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Table of Contents 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March  31, 2017

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                  .

 

Commission file number: 001-34728

 

DOUGLAS DYNAMICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

134275891

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

7777 North 73rd Street

Milwaukee, Wisconsin 53223

(Address of principal executive offices) (Zip code)

 

(414) 354-2310

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

 

Emerging growth company ☐

 

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

 

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

 

Number of shares of registrant’s common shares outstanding as of May 9, 2017 was 22,590,897.

 

 


 

Table of Contents 

 

DOUGLAS DYNAMICS, INC.

 

Table of Contents

 

 

 

PART I. FINANCIAL INFORMATION 

3

Item 1. Financial Statements 

3

Unaudited Condensed Consolidated Balance Sheet as of March  31, 2017 and audited Consolidated Balance Sheet as of December 31, 2016 

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2017 and 2016 

4

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 

5

Notes to Unaudited Condensed Consolidated Financial Statements 

6

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

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

34

Item 4. Controls and Procedures 

35

PART II. OTHER INFORMATION 

35

Item 1. Legal Proceedings 

35

Item 1A. Risk Factors 

35

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

36

Item 3. Defaults Upon Senior Securities 

36

Item 4. Mine Safety Disclosures 

36

Item 5. Other Information 

36

Item 6. Exhibits 

37

Signatures 

38

 

 

 

 

 

 


 

Table of Contents 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

Assets

  

 

 

  

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,950

 

$

18,609

Accounts receivable, net

 

 

41,865

 

 

78,589

Inventories

 

 

98,360

 

 

70,871

Inventories - truck chassis floor plan

 

 

6,938

 

 

3,939

Refundable income taxes paid

 

 

5,412

 

 

1,541

Prepaid and other current assets

 

 

3,511

 

 

2,886

Total current assets

 

 

164,036

 

 

176,435

Property, plant, and equipment, net

 

 

51,711

 

 

52,141

Goodwill

 

 

238,286

 

 

238,286

Other intangible assets, net

 

 

192,102

 

 

194,851

Other long-term assets

 

 

5,078

 

 

4,460

Total assets

 

$

651,213

 

$

666,173

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

15,131

 

$

17,299

Accrued expenses and other current liabilities

 

 

19,123

 

 

27,325

Floor plan obligations

 

 

6,938

 

 

3,939

Current portion of long-term debt

 

 

2,829

 

 

2,829

Total current liabilities

 

 

44,021

 

 

51,392

Retiree health benefit obligation

 

 

7,312

 

 

7,193

Pension obligation

 

 

9,763

 

 

10,184

Deferred income taxes

 

 

55,336

 

 

54,563

Long-term debt, less current portion

 

 

306,240

 

 

306,726

Other long-term liabilities

 

 

16,270

 

 

15,652

Stockholders’ equity:

 

 

 

 

 

 

Common Stock, par value $0.01,  200,000,000 shares authorized, 22,590,897 and 22,501,640 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

 

226

 

 

225

Additional paid-in capital

 

 

145,136

 

 

144,523

Retained earnings

 

 

73,615

 

 

82,387

Accumulated other comprehensive loss, net of tax

 

 

(6,706)

 

 

(6,672)

Total stockholders’ equity

 

 

212,271

 

 

220,463

Total liabilities and stockholders’ equity

 

$

651,213

 

$

666,173

 

 

See the accompanying notes to condensed consolidated financial statements

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Douglas Dynamics, Inc.

 

Condensed Consolidated Statements of Operations and Comprehensive Income

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Net sales

  

$

72,248

  

$

48,789

 

Cost of sales

 

 

55,061

 

 

34,658

 

Gross profit

 

 

17,187

 

 

14,131

 

Selling, general, and administrative expense

 

 

15,056

 

 

10,913

 

Intangibles amortization

 

 

2,749

 

 

1,726

 

Income (loss)  from operations

 

 

(618)

 

 

1,492

 

Interest expense, net

 

 

(5,296)

 

 

(2,872)

 

Litigation proceeds

 

 

 -

 

 

10,050

 

Other expense, net

 

 

(57)

 

 

(64)

 

Income (loss) before taxes

 

 

(5,971)

 

 

8,606

 

Income tax expense (benefit)

 

 

(2,694)

 

 

3,328

 

Net income (loss)

 

$

(3,277)

 

$

5,278

 

Less net income (loss) attributable to participating securities

 

 

(44)

 

 

70

 

Net income (loss) attributable to common shareholders

 

$

(3,233)

 

$

5,208

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

22,532,027

 

 

22,417,337

 

Diluted

 

 

22,532,027

 

 

22,417,337

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

Basic

 

$

(0.14)

 

$

0.23

 

Diluted

 

$

(0.14)

 

$

0.23

 

Cash dividends declared and paid per share

 

$

0.24

 

$

0.24

 

Comprehensive income (loss)

 

$

(3,311)

 

$

4,204

 

 

 

See the accompanying notes to condensed consolidated financial statements.

 

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Douglas Dynamics, Inc.

