spar20210331

spar20210331_10q.htm

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

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021.
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number 001-33582

THE SHYFT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)		38-2078923 (I.R.S. Employer Identification No.)
41280 Bridge Street Novi, Michigan (Address of Principal Executive Offices)		48375 (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SHYF	NASDAQ Global Select Market

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

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes

☒

☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Class	Outstanding at April 30, 2021
Common Stock	35,319,651 shares

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THE SHYFT GROUP, INC.

INDEX

			Page

FORWARD-LOOKING STATEMENTS			3

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets – March 31, 2021 and December 31, 2020 (Unaudited)	4

		Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2021 and 2020 (Unaudited)	5

		Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020 (Unaudited)	6

		Condensed Consolidated Statement of Shareholders’ Equity – Three Months Ended March 31, 2021 and 2020 (Unaudited)	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

	Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION

	Item 1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 6.	Exhibits	31

SIGNATURES			32

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FORWARD-LOOKING STATEMENTS

This Form 10-Q contains some statements 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. The Shyft Group, Inc.’s (the “Company”, “we”, “us”, or “our”) future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.

Risk Factors include the risk factors listed and more fully described in Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 25, 2021, subject to any changes and updates disclosed in Part II, Item 1A – Risk Factors below. Those risk factors include the primary risks our management believes could materially affect the potential results described by forward-looking statements contained in this Form 10-Q. However, these 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 Risk Factors may emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, although we believe that the forward-looking statements contained in this Form 10-Q are reasonable, we cannot provide you with any guarantee that the results described in those forward-looking statements will be achieved. All forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements contained in this section, and investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date this Form 10-Q is filed with the Securities and Exchange Commission.

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Item 1.

Financial Statements

THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)

	March 31, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	10,049		$	20,995
Accounts receivable, less allowance of $115 and $116		83,610			64,695
Contract assets		20,648			9,414
Inventories, net		58,543			46,428
Other receivables – chassis pool agreements		24,998			6,503
Other current assets		8,274			8,172
Total current assets		206,122			156,207
Property, plant and equipment, net		51,560			45,734
Right of use assets – operating leases		41,470			43,430
Goodwill		49,177			49,481
Intangible assets, net		55,553			56,386
Other assets		2,026			2,052
Net deferred tax asset		5,625			5,759
TOTAL ASSETS	$	411,533		$	359,049

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	76,470		$	47,487
Accrued warranty		6,320			5,633
Accrued compensation and related taxes		14,758			17,134
Deposits from customers		463			756
Operating lease liability		7,228			7,508
Other current liabilities and accrued expenses		10,547			8,121
Short-term debt – chassis pool agreements		24,998			6,503
Current portion of long-term debt		221			221
Total current liabilities		141,005			93,363
Other non-current liabilities		5,406			5,447
Long-term operating lease liability		34,992			36,662
Long-term debt, less current portion		23,304			23,418
Total liabilities		204,707			158,890
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock; 2,000 shares authorized (none issued)		-			-
Common stock; 80,000 shares authorized; 35,308 and 35,344 outstanding		90,171			91,044
Retained earnings		116,791			109,286
Total The Shyft Group, Inc. shareholders’ equity		206,962			200,330
Non-controlling interest		(136	)		(171	)
Total shareholders’ equity		206,826			200,159
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	411,533		$	359,049

See accompanying Notes to Condensed Consolidated Financial Statements.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)

	Three Months Ended March 31,
	2021		2020

Sales	$	197,888	$	176,948
Cost of products sold		157,902		140,647
Gross profit		39,986		36,301

Operating expenses:
Research and development		782		1,541
Selling, general and administrative		24,537		21,400
Total operating expenses		25,319		22,941

Operating income		14,667		13,360

Other income (expense):
Interest income (expense)		170		(731	)
Interest and other income (expense)		183		(510	)
Total other income (expense)		353		(1,241	)

