SPARTAN MOTORS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended
June 30, 2003

Commission File Number
0-13611

SPARTAN MOTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-2078923 (I.R.S. Employer Identification No.)

1165 Reynolds Road Charlotte, Michigan (Address of Principal Executive Offices)	48813 (Zip Code)

Registrant's Telephone Number, Including Area Code: (517) 543-6400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No _______

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes X No _______

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at August 12, 2003

Common stock, $.01 par value	12,123,312 shares

SPARTAN MOTORS, INC.

INDEX

PART I. FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets - June 30, 2003 (Unaudited) and December 31, 2002	3

		Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2003 and 2002 (Unaudited)	5

		Condensed Consolidated Statements of Operations - Six Months Ended June 30, 2003 and 2002 (Unaudited)	6

		Condensed Consolidated Statements of Shareholders' Equity - Six Months Ended June 30, 2003 (Unaudited)	7

		Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 (Unaudited)	8

		Notes to Condensed Consolidated Financial Statements	9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

	Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	23

	Item 6.	Exhibits and Reports on Form 8-K	25

SIGNATURES			26

EXHIBIT INDEX			27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
____________________________________

	June 30, 2003			December 31, 2002
ASSETS	(Unaudited)


Current assets:
Cash and cash equivalents	$	9,557,496	$	8,081,639
Accounts receivable, less allowance for
doubtful accounts of $385,000 in 2003
and $365,000 in 2002		25,165,932		28,823,185
Inventories		29,723,923		25,205,450
Deferred tax assets		3,463,765		3,463,765
Taxes receivable		708,135		-
Other current assets		1,463,932		1,286,564
Current assets of discontinued operations		241,402		307,288
Total current assets		70,324,585		67,167,891

Property, plant, and equipment, net		15,157,692		15,155,436
Goodwill		4,543,422		4,543,422
Deferred tax assets		1,301,560		1,301,560
Other assets		70,419		144,191
Total assets	$	91,397,678	$	88,312,500

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SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
____________________________________

	June 30, 2003			December 31, 2002
	(Unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	17,956,015	$	15,939,864
Accrued warranty		2,568,743		2,768,389
Accrued taxes on income		-		1,412,210
Accrued compensation and related taxes		2,006,810		4,232,013
Accrued vacation		1,348,438		1,217,187
Deposits from customers		5,473,477		4,098,211
Other current liabilities and accrued expenses		2,430,218		2,201,473
Current liabilities of discontinued operations		-		8,692
Total current liabilities		31,783,701		31,878,039

Shareholders' equity:
Preferred stock, no par value: 2,000,000
shares authorized (none issued)		-		-
Common stock, $.01 par value: 23,900,000
shares authorized, issued 12,098,912 and
12,025,842 shares in 2003 and 2002, respectively		120,989		120,258
Additional paid in capital		31,612,546		30,776,327
Retained earnings		27,880,442		25,537,876
Total shareholders' equity		59,613,977		56,434,461

Total liabilities and shareholders' equity	$	91,397,678	$	88,312,500

See Notes to Condensed Consolidated Financial Statements.

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SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
____________________________________

		Three Months Ended June 30,
		2003			2002

Sales	$	55,116,986		$	65,315,118
Cost of products sold		48,088,270			53,678,350
Gross profit		7,028,716			11,636,768

Operating expenses:
Research and development		1,853,752			1,726,525
Selling, general and administrative		5,536,469			5,406,543
Operating income (loss)		(361,505	)		4,503,700

Other income (expense):
Interest expense		(117,024	)		(123,660	)
Interest and other income		128,508			107,635
Earnings (loss) from continuing operations before taxes on income		(350,021	)		4,487,675

Taxes on income		(128,901	)		1,757,359
Net earnings (loss) from continuing operations		(221,120	)		2,730,316

Discontinued operations:
Gain on disposal of Carpenter, including applicable income tax
benefit of $914,000 in 2003 and $185,000 in 2002		955,178			301,998
Net earnings	$	734,058		$	3,032,314

Basic net earnings per share:
Net earnings (loss) from continuing operations	$	(0.02	)	$	0.24
Gain from discontinued operations:
Gain on disposal of Carpenter		0.08			0.03
Basic net earnings per share	$	0.06		$	0.27

Diluted net earnings per share:
Net earnings (loss) from continuing operations	$	(0.02	)	$	0.23
Gain from discontinued operations:
Gain on disposal of Carpenter		0.08			0.02
Diluted net earnings per share	$	0.06		$	0.25

Basic weighted average common shares outstanding		12,122,000			11,438,000

Diluted weighted average common shares outstanding		12,122,000			12,070,000

See Notes to Condensed Consolidated Financial Statements.

