SHYFT GROUP, INC. - Quarter Report: 2015 June (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. 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 June 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 June 30, 2015 Compared to the Quarter Ended June 30, 2014

Sales

For the second quarter of 2015, we reported consolidated sales of $144.8 million compared to $115.8 million for the same quarter in 2014, an increase of $29.0 million or 25.0%. These results reflect increased sales volumes across all of our segments, with higher unit volumes in our Emergency Response Vehicles and Specialty Chassis and Vehicles segments and higher parts and services sales 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 $127.4 million in the second quarter of 2015 compared to $103.2 million in the second quarter of 2014, an increase of $24.2 million or 23.4%, driven by the higher 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 and six months ended June 30, 2015 in order to more consistently align the results of our individual business units. Expenses of $2.0 million and $3.7 million for the three and six months ended June 30, 2014 have been reclassified accordingly.

Gross Profit

Gross profit was $17.4 million for the second quarter of 2015 compared to $12.6 million for the second quarter of 2014, an increase of $4.8 million, or 38.1%. $3.3 million of this increase is due to a favorable product mix in 2015, while $2.7 million is due to the increased sales volume. These increases were partially offset by a $0.6 million accrual for performance obligations related to a NHTSA agreement in 2015, a $0.5 million decrease due to pricing concessions on certain specialty chassis enacted in 2015 and $0.1 million of restructuring charges incurred in 2015 which were not incurred in 2014.

Gross margin increased by 110 basis points to 12.0% in the second quarter of 2015 compared to 10.9% in the second quarter of 2014, mainly due to a favorable product mix experienced in 2015.

Operating Expenses

Operating expenses were $15.1 million for the second quarter of 2015, compared to $12.6 million for the second quarter of 2014, an increase of $2.5 million or 19.8%. Research and development expense in the second quarter of 2015 was $1.2 million compared to $0.7 million for the same period in 2014 an increase of $0.5 million, or 71.4%, driven by higher spending on development projects in our Delivery and Service Vehicles segment. Selling, general and administrative expense was $13.2 million in 2015, compared to $11.9 million in 2014, an increase of $1.3 million, or 10.9%, with $0.5 million of the increase due to an accrual for a NHTSA penalty and $0.2 million due to bank fees related to international sales. The remainder of the increase is due to higher salaries expense, mainly as a result of new positions added in 2015, and other miscellaneous items.

Taxes

Our effective income tax rate was 48.1% in the second quarter of 2015, compared to (349.3)% in the second quarter of 2014. Our effective tax rate in the second quarter of 2015 differs from the statutory rate mainly due to a non-deductible NHTSA penalty. Our effective tax rate in the second quarter of 2014 was impacted by an adjustment recorded in the quarter to our tax provision as a result of a change in our expectations for our full year financial performance.

Net Earnings

We recorded net earnings of $1.2 million, or $0.03 per share, for the second quarter of 2015, compared to net earnings of $0.2 million, or $0.01 per share for the same period in 2014. Driving the increase in net earnings compared with the prior year were the factors discussed above.

Order Backlog

At June 30, 2015, we had $262.7 million in backlog compared to $246.7 million at June 30, 2014, an increase of $16.0 million or 6.5%. This increase is mainly attributable to a $25.5 million increase in our delivery and service vehicles backlog, largely as a result of increased orders for walk-in vans. Also contributing was a $6.9 million increase in our specialty chassis and vehicles order backlog mainly due to strong motor home chassis order intake during the quarter. Partially offsetting these increases was a $16.4 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.

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.

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. The following table presents the charges recorded in the Condensed Consolidated Statement of Operations as a result of this agreement (in thousands):

Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

Sales

For the six months ended June 30, 2015, we reported consolidated sales of $273.2 million compared to $243.8 million reported for the same period in 2014, an increase of $29.4 million or 12.1%. 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 $244.2 million in the six months ended June 30, 2015 compared to $220.1 million for the same period in 2014, an increase of $24.1 million or 10.9%, mainly due to the higher sales volumes recorded in 2015.

