SHYFT GROUP, INC. - Quarter Report: 2015 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, 2014, 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)

SPARTAN MOTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

SPARTAN MOTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

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, custom vehicles marketplace. We have two wholly owned operating subsidiaries: Spartan Motors USA, Inc. (“Spartan USA”), with locations in Charlotte, Michigan, Brandon, South Dakota and Ephrata, Pennsylvania; and Utilimaster Corporation, located in Bristol and Wakarusa, Indiana (“Utilimaster”). On July 1, 2015 our Charlotte, Michigan location (formerly Spartan Motors Chassis, Inc.) and our Ephrata, Pennsylvania location (formerly Crimson Fire Aerials, Inc.) were merged into Spartan USA. At September 30 2015, we were also a participant in a joint venture, Spartan-Gimaex Innovations, LLC (“Spartan-Gimaex”), with Gimaex Holding, Inc. In February 2015, Spartan USA and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the joint venture. In June 2015, Spartan USA and Gimaex Holding, Inc. entered into court proceedings to determine the terms of the dissolution. Our brand names, Spartan Chassis™, Spartan ERV™, and Utilimaster™ are known for quality, value, service and innovation.

At our Charlotte, Michigan facilities we design, engineer and manufacture custom heavy-duty chassis and vehicles under the Spartan Chassis and Spartan ERV brand names. The chassis consist of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for fire trucks and some specialty chassis applications, a cab. Our customers for these products are original equipment manufacturers (“OEMs”) who complete their heavy-duty vehicle product by mounting the body or apparatus on our chassis. Complete vehicles are manufactured for the defense and emergency response markets. At our Brandon, South Dakota and Ephrata, Pennsylvania facilities we engineer and manufacture fire trucks and aerial ladder components under the Spartan ERV brand name, which are built on chassis platforms manufactured at our Charlotte, Michigan facility or purchased from outside sources. Utilimaster is a leading manufacturer of specialty vehicles made to customer specifications in the delivery and service market, including walk-in vans and hi-cube vans, as well as truck bodies.

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 chassis and vehicles, vehicle components, and services that inspire customer loyalty. Our diversification across several sectors creates numerous opportunities while minimizing 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 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 5, 2015.

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, 2015 Compared to the Quarter Ended September 30, 2014

Sales

For the third quarter of 2015, we reported consolidated sales of $136.6 million compared to $144.2 million for the same quarter in 2014, a decrease of $7.7 million or 5.3%. These results reflect decreased sales volume in our Emergency Response Vehicles segment, which was partially offset by increases in sales in our Specialty Chassis and Vehicles segment due to higher unit volume and in our Delivery and Service Vehicles segment due to higher aftermarket parts sales. Please refer to our segment discussion below for more information about our segment sales.    

Cost of Products Sold

Cost of products sold was $123.8 million in the third quarter of 2015 compared to $126.1 million in the third quarter of 2014, a decrease of $2.3 million or 1.8%, driven by the lower sales volumes in 2015. Certain engineering costs related to routine product changes, that were formerly classified within Research and development expense, have been classified within Cost of products sold for the three months ended September 30, 2015 in order to more consistently align the results of our individual business units. Expenses of $2.1 million for the three months ended September 30, 2014 have been reclassified accordingly.

Gross Profit 

Gross profit was $12.8 million for the third quarter of 2015 compared to $18.1 million for the third quarter of 2014, a decrease of $5.3 million, or 29.2%. $2.2 million of this decrease was due to accruals made during the three months ended September 30, 2015 for various repair campaigns in our Emergency Response Vehicles and Specialty Chassis and Vehicles segments, while $1.3 million of the decrease was due to pricing adjustments enacted in 2015 on certain of our specialty chassis. $0.8 million of the decrease was due to an overall less favorable product mix in 2015, while a charge recorded during the third quarter of 2015 for the impairment of long-lived assets in our Emergency Response Vehicles segment added $1.0 million to the decrease.