 

Condensed Consolidated Statements of Cash Flows

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

March 31,

 

 

2017

 

2016

 

 

(unaudited)

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

  

$

(3,277)

  

$

5,278

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,485

 

 

3,109

Amortization of deferred financing costs and debt discount

 

 

303

 

 

183

Stock-based compensation

 

 

1,350

 

 

1,213

Provision (benefit) for losses on accounts receivable

 

 

128

 

 

(9)

Deferred income taxes

 

 

773

 

 

642

Earnout liability

 

 

 -

 

 

66

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

36,596

 

 

38,751

Inventories

 

 

(27,489)

 

 

(22,145)

Prepaid  refundable income taxes and other assets

 

 

(5,114)

 

 

3,432

Accounts payable

 

 

(2,168)

 

 

(4,305)

Accrued expenses and other current liabilities

 

 

(1,596)

 

 

(8,640)

Benefit obligations and other long-term liabilities

 

 

282

 

 

976

Net cash provided by operating activities

 

 

4,273

 

 

18,551

Investing activities

 

 

 

 

 

 

Capital expenditures

 

 

(1,306)

 

 

(1,165)

Net cash used in investing activities

 

 

(1,306)

 

 

(1,165)

Financing activities

 

 

 

 

 

 

Shares withheld on restricted stock vesting paid for employees’ taxes

 

 

(923)

 

 

 -

Payments of financing costs

 

 

(932)

 

 

 -

Earnout payment

 

 

(5,487)

 

 

 -

Dividends paid

 

 

(5,495)

 

 

(5,361)

Repayment of long-term debt

 

 

(789)

 

 

(475)

Net cash used in financing activities

 

 

(13,626)

 

 

(5,836)

Change in cash and cash equivalents

 

 

(10,659)

 

 

11,550

Cash and cash equivalents at beginning of period

 

 

18,609

 

 

36,844

Cash and cash equivalents at end of period

 

$

7,950

 

$

48,394

 

 

 

 

 

 

 

Non-cash operating and financing activities

 

 

 

 

 

 

Truck chassis inventory acquired through floorplan obligations

 

$

12,247

 

$

 -

 

 

 

 

 

 

 

 

 

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands except share and per share data)

 

1.Basis of presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year-end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our 2016 Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission on March 13, 2017.

 

The Company currently conducts business in two segments: Work Truck Attachments and Work Truck Solutions.  Financial information regarding these segments is reported in Note 13 to the Unaudited Condensed Consolidated Financial Statements.

 

Certain reclassifications have been made to the prior period financial statements to conform to the 2017 presentation.  In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes, This ASU requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.  The Company adopted ASU No. 2015-17 during the quarter ended March 31, 2017 and applied it retrospectively. The adoption resulted in the reclassification of Deferred income taxes as included in Current assets to Deferred income taxes as included in Liabilities and shareholders’ equity on the balance sheet of $5,726 for both periods presented of March 31, 2017 and December 31, 2016.

 

Interim Condensed Consolidated Financial Information

 

The accompanying condensed consolidated balance sheet as of March  31, 2017 and the condensed consolidated statements of operations and comprehensive income for the three months ended March  31, 2017 and 2016 and condensed cash flows for the three months ended March  31, 2017 and 2016 have been prepared by the Company and have not been audited.

 

The Company’s Work Truck Attachments segment is seasonal and consequently its results of operations and financial condition vary from quarter-to-quarter.  Because of this seasonality, the results of operations of the Work Truck Attachments segment for any quarter may not be indicative of results of operations that may be achieved for a subsequent quarter or the full year, and may not be similar to results of operations experienced in prior years. The Company attempts to manage the seasonal impact of snowfall on its revenues in part through its pre-season sales program. This pre-season sales program encourages the Company’s distributors to re-stock their inventory of Work Truck Attachments products during the second and third quarters in anticipation of the peak fourth quarter retail sales period by offering favorable pre-season pricing and payment deferral until the fourth quarter. Thus, the Company’s Work Truck Attachments segment tends to generate its greatest volume of sales during the second and third quarters. By contrast, its revenue and operating results tend to be lowest during the first quarter, as management believes the end-users of Work Truck Attachments products prefer to wait until the beginning of a snow season to purchase new equipment and as the Company’s distributors sell off Work Truck Attachments inventory and wait for the pre-season sales incentive period to re-stock inventory. Fourth quarter sales vary from year-to-year as they are primarily driven by the level, timing and location of snowfall during the quarter. This is because most of the Company’s Work Truck Attachments fourth quarter sales and shipments consist of re-orders by distributors seeking to restock inventory to meet immediate customer needs caused by snowfall during the winter months.

 

The Company relies on a combination of patents, trade secrets and trademarks to protect certain of the proprietary aspects of its business and technology.  In the three months ended March  31, 2016, the Company received a settlement resulting from an ongoing lawsuit with one of its competitors. Previously under the same

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lawsuit the competitor was required to stop using the Company’s intellectual property.  Under the settlement agreement the Company received $10,050 as part of defending its intellectual property.   The proceeds of the lawsuit are included on the Condensed Consolidated Statements of Operations and Comprehensive Income as Litigation proceeds.

