FORWARD-LOOKING STATEMENTS

This Form 10-K 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, as amended, and Section 21E of the Securities Exchange Act of 1934.1934, as amended. These statements involve important known and unknown risks, uncertainties and other factors and generally can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “will,” “should” andor similar expressions or words. OurThe 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 Item 1A below, “Risk Factors”, as well as risk factors that we have discussed in previous public reports and other documents filed with the Securities and Exchange Commission. The list in Item 1A below includes all knownthe primary risks our management believes could materially affect the potential results described by forward-looking statements contained in this Form 10-K. 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-K are reasonable, we cannot provide you with any guarantee that the anticipated results described in those forward-looking statements will be achieved. All forward-looking statements in this Form 10-K 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-K is filed with the Securities and Exchange Commission.

Trademarks and Service Marks

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this Annual Report on Form 10-K are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this Annual Report on Form 10-K are, to our knowledge, the property of their respective owners.

PART I

General

Spartan Motors, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Novi, Michigan. As used herein, the term “Company”, “we”, “us” or “our” refers to Spartan Motors,The Shyft Group, Inc. and its subsidiaries unless designated or identified otherwise.

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 military vehicles, 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, Spartan MotorsThe Shyft Group USA, Inc. (“Spartan USA”), with locations in Novi, Charlotte, and Plymouth, Michigan; Ephrata, Pennsylvania; Pompano Beach, Florida; Bristol, Indiana; Waterville, Maine; Landisville, Pennsylvania; North Charleston, South Carolina; Pompano Beach and West Palm Beach, Florida; Kansas City, Missouri; Montebello, Carson, Union CityMcClellan Park, and Roseville,Montebello, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico.

Our vehicles, parts and services are sold to commercial users, original equipment manufacturers (OEMs), dealers, individual end users, and municipalities and other governmental entities. Our product portfolio gives us access to multiple differentiated markets and corresponding customer bases which help to mitigate the impact of business cycles. Our diversification across several sectors provides numerous opportunities while reducing overall risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business structure provides the agility to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth. Our expansion of equipment upfit services in our Fleet Vehicles and Services segment, and the growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market areis an excellent examplesexample of our ability to generate growth and profitability by quickly fulfilling customer needs.

Acquisition of Royal Truck BodyPerformance Overview

On September 9, 2019, the Company completed the acquisition of Fortress Resources, LLC D/B/A Royal Truck Body (“Royal”) for $89.4 million in cash, subject to certain post-closing adjustments. Royal is a leading California-based designer, manufacturer and installer of service truck bodies and accessories. Royal manufactures and assembles truck body options for various trades, service truck bodies, stake body trucks, contractor trucks, and dump bed trucks. Royal is the largest service body company in the western United States with its principal facility in Carson, California. Royal has additional manufacturing, assembly, and service space in branch locations in Union City and Roseville, California; Mesa, Arizona; and Dallas and Weatherford, Texas. This acquisition allows us to quickly expand our footprint in the western United States supporting our strategy of coast-to-coast manufacturing and distribution. Royal is part of our Specialty Chassis and Vehicle segment. See “Note 3 – Acquisition Activities” of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further discussion of this transaction.

Divestiture of the Emergency Response and Vehicle Business

On February 1, 2020, the Company completed the sale of its Emergency Response and Vehicle (“ERV”) business for $55 million in cash, subject to certain post-closing adjustments. The ERV business consisted of the emergency response cab-chassis and apparatus operations in Charlotte, Michigan, and the Spartan apparatus operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. The divestiture will allow us to further focus on accelerating growth and profitability in our commercial, fleet, delivery and specialty vehicles markets. As a result of this divestiture, the ERV business is accounted for as a discontinued operation for all periods presented. See “Note 2 – Discontinued Operations” of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further discussion of this transaction.

Unless noted otherwise, the data in this Form 10-K reflects our continuing operations and, therefore, excludes the performance of our prior ERV business. Over the past five years our sales have increased by $399.3$587.6 million, a compound annual growth rate (CAGR) of 20.6%25.2%, while income (loss) from continuing operations and adjusted EBITDA havehas grown by $36.7$52.5 million, a CAGR of 41.4%, and $44.0Adjusted EBITDA has grown by $76.4 million, respectively.a CAGR of 35.9%. Please see the reconciliation of income (loss) from continuing operations to adjustedAdjusted EBITDA below.near the end of Item 1 of this Form 10-K.

Our Segments

We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: Fleet Vehicles and Services ("FVS") and Specialty ChassisVehicles ("SV"). As of October 1, 2021, the composition of both reportable segments changed due to an internal reorganization as certain businesses previously managed and Vehicles (“SCV”).reported within FVS are now a part of SV. Corresponding items of segment information for earlier periods have been recast. For certain financial information related to each segment, see "Note 1817 – Business Segments" of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K. Sales by segment isare as follows:

Fleet Vehicles and Services Segment

We manufacture commercial vehicles used in the e-commerce/last mile/parcel delivery, beverage and grocery delivery, laundry and linen, mobile retail, and trades and construction industries through our Bristol, Indiana; Ephrata,Landisville, Pennsylvania; North Charleston, South Carolina; and Charlotte, Michigan and Montebello, California locations. Our commercial vehicles are marketed under the Utilimaster brand name, which serves a diverse customer base and sells aftermarket parts and accessories for walk-in vans and other delivery vehicles. We also provide vocation-specific equipment upfit services, which are marketed and sold under theas Utilimaster Upfit Services, and Strobes-R-Us go-to-market brands, through our manufacturing operations in Kansas City, Missouri; North Charleston, South Carolina; Pompano Beach, Florida; and Saltillo, Mexico. Our Fleet Vehicles and Services segment employed 2,097 associatesapproximately 2,100 employees and 400 contractors as of December 31, 2019, of which 838 were contracted associates.2021.

We offer fleet vehicles in classGross Vehicle Weight Rating ("GVWR") Class 1 through Class 7, the largest range of product offerings amongamongst our competitors.

Cargo Van Upfit	"Velocity"	Traditional Walk-in-Van	Truck Body
Class 1	Class 2	Class 3	Class 4
Class 1 & 2	Class 2 & 3	Class 4 & 5
Class 5	Class 6	Class & 7

Innovation

Our “Solution Experts”Solution Experts employ a customer-centric approach by working with customers through a process of listening and learning, needs assessment, and design innovation through building and implementing solutions custom designed forwith our customers.customers and their end customers in mind. Recent innovations implemented by our Solution Experts include innovative and cost saving solutions for the specialty service segment, utility industry, food and beverage delivery, and mobile retail industry, such as safe loading equipment, keyless entry and cargo access systems, backup camera systems, and refrigeration solutions. Our teams can deliver product customization ranging from out-of-the-box to 100% custom solutions.solutions, based on customer needs and business requirements. 

Recent innovations launched by the product development team include a new walk-in-van format, named the Velocity. Available in GVWR Class 2 and Class 3 designs, the Velocity lineup spans multiple OEM chassis formats to accommodate buyer preference and to increase manufacturing and distribution scale, as Utilimaster build operations are aligned with OEM chassis manufacturing.

Products

	Walk-in Vans Assembled on a de-contented or “stripped” truck chassis supplied with engine and drive train components, but without a cab, our walk-in vans are used in the parcelacross a variety of vocations for multiple delivery and mobile retail and construction trades industries andservice options. The vehicles feature a durable and lightweight aluminum body with a highly modularmodularized cargo area, accessible from the cab. Our walk-in vans offerfeaturing extensive driver ergonomics options and a low step-in height for easy entry and exit and the best driver visibility in the industry.egress.
	Truck Bodies OurUtilimaster dry van truck bodies are the industry standard for heavy-duty commercial delivery and are installed on chassis from a variety of manufacturers, thatwhich are supplied with a finished cab. They feature a highly customizable cargo area for maximum versatility and are manufactured with anti-rust galvanized steel and aluminum.aluminum component parts. Available with cargo lengths from 10 to 28 feet and interior heights ranging from 72 to 108 inches.
	Reach® The Reach is a smaller, more nimble walk-in van. Built on an Isuzu chassis, which has been electrified by Cummings and available in lengths of 12 or 14 feet, the Reach offers a versatile cargo area with integrated logistics tracks allowing for a tailored upfit through either pre-designed vocational or completely custom packages.
	Cutaway OurUtilimaster cutaway truck bodies are the industry standard for medium-duty commercial delivery and are installed on chassis from a variety of manufacturers that are supplied with a finished cab. The innovative cab can be designed to fit as many as five crew members andhighly configurable design can be configured with a set-back walk-through bulkhead allowing access to the cargo area from the cab. Available with cargo lengths from 10 to 18 feet and interior heights ranging from 72 to 90 inches.
	Velocity® A productive,nimble, fuel efficient, and ergonomically designed walk-in van lineup built on commercial cargo van chassis across OEMs is designed to makecombine the cargo capacity of a traditional walk-in-van with the drivability of a smaller format vehicle. The Velocity lineup makes large product/package deliveries easy, with lower entry/exitegress height and 3-point grab rails at side and rear doors.doors, and comfortable safe seats. Economical to operate, withthe Velocity features a total cost of ownership about half that of a traditional walk-in van.
	Specialty Upfit We install specialty interior and exterior upfit equipment for walk-in vans, truck bodies, cargo vans, and passenger vanslight duty pick-up trucks for added safety, cargo handling efficiency, and vocational functionality.
	Parts and Accessories We provide a full line of parts and accessories for our walk-in vans and truck bodies.