Gross Margin 

Gross margin decreased by 310 basis points to 9.4% in the third quarter of 2015 compared to 12.5% in the third quarter of 2014. 110 basis points of this decrease was due to the accruals for repair campaigns made in 2015, while 70 basis points of the decrease was due to the pricing adjustments described above and 60 basis points was due to the less favorable product mix in 2015. Charges recorded for the impairment of long-lived assets in 2015 added 70 basis points to the decrease.

Operating Expenses

Operating expenses were $13.3 million for the third quarter of 2015, compared to $13.8 million for the third quarter of 2014, a decrease of $0.5 million or 3.6%. Research and development was $0.5 million in 2015 compared to $0.9 million in 2014, a decrease of $0.4 million or 44.4%, while Selling, general and administrative expense was $12.4 million in 2015, compared to $12.7 million in 2014, a decrease of $0.3 million, or 2.4%. Restructuring charges incurred in 2015 were $0.5 million compared to $0.3 million in 2014. The decrease in Research and development was due to a decrease in engineering time spent on development projects in 2015, primarily in our Delivery and Service Vehicles segment, compared to 2014. In Selling, general and administrative, $0.8 million of the decrease was driven by a reduction in incentive compensation expense in 2015, while $0.7 million of the decrease was the result of higher international legal and settlement fees incurred in 2014. These decreases were partially offset by $1.2 million of asset impairment charges recorded in the third quarter of 2015.

Taxes 

Our effective income tax rate was (894.7)% in the third quarter of 2015, compared to 24.0% in the third quarter of 2014. Our effective tax rate in the third quarter of 2015 differs from the statutory rate mainly due to a $3.2 million deferred tax asset valuation allowance that was recorded during the quarter. Our effective tax rate in the third quarter of 2014 differed from the statutory rate mainly due to a $0.7 million reduction to our reserve for unrecognized tax benefits due to the expiration of certain statutes of limitation.

During the three months ended September 30, 2015 we recorded a valuation allowance of $3.2 million, representing the portion of our deferred tax assets, net of the deferred tax liabilities, that, based on an assessment of available positive and negative evidence, may not be realizable in future periods. We will continue to evaluate whether the valuation allowance is needed in future reporting periods. It is possible that sufficient positive evidence, including sustained profitability, may become available in future periods to reach a conclusion that all or part of the valuation allowance could be reversed.

Net Income (Loss) 

We recorded a net loss of $5.8 million, or $0.17 per share, for the third quarter of 2015, compared to net earnings of $3.2 million, or $0.09 per share for the same period in 2014. Driving the decrease in net earnings compared with the prior year were the factors discussed above.

Order Backlog  

At September 30, 2015, we had $275.3 million in backlog compared to $233.4 million at September 30, 2014, an increase of $41.9 million or 18.0%. This increase is mainly attributable to a $52.9 million increase in our delivery and service vehicles backlog, largely as a result of increased orders for walk-in vans. Partially offsetting this increase were a $10.9 million decrease in order backlog for our emergency response vehicles driven by the late 2014 fulfillment of an order for 70 fire trucks for Peru that was received in late 2013 and a $0.1 million decrease in the backlog for our specialty chassis.

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.

Asset Impairment

During the quarter ended September 30, 2015, we determined that, based on updated sales forecasts for our Classic line of emergency response vehicles, it is more likely than not that our Classic Fire trade name intangible asset is impaired. Accordingly, we conducted an impairment test by comparing the discounted future cash flows expected to result from our ownership of the trade name with its carrying cost at September 30, 2015. The result of this analysis showed that the carrying cost of the Classic Fire trade name, which was recorded as an asset of our Emergency Response Vehicles segment exceeded its fair value.

During the quarter ended September 30, 2015, we determined that an asset group related to certain locations of our Emergency Response Vehicles segment may be impaired due to operating losses recorded in recent years, along with uncertainty regarding future financial performance at these locations. Accordingly, we conducted an impairment test on this asset group as of September 30, 2015 by comparing the non-discounted cash flows expected to result from the use and eventual disposition of the asset group with its carrying value, resulting in a determination that the asset group is impaired.