 

 

2.  Acquisition

 

On July 15, 2016, the Company acquired substantially all of the assets of Dejana Truck & Utility Equipment Company, Inc. and certain entities directly or indirectly owned by Peter Paul Dejana Family Trust Dated 12/31/98 (“Dejana”). Total consideration was $191,544 including a preliminary estimated working capital adjustment of $3,989 that reduced the purchase price at the close of the transaction on July 15, 2016 that was subsequently adjusted by $5,417 paid by the Company to the seller.   Thus, the net working capital adjustment paid to the former owners of Dejana was $1,428 in addition to contingent consideration with an estimated fair value of $10,200.  The acquisition was financed through exercising the accordion feature on the Company’s term loan for $130,000 less an original issue discount of $650 and $20,000 of short term revolver borrowings and through the use of $31,994 of on hand cash. The Company incurred $250 of transaction expenses related to this acquisition that are included in selling, general and administrative expense in the Condensed Consolidated Statements of Income in the three months ended March  31, 2016.    

 

The Dejana purchase agreement includes contingent consideration in the form of an earnout capped at $26,000. Under the earnout agreement, the former owners of Dejana are entitled to receive payments contingent upon the revenue growth and financial performance of the acquired business for the years 2016, 2017 and 2018.  There is no requirement for continued employment related to the contingent consideration, and thus the earnout is recorded as a component of purchase price.    The preliminary estimated fair value of the earnout consideration was $10,200 which was further adjusted at December 31, 2016 to $10,373 as a result of the 2016 performance exceeding the 2016 fair value established at the opening balance sheet by $173.  As a result of the year ending December 31, 2016 results, the new possible range of outcomes was reduced from $26,000 to a maximum earnout of $21,487.  The Company made a payment to the former owners of Dejana of $5,487 in the three months ended March 31, 2017.

 

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The following table summarizes the preliminary allocation of the purchase price paid and the subsequent working capital adjustment to the fair value of the net assets acquired as of the acquisition date:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

13,509

Inventories

 

 

20,017

Truck chassis floor plan inventory

 

 

13,479

Prepaids and other current assets

 

 

705

Property and equipment

 

 

5,821

Goodwill

 

 

77,354

Intangible assets

 

 

77,800

Other assets - long term

 

 

219

Accounts payable and other current liabilities

 

 

(3,881)

Floor plan obligations

 

 

(13,479)

Earnout

 

 

(10,200)

Total

 

$

181,344

 

 

 The goodwill for the acquisition is a result of acquiring and retaining the existing workforces and expected synergies from integrating the operations into the Company.   Due to the limited amount of time since the acquisition of substantially all of the assets of Dejana, the initial purchase price allocation is preliminary as of March 31, 2017 as the Company has not completed its analysis of income tax liabilities.  The Company expects to be able to deduct amortization of goodwill for income tax purposes over a fifteen-year period.

 

The acquisition was accounted for under the purchase method, and accordingly, the results of operations are included in the Company’s financial statements from the date of acquisition.  

 

The following unaudited pro forma information presents the combined results of operations of the Company and Dejana for the three months ended March 31, 2016 as if the acquisition had occurred on January 1, 2015, with pro forma adjustments to give effect to amortization of intangible assets, depreciation of fixed assets, an increase in interest expense from the acquisition financing and certain other adjustments:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

Net sales

$

80,797

 

Net income

$

6,523

 

Earnings per common share assuming dilution attributable to common shareholders

$

0.28

 

 

 

 

 

 

The unaudited pro forma information above includes the historical financial results of the Company and Dejana, adjusted to record depreciation and intangible asset amortization related to valuation of the acquired tangible and intangible assets at fair value and the addition of incremental costs related to debt to finance the acquisition, and the tax benefits related to the increased costs. This information is presented for information purposes only and is not necessarily indicative of what the Company’s results of operations would have been had the acquisition been in effect for the periods presented or future results.

    

 

 

 

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3.Fair Value

 

Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.  Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

 

The following table presents financial assets and liabilities measured at fair value on a recurring basis and discloses the fair value of long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

Fair Value at

 

 

March 31,

 

December 31,

 

 

2017

 

2016

Assets:

 

 

 

 

 

 

Other long-term assets (a)

  

$

4,142

  

$

3,458

 

 

 

 

 

 

 

Total Assets

 

$

4,142

 

$

3,458

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Interest rate swaps (b)

 

$

2,194

 

$

1,985

Long term debt (c)

 

 

312,896

 

 

315,940

Earnout - Henderson (d)

 

 

607

 

 

636

Earnout - Dejana (e)

 

 

4,886

 

 

10,373

Total Liabilities

 

$

320,583

 

$

328,934

 

 

 


(a)  Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amounts of these insurance policies approximates their fair value.

 

(b) Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g. interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Thus, inputs used to determine fair value of the interest rate swap are Level 2 inputs.  Interest rate swaps of $266 and $1,928 at March 31, 2017 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectivelyInterest rate swaps of $335 and $1,650 at December 31, 2016 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively.

 

(c)  The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, which is a Level 2 input for all periods presented. Meanwhile, long-term debt is recorded at carrying amount, net of discount and deferred debt issuance costs, as disclosed on the face of the balance sheet.

