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
September 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 November 12, 2003

Common stock, $.01 par value	12,177,412 shares

SPARTAN MOTORS, INC.

INDEX

PART I. FINANCIAL INFORMATION
			Page
	Item 1.	Financial Statements:

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

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

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

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

		Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 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 6.	Exhibits and Reports on Form 8-K	24

SIGNATURES			25

EXHIBIT INDEX			26

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

Current assets:
Cash and cash equivalents	$	15,409,399	$	8,081,639
Accounts receivable, less allowance for
doubtful accounts of $371,000 in 2003
and $365,000 in 2002		23,714,472		28,823,185
Inventories		30,270,391		25,205,450
Deferred tax assets		3,463,765		3,463,765
Taxes receivable		269,192		-
Other current assets		876,888		1,286,564
Current assets of discontinued operations		241,402		307,288
Total current assets		74,245,509		67,167,891

Property, plant, and equipment, net		15,005,427		15,155,436
Goodwill		4,543,422		4,543,422
Deferred tax assets		1,301,560		1,301,560
Other assets		53,223		144,191
Total assets	$	95,149,141	$	88,312,500

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

	September 30, 2003		December 31, 2002
	(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	20,432,821	$	15,939,864
Accrued warranty		2,568,039		2,768,389
Accrued taxes on income		-		1,412,210
Accrued compensation and related taxes		2,351,283		4,232,013
Accrued vacation		1,165,013		1,217,187
Deposits from customers		4,854,281		4,098,211
Other current liabilities and accrued expenses		2,398,732		2,201,473
Current liabilities of discontinued operations		-		8,692
Total current liabilities		33,770,169		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 12,143,962 and
12,025,842 shares in 2003 and 2002, respectively		121,440		120,258
Additional paid in capital		31,914,775		30,776,327
Retained earnings		29,342,757		25,537,876
Total shareholders' equity		61,378,972		56,434,461
Total liabilities and shareholders' equity	$	95,149,141	$	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 September 30,
	2003			2002

Sales	$	60,780,385		$	64,065,349
Cost of products sold		51,629,438			52,657,754
Gross profit		9,150,947			11,407,595

Operating expenses:
Research and development		1,800,564			1,750,013
Selling, general and administrative		5,228,480			4,869,064
Operating income		2,121,903			4,788,518

Other income (expense):
Interest expense		(62,180	)		(86,234	)
Interest and other income		75,825			287,200
Earnings from continuing operations before taxes on income		2,135,548			4,989,484

Taxes on income		673,233			1,744,619
Net earnings from continuing operations		1,462,315			3,244,865

Discontinued operations:
Loss on disposal of Carpenter		-			(108,126	)
Net earnings	$	1,462,315		$	3,136,739

Basic net earnings per share:
Net earnings from continuing operations	$	0.12		$	0.27
Loss from discontinued operations:
Loss on disposal of Carpenter		-			(0.01	)
Basic net earnings per share	$	0.12		$	0.26

Diluted net earnings per share:
Net earnings from continuing operations	$	0.12		$	0.26
Loss from discontinued operations:
Loss on disposal of Carpenter		-			(0.01	)
Diluted net earnings per share	$	0.12		$	0.25

Basic weighted average common shares outstanding		12,121,000			11,918,000

Diluted weighted average common shares outstanding		12,385,000			12,563,000

See Notes to Condensed Consolidated Financial Statements.

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

	Nine Months Ended September 30,
	2003			2002

Sales	$	176,314,811		$	196,099,013
Cost of products sold		150,551,519			160,829,600
Gross profit		25,763,292			35,269,413

Operating expenses:
Research and development		5,402,915			5,404,447
Selling, general and administrative		16,035,403			15,733,168
Operating income		4,324,974			14,131,798

Other income (expense):
Interest expense		(230,982	)		(300,470	)
Interest and other income		337,503			339,821
Earnings from continuing operations before taxes on income		4,431,495			14,171,149

Taxes on income		1,100,797			4,956,716
Net earnings from continuing operations		3,330,698			9,214,433

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			269,314
Net earnings	$	4,796,004		$	9,483,747

Basic net earnings per share:
Net earnings from continuing operations	$	0.28		$	0.81
Gain from discontinued operations:
Gain on disposal of Carpenter		0.12			0.02
Basic net earnings per share	$	0.40		$	0.83

Diluted net earnings per share:
Net earnings from continuing operations	$	0.27		$	0.78
Gain from discontinued operations:
Gain on disposal of Carpenter		0.12			0.02
Diluted net earnings per share	$	0.39		$	0.80

Basic weighted average common shares outstanding		12,104,000			11,400,000

Diluted weighted average common shares outstanding		12,425,000			11,899,000

Cash dividends on common stock	$	0.05		$	0.05

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	175,185		1,753		1,287,388				1,289,141
Purchase and constructive
retirement of stock	(57,065	)	(571	)	(148,940	)	(348,635	)	(498,146	)
Dividends paid							(642,488	)	(642,488	)
Net earnings							4,796,004		4,796,004
Balance at September 30, 2003	12,143,962		$ 121,440		$ 31,914,775		$ 29,342,757		$ 61,378,972

See Notes to Condensed Consolidated Financial Statements.