We estimated the fair value of our tangible long-lived assets of this asset group based on assessments or recent sale prices of similar assets. We estimated the fair value of the intangible assets of this asset group by determining the discounted cash flows associated with the benefits that we will receive or expenses we will avoid as a result of our ownership of these intangible assets. Impairment charges recorded within Cost of goods sold and General and administrative in the Condensed Consolidated Statement of Operations to adjust the carrying cost of these long-lived tangible and intangible assets to their estimated fair values at September 30, 2015 are as follows (in thousands):

Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

Sales

For the nine months ended September 30, 2015, we reported consolidated sales of $409.8 million compared to $388.0 million reported for the same period in 2014, an increase of $21.8 million or 5.6%. These results reflect higher unit sales volumes in our Emergency Response Vehicles and Specialty Chassis and Vehicles segments, which were partially offset by lower unit sales volumes in our Delivery and Service Vehicles segment. Please refer to our segment discussion below for more information about our segment sales.

Cost of Products Sold

Cost of products sold was $368.0 million in the nine months ended September 30, 2015 compared to $346.2 million for the same period in 2014, an increase of $21.8 million or 6.3%, mainly due to the higher sales volumes recorded in 2015. Certain engineering costs related to routine product changes, that were formerly classified within Research and development expense, have been classified within Cost of products sold for the nine months ended September 30, 2015 in order to more consistently align the results of our individual business units. Expenses of $5.8 million for the nine months ended September 30, 2014 have been reclassified accordingly.

Gross Profit 

Gross profit for the nine months ended September 30, 2015 was flat with the same period in 2014 at $41.8 million. Increases of $5.8 million due to higher unit volumes in our Specialty Chassis and Vehicles segment in 2015 and $1.1 million due to favorable product mix in 2015 were partially offset by decreases of $3.3 million for accruals related to certain product repair campaigns and warranty adjustments incurred in 2015, $2.1 million due to pricing adjustments enacted in 2015 on certain of our specialty chassis, and $1.0 million due to asset impairment charges recorded in 2015. We also incurred $0.5 million in restructuring charges in 2015 which were not incurred in 2014.

Gross Margin 

Gross margin decreased to 10.2% for the nine months ended September 30, 2015 from 10.8% over the same time period in 2014. This change was driven by decreases of 80 basis points due to accruals related to product repair campaigns and warranty adjustments in 2015, 50 basis points due to the pricing adjustments described above, 30 basis points due to the asset impairment charge recorded in 2015 and 10 basis points due to the restructuring charges incurred in 2015. These decreases were partially offset by an 80 basis point increase due to favorable absorption due to higher unit volumes in our Specialty Chassis and Vehicles segment and a 30 basis point increase due to a more favorable sales mix in 2015.

Operating Expenses

Operating expenses were $44.3 million for the nine months ended September 30, 2015, compared to $41.0 million for the same period in 2014, an increase of $3.3 million or 8.0%. Research and development expense was $3.1 million for the nine months ended September 30, 2015, compared to $2.8 million for the same period in 2014, an increase $0.3 million or 10.7% driven by an increase in new product development in 2015, mainly in our Delivery and Service Vehicles segment. Selling, general and administrative expense was $39.2 million in 2015 compared to $38.0 million for the same period in 2014, an increase of $1.2 million or 3.2%. This increase was due to a $1.2 million asset impairment charge recorded in the third quarter of 2015, along with a $1.0 million accrual for a NHTSA fine recorded in 2015. These increases were partially offset by lower spending on legal and professional fees at our corporate entity in 2015. In addition we incurred $2.0 million of restructuring charges related to our Emergency Response Vehicles segment in 2015 compared to $0.3 million incurred in 2014.

Taxes 

Our effective income tax rate was (185.3)% for the nine months ended September 30, 2015, compared to (72.3)% for the same period of 2014. Our effective tax rate differed from the statutory rate in 2015 mainly due to a $3.2 million deferred tax asset valuation allowance that was recorded during the three months ended September 30, 2015. Our effective tax rate for 2014 differed from the statutory rate primarily due to a $0.7 million reduction to our reserve for unrecognized tax benefits due to the expiration of certain statutes of limitation.