Marketing

We market our commercial vehicles, including walk-in vans, cutaway vans, and truck bodies, under the Aeromaster®, Velocity, Ultimate, Trademaster®, Metromaster®,and Utilivan®, Utilimaster Upfit Services and Reach product brand names. We sell our fleet vehicles to leasing companies, national and fleet accounts (national accounts typically have 1,000+ vehicle fleets and fleet accounts typically have 100+ vehicle fleets), and through a network of independent truck dealers in the U.S. and Canada. We also market our truck bodies direct to retail customers in select markets. We provide aftermarket support, including parts sales and field service,services, to all of our fleet vehicle customers through our Customer Service Department located in Bristol, Indiana, which maintains the only online parts resource among the major delivery vehicle manufacturers. Except in limited circumstances, we do not provide financing to dealers or, fleet or national accounts. We maintain multi-year supply agreements with certain key fleet customers in the parcel and linen/uniform rental industries.Indiana.

Manufacturing

Manufacturing

We are implementinghave implemented the SpartanShyft Production System, lean manufacturing and continuous improvement toin all of our fleet vehicle operationsfacilities in order to maximize efficiency and reduce costs. We manufacture walk-in vans at our Bristol, Indiana facility and truck bodies at our Ephrata,Landisville, Pennsylvania; Montebello, California; and Charlotte, MichiganKansas City, Missouri facilities. We have dedicated facilities at Kansas City, Missouri; North Charleston, South Carolina; Pompano Beach, Florida;Kansas City, Missouri; and Saltillo, Mexico aligned with our commercial and OEM customers for the installation of upfit equipment. Our walk-in vans and truck bodies are manufactured on non-automated assembly lines utilizing a combination of high- and low-skilledhigh-skilled tradespeople and assemblers. Our upfit facilities utilize teams of workers requiring minimal capital investment for efficient and timely installation of a variety of equipment.

Specialty Chassis and Vehicles Segment

Our Specialty Chassis and Vehicles segment operatesincludes our Spartan RV chassis and Builtmore Contract Manufacturing out of our Charlotte, Michigan facility where we engineer and manufacture luxury Class A diesel motor homemotorhome chassis, manufacture our Reach walk-in van, provide contract assembly of defense vehicles and specialty vehicles and other commercial vehicles, and distribute related aftermarket parts and accessories.accessories under the Spartan RV Chassis and Builtmore Contract Manufacturing brand names. Our service truck bodies operations include locations in Carson, McClellan Park, and Montebello, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Waterville, Maine. We also provide vocation-specific equipment upfit services, which are marketed and sold under the Strobes-R-Us brand, through our manufacturing operations in Pompano and West Palm Beach, Florida. Our specialty vehicle products are manufactured to customer specifications upon receipt of confirmed purchase orders. As a specialty chassis and vehicle manufacturer, we believe we hold a unique position for continued growth due to the high quality and performance of our products, our proactive engineering, reaction time, manufacturing expertise and flexibility, and the scalability of our operations. Our specialty vehicle products are generally sold through original equipment manufacturers in the case of chassis and vehicles and to dealerdealers, distributors or directly to consumers for truck bodies and aftermarket parts and accessories. In addition, beginning in September 2019 with our acquisition of Royal, the Specialty Chassis and Vehicles segment includes operations in Carson, Union City and Roseville, California; Mesa, Arizona; and Dallas and Weatherford, Texas. Royal is a leading California-based designer, manufacturer and installer of service truck bodies and accessories. The Specialty Chassis and Vehicles segment employed 551 associatesapproximately 1,100 employees and less than 100 contractors as of December 31, 2019, of which 116 were contracted associates.2021.

Innovation

We promote effective communication through

Through trade shows and motor homemotorhome rallies, we talk with a wide variety of motor homemotorhome owners to identify needs and bring our customers the latest technology and highest quality in our motor homemotorhome and specialty chassis. Over the past few years, we have introducedRecent innovations onto our motor homemotorhome chassis including:include: custom tuned suspensions, independent front suspension, and passive steer tag axle that greatly improve ride, handling and maneuverability; adaptive cruise control, collision mitigation, electronic stability control and lane departure warning to improve safety; and automatic air leveling that adds convenience and functionality to top line motor homes.motorhomes. We also support trade shows, OEM and dealer events to promote our truck body products and upfit services. We continue to expand our product portfolio and execute innovations in that segment.

Products

	Isuzu N-gas and F-seriesContract Manufacturing We provide final assembly services for Isuzu N-gas and F-series chassis for the North American market.market under the Builtmore Contract Manufacturing brand name. These class 3 and class 5 chassis are utilized in a variety of final configurations for light duty freight hauling and industrial uses. We have a low-cost structurecost effective, flexible and a highly skilled team of assembly workers and management, which, along with a dedication to lean manufacturing and continuous improvement, allow us to deliver superior quality and value in contract manufacturing.
	Service Truck Bodies We manufacture and assemble truck body optionsbodies for a variety of trades and vocations. Those body configurations include service truck bodies, stake body trucks,bodies, contractor trucksbodies, dump/landscape bodies and dump bed trucks.vocational dry freight bodies under the Royal Truck Body and DuraMag brand names.
	Specialty Upfit We design and install custom lighting and upfit solutions to meet the unique needs of the fleet industries including a range of specialty industries such as law enforcement, Department of Transportation, security companies, and providers of funeral, towing, and utility services. We provide durable, reliable, and high-quality product installations for any vehicle requiring specialty exterior and interior accessory upfits.
	Defense and Specialty Chassis and Vehicles We partner with a variety of OEM customers to provide chassis and complete vehicle assembly for military vehicles, drill rigs, shuttle bus chassis and other specialty chassis and vehicles.
	Parts and Accessories We provide truck accessories under our Magnum brand and provide a full line of parts and accessories for our motor home, defense and specialty chassis as well as maintenance and repair services for our motor homemotorhome and specialty chassis.

Marketing

We sell our Class A diesel motor homemotorhome chassis to OEM manufacturersOEMs for use in constructionthe manufacturing of premium motor homes. We actively participate in a variety of trade shows and motor home rallies that promote our products and aftermarket parts and services in addition to providing an opportunity to communicate with our end customers to showcase Spartan’sour latest innovations and identify needs and opportunities for continuous improvement of our chassis. We sell our service truck bodies through a commercial dealer network and through OEM pools, and we actively participate in a variety of regional and national trade shows that promote our products. We also provide vocation-specific equipment upfit services, which are marketed and sold under the Strobes-R-Us brand.

Manufacturing

Our motor homemotorhome chassis, service truck body, and specialty manufacturing operations benefit from implementingemploy the SpartanShyft Production System, lean manufacturing, and continuous improvement to bring efficiency and cost reduction throughout our Specialty Chassis and Vehicles segment. We engineer, manufacture, motor homeand assemble Spartan RV chassis, drill rigs, militaryas well as other specialty vehicles and specialty bus chassis on non-automated assembly lines. We assemble both the Isuzu N-gasN- and F-series chassis on high-volume assembly lines that utilize a variety of state-of-the-art automation and testing equipment. Our upfit facilities utilize teams of workers requiring minimal capital investment for efficient and timely installation of a variety of equipment.

Competition

The principal methods we use to build competitive advantages include short engineering reaction time, custom design capability, high product quality, superior customer service and quick delivery. We employ a solutions-based approach to offer specialized products tailored to customer needs across the spectrum of our products. We compete with companies that manufacture for similar markets, including some divisions of large diversified organizations that have total sales and financial resources exceeding ours. Our competition in the fleet vehicle market ranges from one large manufacturer in the walk-in van market to a number of smaller manufacturers in the truck body and equipment upfit markets. Our competitors in the specialty vehicle market are principally large multi-product line manufacturers of specialty and heavy-duty vehicles. In addition to established mature competitors, we also face competition from new market entrants including technology companies.

Suppliers

We are dedicated to establishing long-term and mutually beneficial relationships with our suppliers. Through these relationships, we benefit from new innovations, higher quality, reduced lead times, smoother/faster manufacturing ramp-up of new vehicle introductions and lower total costs of doing business. Our accelerating growth and company-wide supply chain management initiatives allow us to benefit from economies of scale and maximize to focus on a common vision.

The single largest commodity directly utilized in production is aluminum, which we purchase under purchase agreements based on forecasted production requirements. To a lesser extent we are dependent upon suppliers of lumber, fiberglass and steel for our manufacturing. We have initiated long-term supplier agreements and are consolidating suppliers where beneficial to gain pricing advantages. There are several readily available sources for the majority of these raw materials. However, we are heavily dependent on specific component part products from a few single source vendors. We maintain a qualification, on-site inspection, assistance, and performance measurement system to control risks associated with reliance on suppliers. We normally do not carry inventories of such raw materials or components in excess of those reasonably required to meet production and shipping schedules. Material and component cost increases are passed on to our customers whenever possible. There can be no assurance that there will not be any supply issues over the long-term. 

In the assembly of certain of our fleet vehicles, we use chassis supplied by third parties, and we generally do not purchase these chassis for inventory. For this market, we typically accept shipment of truck chassis owned by dealers or end users, for the purpose of installing and/or manufacturing our specialized commercial vehicles on such chassis, but from time to time we do purchase chassis for use in fulfilling certain customer orders.

Research and Development

Our success depends on our ability to innovate and add new products and features ahead of changing market demands and new regulatory requirements. Thus, we emphasize research and development and commit significant resources to develop and adapt new products and production techniques. Our engineering team of nearly 100 technical professionals is looking past “current practices” and “best practices” to deliver “next practices” for our customers and shareholders. Our engineering group is organized as a unified team serving onegroup's goal throughout the company: to deliver world class products and manufacturing processes regardless of product line or location, a concept that we refer to as “One Spartan Engineering”. The team balances the synergies of One Spartan Engineering with fully integrated teams dedicated to product line specialization.location. Results are accomplished with the appropriate blend of predictive analysis and physical property testing in our Research and Development facilities along with ride-and-drive analysis. Our efforts range from executing special orders for current production; to new production development for new functionality and product improvements; to exciting technologies that are new to the markets we serve, like vehicle electrification. Our engineering actions are driven by our firm commitment to safety, quality, delivery, and productivity. We spent $4.9$8.5 million, $3.7$4.4 million, and $3.6$4.9 million on research and development in 2019, 2018,2021, 2020, and 2017,2019, respectively.