Income from continuing operations before income taxes		15,020		12,119
Income tax expense		3,490		377
Income from continuing operations		11,530		11,742
Income (loss) from discontinued operations, net of income taxes		81		(3,864	)
Net income		11,611		7,878
Less: net income attributable to non-controlling interest		35		67

Net income attributable to The Shyft Group Inc.	$	11,576	$	7,811

Basic earnings (loss) per share
Continuing operations	$	0.33	$	0.33
Discontinued operations		-		(0.11	)
Basic earnings per share	$	0.33	$	0.22

Diluted earnings (loss) per share
Continuing operations	$	0.32	$	0.33
Discontinued operations		-		(0.11	)
Diluted earnings per share	$	0.32	$	0.22

Basic weighted average common shares outstanding		35,312		35,401
Diluted weighted average common shares outstanding		36,191		35,664

See accompanying Notes to Condensed Consolidated Financial Statements.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	11,611		$	7,878
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		2,571			2,801
Non-cash stock based compensation expense		1,642			2,132
Deferred income taxes		134			11,396
Loss on sale of business		-			2,138
(Gain) on disposal of assets		(142	)		-
Changes in accounts receivable and contract assets		(30,149	)		(16,380	)
Changes in inventories		(12,115	)		(3,686	)
Changes in accounts payable		27,472			472
Changes in accrued compensation and related taxes		(4,736	)		(6,140	)
Changes in accrued warranty		686			(538	)
Change in other assets and liabilities		1,723			(17,141	)
Net cash used in operating activities		(1,303	)		(17,068	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(5,914	)		(2,433	)
Acquisition of business, net of cash acquired		404			-
Proceeds from sale of business		-			55,000
Net cash provided by (used in) investing activities		(5,510	)		52,567

Cash flows from financing activities:
Proceeds from long-term debt		-			16,000
Payments on long-term debt		-			(30,000	)
Payment of dividends		(889	)		-
Purchase and retirement of common stock		(3,348	)		-
Exercise and vesting of stock incentive awards		104			55
Net cash used in financing activities		(4,133	)		(13,945	)

Net increase (decrease) in cash and cash equivalents		(10,946	)		21,554
Cash and cash equivalents at beginning of period		20,995			19,349
Cash and cash equivalents at end of period	$	10,049		$	40,903

Note: Consolidated Statements of Cash Flows include continuing operations and discontinued operations for all periods presented.

See accompanying Notes to Condensed Consolidated Financial Statements.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands)

	Number of Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Non- Controlling Interest			Total Shareholders’ Equity
Balance at December 31, 2020		35,344		$	91,044		$	-	$	109,286		$	(171	)	$	200,159
Issuance of common stock and tax impact of stock incentive plan		3			(2,255	)		-		-			-			(2,255	)
Dividends declared ($0.025 per share)		-			-			-		(983	)		-			(983	)
Purchase and retirement of common stock		(100	)		(260	)		-		(3,088	)		-			(3,348	)
Issuance of restricted stock, net of cancellation		61			-			-		-			-			-
Non-cash stock based compensation expense		-			1,642			-		-			-			1,642
Net income		-			-			-		11,576			35			11,611
Balance at March 31, 2021		35,308		$	90,171		$	-	$	116,791		$	(136	)	$	206,826

	Number of Shares		Common Stock		Additional Paid In Capital		Retained Earnings		Non- Controlling Interest			Total Shareholders' Equity
Balance at December 31, 2019		35,344	$	353	$	85,148	$	86,764	$	(518	)	$	171,747
Issuance of common stock and tax impact of stock incentive plan		4		-		55		-		-			55
Issuance of restricted stock, net of cancellation		127		1		-		-		-			1
Non-cash stock based compensation expense		-		-		2,132		-		-			2,132
Net income		-		-		-		7,811		67			7,878
Balance at March 31, 2020		35,475	$	354	$	87,335	$	94,575	$	(451	)	$	181,813

See accompanying Notes to Condensed Consolidated Financial Statements.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

For a description of key accounting policies followed, refer to the notes to The Shyft Group, Inc. consolidated financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021.