Net Income (Loss) 

We recorded a net loss of $7.5 million, or $0.22 per share, for the nine months ended September 30, 2015, compared to net income of $1.3 million, or $0.04 per share for the same period in 2014. Driving the increase in net loss for the nine months ended September 30, 2015 compared with the prior year were the factors discussed above.

NHTSA Agreement  

In July 2015, we entered into a settlement agreement with the NHTSA pertaining to our early warning and defect reporting. Under the terms of the agreement we will pay a fine of $1 million in equal installments over three years, and will complete performance obligations including compliance and regulatory practice improvements, industry outreach and recalls to remedy safety defects in certain of our chassis at a total estimated cost of $1.3 million. This settlement agreement had no material financial impact on results for the third quarter of 2015, and we do not expect it to have any material impact on future financial results. The following table presents the charges recorded in the Condensed Consolidated Statement of Operations during the nine months ended September 30, 2015 as a result of this agreement (in thousands):

Our Segments

We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision makers to assess segment performance and allocate resources among our operating units. We have three reportable segments: Emergency Response Vehicles, Delivery and Service Vehicles, and Specialty Chassis and Vehicles. Our Emergency Response Vehicles segment manufactures chassis and complete vehicles for the emergency response market with operations in Charlotte, Michigan; Brandon, South Dakota; and Ephrata, Pennsylvania. Our Delivery and Service Vehicles segment manufactures walk-in vans and truck bodies at our Bristol and Wakarusa, Indiana facilities, and distributes related aftermarket parts for vehicles used in delivery and service businesses. Our Specialty Chassis and Vehicles segment is comprised of the Spartan USA operations located in Charlotte, Michigan that engineer and manufacture motor home chassis and defense and other specialty vehicles and distribute aftermarket parts and assemblies related to motor homes, defense vehicles and emergency response vehicles. For certain financial information related to each segment, see Note 8 - 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 Quarters Ended September 30, 2015 and 2014

Sales in our Emergency Response Vehicles segment were $42.0 million in the third quarter of 2015 compared to $60.7 million for the same period of 2014, a decrease of $18.7 million, or 30.8%. This decrease was mainly due to a decrease in the overall unit volume in 2015, driven by the shipment of 46 trucks in the third quarter of 2014 in partial fulfillment of a large order from Peru. There were no changes in pricing of products sold by our Emergency Response Vehicles segment that had a significant impact on our financial statements when comparing these periods.

We reported an operating loss for our Emergency Response Vehicles segment of $6.0 million in the third quarter of 2015 compared to operating income of $1.7 million in the third quarter of 2014, a decrease of $7.7 million. $3.0 million of the decrease is due to an unfavorable product mix in the third quarter of 2015 compared to 2014, which included a run of 46 identical trucks in fulfillment of the Peru order. $1.6 million of the decrease was driven by lower unit volume in 2015, while $1.7 million of the decrease is due to an increase in warranty costs in 2015 largely related to product recalls. An additional $2.2 million is due to an asset impairment charge recorded during the third quarter of 2015 and $0.2 million is due to additional restructuring charges incurred in the third quarter of 2015 over the amount incurred in 2014. Increases of $0.7 million due to lower legal and settlement costs and $0.3 million due to reduced incentive compensation accruals in 2015 partially offsetting the above operating income decreases. See Note 4, Asset Impairments, in the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q for further details about our asset impairment charge.

Comparison of the Nine Month Periods Ended September 30, 2015 and 2014

Sales in our Emergency Response Vehicles segment were $146.5 million for the nine months ended September 30, 2015 compared to $138.7 million for the same period of 2014, an increase of $7.8 million, or 5.6%. $13.8 million of the increase was due to higher overall unit volumes during the nine months ended September 30, 2015, which was partially offset by a $6.0 million decrease due to an unfavorable product mix in 2015 compared to 2014. There were no changes in pricing of products sold by our Emergency Response Vehicles segment that had a significant impact on our financial statements when comparing these periods.