During 2021, Shyft Innovations, our dedicated mobility research and development team, unveiled plans to bring to market an all-electric purpose-built Class 3 chassis platform designed to serve a wide array of medium-duty truck markets, from last mile parcel delivery fleets to work trucks, passenger busses, recreational vehicles, and more. The EV-powered chassis will feature customizable length and wheelbase, making it well suited for a variety of vehicle types. The chassis’ modular design can accommodate multiple GVWR classifications, based on build out and usage. With this high degree of configurability, the all-electric chassis is adaptable to last mile delivery, work truck, mass transit, recreational vehicle, and other emerging EV markets.

Product Warranties

We provide limited warranties against assembly and construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for specified periods, ranging from one year to twenty years, following the date of sale. With the use of validation testing, predictive analysis tools and engineering and design standards, we strive to continuously improve product quality and durability, and reduce our exposure to warranty claims. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles. For more information concerning our product warranties, see "Note 1211 – Commitments and Contingent Liabilities" of the Notes to Consolidated Financial Statements in Item 8 appearing in this Form 10-K.

Patents, Trademarks and Licenses

We have 2317 United States patents, which include rights to the design and structure of chassis and certain peripheral equipment and we have 1418 pending patent applications in the United States. The existing patents will expire on various dates from 20202025 through 20332040 and allutility patents are subject to payment of required maintenance fees. We also own 109or license 84 federal state and international trademark and service mark registrations. The trademark and service mark registrations are generally renewable under applicable laws, subject to payment of required fees and the filing of affidavits of use. In addition, we have various pending trademark applications.

We believe ourOur products and services are identified by our trademarks and that ourservice marks. Our trademarks and service marks are valuable assets to both of our business segments. We are not aware of any infringing uses or any prior claims of ownership of our trademarks that could materially affect our business. It is our policy to pursue registration of our primary marks whenever possible and to vigorously defend our patents, trademarks and other proprietary marks against infringement or other threats to the greatest extent practicable under applicable laws.

Environmental MattersHuman Capital Management

Compliance with federal, state and local environmental laws and regulations has not had, nor is it expected to have, a material effect on our capital expenditures, earnings or competitive position.

Spartan believesWe believe people are the most critical component in the preservation of the environment because it leadsour continued success, and we strive to a safer, healthier world for today and in the future. In addition to the various product offerings provided by Spartan, alternative fuel specialty vehicles are offered to help reduce pollutant emissions. Spartan also subscribes to environmentally conscious manufacturing practices while working to obtain ISO 14001 certification for some locations by the end of 2020, and other locations in 2021, and strongly encourages its suppliers to have similar manufacturing philosophies. Spartan recycles waste in many aspects of our daily operations and in the office.

Associates

We employed 2,724 associates asattract high-performing talent. As of December 31, 20192021, we employed approximately 3,800 employees and contractors. Approximately 13% of our total workforce consists of contractors, including all personnel at our Saltillo, Mexico operation. Compared to 2020, we decreased the percentage of contractors in our continuing operations, substantially allworkforce by approximately 50%. This decrease reflected a strategic change in our talent acquisition strategy of which are full-time, including 956 contracted associates. Management considers its relationsdirect hiring instead of contract relationships. Of our total workforce, 92% reside in the United States, with associates to be positive.the remaining 8% in Mexico. Our production processes employleverage a combination of high- and low-skilledskilled tradespeople and high-touch assemblers involvedworking in body, electrical, mechanical, paint, and assembly operations. As a team, our employees and contractors put the Company’s core values into action, while executing on key growth initiatives to maintain long-term sustainable growth. We strive to create a workplace of choice to attract, retain, and develop top talent to achieve our vision and deliver shareholder results.

In our locations, we compete with many local companies for talent. We have implemented talent strategies and market competitive wages and benefits to support talent acquisition and retention. In addition to these actions, we have implemented employee surveys and focus groups that encourage our employees to share their opinions and feedback on the culture of our company. The results of the survey are analyzed and measured to learn how we can enhance and accelerate improvements in the attraction and retention in a difficult talent environment.

We adhere to a philosophy that includes, among other things, commitments to create ongoing job opportunities, pay fair wages, and protect worker health and safety. Fundamental to these commitments are our Company’s core values of honesty and integrity, accountability, trust, and performance excellence. Management considers relations with the Company’s workforce to be positive.

Compensation and Benefits

We believe the structure of our compensation packages provides the appropriate incentives to attract, retain and motivate our employees. We provide base pay that is competitive and that aligns with employee positions, skill levels, experience and geographic location. In addition to base pay, we seek to reward employees with incentive awards, recognition programs, educational opportunities, paid time off, and equity awards for employees at certain roles.

Diversity and Inclusion

We value and advance the diversity and inclusion of the people with whom we work. We are committed to equal opportunity and are intolerant of discrimination and harassment. We work to maintain workplaces that are free from discrimination or harassment on the basis of race, sex, color, national or social origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, political opinion or any other status protected by applicable law.

The basis for recruitment, hiring, placement, development, training, compensation and advancement at the Company includes qualifications, performance, skills and experience.

We do not tolerate disrespectful or inappropriate behavior, unfair treatment or retaliation of any kind. Harassment is not tolerated in the workplace and in any work-related circumstance outside the workplace.

COVID-19 Health Measures

In response to the COVID-19 pandemic, we implemented measures to help ensure the health, safety and security of our employees, while constantly monitoring the rapidly evolving situation and adapting our efforts and responses. We are diligently following guidance from authorities and health officials. This includes allowing remote work in certain circumstances, imposing travel restrictions and implementing safety measures for on-site employees including, but not limited to, the use of personal protective equipment as appropriate and in accordance with local laws and regulations.

Customer Base

We serve customers ranging from municipalities to OEMs to commercial customers and vehicle dealers throughout our product lines. Sales to our top 10 customers in 20192021 accounted for 68.1%60.6% of our sales. Sales to customers that individually exceeded 10% of our consolidated sales for 2019, 20182021, 2020 and 20172019 are detailed in the chart below.

We do have other significant customers which, if the relationship changes significantly, could have a material adverse impact on our financial position and results of operations. We believe that we have developed strong relationships with our customers and continually work to develop new customers and markets. See related risk factors in Item 1A of this Form 10-K.

Sales to customers outside the United States were $21.4$11.7 million, $21.2$9.5 million, and $13.4$21.4 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively, or 2.8%1.2%, 3.7%1.4%, and 3.3%2.8%, respectively, of sales for those years. AllSubstantially all of our long-lived assets are located in the United States.

Order Backlog

Our order backlog by reportable segment is summarized in the following table (in thousands).

Our FVS backlog increased by $87.1$437.9 million, or 39.8%103.9%, driven by new orders for walk-in vans offset by the build out of the USPS contract that originated in 2017.vans. Our SCVSV segment backlog decreasedincreased by $6.9$47.0 million, or 18.4%82.3%, due to a reductionan increase in Class A diesel motor homemotorhome market demand.demand and service body orders.

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 chassis availability, 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.

Non-GAAP Financial Measure

This report contains adjustedpresents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our continuingunderlying operating performance. In the fourth quarter of 2019, in connection with the divestiture of our ERV business, we refined the definition of adjustedperformance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations. Adjusted EBITDA for all prior years presented has been recast to conform to the current presentation.

We present the non-GAAP measure adjustedAdjusted EBITDA because we consider it to be an important supplemental measure of our performance. The presentation of adjustedAdjusted EBITDA enables investors to better understand our operations by removing items that we believe are not representative of our continuing operations and may distort our longer-term operating trends. We believe this measure to be useful to improve the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not indicative of our continuing operating performance. We believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.

Our management uses adjustedAdjusted EBITDA to evaluate the performance of and allocate resources to our segments. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual incentive compensation for our management team and long-term incentive compensation for certain members of our management team.

The following table reconciles Income from continuing operations to Adjusted EBITDA for the periods indicated.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments thereto) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available, free of charge, on our internet website (www.SpartanMotors.comwww.TheShyftGroup.com) as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission ("SEC").

The public may read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Information About our Executive Officers

The executive officers of the Company, their business experience and their ages as of February 1, 2022, are as follows:

Our financial condition, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control that may cause actual performance to differ materially from historical or projected future performance. The risks described below are the primary risks known to us that we believe could materially affect our business, financial condition, results of operations, or cash flows. However, these risks may not be the only risks we face. Our business could also be affected by additional factors that are not presently known to us, factors we currently consider to be immaterial to our operations, or factors that emerge as new risks in the future.

General economic, market, and/or political conditions, whether on a global, national, or more regional scale, could have a negative effect on our business.Risks Related to the COVID-19 Pandemic

Concerns regarding actsOur results of terrorism, armed conflicts, natural disasters, budget shortfalls, cyber events, civil unrest,operations are likely to continue to be adversely affected by the circumstances relating to the COVID-19 pandemic.

We have experienced challenges to our business arising from the COVID-19 pandemic and related governmental actions,directives, and epidemicswe expect to continue facing these challenges for the foreseeable future. In 2020, we were forced to shut down certain of our facilities, often on short notice. Although all of our facilities are currently in operation, future shutdowns are possible as long as the COVID-19 virus presents a public health risk.

In addition, we have had to incur additional costs and expenses to maintain our facilities and operations in compliance with governmental directives and in a manner designed to protect the pasthealth and couldsafety of our workforce. These challenges are made more difficult by the fact that we have facilities in multiple states, and each state has implemented different restrictions and directives in response to the future create significant uncertainties thatpandemic. This also increases our compliance-related risk as we work to understand and comply with the different rules and regulations within each state.