Gross Profit

Gross profit was $29.0 million for the six months ended June 30, 2015 compared to $23.7 million for the same period in 2014, an increase of $5.3 million, or 22.4%. $5.0 million of this increase was due to a favorable product mix experienced in 2015, while $2.9 million was due to higher unit volumes in 2015. These increases were partially offset by decreases of $1.3 million due to accruals for performance obligations required by the July 2015 NHTSA agreement, $0.8 million for pricing concessions made in 2015 on certain of our specialty chassis and $0.5 million of restructuring charges recorded in 2015 which were not incurred in 2014. Gross margin increased to 10.6% from 9.7% over the same time period, with a 180 basis point increase due to favorable product mix that included a higher proportion of parts and services sales in 2015. This increase was partially offset by decreases of 50 basis points due to the accruals for performance obligations in 2015 and 20 basis points due to the restructuring charges incurred in 2015, with the remainder of the decrease due to pricing concessions enacted in 2015 on certain specialty chassis.    

Operating Expenses

Operating expenses were $31.0 million for the six months ended June 30, 2015, compared to $27.2 million for the same period in 2014 an increase of $3.8 million or 14.0%. Research and development expense was $2.6 million in 2015 compared to $1.9 million in 2014, an increase of $0.7 million or 36.8% due to an increase in new product development, mainly in our Delivery and Service Vehicles segment. Selling, general and administrative expense was $26.8 million in 2015 compared to $25.3 million in 2014, an increase of $1.5 million or 5.9%. $1.0 million of this increase was due to an accrual for a NHTSA penalty imposed in 2015, with the remainder of the increase mainly due to higher salaries driven by increased sales commissions and new positions. In addition we incurred $1.5 million of restructuring charges related to our Emergency Response Vehicles segment in 2015.

Taxes

Our effective income tax rate was 16.4% for the six months ended June 30, 2015, compared to 44.7% for the same period of 2014. Our effective tax rate differed from the statutory rate in 2015 mainly due to a $1 million non-deductible NHTSA penalty incurred during the year. Our effective tax rate for 2014 differed from the statutory rate due to non-deductible expenses forecasted for the full year, which included the Utilimaster earnout contingency expense no longer incurred after 2014.

Net Earnings

We recorded a net loss of $1.7 million, or $0.05 per share, for the six months ended June 30, 2015, compared to a net loss of $1.9 million, or $0.06 per share for the same period in 2014. Driving the decrease in net loss for the six months ended June 30, 2015 compared with the prior year were the factors discussed above.

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 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 Quarters Ended June 30, 2015 and 2014

Sales in our Emergency Response Vehicles segment were $61.2 million in the second quarter of 2015 compared to $42.1 million for the same period of 2014, an increase of $19.1 million, or 45.4%. This increase was mainly due to an increase in the overall unit volume in 2015. 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 $1.2 million in the second quarter of 2015 compared to an operating loss of $1.5 million in the second quarter of 2014, a decrease of $0.3 million, or 20.0%. Higher unit volumes contributed an additional $1.6 million to operating income in 2015, which was partially offset by $0.8 million of restructuring charges and a $0.5 million increase in operating costs, mainly due to charges associated with a NHTSA penalty, recorded during the second quarter of 2015.

Comparison of the Six Month Periods Ended June 30, 2015 and 2014

Sales in our Emergency Response Vehicles segment were $104.5 million for the six months ended June 30, 2015 compared to $78.1 million for the same period of 2014, an increase of $26.4 million, or 33.8%. This increase was mainly due to higher overall unit volumes during the six months ended June 30, 2015. 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 $6.6 million for the six months ended June 30, 2015 compared to a loss of $5.1 million for the same period of 2014, an increase of $1.5 million, or 29.4%. $2.0 million of this increase was due to restructuring charges incurred in 2015, which were not incurred in 2014, with additional increases of $0.7 million due to charges related to a NHTSA penalty imposed in 2015 and $0.2 million due to higher salaries resulting from additional positions in 2015. Partially offsetting these increases was a $1.4 million decrease to operating loss due to higher unit sales volumes in 2015.

Delivery and Service Vehicles

Comparison of the Quarters Ended June 30, 2015 and 2014

Sales for the second quarter of 2015 in our Delivery and Service Vehicles segment were $52.8 million compared to $49.5 million for the second quarter of 2014, an increase of $3.3 million or 6.7%, 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 second quarter of 2015 was $3.3 million, compared to operating income of $1.7 million for the same period of 2014, an increase of $1.6 million or 94.1%, primarily due to a favorable product mix in 2015, which included a higher proportion of parts and services sales.