Operating loss for our Emergency Response Vehicles segment was $12.6 million for the nine months ended September 30, 2015 compared to a loss of $3.5 million for the same period of 2014, an increase of $9.1 million, or 260.0%. $3.0 million of this increase was due to an unfavorable product mix in 2015 compared to 2014, while $1.4 million of the increase was due to higher warranty costs in 2015, largely related to product recalls. Additionally, $2.2 million of the increase was due to asset impairment charges recorded in the third quarter of 2015 and $0.7 million of the increase was due to charges related to a NHTSA penalty imposed in 2015. Restructuring charges incurred in 2015 in excess of those incurred in 2014 added $2.2 million to the operating loss increase year over year. Partially offsetting these decreases in operating income was an increase of $0.4 million due to reduced spending in marketing and trade shows in 2015.

Delivery and Service Vehicles

Comparison of the Quarters Ended September 30, 2015 and 2014

Sales for the third quarter of 2015 in our Delivery and Service Vehicles segment were $54.2 million compared to $52.5 million for the third quarter of 2014, an increase of $1.7 million or 3.2%, driven by higher parts and services sales in 2015. 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 these periods.

Operating income in our Delivery and Service Vehicles segment for the third quarter of 2015 was $4.1 million, compared to operating income of $1.8 million for the same period of 2014, an increase of $2.3 million or 127.8%, primarily due to a favorable product mix in 2015, which included a higher proportion of aftermarket parts sales, which carry higher margins.

Comparison of the Nine Month Periods Ended September 30, 2015 and 2014

Sales for the nine months ended September 30, 2015 were $162.0 million compared to $167.2 million for the same period of 2014, a decrease of $5.2 million or 3.1%. This decrease was driven by a $9.8 million decrease in vehicle sales due to lower unit shipments in the first nine months of 2015, particularly for our Reach commercial van, which was partially offset by a $4.5 million increase in parts and services sales in 2015. Sales for first nine months of 2014 included approximately $7.0 million for shipments of Reach units that were delayed from the fourth quarter of 2013 due to a supplier component shortage. 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 these periods.

Operating income in our Delivery and Service Vehicles segment for the nine months ended September 30, 2015 was $10.0 million, compared to $6.1 million for the same period of 2014, an increase of $3.9 million or 63.9%. The increase is mainly due to favorable product mix in 2015, which included a higher proportion of aftermarket parts sales, which carry higher margins.

Specialty Chassis and Vehicles

Comparison of the Quarters Ended September 30, 2015 and 2014

Sales for the third quarter of 2015 in our Specialty Chassis and Vehicles segment were $40.3 million compared to $31.1 million for the same period of 2014, an increase of $9.2 million or 29.6%. This increase was due to a $10.3 million increase in motor home sales due to higher unit volume, and a $0.3 million increase in sales of aftermarket parts. These increases were partially offset by a $0.1 million decrease in sales of other specialty chassis and a $1.3 million decrease due to pricing adjustments enacted on certain of our specialty chassis in 2015.

Operating income for our Specialty Chassis and Vehicles segment for the third quarter of 2015 was $2.8 million compared to $2.9 million for the same period of 2014, a decrease of $0.1 million, or 3.4%. $1.3 million of this decrease was due to the pricing adjustments on certain of our specialty chassis enacted in 2015, with an additional $0.7 million due to increased accruals for product repair campaigns in 2015. These decreases were partially offset by a $1.9 million increase due to higher sales volumes in 2015.

Comparison of the Nine Month Periods Ended September 30, 2015 and 2014

Sales for the nine months ended September 30, 2015 in our Specialty Chassis and Vehicles segment were $101.3 million compared to $82.1 million for the same period of 2014, an increase of $19.2 million or 23.4%. This increase was due to a $14.5 million increase in sales of motor home chassis due to higher unit volume, along with a $4.1 million increase in defense and other specialty chassis driven by an order for defense related vehicles that was fulfilled in the second quarter of 2015 and a $2.7 million increase in sales of aftermarket parts and assemblies. These increases were partially offset by a decrease of $2.1 million due to pricing adjustments on certain specialty chassis enacted in 2015.