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We have also experienced increased employee absences related to the pandemic, due to illness and/or the need to care for family members. This challenge may continue throughout 2022.

These challenges also impact our suppliers, and we have materialexperienced supply chain disruptions as a result. Our inability to obtain raw materials, chassis and adverse effectsother supplies on consumer demand (particularly the specialty and motor home markets), shipping and transportation, the availability of manufacturing components, commodity prices anda timely basis negatively impacts our ability to engage in overseas markets as tariffs are implemented. An economic recession, whether resulting from one of these events or others, wouldfulfill customer orders, which may have a material adverse impact on our results of operations, financial condition, and results of operations.liquidity.

Risks Related to Our Company and Business

Any negative change in our relationship with our major customers could have significant adverse effects on revenues and profits.

Our effortsfinancial success is directly related to remediatethe willingness of our customers to continue to purchase our products. Failure to fill customers’ orders in a material weaknesstimely manner or on the terms and conditions they may impose could harm our relationships with our customers. The importance of maintaining excellent relationships with our major customers may also give these customers leverage in our internal control over financial reportingnegotiations with them, including pricing and other supply terms, as well as post-sale disputes. This leverage may not be as effective as we currently expect and, in any event, will result inlead to increased costs to us or decreased margins. Furthermore, if any of our major customers experience a significant downturn in the short-term.

As disclosed under Item 9A of this Annual Report on Form 10-K, our management concluded that our internal control over financial reporting was not effective as of December 31, 2019 duetheir business or fail to a material weakness in our internal control over financial reporting. As disclosed in more detail in Item 9A below, the material weakness relatesremain committed to our processes for recognizing revenue withinproducts or brands, then these customers may reduce or discontinue purchases from us, which could have an adverse effect on our FVS business, unit.

By definition, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. We have concluded that our consolidated financial statements included within this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flowsfinancial condition. In 2021, we had a single customer that accounted for the periods presented, in conformity with GAAP. However, if not effectively and timely corrected, the deficiencies noted in25.1 percent of consolidated sales. Sales to our assessment of the effectivenesstop 10 customers accounted for 60.6 percent of our internal controls as of December 31, 2019 present the risk that future financial statements could contain a material misstatement.sales.

We may not be able to remain competitive in the rapidly changing markets in which we compete.

The markets we serve are undergoing rapid transformation, particularly with respect to parcel delivery services and electric vehicle (EV) technologies. Our competitors include companies that have already startedsignificantly greater resources than we do, including OEMs and certain of our customers, and which are highly motivated by market opportunities to implement effortsdeploy those resources. In addition to remediate these deficienciesestablished, mature competitors, we also face competition from new market entrants, including technology companies. As a result of these market opportunities, OEMs and other companies have taken actions to reduce costs, including through in-sourcing and supply base consolidation. We expect that the remediation of this material weaknessthese trends to continue and even accelerate. Our business will be completed prioradversely affected if we are unable to the end of fiscal 2020. However, if our remediation efforts take longer than expectedadequately respond to these pressures or are more difficult to implement than expected, weotherwise continue to run the risk of a misstatement of our financial statements. And, even if our remediation efforts are effective, they will resultcompete in certain increased costs and expenses, which will negatively impact our near-term financial performance.these markets.

The integration of businesses or assets we have acquired or may acquire in the future involves challenges that could disrupt our business and harm our financial condition.

As part of our growth strategy, we have pursued and expect we will continue to selectively pursue acquisitions of businesses or assets in order to diversify, expand our capabilities, enter new markets, or increase our market share. Integrating any newly acquired business or assets can be expensive and can require a great deal of management time and other resources. If we are unable to successfully integrate the newly acquired businesses with our existing business, we may not realize the synergies we expect from the acquisition and our business and results of operations may be adversely impacted.

The divestiture of our emergency response business could negatively impact our future financial performance.

Effective February 1, 2020, we completed the sale of our Emergency Response and Vehicle (“ERV”) business. Certain aspects of the ERV business were integrated with our continuing operations, including certain information technology, purchasing, human resources, and finance functions and certain physical operations at our Charlotte, Michigan facility. The full separation of the ERV business from our continuing operations and the transition of all aspects of that business to the buyer is expected to take 12 months or more. We expect to incur additional costs and expenses to complete the transition of that business, and we also expect the full separation and transition of that business to divert resources, including certain of our personnel and management resources, away from our continuing operations. Significant systems separation is required to clone, test, cleanse data and support the applications for both the purchaser and our future business during the Transitional Services Agreement. All of these activities represent risk to the ongoing business as well as divert IT resources during this process. In addition, as is generally the case with the sale of a business, we could incur exposure to claims from the purchaser of the ERV business pursuant to the terms and conditions of the purchase agreement. One or more of these matters could have a negative impact on our future financial performance.

Re-configuration or relocation of our production operations could negatively impact our earnings.

We may, from time to time, re-configurereconfigure our production lines or relocate production of products between buildings or locations or to new locations in order to maximize the efficient utilization of our existing production capacity or take advantage of opportunities to increase manufacturing efficiencies. Costs incurred to effectaffect these re-configurationsreconfigurations or re-locationsrelocations may exceed our estimates, and efficiencies gained may be less than anticipated, each of which may have a negative impact on our results of operations and financial position.

Disruptions within our dealer network could adversely affect our business.

We rely, for certain of our products, on a network of independent dealers to market, deliver, provide training for, and service our products to and for customers. Our business is influenced by our ability to initiate and manage new and existing relationships with dealers.

From time to time, we or an individual dealer may choose to terminate the relationship, or the dealership could face financial difficulty leading to failure or difficulty in transitioning to new ownership. In addition, our competitors could engage in a strategy to attempt to acquire or convert our dealers to carry their products. We do not believe our business is dependent on any single dealer, the loss of which would have a sustained material adverse effect upon our business.

However, disruption of dealer coverage within a specific local market could have an adverse impact on our business within the affected market. The loss or termination of a significant number of dealers could cause difficulties in marketing and distributing our products and have an adverse effect on our business, operating results or financial condition. In the event that a dealer in a strategic market experiences financial difficulty, we may choose to provide financial support such as extending credit to a dealership, reducing the risk of disruption, but increasing our financial exposure.

We may not be able to successfully implement and manage our growth strategy.

Our growth strategy includes expanding existing market share through product innovation, continued expansion into industrial and global markets and merger or acquisition related activities. We believe our future success depends in part on our research and development and engineering efforts, our ability to manufacture or source the products and customer acceptance of our products. As it relates to new markets, our success also depends on our ability to create and implement local supply chain, sales and distribution strategies to reach these markets.

The potential inability to successfully implement and manage our growth strategy could adversely affect our business and our results of operations. The successful implementation of our growth strategy will depend, in part, on our ability to integrate operations with acquired companies.

Our efforts to grow our business in emerging markets are subject to all of these risks plus additional, unique risks. In certain markets, the legal and political environment can be unstable and uncertain which could make it difficult for us to compete successfully and could expose us to liabilities.

We also make investments in new business development initiatives which like many startups, could have a relatively high failure rate. We limit our investments in these initiatives and establish governance procedures to contain the associated risks, but losses could result and may be material. Our growth strategy also may involve acquisitions, joint venture alliances and additional arrangements of distribution. We may not be able to enter into acquisitions or joint venture arrangements on acceptable terms, and we may not successfully integrate these activities into our operations. We also may not be successful in implementing new distribution channels, and changes could create discord in our existing channels of distribution.

Increased costs, including costs of raw materials, component parts and labor costs, potentially impacted by changes in labor rates and practices and/or new or increased tariffs or similar restrictions, could reduce our operating income.

Our results of operations may be significantly affected by the availability and pricing of manufacturing components and labor, changes in labor rates and practices, and increases in tariffs or similar restrictions on materials we import. Increases in costs of raw materials used in our products could affect the cost of our supply materials and components, as rising steel and aluminum prices as well as increased tariffs have impacted the cost of certain of our manufacturing components. Although we attempt to mitigate the effect of any escalation in components, labor costs, and tariffs by negotiating with current or new suppliers and by increasing productivity or, where possible, by increasing the sales prices of our products, we cannot be certain that we will be able to do so without it having an adverse impact on the competitiveness of our products and, therefore, our sales volume. If we cannot successfully offset increases in our manufacturing costs, this could have a material adverse impact on our margins, operating income and cash flows. Our profit margins may decrease if prices of purchased component parts, labor rates, and/or tariffs increase, and we are unable to pass on those increases to our customers. Even if we were able to offset higher manufacturing costs by increasing

Implementing new information systems could interfere with our business or operations.

We are in the sales pricesprocess of implementing new information systems infrastructure and applications that impact multiple locations. These projects require significant investment of capital and human resources, the re-engineering of many processes of our products,business, and the realizationattention of any such increases often lagsmany employees and managers who would otherwise be focused on other aspects of our business. Should the risesystems not be implemented successfully, we may incur impairment charges that could materially impact our financial results. If the systems do not perform in manufacturing costs, especially ina satisfactory manner once implementation is complete, our business and operations due in partcould be disrupted and our results of operations negatively affected, including our ability to our commitment to give our customersreport accurate and dealers price protection with respect to previously placed customer orders.timely financial results.

Disruption of our supply base could affect our ability to obtain component parts.

We increasingly rely on component parts from global sources in order to manufacture our products. Disruption of this supply base due to international political events, natural disasters, the recent outbreak of coronavirusongoing COVID-19 pandemic, or other factors could affect our ability to obtain component parts at acceptable prices, or at all, and have a negative impact on our sales, results of operations and financial position.

When we introduce new products, we may incur expenses that we did not anticipate, such as recall expenses, resulting in reduced earnings.