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SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
____________________________________

		Six Months Ended June 30,
		2003			2002

Sales	$	115,534,426		$	132,033,664
Cost of products sold		98,922,081			108,171,846
Gross profit		16,612,345			23,861,818

Operating expenses:
Research and development		3,602,351			3,654,434
Selling, general and administrative		10,806,923			10,864,104
Operating income		2,203,071			9,343,280

Other income (expense):
Interest expense		(168,802	)		(214,236	)
Interest and other income		261,678			52,621
Earnings from continuing operations before taxes on income		2,295,947			9,181,665

Taxes on income		427,564			3,212,097
Net earnings from continuing operations		1,868,383			5,969,568

Discontinued operations:
Gain on disposal of Carpenter, including applicable income tax
benefit of $1,523,000 in 2003 and $185,000 in 2002		1,465,306			377,440
Net earnings	$	3,333,689		$	6,347,008

Basic net earnings per share:
Net earnings from continuing operations	$	0.16		$	0.54
Gain from discontinued operations:
Gain on disposal of Carpenter		0.12			0.03
Basic net earnings per share	$	0.28		$	0.57

Diluted net earnings per share:
Net earnings from continuing operations	$	0.15		$	0.51
Gain from discontinued operations:
Gain on disposal of Carpenter		0.12			0.03
Diluted net earnings per share	$	0.27		$	0.54

Basic weighted average common shares outstanding		12,090,000			11,199,000

Diluted weighted average common shares outstanding		12,445,000			11,685,000

See Notes to Condensed Consolidated Financial Statements.

- -6-

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
____________________________________

Number of
Shares

Common
Stock

Additional
Paid In
Capital

Retained
Earnings

Total


Balance at January 1, 2003	12,025,842		$120,258		$30,776,327		$25,537,876		$56,434,461

Net proceeds from exercise
of stock options, including
related income tax benefit	130,135		1,302		985,159				986,461
Purchase and retirement
of stock	(57,065	)	(571	)	(148,940	)	(348,635	)	(498,146	)
Dividends paid							(642,488	)	(642,488	)
Net earnings							3,333,689		3,333,689
Balance at June 30, 2003	12,098,912		$120,989		$31,612,546		$27,880,442		$59,613,977

See Notes to Condensed Consolidated Financial Statements.

- -7-

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
____________________________________

		Six Months Ended June 30,
		2003			2002
Cash flows from operating activities:
Net earnings from continuing operations	$	1,868,383		$	5,969,568
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation		1,006,748			928,841
Gain on sales of assets		(6,100	)		-
Tax benefit from stock options exercised		232,000			2,111,000
Decrease (increase) in operating assets:
Accounts receivable		3,657,253			(5,664,544	)
Inventories		(4,518,473	)		(995,156	)
Taxes receivable		(708,135	)		-
Other assets		(103,596	)		383,755
Increase (decrease) in operating liabilities:
Accounts payable		2,016,151			3,071,164
Accrued warranty		(199,646	)		149,199
Accrued taxes on income		(1,412,210	)		(381,442	)
Accrued compensation and related taxes		(2,225,203	)		876,799
Accrued vacation		131,251			(112,055	)
Deposits from customers		1,375,266			102,853
Other current liabilities and accrued expenses		228,745			655,933
Total adjustments		(525,949	)		1,126,347
Net cash provided by continuing operating activities		1,342,434			7,095,915
Net cash provided by (used in) discontinued operating activities		1,522,500			(206,923	)
Net cash provided by operating activities		2,864,934			6,888,992

Cash flows from investing activities:
Purchases of property, plant and equipment		(1,009,004	)		(4,334,954	)
Proceeds from sales of property, plant and equipment		6,100			-
Net cash used in investing activities		(1,002,904	)		(4,334,954	)

Cash flows from financing activities:
Payments on long-term debt		-			(11,405,079	)
Dividends paid		(642,488	)		(1,130,161	)
Purchase and retirement of stock		(498,146	)		-
Proceeds from the exercise of stock options		754,461			6,121,667
Net cash used in financing activities		(386,173	)		(6,413,573	)
Net increase (decrease) in cash and cash equivalents		1,475,857			(3,859,535	)
Cash and cash equivalents at beginning of period		8,081,639			4,192,785
Cash and cash equivalents at end of period	$	9,557,496		$	333,250

See Notes to Condensed Consolidated Financial Statements.

- -8-

SPARTAN MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
______________________________________

Note 1

For a description of the accounting policies followed refer to the notes to the Spartan Motors, Inc. (the "Company") consolidated financial statements for the year ended December 31, 2002, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2003.

Note 2

The accompanying unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of the Company's financial position as of June 30, 2003, the results of operations for the three-month and six-month periods ended June 30, 2003 and 2002 and cash flows for the six-month period ended June 30, 2003.

Note 3

The results of operations for the six-month period ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.

Note 4

Inventories consist of raw materials and purchased components, work in process and finished goods and are summarized as follows:

	June 30, 2003			December 31, 2002

Finished goods	$	7,243,812		$	5,329,518
Work in process		5,999,569			7,650,006
Raw materials and purchased components		18,790,941			14,138,499
Obsolescence reserve		(2,310,399	)		(1,912,573	)
	$	29,723,923		$	25,205,450

Note 5

The Company's products generally carry limited warranties, based on terms that are generally accepted in the marketplace. Some components included in the Company's end products (such as engines, transmissions, tires, etc.) may include manufacturers' warranties. These manufacturers' warranties are generally passed on to the end customer of the Company's products.