Operating income for our Specialty Chassis and Vehicles segment for the nine months ended September 30, 2015 was $5.7 million, compared to $5.0 million for the same period of 2014, an increase of $0.7 million, or 14.0%. Higher unit sales volume drove a $5.8 million increase, which was partially offset by decreases of $1.4 million due to accruals for costs related to the NHTSA fine imposed in 2015, $2.1 million due to the pricing adjustments described above $0.7 million due to accruals for certain chassis recalls and $0.9 million due to increased marketing expense driven by new market development activity.

Financial Condition

Balance Sheet at September 30, 2015 compared to December 31, 2014

Cash decreased by $7.7 million, or 26.9%, to $20.9 million at September 30, 2015 from $28.6 million at December 31, 2014. Please see the discussion of cash flow activity below for more information on our uses of cash in the first nine months of 2015.

Accounts receivable increased by $20.1 million, or 41.7%, to $68.5 million at September 30, 2015, compared to $48.4 million at December 31, 2014, as a result of open receivables related to higher sales volumes in the latter half of the third quarter of 2015 compared to sales in the latter half of the fourth quarter of 2014. Days sales outstanding increased to 45 days during the third quarter of 2015 compared to 43 days for the fourth quarter of 2014, mainly as a result of a higher proportion of sales made during the third quarter of 2015 to slower paying municipal customers.

Inventory increased by $7.4 million or 10.4% to $78.5 million at September 30, 2015 compared to $71.1 million at December 31, 2014, as a result of an increase in work in process inventory driven by production constraints at two of our manufacturing facilities. Days inventory outstanding decreased to 57 days in the third quarter of 2015, compared to 65 days in the fourth quarter of 2014, mainly due to the impact of the higher sales, along with higher cost of goods sold, during the third quarter of 2015 compared to the fourth quarter of 2014.

Deferred income tax assets decreased by $3.1 million or 40.3% to $4.7 million at September 30, 2015, compared to $7.8 million at December 31, 2014, due to a valuation allowance recorded during the third quarter of 2015. See Note 7, Taxes, of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q for more information about this valuation allowance.

Income tax receivable decreased by $1.7 million to $0 at September 30, 2015, compared to $1.7 million at December 31, 2014. We estimated a net income tax payable, which is recorded within Other current liabilities, as a result of our taxable income for the nine months ended September 30, 2015 compared to the income tax receivable recorded at December 31, 2014.

Intangible assets decreased by $1.6 million or 18.3% to $7.3 million at September 30, 2015, compared to $9.0 million at December 31, 2014 as a result of the impairment charge recorded during the quarter along with the regular amortization. See Note 4, Asset Impairments, of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q for more information about this impairment charge.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Through September 30, 2015, cash and cash equivalents decreased by $7.7 million to a balance of $20.9 million compared to $28.6 million at December 31, 2014. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance the Company’s foreseeable liquidity and capital needs.

Cash Flow from Operating Activities 

For the nine months ended September 30, 2015, we utilized $1.9 million of cash in operating activities, which represents a $5.8 million increase from the $3.9 million of cash that was generated by operations for the nine months ended September 30, 2014. The decrease in cash generated in 2015 was driven by changes in working capital requirements, particularly accounts receivable, inventory and accounts payable.

See the Financial Condition section contained in Item 2 of this Form 10-Q for further information regarding balance sheet line items that drove cash flows for the nine month period ended September 30, 2015. Also see the Condensed Consolidated Statements of Cash Flows contained in Item 1 of this Form 10-Q for the other various factors that represented the remaining fluctuation of cash from operations between the periods.

Cash Flow from Investing Activities

We utilized $3.4 million in investing activities during the first nine months of 2015, a $1.4 million increase compared to the $2.0 million utilized in the first nine months of 2014. This increase is mainly the result of increased investment in our Brandon, South Dakota and Ephrata, Pennsylvania facilities as part of our Emergency Response Vehicles segment restructuring initiative.

During the remainder of 2015 we expect to make total cash capital investments of $3 million, including capital spending for upgrades and relocation of manufacturing activities.

Cash Flow from Financing Activities

For the nine months ended September 30, 2015 we utilized $2.4 million of cash in financing activities, a decrease of $1.7 million compared to $4.1 million utilized in financing activities in the first nine months of 2014. This change is mainly due to a $2.0 million repurchase of common stock completed in the second and third quarters of 2014.