The introduction of new products is critical to our future success. We have additional costs when we introduce new products, such as initial labor or purchasing inefficiencies, but we may also incur unexpected expenses. For example, we may experience unexpected engineering or design issues that will force a recall of a new product or increase production costs of the product above levels needed to ensure profitability. In addition, we may make business decisions that include offering incentives to stimulate the sales of products not adequately accepted by the market, or to stimulate sales of older or less marketable products. The costs resulting from these types of problems could be substantial and have a significant adverse effect on our earnings.

Any negative change in our relationship with our major customers could have significant adverse effects on revenues and profits.

Our financial success is directly related to the willingness of our customers to continue to purchase our products. Failure to fill customers’ orders in a timely manner or on the terms and conditions they may impose could harm our relationships with our customers. The importance of maintaining excellent relationships with our major customers may also give these customers leverage in our negotiations with them, including pricing and other supply terms, as well as post-sale disputes. This leverage may lead to increased costs to us or decreased margins. Furthermore, if any of our major customers experience a significant downturn in their business or fail to remain committed to our products or brands, then these customers may reduce or discontinue purchases from us, which could have an adverse effect on our business, results of operations and financial condition. There were two customers that accounted for 10 percent or greater of consolidated sales in 2019.

We depend on a small group of suppliers for some of our components, and the loss of any of these suppliers could affect our ability to obtain components at competitive prices, which would decrease our sales or earnings.

Most chassis and specialty vehicle commodity components are readily available from a variety of sources. However, a few proprietary or specialty components are produced by a small group of suppliers.

In addition, we generally do not purchase chassis for our delivery vehicles. Rather, we accept shipments of vehicle chassis owned by dealers or end-users for the purpose of installing and/or manufacturing our specialized truck bodies on such chassis.  There are four primary sources for commercial chassis, and we have established relationships with all major chassis manufacturers.

Changes in our relationships with these suppliers, shortages, production delays, their ability to secure components required for chassis production or work stoppages by the employees of such suppliers could have a material adverse effect on our ability to timely manufacture our products and secure sales. If we cannot obtain an adequate supply of components or commercial chassis, this could result in a decrease in our sales and earnings.

Our business could be adversely affected by the decision of our employees to unionize.

Currently, none of our U.S. employees are represented by a collective bargaining agreement. If in the future our employees decide to unionize, this would increase our operating costs and potentially force us to alter the way we operate causing an adverse effect on our operating results.

The ability to hire or retain management and other key personnel is critical to our continued success, and the loss of or inability to hire such personnel could have a material adverse effect on our business, financial condition and results of operations.

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. As all key personnel devote their full time to our business, the loss of any member of our management team, or other key persons, or the inability to hire key persons, could have an adverse effect on us. If we lose key members of our senior management team or are unable to effect successful transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.

Risks associated with international sales and contracts could have a negative effect on our business.

In 2021, 2020, and 2019, we derived 1.2%, 1.4%, and 2.8% of our revenue from sales to, or related to, end customers outside the United States. We face numerous risks associated with conducting international operations, any of which could negatively affect our financial performance, including changes in foreign country regulatory requirements, the strength of the U.S. dollar compared to foreign currencies, import/export restrictions, the imposition of foreign tariffs and other trade barriers and disruptions in the shipping of exported products.

Additionally, as a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, which may place us at a competitive disadvantage to foreign companies that are not subject to similar regulations.

Changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate, may adversely affect interest charged on our outstanding debt.

The interest rate charged on our outstanding borrowings pursuant to our credit facility is currently based on LIBOR, as described in "Note 13 – Debt" below. On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR by the end of 2021. On November 30, 2020, the ICE Benchmark Administration Limited (ICE) announced plans to delay the phase out of LIBOR to June 30, 2023. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Secured Overnight Funding Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Our credit facility provides for the transition to a replacement for LIBOR, and it also provides for an alternative to LIBOR. When LIBOR ceases to exist, our interest expense may increase. It is also possible that the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR with SOFR or any other reference rate. Increased interest expense and/or disruption in the financial market could have a material adverse effect on our business, financial condition, or results of operations.

More General Risks Applicable to Our Industry

General economic, market, and/or political conditions, whether on a global, national, or more regional scale, could have a negative effect on our business.

Concerns regarding acts of terrorism, armed conflicts, natural disasters, budget shortfalls, cyber events, civil unrest, governmental actions, and epidemics have in the past and could in the future create significant uncertainties that may have material and adverse effects on consumer demand (particularly the specialty and motorhome markets), shipping and transportation, the availability of manufacturing components, commodity prices and our ability to engage in overseas markets as tariffs are implemented. An economic recession, whether resulting from one of these events or others, would have a material adverse impact on our financial condition and results of operations.

If there is a rise in the frequency and size of product liability, warranty and other claims against us, including wrongful death claims, our business, results of operations and financial condition may be harmed.

We are frequently subject, in the ordinary course of business, to litigation involving product liability and other claims, including wrongful death claims, related to personal injury and warranties. We insure our product liability claims in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for such insurance to rise significantly. It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance. In addition, a major product recall or increased levels of warranty claims could have a material adverse effect on our results of operations.

Changes to laws and regulations governing our business could have a material impact on our operations.

Our manufactured products and the industries in which we operate are subject to extensive federal and state regulations. Changes to any of these regulations or the implementation of new regulations could significantly increase the costs of manufacturing, purchasing, operating or selling our products and could have a material adverse effect on our results of operations. Our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of sales or production, or cessation of operations.

Certain U.S. tax laws currently afford favorable tax treatment for financing the purchase of recreational vehicles that are used as the equivalent of second homes. These laws and regulations have historically been amended frequently, and it is likely that further amendments and additional regulations will be applicable to us and our products in the future. Amendments to these laws and regulations and the implementation of new regulations could have a material adverse effect on our results of operations.

Our operations are subject to a variety of federal and state environmental regulations relating to noise pollution and the use, generation, storage, treatment, emission and disposal of hazardous materials and wastes. Although we believe that we are currently in material compliance with applicable environmental regulations, ourOur failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, costly cleanup or capital expenditures. Climate change regulations at the federal, state or local level could require us to change our manufacturing processes or product portfolio or undertake other activities that may require us to incur additional expense, which may be material.

Our operating results may fluctuate significantly on a quarter-to-quarter basis.

Our quarterly operating results depend on a variety of factors including the timing and volume of orders, the completion of product inspections and acceptance by our customers, and various restructuring initiatives that may be undertaken from time to time. In addition, our Fleet Vehicles and Services segment experiences seasonality whereby product shipments in the first and fourth quarters are generally lower than other quarters as a result of the busy holiday delivery operations experienced by some of its largest customers. Accordingly, our financial results may be subject to significant and/or unanticipated quarter-to-quarter fluctuations.

Our businesses are cyclical, and this can lead to fluctuations in our operating results.

The industries in which we operate are highly cyclical and there can be substantial fluctuations in our manufacturing, shipments and operating results, and the results for any prior period may not be indicative of results for any future period. Companies within these industries are subject to volatility in operating results due to external factors such as economic, demographic and political changes. Factors affecting the manufacture of chassis, specialty vehicles, delivery vehicles and other of our products include but are not limited to:

Economic, legal and other factors could impact our customers’ ability to pay accounts receivable balances due from them.

In the ordinary course of business, customers are granted terms related to the sale of goods and services delivered to them. These terms typically include a period between when the goods and services are tendered for delivery to the customer and when the customer needs to pay for these goods and services. The amounts due under these payment terms are listed as accounts receivable on our balance sheet. Prior to collection of these accounts receivable, our customers could encounter drops in sales, unexpected increases in expenses, or other factors which could impact their ability to continue as a going concern and which could affect the collectability of these amounts. Writing off uncollectible accounts receivable could have a material adverse effect on our earnings and cash flow as we have major customers with material accounts receivable balances at any given time.

Our business operations could be disrupted if our information technology systems fail to perform adequately or experience a security breach.

We rely on our information technology systems to effectively manage our business data, communications, supply chain, product engineering, manufacturing, accounting and other business processes. While we believe we have robust processes in place to protect our information technology systems, ifIf these systems are damaged, cease to function properly or are subject to a cyber-security breach such as ransomware, phishing, infection with viruses or intentional attacks aimed at theft or destruction of sensitive data, we may suffer an interruption in our ability to manage and operate the business, and our results of operations and financial condition may be adversely affected.

Like most corporations, our information systems are a target of attacks.  In addition, third-party providers of data hosting or cloud services, as well as our suppliers, may experience cyber-security incidents that may involve data we share with them. Although the incidents that we have experienced to date have not had a material effect on our business, financial condition or results of operations, thereThere can be no assurance that such incidents will not have a material adverse effect on us in the future. In order to address risks to our information systems, we continue to make investments in personnel, technologies and training of personnel.

Implementing new information systems could interfere with our business or operations.

We are in the process of implementing new information systems infrastructure and applications that impact multiple locations. These projects require significant investment of capital and human resources, the re-engineering of many processes of our business, and the attention of many associates and managers who would otherwise be focused on other aspects of our business. Should the systems not be implemented successfully, we may incur impairment charges that could materially impact our financial results. If the systems do not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations negatively affected, including our ability to report accurate and timely financial results.

Risks associated with international sales and contracts could have a negative effect on our business.

In 2019, 2018 and 2017 we derived 2.8%, 3.7% and 3.3% of our revenue from sales to, or related to, end customers outside the United States. We face numerous risks associated with conducting international operations, any of which could negatively affect our financial performance, including changes in foreign country regulatory requirements, the strength of the U.S. dollar compared to foreign currencies, import/export restrictions, the imposition of foreign tariffs and other trade barriers and disruptions in the shipping of exported products.

Additionally, as a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, which may place us at a competitive disadvantage to foreign companies that are not subject to similar regulations.

Fuel shortages, or higher prices for fuel, could have a negative effect on sales.