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(d) Included in Accrued expenses and other current liabilities and other long term liabilities in the amounts of $165 and $442, respectively, at March 31, 2017 is the fair value of an obligation for a portion of the potential earnout acquired in conjunction with the acquisition of Henderson Enterprise Group, Inc. (“Henderson”).   Included in accrued expenses and other current liabilities and Other long term liabilities in the amounts of $267 and $442, respectively, at March 31, 2016 is the fair value of an obligation for a portion of the potential earnout acquired in conjunction with the acquisition of Henderson. Fair value is based upon Level 3 discounted cash flow analysis using key inputs of forecasted future sales as well as a growth rate reduced by the market required rate of return. See reconciliation of liability included below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Beginning Balance

  

$

636

 

$

761

 

Additions

 

 

 

 

 

Adjustments to fair value

 

 

 

 

 

Payment to former owners

 

 

(29)

 

 

(52)

 

Ending balance

 

$

607

 

$

709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(e) Included in Other long term liabilities in the amount of $4,886, at March 31, 2017 is the fair value of an obligation for a portion of the potential earnout incurred in conjunction with the acquisition of Dejana.   Fair value is based upon Level 3 inputs of a real options approach where gross sales were simulated in a risk-neutral framework using Geometric Brownian Motion, a well-accepted model of stock price behavior that is used in option pricing models such as the Black-Scholes option pricing model, using key inputs of forecasted future sales and financial performance as well as a risk adjusted expected growth rate adjusted appropriately based on its correlation with the market.  See reconciliation of liability included below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

 

 

 

 

Beginning Balance

  

$

10,373

 

Additions

 

 

 

Adjustments to fair value

 

 

 

Payment to former owners

 

 

(5,487)

 

Ending balance

 

$

4,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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4.Inventories 

 

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

 

 

 

 

 

Finished goods and work-in-process

  

$

71,035

  

$

44,047

Raw material and supplies

 

 

27,325

 

 

26,824

 

 

$

98,360

 

$

70,871

 

 

 

 

 

 

 

 

 

 

 

 

The inventories in the table above do not include truck chassis inventory financed through a floor plan financing agreement as discussed in Note 6.  The Company takes title to truck chassis upon receipt of the inventory through their floor plan agreement and performs up-fitting service installations to the truck chassis inventory during the installation period.  The floor plan obligation is then assumed by their dealer customer upon delivery.  At March 31, 2017 and December 31, 2016, the Company had $6,938 and $3,939 of chassis inventory and related floor plan financing obligation, respectively.  The Company recognizes revenue associated with up-fitting and service installations net of the truck chassis.

 

Unlike the floor plan agreement, the Company does not record inventory related to the truck chassis acquired through the bailment pool agreement as these truck chassis are held on consignment.  Like the revenue recognized on floor plan arrangement, revenue recognized for up-fitting services on chassis acquired through the bailment agreement, are also recognized net of the truck chassis.

 

 

 

   

 

 

 

 

5.Property, plant and equipment

 

Property, plant and equipment are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

 

 

 

 

 

Land

 

$

2,378

 

$

2,378

Land improvements

 

 

4,357

 

 

4,357

Leasehold Improvements

 

 

3,385

 

 

2,569

Buildings

 

 

26,151

 

 

26,058

Machinery and equipment

 

 

42,506

 

 

40,878

Furniture and fixtures

 

 

12,899

 

 

12,561

Mobile equipment and other

 

 

3,994

 

 

3,873

Construction-in-process

 

 

2,081

 

 

3,850

Total property, plant and equipment

 

 

97,751

 

 

96,524

Less accumulated depreciation

 

 

(46,040)

 

 

(44,383)

Net property, plant and equipment

 

$

51,711

 

$

52,141

 

 

 

 

 

 

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Table of Contents 

6.Long-Term Debt

 

Long-term debt is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

 

 

 

 

 

Term Loan, net of debt discount of $1,855 and $1,953 at March 31, 2017 and December 31, 2016, respectively

 

$

312,896

 

$

313,588

Less current maturities

 

 

2,829

 

 

2,829

Long term debt before deferred financing costs

 

 

310,067

 

 

310,759

Deferred financing costs, net

 

 

3,827

 

 

4,033

Long term debt, net

 

$

306,240

 

$

306,726

 

 

 

 

 

 

 

 

 

On February 8, 2017 the Company entered into an amendment to its senior secured term loan facility (the “Term Loan Credit Agreement”) to decrease the interest rate margins that apply to the term loan facility from 3.25% to 2.50% for ABR Loans (as defined in the Term Loan Credit Agreement) and from 4.25% to 3.50% for Eurodollar Rate Loans (as defined in the Term Loan Credit Agreement), such that the senior secured term loan facility generally bears interest at a rate of (at the Company’s election) either (i) 2.50% per annum plus the greatest of (a) the Prime Rate (as defined in the Term Loan Credit Agreement) in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 0.50% and (c) 1.00% plus the greater of (1) the LIBOR for a one month interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (2) 2.00% or (ii) 3.50% per annum plus the greater of (a) the LIBOR for the applicable interest period multiplied by the Statutory Reserve Rate and (b) 1.00%.  Meanwhile the discount, principal and tenure of the Company’s Term Loan Credit Agreement has remained unchanged.   The amendment to the Term Loan Credit Agreement did not result in a significant debt modification under ASC 470-50.  Additionally, the Company incurred approximately $932 in costs with third parties directly related to the amendment that the Company expensed as incurred in the three months ended March 31, 2017.