The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. Historically, the cost of fulfilling the Company's warranty obligations has principally involved replacement parts, labor and sometimes travel for any field retrofit campaigns. The Company's estimates are based on historical experience, the number of units involved and the extent of features and components included in product models.

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Note 5 (continued)

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 the Company's historical experience. The Company provides 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 the Company's historical experience.

Changes in the Company's warranty liability during the six months ended June 30, 2003 were as follows:

Balance of accrued warranty at January 1, 2003	$ 2,768,389

Warranties issued during the period	749,755

Cash settlements made during the period	(1,523,391	)

Changes in liability for pre-existing warranties during
the period, including expirations	573,990

Balance of accrued warranty at June 30, 2003	$ 2,568,743

Note 6

The Company has repurchase agreements with certain third-party lending institutions that have provided floor plan financing to customers. These agreements provide for the repurchase of products from the lending institution in the event of the customer's default. The total contingent liability on June 30, 2003 was $1.2 million. Historically, losses under these agreements have not been significant and it is management's opinion that any future losses will not have a material effect on the Company's financial position or future operating results.

Note 7

The Company's effective income tax rate of 18.6% for the six months ended June 30, 2003 differs from the federal statutory rate of 34.0% primarily as a result of reductions in previously recorded estimates for accrued taxes on income based upon settlements of examinations with state and federal taxing authorities that reduced the provision for income taxes during the period.

Note 8

On September 28, 2000, the Company's Board of Directors passed a resolution to cease funding of the Company's majority-owned subsidiary, Carpenter Industries, Inc. Carpenter's Board of Directors then voted on September 29, 2000 to begin the orderly liquidation of Carpenter. Because Carpenter was a separate segment of the Company's business, the operating results and the disposition of Carpenter's net assets were accounted for as a discontinued operation. Accordingly, previously reported financial results for all periods presented were restated to reflect this business as a discontinued operation.

- -10-

Note 8 (Continued)

The assets or liabilities of the discontinued operations have been segregated in the consolidated balance sheets. Details of such amounts are as follows:

	June 30, 2003		December 31, 2002

Cash and cash equivalents	$	241,402	$	93,271
Accounts receivable		--		130,000
Other current assets		--		84,017
Current assets of discontinued operations	$	241,402	$	307,288

Other current liabilities	$	--	$	8,692
Current liabilities of discontinued operations	$	--	$	8,692

Note 9

In May 2003, the Company announced the closure of its Road Rescue, Inc. plant in St. Paul, Minnesota and its plan to transfer related production to its plant in Marion, South Carolina. The costs associated with this exit activity are estimated to be $0.7 million and will be expensed as incurred through the third quarter of 2003. Severance benefits and other contractual obligations associated with the plant shutdown are not significant.

Note 10

The Company follows Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock option plans. Under APB Opinion No. 25, no compensation expense is recognized because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's net earnings and net earnings per share for the three and six months ended June 30, 2003 and 2002 would have been the pro forma amounts indicated below.

- -11-

Note 10 (continued)

	Three Months Ended June 30,
	2003			2002
Net earnings
As reported	$	734,058		$	3,032,314
Deduct: Compensation expense -- fair value method		(75,039	)		(12,495	)
Pro forma		659,019			3,019,819

Basic net earnings per share
As reported	$	0.06		$	0.27
Pro forma		0.05			0.26

Diluted net earnings per share
As reported	$	0.06		$	0.25
Pro forma		0.05			0.25

	Six Months Ended June 30,
	2003			2002
Net earnings
As reported	$	3,333,689		$	6,347,008
Deduct: Compensation expense -- fair value method		(93,359	)		(18,379	)
Pro forma		3,240,330			6,328,629

Basic net earnings per share
As reported	$	0.28		$	0.57
Pro forma		0.27			0.57

Diluted net earnings per share
As reported	$	0.27		$	0.54
Pro forma		0.26			0.54

- -12-

Note 11

Sales and other financial information by business segment are as follows (amounts in thousands):

Three Months Ended June 30, 2003

	Business Segments
	Chassis		EVTeam			Other			Consolidated
Motorhome chassis sales	$	27,131							$	27,131
Fire truck chassis sales		16,090				$	(3,207	)		12,883
EVTeam product sales		--	$	13,200			--			13,200
Other sales		1,903		--			--			1,903
Total Net Sales	$	45,124	$	13,200		$	(3,207	)	$	55,117
Interest expense		33		192			(108	)		117
Depreciation expense		221		166			108			495
Income tax expense		839		(968	)		-			(129	)
Segment earnings (loss) from
continuing operations		1,443		(1,434	)		(230	)		(221	)
Discontinued operations		-		-			955			955
Segment earnings (loss)		1,443		(1,434	)		725			734
Segment assets		33,155		36,598			21,645			91,398

Three Months Ended June 30, 2002

	Business Segments
	Chassis		EVTeam		Other			Consolidated

Motorhome chassis sales	$	35,365						$	35,365
Fire truck chassis sales		14,720			$	(3,485	)		11,235
EVTeam product sales		--	$	17,434