SHYFT GROUP, INC. - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________

FORM 10-Q

Commission File Number 000-13611

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

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

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

SPARTAN MOTORS, INC.

INDEX
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FORWARD-LOOKING STATEMENTS

There are certain statements within this Report that are not historical facts. These statements are called “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “will”, “should” and similar expressions or words. Our future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. There are numerous factors that could cause actual results to differ materially from the results discussed in forward-looking statements, including, among others:

This list provides examples of factors that could affect the results described by forward-looking statements contained in this Report. However, this list is not intended to be all inclusive. The risk factors disclosed in Item 1A “Risk Factors” of Part II of this Quarterly Report on Form 10-Q and in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, include all known risks our management believes could materially affect the results described by forward-looking statements contained in this Report. However, those risks may not be the only risks we face. Our business, operations, and financial performance could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. In addition, new risks may emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. We believe that the forward-looking statements contained in this Report are reasonable. However, given these risks and uncertainties, we cannot provide you with any guarantee that the anticipated results will be achieved. All forward-looking statements in this Report are expressly qualified in their entirety by the cautionary statements contained in this Section and you are cautioned not to place undue reliance on the forward-looking statements contained in this Report as a prediction of actual results. We disclaim any obligation to update or revise information contained in any forward-looking statement to reflect developments or information obtained after the date this Report is filed with the Securities and Exchange Commission.

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value) 

See Accompanying Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements.

SPARTAN MOTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

NOTE 1 - GENERAL AND SUMMARY OF ACCOUNTING POLICIES

For a description of key accounting policies followed refer to the notes to the Spartan Motors, Inc. (the “Company”) consolidated financial statements for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2013. There have been no changes in such accounting policies as of the date of this report.

The Company has five wholly-owned operating subsidiaries: Spartan Motors Chassis, Inc., located at our corporate headquarters in Charlotte, Michigan (“Spartan Chassis”); Crimson Fire, Inc., located in Brandon, South Dakota (“Crimson”); Crimson Fire Aerials, Inc., located in Ephrata, Pennsylvania (“Crimson Aerials”); Utilimaster Corporation, located in Bristol and Wakarusa, Indiana (“Utilimaster”); and Classic Fire, LLC (“Classic Fire”), located in Ocala, Florida. In November, 2012, Crimson entered into a joint venture with Gimaex Holding, Inc. to form Spartan-Gimaex Innovations, LLC. Spartan-Gimaex Innovations, LLC will be reported as a consolidated subsidiary of Spartan Motors, Inc. There have been no significant financial transactions involving Spartan-Gimaex Innovations, LLC through September 30, 2013.   

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, 2013, the results of operations for the three and nine month periods ended September 30, 2013 and the cash flows for the nine month period ended September 30, 2013, and should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.

The Company is required to disclose the fair value of its financial instruments in accordance with Financial Accounting Standards Board (FASB) Codification relating to “Disclosures about Fair Values of Financial Instruments.” The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the Company’s fixed and variable rate debt instruments approximate their fair value at September 30, 2013 and December 31, 2012.

Certain immaterial amounts in the prior periods’ financial statements have been reclassified to conform to the current period’s presentation.

Recently issued accounting standards

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013, and early adoption is permitted. The Company does not believe that the adoption of the provisions of ASU 2013-11 will have a material impact on its consolidated financial position, results of operations or cash flows. 

NOTE 2 – INVENTORIES

Inventories are summarized as follows:

Included in the “Raw materials and purchased components” line item above at September 30, 2013 and December 31, 2012 are $1,830 and $9,626, for transitional engines purchased in preparation for the 2013 engine emissions change.

The Company has a number of demonstration units as part of its sales and training program. These demonstration units are included in the “Finished goods” line item above, and the net carrying amount was $9,654 and $9,653 at September 30, 2013 and December 31, 2012.

Work in process inventory increased from December 31, 2012 primarily due to an increase in production levels of emergency response vehicles and delivery and service vehicles that began late in the third quarter.