Nature of Operations

We are a niche market leader in specialty vehicle manufacturing and assembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments) and recreational vehicle industries. Our products include walk-in vans and truck bodies used in e-commerce/parcel delivery, upfit equipment used in the mobile retail and utility trades, luxury Class A diesel motor home chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture. Our operating activities are conducted through our wholly-owned operating subsidiary, The Shyft Group USA, Inc., with locations in Novi and Charlotte, Michigan; Bristol, Indiana; Waterville, Maine; Ephrata, Pennsylvania; North Charleston, South Carolina; Pompano Beach and West Palm Beach, Florida; Kansas City, Missouri; Montebello, Carson and McClellan Park, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico.

The accompanying unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of our financial position as of March 31, 2021, and our results of operations and cash flows for the three months ended March 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year.

Recent Developments

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”). On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The pandemic has had a significant impact on macroeconomic conditions. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines. While the Company’s plants continued to operate as essential businesses, starting March 23, 2020 certain of our manufacturing facilities were temporarily suspended or cut back on operating levels and shifts as a result of government orders. Since the third quarter of 2020, all of our facilities were at full or modified production levels. However, additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to evolve within our global supply chain and customer base. The Company is taking a variety of measures to maintain operations with as minimal impact as possible to promote the safety and security of our associates, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on visitor access to facilities.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this filing. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for future periods.

On October 1, 2020, the Company acquired substantially all of the assets and certain liabilities of F3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded truck accessories including headache racks (also known as cab protection racks or rear racks). DuraMag operates out of Waterville, Maine and that location is expected to continue to serve as the business’ primary manufacturing and assembly facility for both product lines. The addition of DuraMag aluminum bodies to the Company's product offerings follows the Company’s 2019 acquisition of Royal Truck Body ("Royal"), a West Coast and Southwestern U.S. steel truck body maker. Combined, these acquisitions elevate the Company to a leading position as a national service body manufacturer. DuraMag is part of our Specialty Vehicle segment and continues to go to market under the DuraMag and Magnum brands.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

Recently Adopted Accounting Standards

Effective January 1, 2021, we adopted ASU 2019-12 and all related amendments, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and improving consistent application of Generally Accepted Accounting Principles ("GAAP") for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of the provisions of ASU 2019-12 did not have a material impact on our consolidated financial position, results of operations or cash flows.

Supplemental Disclosures of Cash Flow Information

Non-cash investing in the first quarter of 2021 included $2,899 of capital expenditures. The Company has Chassis Pool Agreements, where it participates in a chassis converter pool that is a non-cash arrangement and is offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. See "Note 5 – Debt" for further information about the Chassis Pool Agreements.

NOTE 2 – DISCONTINUED OPERATIONS

On February 1, 2020, we completed the sale of our emergency response vehicle ("ERV") business for $55,000 cash subject to certain post-closing adjustments. In September 2020, the Company finalized the post-close net working capital adjustment and subsequently paid $7,500 on October 1, 2020. The Company recognized a loss on sale of $2,138 in the three months ended March 31, 2020, which is a portion of the Income (loss) from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, respectively. The ERV business included the emergency response chassis operations in Charlotte, Michigan, and operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. The results of the ERV business have been reclassified to Income (loss) from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020. We continue to have an open Transition Services Agreement with the buyer for the provision of certain transition support services, which may continue for certain services into 2022.