Comparison of the Six Month Periods Ended June 30, 2015 and 2014

Sales for the six months ended June 30, 2015 were $107.7 million compared to $114.7 million for the same period of 2014, a decrease of $7.0 million or 6.1%. This decrease was driven by a $10.5 million decrease in unit shipments in the first six months of 2015, particularly for our Reach commercial van, which was partially offset by a $3.5 million increase in parts and services sales in 2015. Sales for first six 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 six months ended June 30, 2015 was $5.9 million, compared to $4.3 million for the same period of 2014, an increase of $1.6 million or 37.2%. The increase is mainly due to favorable product mix in 2015, which included a higher proportion of parts and service sales.

Specialty Chassis and Vehicles

Comparison of the Quarters Ended June 30, 2015 and 2014

Sales for the second quarter of 2015 in our Specialty Chassis and Vehicles segment were $30.7 million compared to $24.1 million for the same period of 2014, an increase of $6.6 million or 27.4%. This increase was due to a $3.7 million increase in unit sales of defense related and other specialty vehicles, a $2.5 million increase in motor home chassis due to higher unit volume and a $0.9 million increase in aftermarket parts sales. These increases were partially offset by a $0.5 million decrease due to the impact of pricing concessions on certain specialty chassis enacted in 2015.

Operating income for our Specialty Chassis and Vehicles segment for the second quarter of 2015 was $2.0 million compared to $1.4 million for the same period of 2014, an increase of $0.6 million, or 42.9%. $1.6 million of the increase was due to higher sales volumes in 2015, which was partially offset by decreases of $0.5 million due to the pricing concessions described above and $0.5 million due to accruals for a NHTSA penalty recorded in the second quarter of 2015.

Comparison of the Six Month Periods Ended June 30, 2015 and 2014

Sales for the six months ended June 30, 2015 in our Specialty Chassis and Vehicles segment were $61.0 million compared to $51.0 million for the same period of 2014, an increase of $10.0 million or 19.6%. This increase was due to a $4.3 million increase in sales of motor home chassis due to higher unit volume, along with a $4.2 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 $2.3 million increase in sales of aftermarket parts and assemblies. These increases were partially offset by a decrease of $0.8 million due to pricing concessions on certain specialty chassis enacted in 2015.

Operating income for our Specialty Chassis and Vehicles segment for the six months ended June 30, 2015 was $3.0 million, compared to $2.1 million for the same period of 2014, an increase of $0.9 million, or 42.9%. Increased sales volume drove $3.1 million of the increase, and was partially offset by decreases of $1.4 million due to accruals for costs related to the NHTSA fine imposed in 2015 and $0.8 million due to the pricing concessions described above.

Financial Condition

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

Cash decreased by $8.0 million, or 27.9%, to $20.6 million at June 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 six months of 2015.

Accounts receivable increased by $15.2 million, or 31.4%, to $63.6 million at June 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 second quarter of 2015 compared to sales in the latter half of the fourth quarter of 2014. Days sales outstanding decreased to 42 days during the second quarter of 2015 compared to 43 days for the fourth quarter of 2014, mainly as a function of the higher sales volume in the second quarter of 2015 compared to the fourth quarter of 2014.

Inventory decreased by $1.2 million or 1.7% to $69.9 million at June 30, 2015 compared to $71.1 million at December 31, 2014, as a result of a draw-down of inventory as orders were filled. Days inventory outstanding decreased to 56 days in the second quarter of 2015, compared to 65 days in the fourth quarter of 2014, mainly due to the impact of the higher sales during the second quarter of 2015 compared to the fourth quarter of 2014.

Deposits from customers decreased by $1.5 million or 13.2% to $10.0 million at June 30, 2015 compared to $11.5 million at December 31, 2014 due to the timing of shipments that included customer deposits.

Accounts payable increased by $7.8 million or 34.1% to $30.5 million at June 30, 2015 compared to $22.8 million at December 31, 2014 as a result of a ramp up in production following our traditional year-end shut down in December.

Other current liabilities and accrued expenses decreased by $1.2 million or 18.8% to $5.4 million at June 30, 2015 compared to $6.6 million at December 31, 2014, mainly due to the $1.5 million earn-out payment made in the first quarter of 2015 related to the Utilimaster purchase.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Through June 30, 2015, cash and cash equivalents decreased by $8.0 million to a balance of $20.6 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 six months ended June 30, 2015, we utilized $3.4 million of cash in operating activities, which represents a $7.1 million increase from the $3.7 million of cash that was generated by operations for the six months ended June 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 six month period ended June 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 $2.3 million in investing activities during the first six months of 2015, a $0.7 million increase compared to the $1.6 million utilized in the first six 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 to $4 million, including capital spending for our Emergency Response Vehicles segment restructuring initiative and replacement and upgrades of machinery and equipment used in operations.