NOTE 3 – DEBT

Long-term debt consists of the following: 

SPARTAN MOTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

The long-term debt is due as follows:

Under the terms of the primary line of credit agreement and the private shelf agreement, the Company is required to maintain certain financial ratios and other financial conditions, which limited the Company’s available borrowings under its line of credit to a total of approximately $20,500 at September 30, 2013. The agreements also prohibit the Company from incurring additional indebtedness; limit certain acquisitions, investments, advances or loans; and restrict substantial asset sales. At September 30, 2013 and December 31, 2012, the Company was in compliance with all debt covenants.

NOTE 4 – RESTRUCTURING

There were no restructuring charges recorded during the nine months ended September 30, 2013.

During the three and nine months ended September 30, 2012, the Company incurred restructuring charges including asset impairments as the result of its planned relocation of its delivery and service vehicles operations and Reach manufacturing along with certain severance charges within its Specialty Vehicles and Emergency Response Vehicles segments to help align expenses with current and future revenue expectations.

Restructuring charges included in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2012 are as follows:

Restructuring charges included in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2012 are as follows:

As a result of the then planned move of the delivery and service vehicles operations to Bristol, Indiana, the Company classified certain buildings and related machinery and equipment within its Wakarusa, Indiana facility as held for sale. During the nine months ended September 30, 2012, the buildings and machinery and equipment were adjusted to their then current fair values less cost to sell, as determined by a market appraisal completed in March of 2012, resulting in impairment charges of $4,525. On December 31, 2012, the Company completed the sale of certain buildings and the associated land at its Wakarusa, Indiana facility. At September 30, 2013 and December 31, 2012, one building at the Wakarusa, Indiana facility was recorded as held-for-sale at its estimated selling price less costs to sell within Assets held for sale on the Condensed Consolidated Balance Sheets.

The following table provides a summary of the outstanding balances to be paid out in relation to compensation related restructuring charges previously incurred:

SPARTAN MOTORS, INC. AND SUBSIDIARIES

Under the terms of its credit agreement with its banks, the Company has the ability to issue letters of credit totaling $10,000. The balance of letters of credit outstanding was $3,509 at September 30, 2013 and $200 at December 31, 2012, related to the Company’s workers compensation insurance and certain emergency response vehicle body contracts.

At September 30, 2013, the Company and its subsidiaries were parties, both as plaintiff and defendant, to a number of lawsuits and claims arising out of the normal course of their businesses. In the opinion of management, the financial position, future operating results or cash flows of the Company will not be materially affected by the final outcome of these legal proceedings.

Chassis Agreements 

Utilimaster is party to a chassis bailment inventory agreement with GM which allows GM to draw up to $5,000 against the Company’s revolving credit line for chassis placed at Utilimaster. As a result of this agreement, there was $2,199 and $3,718 outstanding on the Company’s revolving credit line at September 30, 2013 and December 31, 2012. Under the terms of the bailment inventory agreement, these chassis never become the property of Utilimaster, and the amount drawn against the credit line will be repaid by a GM dealer at the time an order is placed for a Utilimaster body, utilizing a GM chassis. As such, the chassis and the related draw on the line of credit are not reflected in the accompanying Condensed Consolidated Balance Sheets. See Note 3 Debt for further information on the Company’s revolving line of credit.

Contingent Consideration

In connection with the acquisition of Utilimaster in November, 2009, the Company incurred contingent obligations through 2014 in the form of certain performance-based earn-out payments, up to an aggregate maximum amount of $7,000. Through September 30, 2013, the Company has made earn-out payments totaling $3,820, leaving an aggregate maximum amount of future payments of $3,180 as of September 30, 2013. The Company has recorded a contingent liability for the estimated fair value of the future consideration of $1,904 based upon the likelihood of the payments, discounted to September 30, 2013. The contingent liability includes credits of $217 and $82 for the three and nine months ended September 30, 2013, which are recorded within Selling, general and administrative on the Condensed Consolidated Statements of Operations. The credits are a result of adjustments recorded in the third quarter to reduce the liability to its anticipated fair value at September 30, 2013. Management believes that the Company has sufficient liquidity to fund the contingent obligations as they become due.

Warranty Related

The Company’s subsidiaries all 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 the Company’s 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 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.

In April, 2013, management determined that a recall related to certain of the Company’s motor home chassis would be necessary. While the exact impact of the recall has not yet been determined, the Company believes the cost of the recall will be between $1,000 and $2,500. In accordance with accounting guidance, an accrual of $1,000 was recorded during the nine month period ended September 30, 2013, which is reflected within Cost of products sold in the Condensed Consolidated Statement of Operations.