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

	Nine Months Ended September 30,
	2003			2002
Cash flows from operating activities:
Net earnings from continuing operations	$	3,330,698		$	9,214,433
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation		1,525,645			1,427,740
Gain on sales of property, plant and equipment		(6,100	)		(2,083	)
Tax benefit from stock options exercised		284,000			2,413,000
Decrease (increase) in operating assets:
Accounts receivable		5,108,713			(2,790,607	)
Inventories		(5,064,941	)		(372,864	)
Taxes receivable		(269,192	)		-
Other assets		500,644			700,855
Increase (decrease) in operating liabilities:
Accounts payable		4,492,957			2,597,667
Accrued warranty		(200,350	)		43,111
Accrued taxes on income		(1,412,210	)		997,300
Accrued compensation and related taxes		(1,880,730	)		1,020,154
Accrued vacation		(52,174	)		(33,072	)
Deposits from customers		756,070			238,318
Other current liabilities and accrued expenses		197,259			1,139,213
Total adjustments		3,979,591			7,378,732
Net cash provided by continuing operating activities		7,310,289			16,593,165
Net cash provided by (used in) discontinued operating activities		1,522,500			(286,923	)
Net cash provided by operating activities		8,832,789			16,306,242

Cash flows from investing activities:
Purchases of property, plant and equipment		(1,375,636	)		(4,699,242	)
Proceeds from sales of property, plant and equipment		6,100			2,083
Net cash used in investing activities		(1,369,536	)		(4,697,159	)

Cash flows from financing activities:
Payments on long-term debt		-			(11,405,079	)
Dividends paid		(642,488	)		(1,130,161	)
Purchase and constructive retirement of stock		(498,146	)		-
Proceeds from the exercise of stock options		1,005,141			7,055,644
Other		-			53,000
Net cash used in financing activities		(135,493	)		(5,426,596	)
Net increase in cash and cash equivalents		7,327,760			6,182,487
Cash and cash equivalents at beginning of period		8,081,639			4,192,785
Cash and cash equivalents at end of period	$	15,409,399		$	10,375,272

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 September 30, 2003, the results of operations for the three-month and nine-month periods ended September 30, 2003 and 2002 and cash flows for the nine-month periods ended September 30, 2003 and 2002.

Note 3

The results of operations for the nine-month period ended September 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:

	September 30, 2003			December 31, 2002

Finished goods	$	6,394,881		$	5,329,518
Work in process		6,142,606			7,650,006
Raw materials and purchased components		20,194,122			14,138,499
Obsolescence reserve		(2,461,218	)		(1,912,573	)
	$	30,270,391		$	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 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.

- -9-

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 nine months ended September 30, 2003 were as follows:

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

Warranties issued during the period	1,153,552

Cash settlements made during the period	(2,511,153	)

Changes in liability for pre-existing warranties during
the period, including expirations	1,157,251

Balance of accrued warranty at September 30, 2003	$ 2,568,039

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 September 30, 2003 was $0.6 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. The fair value of new repurchase agreements entered into after December 31, 2002 is not significant.

Note 7

The Company's effective income tax rates of 31.5% for the three months and 24.8% for the nine months ended September 30, 2003 differ 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.

- -10-

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.

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

	September 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 plant closure was substantially completed as of September 30, 2003 and costs associated with this exit activity totaling $0.5 million were expensed as incurred. Severance benefits and other contractual obligations associated with the plant shutdown were not significant.

In September 2003, the Company formed a new subsidiary, Crimson Fire Aerials, Inc., headquartered in Lancaster, Pennsylvania. The new company will manufacture aerial devices for fire trucks. As of September 30, 2003, the Company has incurred minimal start up costs associated with this entity.

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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 nine months ended September 30, 2003 and 2002 would have been the pro forma amounts indicated below.

	Three Months Ended September 30,
	2003			2002
Net earnings
As reported	$	1,462,315		$	3,136,739
Deduct: Compensation expense - fair value method		(36,785	)		(86,691	)
Add: Income tax benefit for disqualifying dispositions associated with incentive stock options previously expensed		49,365			122,710
Pro forma	$	1,474,895		$	3,172,758

Basic net earnings per share
As reported	$	0.12		$	0.26
Pro forma		0.12			0.27

Diluted net earnings per share
As reported	$	0.12		$	0.25
Pro forma		0.12			0.25

	Nine Months Ended September 30,
	2003			2002
Net earnings
As reported	$	4,796,004		$	9,483,747
Deduct: Compensation expense - fair value method		(130,144	)		(105,070	)
Add: Income tax benefit for disqualifying dispositions associated with incentive stock options previously expensed		206,135			1,302,287
Pro forma	$	4,871,995		$	10,680,964

Basic net earnings per share
As reported	$	0.40		$	0.83
Pro forma		0.40			0.94

Diluted net earnings per share
As reported	$	0.39		$	0.80
Pro forma		0.39			0.90

- -12-

Note 11

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

Three Months Ended September 30, 2003

		Business Segments
		Chassis		EVTeam			Other			Consolidated

Motorhome chassis sales	$	33,384							$	33,384
Fire truck chassis sales		15,102				$	(2,055	)		13,047
EVTeam product sales		-	$	12,343			-			12,343
Other sales		2,006		-			-			2,006
Total Net Sales	$	50,492	$	12,343		$	(2,055	)	$	60,780
Interest expense		25		126			(89	)		62
Depreciation expense		209		203			107			519
Income tax expense		1,277		(604	)		-			673
Segment earnings (loss)
from continuing operations		2,313		(875	)		24			1,462
Discontinued operations		-		-			-			-
Segment earnings (loss)		2,313		(875	)		24			1,462
Segment assets		33,113		34,738			27,298			95,149

Three Months Ended September 30, 2002