Cash Flow from Financing Activities

For the six months ended June 30, 2015 we utilized $2.3 million of cash in financing activities, a decrease of $0.8 million compared to $3.1 million utilized in financing activities in the first six months of 2014. This change is mainly due to a $1.0 million repurchase of common stock completed in the second quarter of 2014.

Working Capital

Our working capital was as follows (in thousands):

The decrease in our working capital at June 30, 2015 from December 31, 2014, was driven by the changes in cash, accounts receivable, inventory, accounts payable and deposits from customers, along with small changes in other balance sheet line items within current assets and current liabilities. 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 six months ended June 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 20 to 35 basis points on the unused portion of the line. We had no drawings against this credit line as of June 30, 2015 or December 31, 2014. During the quarter ended June 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 4, 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 smiliar 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 June 30, 2015 and December 31, 2014.

Under the terms of our credit agreement with our banks, we have the ability to issue letters of credit totaling $20.0 million. At June 30, 2015 and December 31, 2014, we had outstanding letters of credit totaling $1.4 million and $4.7 million related to certain emergency response vehicle contracts and our workers compensation insurance. The decrease in the outstanding letters of credit since December 31, 2014 is due to the expiration of performance bonds issued for orders that were fulfilled in the first quarter of 2015.

Under the terms of the line of credit and the term notes detailed above, we are required to maintain certain financial ratios and other financial conditions, which limited our available borrowings under our line of credit to a total of approximately $35.8 million at June 30, 2015 and $38.6 million at December 31, 2014. The agreements prohibit us from incurring additional indebtedness; limit certain acquisitions, investments, advances or loans; and restrict substantial asset sales. At June 30, 2015, we were in compliance with all debt covenants, and, based on our current outlook for 2015, we expect to be able to meet these financial covenants over the next twelve months.

We had capital lease obligations outstanding of $0.2 million as of June 30, 2015 due and payable over the next five years.

Equity Securities

On October 19, 2011, our Board of Directors authorized the repurchase of up to a total of 1.0 million shares of our common stock in open market transactions, contingent upon market conditions. Through June 30, 2015, we repurchased 382,000 shares of our common stock for an aggregate purchase price of $2.0 million, leaving 618,000 shares remaining under this repurchase authorization. If we were to repurchase the full 618,000 shares of stock under the repurchase program, it would cost $2.7 million based on the closing price of our stock on July 31, 2015. We believe that we have sufficient resources to fund this potential stock buyback.

Dividends

The amounts or timing of any dividend distribution are subject to current and expected future earnings, financial condition, liquidity, capital requirements and such other factors as our Board of Directors deems relevant.

On May 8, 2015 our Board of Directors declared a cash dividend of $0.05 per share of common stock, which was paid on June 25, 2015 to shareholders of record on May 21, 2015.

On October 23, 2014 our Board of Directors declared a cash dividend of $0.05 per share of common stock, which was paid on December 18, 2014 to shareholders of record on November 13, 2014.

On May 1, 2014 our Board of Directors declared a cash dividend of $0.05 per share of common stock, payable on June 19, 2014 to shareholders of record on May 15, 2014.

The aggregate amount of dividends paid in 2014 was $3.4 million.

CRITICAL ACCOUNTING POLICIES

The following discussion of critical accounting policies is intended to supplement Note 1 - General and Summary of Accounting Policies, of the Notes to Consolidated Financial Statements contained in Item 8 in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2015. These policies were selected because they are broadly applicable within our operating units, and they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts.

Revenue Recognition - We recognize revenue in accordance with authoritative guidelines, including those of the SEC. Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. On certain customer requested bill and hold transactions, revenue recognition occurs after the customer has been notified that the products have been completed according to the customer specifications, have passed all of our quality control inspections, and are ready for delivery. All sales are shown net of returns, discounts and sales incentive programs, which historically have not been significant. The collectability of any related receivable is reasonably assured before revenue is recognized.

In May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is based on the principle that revenue should be recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. Early adoption for annual reporting periods beginning after December 15, 2016 is permitted. We are currently evaluating the adoption method and the impact of the adoption of the new revenue recognition standard on our consolidated financial statements.