 

The Company’s term loan amortizes in nominal amounts quarterly with the balance payable on December 31, 2021.   The Term Loan Credit Agreement also allows the Company to request the establishment of one or more additional term loan commitments in an aggregate amount not in excess of $80,000 subject to specified terms and conditions, which amount may be further increased so long as the First Lien Debt Ratio (as defined in the Term Loan Credit Agreement) is not greater than 3.25 to 1.00.   The Company’s term Loan Credit Agreement permits the Company to enter into floor plan financing arrangements in an aggregate amount not to exceed $20,000 under both the term loan and revolving credit facility.

 

The Company’s senior credit facilities also include a $100,000 revolving credit facility (the “Revolving Credit Agreement”) with a group of banks, of which $10,000 are available in the form of letters of credit and $5,000 are available for the issuance of short-term swing line loans. The Revolving Credit Agreement provides that the Company has the option to select whether borrowings will bear interest at either (i) a margin ranging from 1.50% to 2.00% per annum, depending on the utilization of the facility, plus the LIBOR for the applicable interest period multiplied by the Statutory Reserve Rate (as defined in the Revolving Credit Agreement) or (ii) a margin ranging from 0.50% to 1.00% per annum, depending on the utilization of the facility, plus the greatest of (a) the Prime Rate (as defined in the Revolving Credit Agreement) in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 0.50% and (c) the LIBOR for a one month interest period multiplied by the Statutory Reserve Rate plus 1%. The maturity date for the Revolving Credit Agreement is June 30, 2021.

 

The term loan was originally issued at a $1,900 discount and the incremental term loan used to fund the Dejana acquisition on July 15, 2016 was issued at a $650 discount both of which are being amortized over the term of the term loan. 

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At March 31, 2017, the Company had outstanding borrowings under the Term Loan Credit Agreement of $312,896, no outstanding borrowings on the Revolving Credit Agreement and remaining borrowing availability of $57,647.  At December 31, 2016, the Company had outstanding borrowings under the Term Loan Credit Agreement of $313,588, no outstanding borrowings on the Revolving Credit Agreement at December 31, 2016 and remaining borrowing availability of $89,664. 

 

The Company’s senior credit facilities include certain negative and operating covenants, including restrictions on its ability to pay dividends, and other customary covenants, representations and warranties and events of default. The senior credit facilities entered into and recorded by the Company’s subsidiaries significantly restrict its subsidiaries from paying dividends and otherwise transferring assets to Douglas Dynamics, Inc. The terms of the Revolving Credit Agreement specifically restrict subsidiaries from paying dividends if a minimum availability under the Revolving Credit Agreement is not maintained, and both senior credit facilities restrict subsidiaries from paying dividends above certain levels or at all if an event of default has occurred. These restrictions would affect the Company indirectly since the Company relies principally on distributions from its subsidiaries to have funds available for the payment of dividends. In addition, the Revolving Credit Agreement includes a requirement that, subject to certain exceptions, capital expenditures may not exceed $12,500 in any calendar year (plus the unused portion of permitted capital expenditures from the preceding year subject to a $12,500 cap and a separate one-time $15,000  capital expenditures  to be used for the consolidation of facilities and costs associated with the acquiring and/or development and construction of one new manufacturing facility) and, if certain minimum availability under the Revolving Credit Agreement is not maintained, that the Company comply with a monthly minimum fixed charge coverage ratio test of 1.0:1.0. Compliance with the fixed charge coverage ratio test is subject to certain cure rights under the Revolving Credit Agreement. At March  31, 2017, the Company was in compliance with the respective covenants. The credit facilities are collateralized by substantially all assets of the Company.

 

In accordance with the senior credit facilities, the Company is required to make additional principal prepayments over the above scheduled payments under certain conditions. This includes, in the case of the term loan facility, 100% of the net cash proceeds of certain asset sales, certain insurance or condemnation events, certain debt issuances, and, within 150 days of the end of each fiscal year, 50% of consolidated excess cash flow including a deduction for certain distributions (which percentage is reduced to 0% upon the achievement of certain leverage ratio thresholds), for such fiscal year. Consolidated excess cash flow is defined in the senior credit facilities as consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) plus a consolidated working capital adjustment, less the sum of repayments of debt and capital expenditures (subject to certain adjustments), interest and taxes paid in cash, management fees and certain restricted payments (including certain dividends or distributions). Consolidated working capital adjustment is defined in the senior credit facilities as the change in working capital, defined as current assets, excluding cash and cash equivalents, less current liabilities, excluding the current portion of long term debt.  As of March 31, 2017, the Company was not required to make an excess cash flow payment.