The Loss from discontinued operations presented in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020 consisted of:

	Three Months Ended March 31,
	2021			2020

Sales	$	-		$	19,167
Cost of products sold		-			18,678
Gross profit		-			489
Operating expenses		-			4,123
Operating loss		-			(3,634	)
Other income (expense)		109			(2,138	)
Loss from discontinued operations before taxes		109			(5,772	)
Income tax (expense) benefit		(28	)		1,908
Net income (loss) from discontinued operations	$	81		$	(3,864	)

Total depreciation and amortization and capital expenditures for the discontinued operations for the three months ended March 31, 2021 and 2020 were as follows:

	Three Months Ended March 31,
	2021		2020

Depreciation and amortization	$	-	$	284
Capital expenditures	$	-	$	84

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 3 – ACQUISITION ACTIVITIES

On October 1, 2020, the Company acquired substantially all of the assets and certain liabilities of F3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading, aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded headache racks (also known as cab protection racks or rear racks). The Company paid $18,203 in cash, subject to a net working capital adjustment. The net working capital adjustment was finalized in January 2021, resulting in a decrease to the purchase price of $404. The acquisition was partially financed by borrowing from our existing line of credit, as described in "Note 5 – Debt". DuraMag is part of our Specialty Vehicle segment.

Purchase Price Allocation

The DuraMag acquisition was accounted for using the acquisition method of accounting with the purchase price allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. Identifiable intangible assets include customer relationships, DuraMag and Magnum trade names and trademarks, unpatented technology and non-competition agreements. The preliminary excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired of $5,697 was recorded as goodwill, which is expected to be deductible for tax purposes.

The fair values of the net assets acquired were based on a preliminary valuation and the estimates and assumptions are subject to change within the measurement period. The Company will finalize the purchase price allocation for adjustments related to accrued warranty and certain other liabilities that we believe to be insignificant as soon as practicable within the measurement period, but in no event later than one year following the acquisition date.

As of March 31, 2021, the preliminary allocation of purchase price to assets acquired and liabilities assumed is as follows:

Accounts receivable	$	2,230
Inventories		3,659
Other current assets		15
Property, plant and equipment		2,949
Right of use assets-operating leases		8,469
Intangible assets		5,590
Goodwill		5,697
Total assets acquired		28,609

Accounts payable		(1,662	)
Accrued compensation and related taxes		(434	)
Current operating lease liabilities		(644	)
Other current liabilities and accrued expenses		(241	)
Long-term operating lease liability		(7,825	)
Long-term debt		(4	)
Total liabilities assumed		(10,810	)

Total purchase price	$	17,799

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

Goodwill and Intangible Assets Assigned

Intangible assets totaling $5,590 have provisionally been assigned to customer relationships, trade names and trademarks, unpatented technology and non-competition agreements as a result of the acquisition and consist of the following (in thousands):

	Amount		Useful Life
Customer relationships	$	2,200	15 Years
Trade names and trademarks		2,420	Indefinite
Unpatented technology		540	9 Years
Non-competition agreements		430	6 Years
	$	5,590

The Company amortizes the customer relationships utilizing an accelerated approach and unpatented technology and non-competition agreements assets utilizing a straight-line approach. Amortization expense, including the intangible assets, recorded from the DuraMag acquisition is $70 for the quarter ended March 31, 2021.

Goodwill consists of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter into new markets which will enable us to increase value to our customers and shareholders. Key areas of expected cost savings include an expanded dealer network, complementary product portfolios and manufacturing and supply chain work process improvements.

Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the prior reporting period is not provided.

NOTE 4 – INVENTORIES

Inventories are summarized as follows:

	March 31, 2021			December 31, 2020
Finished goods	$	5,797		$	4,200
Work in process		2,989			1,908
Raw materials and purchased components		55,427			46,576
Reserve		(5,670	)		(6,256	)
Total inventories, net	$	58,543		$	46,428

NOTE 5 – DEBT

Short-term debt consists of the following:

	March 31, 2021		December 31, 2020
Chassis pool agreements	$	24,998	$	6,503
Total short-term debt	$	24,998	$	6,503

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

Chassis Pool Agreements

The Company obtains certain vehicle chassis for its walk-in vans, truck bodies and specialty vehicles directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer).

Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled any related obligations in cash, nor does it expect to do so in the future. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of March 31, 2021 and December 31, 2020, the Company’s outstanding chassis converter pool with manufacturers totaled $24,998 and $6,503, respectively and the Company has included this financing agreement on the Company’s Condensed Consolidated Balance Sheets within Other receivables – chassis pool agreements and Short-term debt – chassis pool agreements. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company. The chassis converter pool is a non-cash arrangement and is offsetting between Current assets and Current liabilities on the Company’s Condensed Consolidated Balance Sheets.