SPARTAN MOTORS, INC. AND SUBSIDIARIES

Changes in the Company’s warranty liability during the nine months ended September 30, 2013 and 2012 were as follows:

NOTE 6 – EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of the weighted average shares outstanding used in the Net earnings (loss) per share (“EPS”) calculation:

Stock awards noted as anti-dilutive were not included in the basic (Restricted stock awards) and diluted (stock option awards) weighted average common shares outstanding. Although these stock awards were not included in the Company’s calculation of basic or diluted EPS, they may have a dilutive effect on the EPS calculation in future periods if the price of the common stock is at a sufficient level or the Company reports net income.

NOTE 7 - BUSINESS SEGMENTS

The Company’s operations are managed through three operating segments based on product: Emergency Response Vehicles, Delivery and Service Vehicles, and Specialty Vehicles. The reportable segments have been identified based on the financial data utilized by the Company’s chief operating decision maker to assess segment performance and allocate resources among the operating units.

The Emergency Response Vehicles segment consists of the emergency response chassis operations of Spartan Chassis and the operations of Crimson, Crimson Aerials, and Classic Fire. This segment engineers and manufactures emergency response chassis and bodies.

The Delivery and Service Vehicles segment consists of Utilimaster and focuses on designing and manufacturing walk-in vans for the delivery and service market and the production of commercial truck bodies along with related aftermarket parts and assemblies.

The Specialty Vehicles segment consists of the Spartan Chassis operations that engineer and manufacture motor home chassis, defense vehicles and other specialty chassis and distribute related aftermarket parts and assemblies.

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 “Other” pertain to capital assets maintained at the corporate level. Segment loss from operations in the “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. Intercompany transactions between operating segments were immaterial in all periods presented.

Three Months Ended September 30, 2013

Three Months Ended September 30, 2012

SPARTAN MOTORS, INC. AND SUBSIDIARIES

Nine Months Ended September 30, 2013

Nine Months Ended September 30, 2012

NOTE 8 - TAXES

The Company’s effective tax rate was 70.5% and 20.0% for the three and nine months ended September 30, 2013.

The Company recorded income tax expense of $1,343 during the three months ended September 30, 2013, which included Q3 2013 income tax expense of $381, or 20.0% of the quarter’s pre-tax income, and a year-to-date adjustment of $962 to increase the tax provision for the first half of 2013 to the Company’s current estimated effective tax rate of 20.0%.

The Company’s effective tax rate was (83.7)% and 97.6% for the three and nine months ended September 30, 2012. The effective tax rate for the three and nine months ended September 30, 2012 was unfavorably affected by an increase in the reserves for uncertain tax liabilities, in accordance with ASC Topic 740 “Income Taxes”, in the amount of $218 as a result of a state court ruling that occurred in the third quarter of 2012. This event was not normal or recurring in nature, and as such was a discrete event for tax purposes, with the entire impact of the uncertain tax position taken into account in the third quarter of 2012.  

Spartan Motors, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. We began development of our first product that same year and shipped our first fire truck chassis in October 1975.

We are known as a leading niche-market engineer and manufacturer in the heavy-duty, specialty vehicles marketplace. We have five wholly-owned operating subsidiaries: Spartan Motors Chassis, Inc., located at our corporate headquarters in Charlotte, Michigan (“Spartan Chassis”); Crimson Fire, Inc., located in Brandon, South Dakota (“Crimson”); Crimson Fire Aerials, Inc., located in Ephrata, Pennsylvania (“Crimson Aerials”); Utilimaster Corporation, located in Bristol and Wakarusa, Indiana (“Utilimaster”); and Classic Fire, LLC (“Classic Fire”), located in Ocala, Florida. In November, 2012, Crimson entered into a joint venture with Gimaex Holding, Inc. to form Spartan-Gimaex Innovations, LLC. Spartan-Gimaex Innovations, LLC will be reported as a consolidated subsidiary of Spartan Motors, Inc. There have been no significant financial transactions involving Spartan-Gimaex Innovations, LLC during the nine months ended September 30, 2013. Our brand names, Spartan Chassis™, Spartan ERV™, and Utilimaster™ are known for quality, value, service and innovation.