Gasoline or diesel fuel is required for the operation of the specialty vehicles we manufacture. There can be no assurance that the supply of these petroleum products will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Increases in gasoline and diesel prices and speculation about potential fuel shortages have had an unfavorable effect on consumer demand for motor homes from time to time in the past and may continue to do so in the future. This, in turn, may have a material adverse effect on our sales volume. Increases in the price of oil also can result in significant increases in the price of many of the components in our products, which may have an adverse impact on margins or sales volumes.

We could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.

We have a significant amount of goodwill, intangible assets and other long-lived assets. At least annually, we review goodwill and non-amortizing intangible assets for impairment. Identifiable intangible assets, goodwill and other long-lived assets are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows.  If the operating performance at one or more of our reporting units fails to meet future forecasts, or if future cash flow estimates decline, we could be required, under current U.S. accounting rules, to record impairment charges for our goodwill, intangible assets or other long-lived assets. Any write-off of a material portion of such assets could negatively affect our results of operations or financial position. See “Note 2 – Discontinued Operations” and “Note 76 – Goodwill and Intangible Assets” of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K for further discussion of goodwill, intangibles and other long-lived assets.

Risk Applicable to Our Securities

Our stock price has been and may continue to be volatile, which may result in losses to our shareholders.

The market price of our common stock has been and may continue to be subject to wide fluctuations in response to, among other things, quarterly fluctuations in operating results, a failure to meet published estimates of or changes in earnings estimates by securities analysts, sales of common stock by existing stockholders, loss of key personnel, market conditions in our industries, shortages of key product inventory components and general economic conditions.

If there is a rise in the frequency and size of product liability, warranty and other claims against us, including wrongful death claims, our business, results of operations and financial condition may be harmed.

We are frequently subject, in the ordinary course of business, to litigation involving product liability and other claims, including wrongful death claims, related to personal injury and warranties. We partially self-insure our product liability claims and purchase excess product liability insurance in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for such insurance to rise significantly. It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance. In addition, a major product recall or increased levels of warranty claims could have a material adverse effect on our results of operations.

None.

We have 12 company-ownedoperate facilities in a total of 17 locations, 16 throughout the U.S. and 26 leasedone location in Mexico. The number of physical locations we operate has grown significantly in recent years as part of which our strategy to develop coast-to-coast manufacturing and distribution capabilities.

Our Fleet VehicleVehicles and Services segment operates facilities in 18 locationsBristol, Indiana; Charlotte, Michigan; Landisville, Pennsylvania; North Charleston, South Carolina; Kansas City, Missouri; and ourSaltillo, Mexico. All of these facilities are leased except for facilities in Charlotte, which are owned by the Company.

Our Specialty Chassis and Vehicles segment operates facilities in 18 locations. Charlotte, Michigan; Carson, McClellan Park, and Montebello, California; Dallas and Weatherford, Texas; Mesa, Arizona; Waterville, Maine; and Pompano Beach and West Palm Beach, Florida. All of these facilities are leased except for the Charlotte and Pompano Beach facilities, which are owned by the Company.

In addition, our corporate headquarters are located in an office building and showroom in Novi, Michigan, that we lease. We also have certain corporate functions that operate out of our campus in Charlotte and Plymouth, Michigan.

We consider our properties to generally be in good condition, well maintained, and suitable and adequate to meet our business requirements for the foreseeable future. In 2019, our manufacturing plants, taken as a whole, operated moderately below capacity. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.

At December 31, 2019,2021, we were parties, both as plaintiff or defendant, to a number of lawsuits and claims arising out of the normal conduct of our businesses. Our management does not currently expect our financial position, future operating results or cash flows to be materially affected by the final outcome of these legal proceedings.

Not applicableapplicable.

PART II

Our common stock is traded on the NASDAQ Global Select Market under the symbol “SPAR.“SHYF.”

The following table sets forth the high and low sale prices for our common stock for the periods indicated, all as reported by the NASDAQ Global Select Market:

We paid dividends on our outstanding common shares in 2019, 20182021 and 20172020 as shown in the table below.

On February 3, 2022, our Board of Directors authorized an increase in the Company’s quarterly dividend from $0.025 to $0.05 per share payable on or before March 17, 2022, to shareholders of record at the close of business on February 17, 2022.

No assurance, however, can be given that any future distributions will be made or, if made, as to the amounts or timing of any future distributions as such distributions are subject to earnings, financial condition, liquidity, capital requirements, and such other factors as our Board of Directors deems relevant. The number of shareholders of record of our common stock on February 28, 202014, 2022 was 292.273. See Item 12 below for information concerning our equity compensation plans.

The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on the NasdaqNASDAQ Composite Index and company-selected peer groupthe Dow Jones U.S. Commercial Vehicles & Trucks Total Stock Market Index for the period beginning on December 31, 20142016 and ending on the last day of 2019.2021. The graph assumes an investment of $100 in our stock, the NasdaqNASDAQ Composite Index, and the company-selected peer groupsDow Jones U.S. Commercial Vehicles & Trucks Total Stock Market Index on December 31, 2014,2016, and further assumes the reinvestment of all dividends. Stock price performance, presented for the period from December 31, 20142016 to December 31, 2019,2021, is not necessarily indicative of future results.

The company-selected peer groups were determined based on custom peer groups of companies against whom we compete for sales or management talent, that were identified for the purpose of benchmarking executive officer compensation in 2018 (the “2018 Peer Group”) and 2014 (the “2014 Peer Group”). The change in peer groups was primarily due to changes that have occurred since 2014 in our business mix and that of the companies that make up the 2014 Peer Group. The 2018 Peer Group consists of durable goods manufacturers with revenues ranging from one-half to double that of the Company, and includes: Alamo Group, Inc.; Altra Industrial Motion Corp.; Blue Bird Corp.; Columbus McKinnon Corp.; Commercial Vehicle Group, Inc.; Douglas Dynamics, Inc.; ESCO Technologies, Inc.; Federal Signal Corp.; LCI Industries, Inc.; Methode Electronics, Inc.; Miller Industries, Inc.; Shiloh Industries, Inc.; Standard Motor Products; The Manitowoc Company, Inc.; Wabash National Corp.; and Winnebago Industries, Inc. The 2014 Peer Group consists of companies in the specialty manufacturing and automotive industries, and includes: Alamo Group, Inc.; Altra Industrial Motion Corp.; Commercial Vehicle Group, Inc.; ESCO Technologies, Inc.; Federal Signal Corp.; LCI Industries, Inc.; Methode Electronics, Inc.; Miller Industries, Inc.; Shiloh Industries, Inc.; Standard Motor Products, Inc.; Twin Disc, Inc.; and Winnebago Industries, Inc.

The stock price performance graph and related information shall not be deemed “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate this information by reference.

Issuer Purchases of Equity Securities

On April 28, 2016, our Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock in open market transactions. At December 31, 20192021 there were 0.80.4 million shares remaining under this repurchase authorization. IfIn January 2022, we were to repurchaserepurchased the remaining 0.80.4 million shares for $18.9 million.

On February 17, 2022, our Board of stock underDirectors authorized the repurchase program, it would cost us $11.9of up to $250.0 million based on the closing price of our common stock on February 28, 2020.in open market transactions. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.

During the quarter ended December 31, 2019,2021, no shares were repurchased under this authorization. A summary of our purchases of our common stock during the fourth quarter of fiscal year 20192021 is as follows:

The selected financial data shown below for each of the five years in the period ended December 31, 2019 has been derived from our Consolidated Financial Statements. The following data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-K.

General

Spartan Motors,The Shyft Group, Inc. was organized as a Michigan corporation on September 18, 1975, and is headquartered in Novi, Michigan. 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, service and vocational truck bodies, luxury Class A diesel motor home chassis military vehicles, 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, Spartan Motors USA, Inc. (“Spartan USA”), with locations in Charlotte, Michigan; Ephrata, Pennsylvania; Pompano Beach, Florida; Bristol, Indiana; North Charleston, South Carolina; Kansas City, Missouri; Montebello, Carson, Union City and Roseville, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico. manufacture as well as truck accessories.

Our vehicles, parts and services are sold to commercial users, original equipment manufacturers (OEMs), dealers, individual end users, and municipalities and other governmental entities. Our diversification across several product linessectors provides numerous opportunities while reducing overall risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business structure provides the agilityis agile and able to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth. Our expansion of equipment upfit services in our Fleet Vehicles and Services segment and the growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market areis an excellent examplesexample of our ability to generate growth and profitability by quickly fulfilling customer needs.

We believe we can best carry out our long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under our credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.

COVID-19 Pandemic

On February 1,March 11, 2020, the Company completedWorld Health Organization classified the saleCOVID-19 outbreak as a pandemic. The pandemic has had a significant impact on macroeconomic conditions. To limit the spread of its Emergency ResponseCOVID-19, governments have taken various actions including the issuance of stay-at-home orders and Vehicle (“ERV”) business for $55 million in cash, subject to certain post-closing adjustments. The ERV business consisted of the emergency response cab-chassis and apparatus operations in Charlotte, Michigan, and the Spartan apparatus operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. The divestiture will allow us to further focus on accelerating growth and profitability in our commercial, fleet, delivery and specialty vehicles markets.social distancing guidelines. As a result, certain of our manufacturing facilities were temporarily suspended or cut back on operating levels and shifts as a result of government orders. Since June 30, 2020 and throughout 2021, 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 employees, 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 divestiture,filing, including the ERV business is accounted for as a discontinued operation for all periods presented. See “Note 2 – Discontinued Operations”resurgence of COVID-19 and its variants in regions recovering from the impacts of the Notespandemic, the effectiveness of COVID-19 vaccines, and the speed at which populations are vaccinated around the globe, the impact of COVID-19 on economic activity, and regulatory actions taken to Consolidated Financial Statements appearing in Item 8contain its impact on public health and the global economy. 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 this Form 10-Koperations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the 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 further discussion of this transaction.future periods.