Working Capital

Our working capital was as follows (in thousands):

The decrease in our working capital at September 30, 2015 from December 31, 2014, was mainly driven by the decrease in our deferred income tax assets as a result of the valuation allowance recorded in 2015. Refer to the balance sheet discussion appearing above in Management’s Discussion and Analysis of Financial Condition and Results of Operations for an explanation of the causes of the material changes in working capital line items.

Contingent Obligations

In connection with our acquisition of Utilimaster in November, 2009, we incurred contingent obligations in the form of certain performance-based earn-out payments, up to an aggregate maximum amount of $7.0 million. Through March 31, 2015, we made earn-out payments totaling $6.6 million. No further payments are due under this contingent obligation.

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. Costs associated with the wind-down will be impacted by the final dissolution agreement. Accordingly, we are unable to estimate the cost of the wind-down at this time. Spartan USA and Gimaex Holding, Inc. are expected to share any costs associated with the wind-down on a 50/50 basis.

In July 2015, we entered into a settlement agreement with the NHTSA pertaining to our early warning and defect reporting. Under the terms of the agreement we will pay a fine of $1 million in equal installments over three years, and will complete performance obligations including compliance and regulatory practice improvements, industry outreach and recalls to remedy safety defects in certain of our chassis. During the nine months ended September 30, 2015 we accrued $2.3 million for payment of the fine and the estimated cost of completing the various performance obligations.

Debt

Effective December 31, 2014, we amended and restated our Credit Agreement dated as of November 30, 2009 (the "Credit Agreement") by and among us, certain of our subsidiaries, Wells Fargo Bank, National Association, as administrative agent ("Wells Fargo"), and the lenders party thereto consisting of Wells Fargo and JPMorgan Chase Bank, N.A. (the "Lenders"). As amended and restated, we may borrow up to $70 million from the Lenders under a three-year unsecured revolving credit facility. Under the terms of the amended and restated Credit Agreement, we may request an increase in the facility of up to $35 million in the aggregate, subject to customary conditions. The credit facility is available for the issuance of letters of credit of up to $20 million, swing line loans of up to $15 million and revolving loans, subject to certain limitations and restrictions. Interest rates on borrowings under the credit facility are based on either (i) the highest of the prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted London interbank market rate ("LIBOR") plus 1.0%; or (ii) adjusted LIBOR plus a margin based upon our ratio of debt to earnings from time to time. The amended and restated Credit Agreement contains certain customary representations and covenants, including performance-based financial covenants on our part. As amended and restated, the credit facility matures December 31, 2017, following which we have the option to renew the credit facility, subject to lender approval, for two successive one-year periods with an ultimate maturity date of December 31, 2019. In addition, commitment fees range from 17.5 to 32.5 basis points on the unused portion of the line. We had no drawings against this credit line as of September 30, 2015 or December 31, 2014. During the quarter ended September 30, 2015, our revolving credit facility was utilized, and will continue to be utilized in future quarters, to finance commercial chassis received by our Utilimaster subsidiary under chassis bailment inventory agreements with General Motors Company (“GM”) and Chrysler Group, LLC (“Chrysler”). This funding is reflected as a reduction of the revolving credit facility available to us equal to the amount drawn by GM and Chrysler. See Note 5, Commitments and Contingent Liabilities, in the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q for further details about Utilimaster’s chassis bailment inventory agreement.

On November 30, 2012, we entered into an amendment to our existing amended and restated private shelf agreement with Prudential Investment Management, Inc. Under the original private shelf agreement, we issued $5.0 million of 5.46% Series B Senior Notes, due December 1, 2016. The amended agreement extended the period during which we may issue private notes by three years to November 30, 2015 and increased the limit of the uncommitted shelf facility up to $50.0 million. We plan to extend this agreement or replace it with a similar agreement prior to its expiration on November 30, 2015. The interest rate is determined based on applicable rates at time of issuance. The total outstanding debt under this agreement was $5.0 million at September 30, 2015 and December 31, 2014.