Spartan Chassis is a leader in the design, engineering and manufacturing of specialty heavy-duty chassis. The chassis consists of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for emergency response chassis and some specialty chassis applications, a cab. Spartan Chassis customers are original equipment manufacturers (“OEMs”) who manufacture the body or apparatus of the vehicle which is mounted on our chassis. Crimson specializes in the engineering and manufacturing of emergency response vehicles built on chassis platforms purchased from either Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks. Classic Fire specializes in manufacturing emergency response vehicles built on chassis from outside sources and provides strategic sourcing of pump modules. Collectively, Crimson, Crimson Aerials and Classic Fire operate under the Spartan ERV brand. Utilimaster is a leading manufacturer of vehicles made to customer specifications in the delivery and service market, including walk-in and hi-cube vans, truck bodies and the Reach commercial van.

Our business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of specialty vehicle products. We have an innovative team focused on building lasting relationships with our customers. This is accomplished by striving to deliver premium specialty vehicles, vehicle components, and services that inspire customer loyalty. Our diversification across several sectors creates numerous opportunities while reducing overall risk. Additionally, our business model provides the agility to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size operations to ensure stability and growth.

Executive Overview

We reported sales of $126.1 million in the third quarter of 2013, an increase of 11.7% from the $112.9 million in sales we reported in the third quarter of 2012, as a result of unit volume increases in all of our segments. Our gross profit in the third quarter of 2013 was $16.1 million or 12.8% of sales, a 23.8% increase from the $13.0 million and 11.5% of sales we reported in the same period of 2012. The increase in gross profit was primarily due to the higher sales volumes recorded in the third quarter of 2013 compared to the same period in 2012, along with the absence of restructuring charges in 2013 compared to the $1.5 million recorded in 2012. Net earnings increased by $0.9 million, to $0.6 million, or $0.02 per share for the three months ended September 30, 2013, compared to a net loss of $0.3 million, or $0.01 per share for the same period in 2012, which included restructuring charges with an after tax impact of $1.0 million or $0.03 per share.

Our Specialty Vehicles segment posted stronger sales in the third quarter of 2013 with an increase of $4.3 million, or 18.0% compared to the third quarter of 2012. Our Delivery and Service Vehicles segment sales increased by $5.9 million, or 12.0%, while our Emergency Response Vehicles segment sales increased by $3.0 million, or 7.5% in the third quarter of 2013 compared with the same period in 2012.

Our overall backlog increased by 37.8% to $231.9 million at September 30, 2013 compared to $168.3 million at September 30, 2012, which reflects strong order intake during the first nine months of 2013 across all of our segments.

As of September 30, 2013 we had $20.0 million in cash. We did not borrow against our revolving credit facility during the nine months ended September 30, 2013.

We expect the fourth quarter of 2013 operating income to be comparable to that reported for the third quarter. A slowdown in orders for certain commercial delivery and service vehicles that began in the third quarter of 2013 is expected to negatively impact sales and net income results for the fourth quarter. We expect to record a modest net loss for full year 2013, mainly due to the Bristol move and start-up costs incurred in the first quarter.

We believe we are well positioned to take advantage of long-term opportunities, and continue our efforts to bring product innovations to each of the markets that we serve. Some of our recent innovations and strategic developments include:

The following section provides a narrative discussion about our financial condition and results of operations. The comments should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2013.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the components of the Company’s Condensed Consolidated Statements of Operations as a percentage of sales (percentages may not sum due to rounding):

Quarter Ended September 30, 2013 Compared to the Quarter Ended September 30, 2012

Sales

For the three months ended September 30, 2013, we reported consolidated sales of $126.1 million, an increase of $13.2 million or 11.7% compared to $112.9 million reported for the same quarter in 2012. These results reflect sales increases in all of our segments. Please see the segment analyses below for more information on our sales for the quarters ended September 30, 2013 and 2012.  