Executive Overview

The following table shows our sales by market for the years ended December 31, 2019, 20182021, 2020 and 20172019 as a percentage of total sales:

We continue to focus on growthseek out opportunities to grow the business, both organically and by acquisition, by expanding our market share inrelationships with existing markets, pursuingcustomers, seeking out new commercial opportunities through our alliance with Isuzu and other manufacturersbusiness wins, and pursuing acquisitions in a strategic acquisitions that enable us to expand into existing or new markets as opportunities occur.fashion.

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 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. Certain amounts in the narrative may not sum due to rounding. The comments should be read in conjunction with our Consolidated Financial Statements and related Notes thereto appearing in Item 8 of this Form 10-K.

Results of Operations

The discussion of our 2020 consolidated operating results compared to our 2019 consolidated operating results is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of our 2020 Annual Report on Form 10-K filed March 25, 2021 and is incorporated by reference into this MD&A.

The following table sets forth, for the periods indicated, the components of our consolidated statements of operations, as a percentage of sales (percentages may not sum due to rounding):

Year Ended December 31, 2019 compared to Year Ended December 31, 2018

Sales

Consolidated sales for the year ended December 31, 20192021 increased by $186.0$315.8 million, or 32.6%46.7% to $756.5$991.8 million from $570.5$676.0 million in 2018.2020. This increase reflects favorable sales volume driven by strong demand, acquired business and favorable pricing versus lower sales in the COVID-19 impacted prior year. Sales in our FVS segment increased by $188.3$196.0 million, primarily due to an increase in vehicle sales driven by the introduction of $185.0 millionthe Velocity F2, class 2 walk-in van in 20192021 and $3.3 million due to favorable pricing. Sales in our SCVSV segment decreasedincreased by $7.3$119.8 million driven by lowerhigher sales of $28.5 million in motor home chassis and other specialty chassis and vehicle sales partially offsetand by sales attributable to the Royal acquisition of $17.0 million and favorable pricing of $4.2 million. Inter-segment eliminations increased $5.0 million.business acquisitions. These changes in sales are discussed more fully in the discussion of our segments below.

Cost of Products Sold

Cost of products sold increased by $142.1$262.8 million, or 28.6%49.6%, to $639.5$792.5 million for the year ended December 31, 20192021 from $497.4$529.7 million in 2018, primarily due to increased sales volume in 2019.2020. Cost of products sold increased by $144.6$251.5 million due to higher sales volumevolumes and by $5.6mix including acquired business, $2.3 million of pre-production costs and $22.8 million due to product mix.higher material, labor, and other costs. These costs increases were partially offset by decreases of $8.2 million due to productivity improvements and other cost reductions in 2019.of $13.8 million.   As a percentage of sales, cost of products sold decreasedincreased to 84.5%79.9% in 2019,2021, compared to 87.2%78.4% in 2018.2020.

Gross Profit

Gross profit increased by $43.9$53.0 million, or 60.0%36.2%, to $117.0$199.3 million in 20192021 from $73.1$146.3 million in 2018.2020. The increase was due to favorable volume of $23.2 million, pricing improvements of $7.5$65.7 million and productivity and cost reductions of $13.2$13.8 million. These increases were partially offset by higher material, labor, and other costs of $22.8 million, pre-production costs of $2.3 million, and unfavorable product mix and pricing of $1.5 million. Gross margin increaseddecreased to 15.5%20.1% in 20192021 from 12.8%21.6% over the year ended in 20182020 due to the items mentioned above.

Operating Expenses

Operating expenses for the year ended December 31, 20192021 increased by $18.8$17.8 million, or 37.1%18.3%, to $69.4$115.2 million from $50.6$97.4 million in 2018.2020. Research and development expense increased $1.1$4.2 million in 2019 due2021 primarily related to higher engineering project spending.the electric vehicle development initiatives. Selling, general and administrative expense increased by $18.3$13.6 million, or 39.5%,14.6 %, to $64.5$106.7 million in 20192021 from $46.2$93.1 million in 2018.2020. This increase was primarily due to $13.2$14.6 million in additional salaried associates, annual merit increases and incentive compensation. The remaining increase of $5.1 millioncompensation expense related to growth and acquisition versus cost reduction actions taken in 2020 and higher professional services of $4.5 million. These increases were partially offset by the expansionaccelerated depreciation of locationsthe ERP system and write-off of related construction in process of $5.5 million in the General Truck Body and Royal Truck Body acquisitionssecond quarter of 2020 that did not recur in 2019. Restructuring charges recorded in 2019 decreased $0.5 million compared to 2018 due to decreased severance costs in 2019.2021.

Other Income and Expense

Interest expense for the year ended December 31, 2019 increased2021 decreased by $0.7$0.9 million, or 70.3%68.0%, to $1.8$0.4 million from $1.1$1.3 million in 2018.2021 The increasedecrease was due primarily to the additionalpaydown of debt incurred for the Royal acquisition.principal. Interest and other income was $0.8 million for the year ended December 31, 2019 increased by $1.42021 compared to interest and other income of $0.6 million or 100%, to $1.4 million from $0.0 million in 2018

Income Tax Expense

Income tax expense for the year ended December 31, 20192020.

Income Tax Expense

Income tax expense from continuing operations for the year ended December 31, 2021 was $10.4$14.5 million as compared to the prior year at $3.3$9.9 million. Our effective tax rate in 20192021 was 22.0%17.2%, compared to 15.6%20.5% in 2018. As compared to2020.

The lower Income tax rate for the year ended December 31, 2018, income tax expense incurred in 2019 was greater due2021 as compared to a higher effective tax rate being applied to a higher Incomethe prior year primarily reflects the favorable impact of increased R&D credits from continuing operations before income taxes amount.

years 2015-2020. The 2019 effective tax rate was higher thanCompany recorded additional R&D credits of $3.8 million for the federal statutory rate of 21% primarily due to state and foreign income taxes recorded at statutory rates. The 2019 effective rate was higher than the 2018 ratesix-year period as a result of the conclusion of a higherstudy in the fourth quarter of 2021 and has filed the appropriate amended tax benefit for the vesting of certain stock compensation of $1.2 million recorded in 2018 as compared to $0.1 million in 2019.returns.

Income from Continuing Operations

Income from continuing operations for the year ended December 31, 20192021 increased by $18.7$31.7 million, or 103.1%82.8%, to $36.8$70.0 million compared to $18.1$38.3 million in 2018.2020. On a diluted per share basis, income from continuing operations increased $0.51$0.86 to $1.03$1.91 in 20192021 compared to $0.52$1.05 per share in 2018.2020. Driving this increase were the factors noted above.

LossIncome (Loss) from Discontinued Operations, Net of Income Taxes

LossIncome from discontinued operations for the year ended December 31, 20192021 increased to $49.2$0.2 million compared to $3.1$5.1 million loss in 2018.2020. The increase of $46.1 million loss wasis primarily dueattributable to the impairmentdivestiture of the goodwill and indefinite lived intangible assets of $13.9 million, as well as the impairment of the ERV business held for sale of $39.2 million to its fair value less costs to sell in 2019, offset by improvement on operations.    

Year Ended December 31, 2018February 1, 2020 compared to Year Ended December 31, 2017

Sales

Consolidated sales fora full year of results in 2021 without the year ended December 31, 2018 increased by $166.3 million, or 41.1% to $570.5 million from $404.2 million in 2017. Sales in our FVS segment increased by $136.4 million, mainly due to an increase in vehicle sales in 2018, while sales in our SCV segment increased by $34.4 million driven by strong shipments of motor home chassis. Inter-segment eliminations increased by $4.5 million. These changes in sales are discussed more fully in the discussion of our segments.

Cost of Products Sold

Cost of products sold increased by $156.2 million, or 45.8%, to $497.4 million for the year ended December 31, 2018 from $341.2 million in 2017, primarily due to increased sales volume in 2018. Cost of products sold increased by $152.1 million due to the higher sales volumes, $1.2 million due to start-up costs incurred at our truck body operations in Ephrata, Pennsylvania, $5.0 million due to tariffs, commodity and component cost increases of $2.3 million in 2018, and $1.5 million due to chassis disruptions and resulting freight and other costs in 2018. These increases were partially offset by decreases of $2.4 million due to the product mix in 2018 and $3.5 million due to operational and organizational improvements in 2018. As a percentage of sales, cost of products sold increased to 87.2% in 2018, compared to 84.4% in 2017.

Gross Profit

Gross profit increased by $10.1 million, or 16.2%, to $73.1 million in 2018 from $63.0 million in 2017. Savings from increased operational efficiency in 2018 contributed $6.4 million to the increase, while higher overall sales volume contributed $13.2 million to the increase. Pricing adjustments impacting 2018 sales contributed $0.4 million to the increase. These increases were partially offset by a reduction in gross profit of $3.7 million due to a less favorable overall product mix, $5.0 million in tariff-driven commodity and component cost increases, $1.2 million due to start-up costs incurred in our Ephrata truck body operations and $1.5 million due to chassis disruptions and resulting freight and other costs in 2018 compared to 2017.   

Operating Expenses

Operating expenses for the year ended December 31, 2018 increased by $7.0 million, or 16.1%, to $50.6 million from $43.6 million in 2017. Research and development expense remained flat. Selling, general and administrative expense increased by $6.9 million, to $46.2 million in 2018 from $39.3 million in 2017. Legal and professional fees increased $2.7 million due to an increase in acquisition activities, trade shows and other promotional activities increased $1.8 million and $3.2 million was due to an increase in information technology related spending. Restructuring charges recorded in 2018 remained flat.

Income Tax Expense

Income tax expense for the year ended December 31, 2018 was $3.3 million as compared to the prior year at $2.4 million. Our effective tax rate in 2018 was 15.6%, compared to 12.0% in 2017.