Accounts Receivable - We maintain an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts, we make certain assumptions regarding the risk of uncollectable open receivable accounts. This risk factor is applied to the balance on accounts that are aged over 90 days: generally this reserve has an estimated range from 10-25%. The risk percentage applied to the aged accounts may change based on conditions such as: general economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts from year to year. However, generally our assumptions are consistent year-over-year and there has been little adjustment made to the percentages used. In addition, in the event there are certain known risk factors with an open account, we may increase the allowance to include estimated losses on such “specific” account balances. The “specific” reserves are identified by a periodic review of the aged accounts receivable. If there is an account in question, credit checks are made and there is communication with the customer, along with other means to try to assess if a specific reserve is required. The inclusion of the “specific” reserve has caused the greatest fluctuation in the allowance for doubtful accounts balance historically. Please see Note 1 - General and Summary of Accounting Policies, in the Notes to Consolidated Financial Statements contained in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2014 for further details.

Goodwill and Other Indefinite-Lived Intangible Assets – We perform our annual impairment testing for goodwill and indefinite-lived intangible assets as of October 1 of each year, or more frequently if an event occurs or conditions change that would more likely than not reduce the fair value of the asset below its carrying value. At June 30, 2015 and December 31, 2014, we had goodwill recorded on the financial statements of our Utilimaster subsidiary. Utilimaster comprises the Delivery and Service Vehicles reportable segment, which was also determined to be a reporting unit for goodwill impairment testing.

The date of our most recently completed annual impairment testing was October 1, 2014. We performed a two-step impairment test, whereby the first step was comparing the fair value of the reporting unit with its carrying amount, including goodwill. The fair value of the reporting unit was determined by estimating the future cash flows of the reporting unit to which the goodwill relates, and then discounting the future cash flows at a market-participant-derived weighted-average cost of capital. Based on the results of the first step of our two-step impairment test we determined that the fair value of our Delivery and Service Vehicles reporting unit exceeded its carrying costs, and accordingly, there was no impairment of goodwill at the annual testing date.

We completed our most recent annual impairment testing for our indefinite-lived intangible assets, which consist of our Utilimaster and Classic Fire trade names, as of October 1, 2014 by comparing the estimated fair value of the trade name with its carrying value. We estimate the fair value of our trade names based on estimates of future royalty payments that are avoided through our ownership of the trade names, discounted to their present value. Based on the results of our impairment testing, we determined that the fair value of our indefinite-lived intangible assets exceeded their carrying cost at October 1, 2014, and accordingly, there was no impairment at the annual testing date.

Since October 1, 2014, there have been no events or changes in circumstances that would more likely than not reduce the fair value of our Delivery and Service Vehicles reporting unit or our indefinite-lived intangible assets below their respective carrying costs.

We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived intangible assets. Such events may include, but are not limited to, the impact of the general economic environment; a material negative change in relationships with significant customers; strategic decisions made in response to economic and competitive conditions; and other risk factors as detailed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

See Note 1, General and Summary of Accounting Policies and Note 4, Goodwill and Intangible Assets, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014 for further details on our accounting policies and other information regarding goodwill and indefinite-lived intangible assets.

Warranties - Our policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the warranty liability to reflect actual experience. The amount of warranty liability accrued reflects actual historical warranty cost, which is accumulated on specific identifiable units. From that point, there is a projection of the expected future cost of honoring our obligations under the warranty agreements. Historically, the cost of fulfilling our warranty obligations has principally involved replacement parts and labor for field retrofit campaigns and recalls, which increase the reserve. Our estimates are based on historical experience, the number of units involved and the extent of features and components included in product models. Over time, this method has been consistently applied and has proven to be an appropriate approach to estimating future costs to be incurred. See also Note 4 – Commitments and Contingent Liabilities, of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this Form 10-Q, for further information regarding warranties.

EFFECT OF INFLATION

Inflation affects us in two principal ways. First, our revolving note payable is generally tied to the prime and LIBOR interest rates so that increases in those interest rates would result in additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, we attempt to cover increased costs of production and capital by adjusting the prices of our products. However, we generally do not attempt to negotiate inflation-based price adjustment provisions into our contracts. Since order lead times can be as much as ten months, we have limited ability to pass on cost increases to our customers on a short-term basis. In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. We strive to minimize the effect of inflation through cost reductions and improved productivity.