Cost of Products Sold

Cost of products sold was $109.9 million in the third quarter of 2013 compared to $99.9 million in 2012, an increase of $10.0 million or 10.0%. This increase was driven by the higher overall sales levels experienced in 2013, partially offset by the $1.5 million of restructuring charges incurred in the third quarter of 2012 that did not recur in 2013. As a percentage of sales, cost of products sold decreased to 87.2% in the third quarter of 2013, compared to 88.5% in the third quarter of 2012, which was mainly due to the absence of restructuring charges in 2013, compared to the $1.5 million, or 1.4% of sales, incurred in the third quarter of 2012.

Gross Profit

Gross profit increased by $3.1 million, or 23.8%, to $16.1 million for the quarter ended September 30, 2013 from $13.0 million for the same period in 2012. Approximately $1.6 million of this increase is due to the overall increase in unit sales volumes in the third quarter of 2013 compared to the same time period in 2012. The remaining increase was due to the absence of restructuring charges in 2013, compared to the $1.5 million incurred in the same period of 2012.

Gross margin increased to 12.8% in 2013 from 11.5% in 2012, primarily due to the absence of restructuring charges in 2013.  

Operating Expenses

Operating expenses increased by $1.1 million or 8.3% to $14.3 million for the quarter ended September 30, 2013, compared to $13.2 million for the same period in 2012. Selling, general and administrative expenses increased by $1.4 million, mainly due to higher selling expense, driven by the higher sales volumes experienced in 2013. Partially offsetting this increase were decreases of $0.2 million in R&D expense, primarily due to lower engineering spending on the Reach delivery vehicle, and $0.1 million due to the absence of restructuring charges in 2013.    

Taxes

Our effective income tax rate was 70.5% in the third quarter of 2013, compared to (83.7)% in the third quarter of 2012. Our effective income tax rate in the third quarter of 2013 was impacted by an adjustment recorded in the quarter to increase our tax provision as a result of a change in our expectations for our full year financial performance. We recorded income tax expense of $1.3 million during the three months ended September 30, 2013, which included Q3 2013 income tax expense of $0.4 million, or 20.0% of the quarter’s pre-tax income, and a year-to-date adjustment of $0.9 million to decrease the tax benefit recorded for the first half of 2013 to the Company’s current estimated effective tax rate of 20.0%.

Our effective tax rate in the third quarter of 2012 was unfavorably impacted by a $0.2 million increase in our reserve for uncertain tax liabilities as a result of a state court ruling that occurred in the third quarter of 2012, in accordance with Accounting Standards Codification Topic 740, “Income Taxes”. This adjustment was not normal or recurring in nature, and as such was a discrete event for tax purposes, with the entire impact of the uncertain tax position taken into account in the third quarter of 2012.

Order Backlog

At September 30, 2013, we had $231.9 million in backlog compared to $168.3 million at September 30, 2012, an increase of $63.6 million or 37.8%. This increase is mainly attributable to a $33.8 million increase in our emergency response vehicles backlog due to continued strong order intake, domestically and from outside North America, and a $22.5 million increase in our delivery and service vehicles backlog, driven by orders received for our Reach delivery van. Also contributing was a $7.3 million increase in our specialty vehicles backlog due to strong order intake for our motor home chassis in 2013. Intercompany orders are eliminated from the backlog dollars presented. We anticipate filling our current backlog orders by August, 2014.

While orders in the backlog are subject to modification, cancellation or rescheduling by customers, this has not been a major factor in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period-to-period is not necessarily indicative of eventual actual shipments.

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

Sales

For the nine months ended September 30, 2013, we recorded sales of $343.1 million, a decrease of $3.0 million or 0.9% from the $346.1 million that we recorded for the same period of 2012. This decrease was driven by a $24.6 million revenue decrease in our Delivery and Service Vehicles segment, largely as a result of lower aftermarket parts and assemblies, which was partially offset by increases in our Specialty Vehicles and Emergency Response Vehicles segments. Please see the segment analyses below for further information on our sales for the nine months ended September 30, 2013 and 2012.

