of service truck bodies and accessories.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The accounting policies of the segments are the same as those described, or referred to, in "Note 1 – General and Summary of Accounting Policies". 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 $21,361, $21,204 and $13,392 for the years ended December 31, 2019, 2018 and 2017, or 2.8%, 3.7% and 3.3%, 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 December 31, 2019
|
|
Segment
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Eliminations
and Other
|
|
|
Consolidated
|
|
Fleet vehicles sales
|
|
$
|
504,023
|
|
|
$
|
5,278
|
|
|
$
|
(5,278
|
)
|
|
$
|
504,023
|
|
Motor home chassis sales
|
|
|
-
|
|
|
|
127,130
|
|
|
|
-
|
|
|
|
127,130
|
|
Other specialty vehicles sales
|
|
|
-
|
|
|
|
43,067
|
|
|
|
-
|
|
|
|
43,067
|
|
Aftermarket parts and accessories sales
|
|
|
71,871
|
|
|
|
10,451
|
|
|
|
-
|
|
|
|
82,322
|
|
Total sales
|
|
$
|
575,894
|
|
|
$
|
185,926
|
|
|
$
|
(5,278
|
)
|
|
$
|
756,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
2,466
|
|
|
$
|
2,104
|
|
|
$
|
1,503
|
|
|
$
|
6,073
|
|
Adjusted EBITDA
|
|
|
60,663
|
|
|
|
20,716
|
|
|
|
(17,334
|
)
|
|
|
64,045
|
|
Segment assets
|
|
|
154,138
|
|
|
|
137,777
|
|
|
|
67,897
|
|
|
|
359,812
|
|
Capital expenditures
|
|
|
2,851
|
|
|
|
2,220
|
|
|
|
2,525
|
|
|
|
7,596
|
|
Year Ended December 31, 2018
|
|
Segment
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Eliminations
and Other
|
|
|
Consolidated
|
|
Fleet vehicles sales
|
|
$
|
297,627
|
|
|
$
|
10,221
|
|
|
$
|
(10,221
|
)
|
|
$
|
297,627
|
|
Motor home chassis sales
|
|
|
-
|
|
|
|
149,533
|
|
|
|
-
|
|
|
|
149,533
|
|
Other specialty vehicles sales
|
|
|
-
|
|
|
|
22,570
|
|
|
|
-
|
|
|
|
22,570
|
|
Aftermarket parts and accessories sales
|
|
|
89,922
|
|
|
|
10,875
|
|
|
|
-
|
|
|
|
100,797
|
|
Total sales
|
|
$
|
387,549
|
|
|
$
|
193,199
|
|
|
$
|
(10,221
|
)
|
|
$
|
570,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
2,401
|
|
|
$
|
1,495
|
|
|
$
|
2,318
|
|
|
$
|
6,214
|
|
Adjusted EBITDA
|
|
|
26,680
|
|
|
|
18,620
|
|
|
|
(9,915
|
)
|
|
|
35,385
|
|
Segment assets
|
|
|
117,508
|
|
|
|
17,335
|
|
|
|
82,264
|
|
|
|
217,107
|
|
Capital expenditures
|
|
|
1,859
|
|
|
|
116
|
|
|
|
2,678
|
|
|
|
4,653
|
|
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Year Ended December 31, 2017
|
|
Segment
|
|
|
|
FVS
|
|
|
SCV
|
|
|
Eliminations
and Other
|
|
|
Consolidated
|
|
Fleet vehicles sales
|
|
$
|
207,666
|
|
|
$
|
5,657
|
|
|
$
|
(5,657
|
)
|
|
$
|
207,666
|
|
Motor home chassis sales
|
|
|
-
|
|
|
|
124,584
|
|
|
|
-
|
|
|
|
124,584
|
|
Other specialty vehicles sales
|
|
|
-
|
|
|
|
18,416
|
|
|
|
-
|
|
|
|
18,416
|
|
Aftermarket parts and accessories sales
|
|
|
43,429
|
|
|
|
10,153
|
|
|
|
-
|
|
|
|
53,582
|
|
Total sales
|
|
$
|
251,095
|
|
|
$
|
158,810
|
|
|
$
|
(5,657
|
)
|
|
$
|
404,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
3,361
|
|
|
$
|
1,314
|
|
|
$
|
1,357
|
|
|
$
|
6,032
|
|
Adjusted EBITDA
|
|
|
26,958
|
|
|
|
14,058
|
|
|
|
(9,344
|
)
|
|
|
31,762
|
|
Segment assets
|
|
|
60,550
|
|
|
|
21,445
|
|
|
|
76,439
|
|
|
|
158,434
|
|
Capital expenditures
|
|
|
562
|
|
|
|
386
|
|
|
|
3,028
|
|
|
|
3,976
|
|
The table below presents the reconciliation of our consolidated income from continuing operations 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,
2019
|
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Income from continuing operations before income taxes
|
|
$
|
47,145
|
|
|
$
|
21,450
|
|
|
$
|
19,853
|
|
Net (income) loss attributable to non-controlling interest
|
|
|
(140
|
)
|
|
|
-
|
|
|
|
1
|
|
Interest expense
|
|
|
109
|
|
|
|
481
|
|
|
|
156
|
|
Depreciation and amortization expense
|
|
|
4,570
|
|
|
|
3,896
|
|
|
|
4,675
|
|
Restructuring and other related charges
|
|
|
82
|
|
|
|
176
|
|
|
|
746
|
|
Unallocated corporate expenses
|
|
|
29,613
|
|
|
|
19,297
|
|
|
|
15,585
|
|
Total segment adjusted EBITDA
|
|
$
|
81,379
|
|
|
$
|
45,300
|
|
|
$
|
41,016
|
|
NOTE 19 – RELATED PARTY TRANSACTIONS
Angela Freeman, who serves on the Spartan Motors Board of Directors effective August 5, 2019, is the Chief Human Resources Officer at C.H. Robinson. The Company engaged C.H. Robinson for transportation and logistics services through a competitive bid process in December 2018. During the period August 5, 2019 through December 31, 2019, the Company utilized C.H. Robinson for services totaling $6,723.