 

The Company entered into interest rate swap agreements on February 20, 2015 to reduce its exposure to interest rate volatility.  The three interest rate swap agreements have notional amounts of $45,000,  $90,000 and $135,000 effective for the periods December 31, 2015 through March 29, 2018, March 29, 2018 through March 31, 2020 and March 31, 2020 through June 30, 2021, respectively.  The interest rate swaps’ negative fair value at March 31, 2017 was $2,194, of which $266  and $1,928 are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheet, respectively.  Meanwhile, the interest rate swaps’ negative fair value at December 31, 2016 was $1,985, of which $335 and $1,650 are included in Accrued expenses and Other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheet, respectively. The Company has counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. This risk lies with one global financial institution.  Under the interest rate swap agreement, effective as of December 31, 2015, the Company will either receive or make payments on a monthly basis based on the differential between 6.105% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%).  Under the interest rate swap agreement, effective as of March 29, 2018, the Company will either receive or make payments on a monthly basis based on the differential between 6.916% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%).  Under the interest rate swap agreement, effective as of March 31, 2020, the Company will either receive or make payments on a monthly basis based on the differential between 7.168% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%).

 

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The Company receives on consignment, truck chassis on which it performs up-fitting service installations under “bailment pool” arrangements with major truck manufacturers.  The Company never receives title to the truck chassis.  The aggregate value of all bailment pool chassis on hand as of March 31, 2017 and December 31, 2016 were $19,994 and $22,420, respectively. The Company is responsible to the manufacturer for interest on chassis held for up-fitting. Interest rates vary depending on the number of days in the bailment pool. As of March 31, 2017, rates were based on prime plus a margin ranging from 0% to 8%.  During the three months ended March 31, 2017, the Company incurred $92 in interest on the bailment pool arrangement.

The Company has a floor plan line of credit for up to $20,000 with a financial institution.  The current terms of the line of credit are contained in a credit agreement dated July 15, 2016 and expires on July 31, 2017.  Under the floor plan agreement the Company receives truck chassis and title on up-fitting service installations.  Upon up-fit completion, the title transfers from the Company to the dealer customer.   The note bears interest at an adjusted LIBOR rate, plus an applicable rate of 1.75%.  The obligation under the floor plan agreement was $6,938 and $3,939 at March 31, 2017 and December 31, 2016, respectively.  During the three months ended March 31, 2017, the Company incurred $30 in interest on the floor plan arrangements.

 

 

7.Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other liabilities are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

 

 

 

 

 

Payroll and related costs

 

$

4,484

 

$

8,731

Employee benefits

 

 

5,731

 

 

5,179

Accrued warranty

 

 

3,161

 

 

3,535

Earnout - Dejana

 

 

 -

 

 

5,487

Other

 

 

5,747

 

 

4,393

 

 

$

19,123

 

$

27,325

 

 

 

 

 

 

8.Warranty Liability

 

The Company accrues for estimated warranty costs as sales are recognized and periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary.  The Company’s warranties generally provide, with respect to its snow and ice control equipment, that all material and workmanship will be free from defect for a period of two years after the date of purchase by the end-user, and with respect to its parts and accessories purchased separately, that such parts and accessories will be free from defect for a period of one year after the date of purchase by the end-user.  Certain snowplows only provide for a one year warranty.  The Company determines the amount of the estimated warranty costs (and its corresponding warranty reserve) based on the Company’s prior five years of warranty history utilizing a formula driven by historical warranty expense and applying management’s judgment.  The Company adjusts its historical warranty costs to take into account unique factors such as the introduction of new products into the marketplace that do not provide a historical warranty record to assess.  The warranty reserve is $5,281 at March 31, 2017 of which $2,120 is included in Other long term liabilities and $3,161 is included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheet.  The warranty reserve is $6,160 at December 31, 2016 of which $2,625 is included in Other long term liabilities and $3,535 is included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheet. 

 

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Table of Contents 

The following is a rollforward of the Company’s warranty liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Balance at the beginning of the period

 

$

6,160

 

$

7,423

 

Warranty provision

 

 

626

 

 

471

 

Claims paid/settlements

 

 

(1,505)

 

 

(1,390)

 

Balance at the end of the period

 

$

5,281

 

$

6,504

 

 

 

 

 

 

 

9.Employee Retirement Plans

 

The components of net periodic pension cost consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Component of net periodic pension cost:

 

 

 

 

 

 

 

Service cost

 

$

89

 

$

80

 

Interest cost

 

 

403

 

 

410

 

Expected return on plan assets

 

 

(448)

 

 

(456)

 

Amortization of net loss

 

 

181

 

 

181

 

Net periodic pension cost

 

$

225

 

$

215

 

 

 

The Company estimates its total required minimum contributions to its pension plans in 2017 will be $216.  Through March 31, 2017, the Company has made $529 of cash contributions to the pension plans versus $193 through the same period in 2016.