Cost of Products Sold

Cost of products sold was $305.0 million for the nine months ended September 30, 2013, compared to $300.6 million for the same period in 2012, an increase of $4.4 million or 1.5%. This increase was driven by the increased sales levels in our Specialty Vehicles and Emergency Response Vehicles segments in 2013, which contributed approximately $12.1 million and $2.1 million, respectively, to the increase. These increases were partially offset by the absence of restructuring charges in the nine months ended September 30, 2013 compared to the $5.8 million recorded in the same period of 2012, along with a decrease in our Delivery and Service Vehicles segment of $4.0 million, which was driven by change in sales mix as a result of lower aftermarket parts and assemblies sales and higher sales of vehicles in 2013. As a percentage of sales, cost of products sold increased to 88.9% in the nine months ended September 30, 2013, an increase of 200 basis points compared to 86.9% in the same period of 2012. This increase is mainly attributable to the impact of the reduced aftermarket parts and assemblies sales in our Delivery and Service Vehicles segment, which more than offset a 170 basis point decrease from the lack of restructuring charges in 2013.

Gross Profit

Gross profit decreased by $7.4 million, or 16.3%, to $38.1 million for the nine months ended September 30, 2013 from $45.5 million for the same period in 2012. Approximately $20.6 million of the decrease is attributable to our Delivery and Service Vehicles segment, mainly as a result of the lower aftermarket parts and assemblies sales. This decrease was partially offset by an increase of $2.1 million in our Emergency Response Vehicles segment due to higher unit volume and favorable pricing in 2013, a $5.3 million increase in our Specialty Vehicles segment driven by higher unit volume, and a $5.8 million restructuring charge incurred in 2012, which did not recur in 2013. Gross margin decreased to 11.1% from 13.1% over the same time period. This 200 basis points decrease was mainly due to the impact of the lower delivery and service vehicle-related aftermarket parts and assemblies sales, which was partially offset by the 170 basis point impact of restructuring charges incurred in 2012 that did not recur in 2013.

Operating Expenses

Operating expenses decreased by $3.2 million or 7.1% to $42.1 million for the nine months ended September 30, 2013, compared to $45.3 million for the same period in 2012. Research and development expense decreased by $1.5 million, mainly as a result of lower spending on the Spartan Advanced Protection System, which went into production in the third quarter of 2012. Selling, general and administrative expense increased by $0.2 million, driven by increased selling expense associated with the higher unit sales volumes in our Emergency Response Vehicles and Specialty Vehicles segments. In addition, we recorded $2.0 million of restructuring charges during the nine months ended September 30, 2012, which did not recur in 2013.

Taxes

Our effective income tax rate was 20.0% for the nine months ended September 30, 2013, compared to 97.6% for the same period of 2012. Our effective rate for the nine months ended September 30, 2013 differs from the statutory rate mainly due to the impact of provisions for state income tax expense that partially offset a tax benefit expected for the year due to a projected loss for 2013.

Our effective income tax rate for the nine months ended September 30, 2012 was unfavorably impacted by a $0.2 million increase in our reserve for uncertain tax liabilities as a result of a state court ruling that occurred in the third quarter of 2012.

Net Earnings

We recorded a net loss of $3.0 million, or $0.09 per share, for the nine months ended September 30, 2013, a decrease of $3.0 million compared to net earnings at break even for the same period in 2012. This decrease was primarily due to the lower delivery and service vehicles related aftermarket parts and assemblies sales experienced in 2013, which was partially offset by the absence of restructuring charges with an after-tax impact of $4.7 million recorded in the nine months ended September 30, 2012, which did not recur in 2013.

Our Segments

We manage our operations through three operating segments based on product: Emergency Response Vehicles, Delivery and Service Vehicles, and Specialty Vehicles. Our Emergency Response Vehicles segment consists of the emergency response chassis operations of Spartan Chassis and the Spartan ERV operations. Our Delivery and Service Vehicles segment is comprised of our Utilimaster operations and our Specialty Vehicles segment is comprised of the motorhome, defense and other specialty vehicle operations and the related aftermarket parts and assemblies sales of Spartan Chassis. The reportable segments have been identified based on the financial data utilized by our chief operating decision makers to assess segment performance and allocate resources among our operating units. For certain financial information related to each segment, see Note 7 - Business Segments, of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q.