Long-term debt consists of the following:

	March 31, 2021			December 31, 2020
Line of credit revolver	$	22,400		$	22,400
Finance lease obligation		421			473
Other		704			766
Total debt		23,525			23,639
Less current portion of long-term debt		(221	)		(221	)
Total long-term debt	$	23,304		$	23,418

Line of Credit Revolver

On August 8, 2018, we entered into a Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A. and PNC Bank National Association (the "Lenders"). Subsequently, the Credit Agreement was amended on May 14, 2019, September 9, 2019 and September 25, 2019 and certain of our other subsidiaries executed guaranties guarantying the borrowers’ obligations under the Credit Agreement. Concurrent with the close of the sale of the ERV business and effective January 31, 2020, the Credit Agreement was further amended by a fourth amendment, which released certain of our subsidiaries that were sold as part of the ERV business. The substantive business terms of the Credit Agreement remain in place and were not changed by the fourth amendment.

As a result, at March 31, 2021, under the Credit Agreement, as amended, we may borrow up to $175,000 from the Lenders under a secured revolving credit facility which matures August 8, 2023. We may also request an increase in the facility of up to $50,000 in the aggregate, subject to customary conditions. The credit facility is also available for the issuance of letters of credit of up to $20,000 and swing line loans of up to $30,000, subject to certain limitations and restrictions. This revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted LIBOR plus 1.0%; or (ii) adjusted LIBOR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The applicable borrowing rate including margin was 1.38% (or one-month LIBOR plus 1.25%) at March 31, 2021. The credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At March 31, 2021 and December 31, 2020, we had outstanding letters of credit totaling $525 related to our workers’ compensation insurance.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

Effective April 20, 2021, the Credit Agreement was further amended by a fifth amendment, which increased the swing line loans availability to $40,000, subject to certain limitations and restrictions. The substantive business terms of the Credit Agreement remain in place and were not changed by the fifth amendment.

Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $125,951 and $125,836 at March 31, 2021 and December 31, 2020, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial covenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales, all subject to certain exceptions and baskets. At March 31, 2021 and December 31, 2020, we were in compliance with all covenants in our Credit Agreement.

NOTE 6 – REVENUE

The tables below disclose changes in contract assets and liabilities for the three months ended March 31, 2021 and 2020.

	March 31, 2021			March 31, 2020
Contract Assets
Contract assets, beginning of period	$	9,414		$	10,898
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional		(8,977	)		(10,623	)
Contract assets recognized, net of reclassification to receivables		20,211			14,370
Contract assets, end of period	$	20,648		$	14,645

Contract Liabilities
Contract liabilities, beginning of period	$	756		$	2,640
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied		(567	)		(2,384	)
Cash received in advance and not recognized as revenue		274			835
Contract liabilities, end of period	$	463		$	1,091

The aggregate amount of the transaction price allocated to remaining performance obligations in existing contracts that are yet to be completed in the Fleet Vehicles and Services (“FVS”) and Specialty Vehicles (“SV”) segments are $589,604 and $76,896 respectively, with substantially all revenue expected to be recognized within one year as of March 31, 2021.

In the following tables, revenue is disaggregated by primary geographical market and timing of revenue recognition for the three months ended March 31, 2021 and 2020. The tables also include a reconciliation of the disaggregated revenue with the reportable segments.

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THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

	Three Months Ended March 31, 2021
	FVS		SV		Total Reportable Segments		Other		Total
Primary geographical markets
United States	$	129,079	$	66,196	$	195,275	$	-	$	195,275
Other		2,594		19		2,613		-		2,613
Total sales	$	131,673	$	66,215	$	197,888	$	-	$	197,888

SEC Form 10-Q filed by The Shyft Group, Inc.