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Components of net periodic other postretirement benefit cost consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Component of periodic other postretirement benefit cost:

 

 

 

 

 

 

 

Service cost

 

$

51

 

$

53

 

Interest cost

 

 

70

 

 

70

 

Amortization of net gain

 

 

(27)

 

 

(32)

 

Net periodic other postretirement benefit  cost

 

$

94

 

$

91

 

 

 

 

 

 

 

 

10.Earnings (Loss) per Share

 

Basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share of common stock is computed by dividing net income by the weighted average number of common shares, using the two-class method.  As the Company has granted restricted stock units (“RSUs”) that both participate in dividend equivalents and do not participate in dividend equivalents, the Company has calculated earnings per share pursuant to the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends.    Diluted net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders as adjusted for the effect of dilutive non-participating securities, by the weighted average number of common stock and dilutive common stock outstanding during the period.   Potential common shares in the diluted net earnings (loss) per share computation are excluded to the extent that they would be anti-dilutive.  Weighted average potentially dilutive non-participating RSUs were 4,770 in the three months ended March 31, 2017.    There were no non-participating RSUs granted or outstanding in the three months ended March 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2017

 

2016

 

Basic earnings (loss) per common share

 

 

 

 

 

 

 

Net income  (loss)

 

$

(3,277)

 

$

5,278

 

Less income (loss) allocated to participating securities

 

 

(44)

 

 

70

 

Net income (loss) allocated to common shareholders

 

$

(3,233)

 

$

5,208

 

Weighted average common shares outstanding

 

 

22,532,027

 

 

22,417,337

 

 

 

$

(0.14)

 

$

0.23

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share assuming dilution

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,277)

 

$

5,278

 

Less income (loss) allocated to participating securities

 

 

(44)

 

 

70

 

Net income (loss) allocated to common shareholders

 

$

(3,233)

 

$

5,208

 

Weighted average common shares outstanding

 

 

22,532,027

 

 

22,417,337

 

Incremental shares applicable to non-participating RSUs

 

 

 -

 

 

 -

 

Weighted average common shares assuming dilution

 

 

22,532,027

 

 

22,417,337

 

 

 

$

(0.14)

 

$

0.23

 

 

 

 

 

 

 

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Table of Contents 

 

 

11.Employee Stock Plans

 

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Stock-based Compensation: Improvements to Employee Share-based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, and statement of cash flow classification. The amended guidance became effective for the Company commencing in the first quarter of 2017.   The Company has implemented ASU 2016-09 as follows:

 

o

ASU 2016-09 eliminates the requirement to estimate and apply a forfeiture rate to reduce stock compensation expense during the vesting period, and instead, provides an alternative option to account for forfeitures as they occur, which is the option the Company has adopted. ASU 2016-09 requires that this change be adopted using the modified retrospective approach. The adoption of this section had no material impact on the financial statements.

 

o

ASU 2016-09 addresses the presentation of excess tax benefits and employee taxes paid on the statement of cash flows. The standard requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The Company adopted this change prospectively during the first quarter of 2017. ASU 2016-09 also requires the presentation of amounts withheld for applicable income taxes on employee share-based awards as a financing activity on the statement of cash flows, which the Company also adopted in the first quarter of 2017.  

 

o

ASU No 2016-09 also eliminates additional paid in capital ("APIC") pools and requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. This requirement was adopted prospectively by the Company. The impact of this section of the standard was a benefit of $616 to income tax expense for the first quarter of 2017. In addition, the ASU requires that the excess tax benefit be removed from the overall calculation of diluted shares. The impact on diluted earnings per share of this adoption was not material.

 

 

2010 Stock Incentive Plan

 

In May 2010, the Company’s Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (the “2010 Plan”).  The Company’s Board of Directors approved an amendment and restatement of the 2010 Plan on March 5, 2014, contingent on stockholder approval of the performance goals under the 2010 Plan, and the amendment and restatement became effective upon stockholder approval of the performance goals at the 2014 annual meeting of stockholders held on April 30, 2014.  The 2010 Plan provides for the issuance of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and restricted stock units (“RSUs”), any of which may be performance-based, and for incentive bonuses, which may be paid in cash or stock or a combination of both, to eligible employees, officers, non-employee directors and other service providers to the Company and its subsidiaries.  A maximum of 2,130,000 shares of common stock may be issued pursuant to all awards under the 2010 Plan.

 

 

Performance Share Unit Awards

 

The Company granted performance share units as performance based awards under the 2010 Plan in the first quarter of 2017 that are subject to performance conditions.  Upon meeting the prescribed performance conditions, in the first quarter of the year subsequent to grant, employees will be issued RSUs, a portion of which will be subject to vesting over the two years following the end of the performance period.  In accordance with ASC 718, such awards are being expensed over the vesting period from the date of grant through the requisite service period, based upon the most probable outcome.  The fair value per share of the awards is the closing stock price on the date of grant, which was $33.60. The Company recognized $151 and $127 of compensation expense related to the awards in the three months ended March  31, 2017 and March  31, 2016, respectively.   The unrecognized compensation expense calculated under the fair value method for shares that were, as of March  31, 2017, expected to be earned through the requisite service period was approximately $1,694 and is expected to be recognized through 2020.

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Restricted Stock Unit Awards

 

RSUs are granted to both non-employee directors and management.  RSUs do not carry voting rights.  While all non-employee director RSUs participate in dividend equivalents, there are two classes of management RSUs, one for executives that participate in dividend equivalents, and a second for non-executives that do not participate in dividend equivalents.  Each RSU represents the right to receive one share of the Company’s common stock and is subject to time based vesting restrictions. Participants are not required to pay any consideration to the Company at either the time of grant of a RSU or upon vesting.