Emergency Response Vehicles 

Comparison of the Three Month Periods Ended September 30, 2013 and 2012

Sales

Sales in our Emergency Response Vehicles segment increased by $3.0 million, or 7.5% to $42.9 million in the third quarter of 2013 compared to $39.9 million for the same period of 2012. Sales of emergency response chassis decreased by $1.1 million, with $3.0 million of the decrease due to lower unit volume, partially offset by a $1.9 million increase due to more favorable mix and pricing. Sales of emergency response vehicles (chassis, body and apparatus) increased by $4.1 million, mainly due to a more favorable product mix, with $0.3 million of the increase due to more favorable pricing.

Operating Income

Operating income for our Emergency Response Vehicles segment increased by $0.6 million to $0.7 million in the third quarter of 2013 compared to $0.1 million in the third quarter of 2012, driven by improving margins as a result of pricing and content changes in our chassis and complete vehicles.

Comparison of the Nine Month Periods Ended September 30, 2013 and 2012

Sales

Sales in our Emergency Response Vehicles segment for the nine months ended September 30, 2013 increased by $4.2 million, or 3.6% to $121.6 million compared to $117.4 million for the same period in 2012. Sales of emergency response vehicles (chassis, body and apparatus) increased by $4.7 million, while sales of emergency response chassis decreased by $0.4 million in 2013 compared to 2012. $2.7 million of the increase in emergency response vehicles sales was due to higher unit volumes, $1.1 million of the increase was due to more favorable product mix in 2013 and $0.9 million of the increase was due to more favorable pricing in 2013 compared to 2012. The decrease in emergency response chassis sales was due to a $4.7 million decrease as a result of lower unit volumes in the nine months ended September 30, 2013, which was partially offset by a $4.3 million increase due to more favorable pricing and mix in 2013 compared to 2012.

Operating Income

Operating loss for our Emergency Response Vehicles segment decreased by $1.9 million, or 57.6% to $1.4 million for the nine months ended September 30, 2013 compared to an operating loss of $3.3 million for the same period in 2012, driven by improving margins as a result of pricing and content changes in our chassis and complete vehicles.

Delivery and Service Vehicles

Comparison of the Three Month Periods Ended September 30, 2013 and 2012

Sales

Sales for the third quarter of 2013 in our Delivery and Service Vehicles segment increased by $5.9 million or 12.0% to $54.9 million compared to $49.0 million for the third quarter of 2012. This change is attributable to an increase of $8.9 million in vehicle sales driven by higher unit volume sales in walk-in vans in the third quarter of 2013 compared to the third quarter of 2012. Partially offsetting this increase was a decrease of $3.0 million in aftermarket parts and assemblies sales in the third quarter of 2013 compared to 2012. There were no changes in pricing of products sold by our Delivery and Service Vehicles segment that had a significant impact on our financial statements when comparing the third quarter of 2013 to the same period of 2012.

Operating Income

Operating income in our Delivery and Service Vehicles segment for the third quarter of 2013 increased by $0.7 million, or 116.7%, to $1.3 million, compared to $0.6 million for the same period of 2012. $0.6 million of this increase was due to the higher sales volumes experienced in the third quarter of 2013, along with the absence of the $1.5 million of restructuring charges incurred in the third quarter of 2012, which did not recur in 2013. Partially offsetting these increases was a decrease of $1.5 million as a result of a less favorable mix of products sold in the third quarter of 2013 compared to the same period in 2012.

Comparison of the Nine Month Periods Ended September 30, 2013 and 2012

Sales

Sales for the nine months ended September 30, 2013 decreased by $24.6 million or 15.8% to $131.0 million compared to $155.6 for the same period of 2012. A decrease in aftermarket parts and assemblies sales, primarily keyless entry systems, of $35.0 million in the nine months ended September 30, 2013 was partially offset by a $10.4 million increase in vehicle sales.

Operating Income

Operating income decreased by $12.5 million to an operating loss of $4.3 million in the nine months ended September 30, 2013 compared to operating income of $8.2 million in the same period of 2012. $14.0 million of this decrease was attributable to the decrease in aftermarket parts and assemblies sales, while $6.0 million of the decrease is attributable to material sourcing issues and labor and overhead inefficiencies related to the launch of production at our Bristol, Indiana facility. These decreases were partially offset by the lack of restructuring charges in 2013 compared to the $6.8 million incurred in 2012, along with a $1.0 million decrease in the expense recorded for the provision for earn-out payments related to our purchase of Utilimaster.

Specialty Vehicles