The 2018 effective tax rate was lower than the federal statutory rate of 21% primarily due to a discrete tax benefit of $1.2 million caused by the vesting of certain stock compensation. The 2018 effective rate was higher than the 2017 rate due to a number of significant one-time adjustments whose net effect reduced our 2017 effective tax rate and did not recur in 2018. Certain of these adjustments included a $3.0 million charge for the remeasurement of our deferred tax assets due to the Tax Cuts and Jobs Act of 2017, offset by a $6.5 million reduction in our valuation allowance related to temporary differences between book and tax bases in assets and liabilities and a $1.0 million benefit from the disposal of stock in an inactive subsidiary that had been deemed worthless.

Income from Continuing Operations

Income from continuing operations for the year ended December 31, 2018 increased by $0.6 million, or 3.7%, to $18.1 million compared to $17.5 million in 2017. On a diluted per share basis, income from continuing operations increased $0.02 to $0.52 in 2018 compared to $0.50 per share in 2017. Driving this increase were the factors noted above.

Loss from Discontinued Operations, Net of Income Taxes

Loss from discontinued operations for the year ended December 31, 2018 increased to $3.1 million compared to $1.5 million in 2017. The increase of $1.6 million loss was primarily due to the year-over-year decrease of income tax benefit of $1.2 million.divested business.

Our Segments

We identify ourAs of October 1, 2021, the composition of both reportable segments based on our management structurechanged due to an internal reorganization as certain businesses previously managed and the financial data utilized by our chief operating decision maker to assessreported within FVS are now a part of SV. Corresponding items of segment performance and allocate resources among our operating units. Weinformation for earlier periods have two reportable segments: Fleet Vehicles and Services and Specialty Chassis and Vehicles. been recast.

We evaluate the performance of our reportable segments based on adjustedThis report presents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our continuingunderlying operating performance. In the fourth quarter of 2019, in connection with the divestiture of our ERV business, we refined the definition of adjustedperformance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations. Adjusted EBITDA for all prior years presented have been recast to conform to the current presentation.

The table below presentsWe present the reconciliationnon-GAAP measure Adjusted EBITDA because we consider it to be an important supplemental measure of our income fromperformance. The presentation of Adjusted EBITDA enables investors to better understand our operations by removing items that we believe are not representative of our continuing operations before income taxesand may distort our longer-term operating trends. We believe this measure to segment adjusted EBITDA. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternativeuseful to net income. Adjusted EBITDA may have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysisimprove the comparability of our results from period to period and with our competitors, as reported under GAAP. In addition, although we have excluded certain charges in calculating Adjusted EBITDA, we may in the future incur expenses similarwell as to these adjustments, despite our assessmentshow ongoing results from operations distinct from items that such expenses are infrequent and/or not indicative of our regular, ongoingcontinuing operating performance. OurWe believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.

Our management uses Adjusted EBITDA should not be construed as an inference thatto evaluate the performance of and allocate resources to our future results will be unaffected by unusual or infrequent items.segments. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual incentive compensation for our management team and long-term incentive compensation for certain members of our management team.

The following table reconciles Income from continuing operations to Adjusted EBITDA for the periods indicated.

Our FVS segment consists of our operations at our Bristol, Indiana location, along with our operations at our upfit centers inIndiana; Charlotte, Michigan; Kansas City, Missouri; Ephrata,Landisville, Pennsylvania; North Charleston, South Carolina; Pompano Beach, Florida; Montebello, California and Saltillo, Mexico.Mexico locations. This segment focuses on designing and manufacturing walk-in vans for the parcel delivery, mobile retail, and trades and construction industries,industries; the production of commercial truck bodies, and suppliessupply of related aftermarket parts and services under the Utilimaster brand name.

Our SCVSV segment consists of our Charlotte, Michigan operations that engineer and manufacture motor home chassis, defense vehicles, other specialty chassis and distribute related aftermarket parts and assemblies. In addition, beginning in September 2019 withWe also provide vocation-specific equipment upfit services, which are marketed and sold under the acquisition of Royal, the Specialty Chassis and Vehicles segment includesStrobes-R-Us brand, through our manufacturing operations in Pompano and West Palm Beach, Florida. Our service truck bodies operations include locations in Carson, Union CityMcClellan Park, and Roseville,Montebello, California; Mesa, Arizona; and Dallas and Weatherford, Texas. Royal is a leading California-based designer, manufacturerTexas; and installer of service truck bodies and accessories. Waterville, Maine.

The accounting policies of the segments are the same as those described, or referred to, in "Note 1 – GeneralNature of Operations and SummaryBasis of Accounting Policies.Presentation." Assets and related depreciation expense in the column labeled “Eliminations and other” pertain to capital assets maintained at the corporate level. Eliminations for inter-segment sales are shown in the column labeled “Eliminations and other”. Segment loss from operations in the “Eliminations and other” column contains corporate related expenses not allocable to the operating segments. Interest expense and Taxes on income are not included in the information utilized by the chief operating decision makersmaker to assess segment performance and allocate resources, and accordingly, are excluded from the segment results presented below. Appropriate expense amounts are allocated to the two reportable segments and are included in their reported operating income or loss.

For certain financial information related to each segment, see "Note 1817 – Business Segments" of the Notes to Consolidated Financial Statements appearing in Item 8 of this Form 10-K.

Fleet Vehicles and Services

Year ended December 31, 20192021 compared to year ended December 31, 20182020

Sales in our FVS segment increased by $188.3$195.9 million, or 48.6%42.3%, to $575.9$659.4 million in 20192021 from $387.5$463.5 million in 2018.2020. This increase was primarily due to a $191.8 million net increase in sales volume and mix driven by strong demand for the Velocity F2, class 2 walk-in van, and a $185.0$4.2 million increase in vehicle sales mainly due to higher unit volumes and $3.3 million in pricing increases. The sales volume increase in 2019 includes $91.4 million of chassis pass-thru sales compared to $65.4 million in 2018.favorable pricing.

Adjusted EBITDA in our FVS segment was $60.7$108.6 million for the year ended December 31, 2019,2021, an increase of $34.0$25.3 million compared to $26.7$83.3 million for the year ended December 31, 2018. Higher2020. This increase was due to $39.0 million in higher sales volumes, in 2019 contributed $26.2 million to the overall increase while pricing increases contributed $3.7 million andother productivity improvements and cost reductions generated $14.2 million. These increases wereof $12.7 million, and favorable pricing of $4.2 million, partially offset by decreaseshigher material and labor costs of $5.3$13.7 million, due to theunfavorable mix of products sold in 2019$9.8 million, $2.3 million of pre-production costs, and a $5.9$4.8 million increase in marketing, administrative and research and development costs.of increased operating expense.

Order backlog for our FVS segment increased by $87.1$437.9 million, or 39.8%103.9%, to $305.9$859.4 million in 2019at December 31, 2021 compared to $218.8$421.5 million in 2018,at December 31, 2020, driven by new orders for walk-in vans offset by the build out of the USPS contract that originated in 2017.vans. Our backlog enables visibility into future net sales which can normally range from two to twelve months depending on the product. This visibility allows us to more effectively plan and predict our sales and production activity.

Year ended December 31, 20182020 compared to year ended December 31, 20172019

Sales in our FVS segment increaseddecreased by $136.4$94.2 million, or 54.3%16.9%, to $387.5$463.5 million in 20182020 from $251.1$557.7 million in 2017.2019. This increasedecrease was driven by a $105.0$91.4 million increasedecrease in pass-through chassis revenue and a decrease of $2.8 million in vehicle sales mainly due to higherlower unit volume and a $29.3 million increase in aftermarket parts and accessories sales mainly due to higher upfit and truck body sales in 2018. Our adoption of ASC 606, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 resulted in an additional $2.1 million increase in revenue recognized during the period compared to what would have been recognized under previous guidance, mainly due to the timing of vehicle production and shipments.volumes.

Adjusted EBITDA forin our FVS segment was $26.7$83.3 million for the year ended December 31, 2018, a decrease2020, an increase of $0.3$24.1 million compared to $27.0$59.2 million for the year ended December 31, 2017. This decrease was due to tariffs of $5.0 million, product2019. Product mix of $4.0 million, commodity and component cost increases of $2.1contributed $22.0 million and $1.2 million of start-up costs incurred in our Ephrata truck body manufacturing operation.productivity improvements and cost reductions generated $5.6 million. These decreasesincreases were partially offset by the impact$3.5 million of $11.9 million in higher volume.selling, general and administrative expenses.

Order backlog for our FVS segment decreasedincreased by $48.9$118.6 million, or 18.3%39.2%, to $218.8$421.5 million in 2018at December 31, 2020 compared to $267.7$302.9 million at December 31, 2019, driven by new orders for walk-in vans offset by the build out of the USPS contract that originated in 2017 driven by the partial build-out of the $214 million contract to supply delivery vehicles to the United States Postal Service we receivedand was completed in September, 2017 which was partially offset by a $48.3 million increase in the backlog for other fleet vehicles. Our backlog enables visibility into future net sales which can normally range from two to twelve months depending on the product. This visibility allows us to more effectively plan and predict our sales and production activity.2019.

Specialty Vehicles

Specialty Chassis and Vehicles

Year ended December 31, 20192021 compared to year ended December 31, 20182020

Sales in our SCVSV segment decreasedincreased by $7.3$119.8 million or 3.8%56.4%, to $185.9$332.4 million in 20192021 compared to $193.2$212.5 million in 2018.2020. This decreaseincrease was driven bydue to a decrease of $23.5 millionsales volume increases in motor home chassis sales and a decrease of $5.0 million in other specialty chassis and vehicle sales due to lower unit volumes. This decrease was partially offset by sales attributable to the Royal acquisition of $17.0 millionservice bodies including acquired business and pricing increases of $4.2 million.