Richard Dauch, who serves on the Spartan Motors Board of Directors, was the Chief Executive Officer of Accuride, Inc. through January 6, 2019. During the years ended December 31, 2018 and 2017, we made purchases of $799 and $698 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. Purchases made in 2019 through January 6, 2019 were not material.
NOTE 20 – SUBSEQUENT EVENT
Effective February 1, 2020, the Company completed the sale of its ERV business pursuant to the terms and conditions set forth in the Asset Purchase Agreement entered into by and among the Company, the buyer and certain parties, and received cash of $55,000, subject to a post-closing adjustment. In connection with the closing of the sale, the Company and the buyer have entered into a transition services agreement, pursuant to which the parties will provide certain transition services for a specified period following the closing.
SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 21 – QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 2019 and 2018 is as follows. As discussed in "Note 2 – Acquisition Activities" effective February 1, 2020, we completed the sale of our ERV business. The results of the ERV business have been classified as discontinued operations for all periods presented. Full year amounts may not sum due to rounding.
|
|
2019 Quarter Ended
|
|
|
2018 Quarter Ended
|
|
|
|
Mar 31
|
|
|
June 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
|
Mar 31
|
|
|
June 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
Sales
|
|
$
|
172,206
|
|
|
$
|
179,673
|
|
|
$
|
224,703
|
|
|
$
|
179,960
|
|
|
$
|
106,325
|
|
|
$
|
124,366
|
|
|
$
|
165,920
|
|
|
$
|
173,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,720
|
|
|
|
20,859
|
|
|
|
38,029
|
|
|
|
37,419
|
|
|
|
14,775
|
|
|
|
19,407
|
|
|
|
19,828
|
|
|
|
19,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
14,767
|
|
|
|
14,608
|
|
|
|
20,915
|
|
|
|
19,123
|
|
|
|
12,124
|
|
|
|
13,812
|
|
|
|
11,438
|
|
|
|
13,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4,835
|
|
|
|
4,544
|
|
|
|
13,126
|
|
|
|
14,285
|
|
|
|
3,866
|
|
|
|
2,706
|
|
|
|
7,128
|
|
|
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of income taxes
|
|
|
(3,298
|
)
|
|
|
(1,255
|
)
|
|
|
(2,711
|
)
|
|
|
(41,952
|
)
|
|
|
328
|
|
|
|
1,034
|
|
|
|
(1,885
|
)
|
|
|
(2,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Spartan Motors, Inc.
|
|
|
1,397
|
|
|
|
3,504
|
|
|
|
10,354
|
|
|
|
(27,821
|
)
|
|
|
4,194
|
|
|
|
3,740
|
|
|
|
5,243
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.37
|
|
|
|
0.40
|
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.20
|
|
|
|
0.12
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
|
(0.04
|
)
|
|
|
(0.08
|
)
|
|
|
(1.19
|
)
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
(0.05
|
)
|
|
|
(0.07
|
)
|
Basic earnings per share
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
0.29
|
|
|
|
(0.79
|
)
|
|
|
0.12
|
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.05
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.37
|
|
|
|
0.40
|
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.20
|
|
|
|
0.12
|
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
|
(0.04
|
)
|
|
|
(0.08
|
)
|
|
|
(1.18
|
)
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
(0.05
|
)
|
|
|
(0.07
|
)
|
Diluted earnings per share
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
0.29
|
|
|
|
(0.78
|
)
|
|
|
0.12
|
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.05
|
|