 

RSUs issued to management include a retirement provision under which members of management who either (1) are age 65 or older or (2) have at least ten years of service and are at least age 55 will continue to vest in unvested RSUs upon retirement.  As the retirement provision does not qualify as a substantive service condition, the Company incurred $619 and $528 in additional expense in the first quarter of 2017 and 2016, respectively, for employees who meet the thresholds of the retirement provision.  In 2013, the Company’s nominating and governance committee approved a retirement provision for the RSUs issued to non-employee directors that accelerates the vesting of such RSUs upon retirement.  Such awards are fully expensed immediately upon grant in accordance with ASC 718, as the retirement provision eliminates substantive service conditions associated with the awards.

 

A summary of RSU activity for the three months ended March  31, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Weighted

 

Average

 

 

 

 

Average

 

Remaining

 

 

 

 

Grant Date

 

Contractual

 

 

Shares

 

Fair value

 

Term

 

 

 

 

 

 

 

 

 

Unvested at December 31, 2016

 

47,790

 

$

20.31

 

0.96

years

Granted

 

127,420

 

$

24.13

 

0.48

years

Vested

 

(123,239)

 

$

22.94

 

 

 

Cancelled and forfeited

 

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

Unvested at March 31,  2017

 

51,971

 

$

23.45

 

1.35

years

 

 

 

 

 

 

 

 

 

Expected to vest in the future at March 31,  2017

 

51,971

 

$

23.45

 

1.35

years

 

The Company recognized $1,198 and $1,086 of compensation expense related to the RSU awards in the three months ended March 31, 2017 and March 31, 2016, respectively. The unrecognized compensation expense, calculated under the fair value method for shares that were, as of March 31, 2017, expected to be earned through the requisite service period was approximately $954 and is expected to be recognized through 2020.

 

Vested director RSUs are ‘‘settled’’ by the delivery to the participant or a designated brokerage firm of one share of common stock per vested RSU as soon as reasonably practicable following a termination of service of the participant that constitutes a separation from service, and in all events no later than the end of the calendar year in which such termination of service occurs or, if later, two and one-half months after such termination of service.  Vested management RSUs are “settled” by the delivery to the participant or a designated brokerage firm of one share of common stock per vested RSU as soon as reasonably practicable following vesting.

 

12.Commitments and Contingencies

 

In the ordinary course of business, the Company is engaged in various litigation including product liability and intellectual property disputes.  However, the Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position.  In addition, the Company is not currently a party to any environmental-related claims or legal matters.

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13.         Segments

 

The Company operates through two operating segments for which separate financial information is available, and for which operating results are evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance.   Prior to the acquisition of Dejana on July 15, 2016, the Company operated one operating segment and one reportable business segment which consisted of the manufacture and sale of snow and ice control products. The Company’s two current reportable business segments are described below. 

 

Work Truck Attachments.  The Work Truck Attachments segment includes snow and ice management attachments sold under the FISHER®, WESTERN®, HENDERSON® and SNOWEX® brands.  This segment consists of our operations that, prior to our acquisition of Dejana, were our single operating segment, consisting of the manufacture and sale of snow and ice control products.

 

Work Truck Solutions.  The Work Truck Solutions segment, which was created as a result of the Dejana acquisition, includes the up-fit of market leading attachments and storage solutions for commercial work vehicles under the DEJANA® brand and its related sub-brands.

 

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Segment performance is evaluated based on segment net sales and operating income. Items not allocated to segment operating income include corporate administrative expenses and certain other amounts.   No single customer’s revenues amounted to 10% or more of our total revenue. Sales are primarily within the United States and substantially all assets are located within the United States.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

March 31,

 

March 31,

 

 

 

2017

 

 

2016

 

Net sales

 

 

 

 

 

 

Work Truck Attachments

$

43,578

 

$

48,624

 

Work Truck Solutions

 

29,659

 

 

 -

 

Corporate & Eliminations

 

(989)

 

 

165

 

 

$

72,248

 

$

48,789

 

Selling, general, and administrative expense

 

 

 

 

 

 

Work Truck Attachments

$

6,949

 

$

7,032

 

Work Truck Solutions

 

3,772

 

 

 -

 

Corporate & Eliminations

 

4,335

 

 

3,881

 

 

$

15,056

 

$

10,913

 

Income (loss) from operations

 

 

 

 

 

 

Work Truck Attachments

$

1,992

 

$

6,048

 

Work Truck Solutions

 

818

 

 

 -

 

Corporate & Eliminations

 

(3,428)

 

 

(4,556)

 

 

$

(618)

 

$

1,492

 

Depreciation Expense

 

 

 

 

 

 

Work Truck Attachments

$

1,377

 

$

1,333

 

Work Truck Solutions

 

315

 

 

 -

 

Corporate & Eliminations

 

44

 

 

50

 

 

$

1,736

 

$

1,383

 

Assets

 

 

 

 

 

 

Work Truck Attachments

$

429,452

 

$

431,399

 

Work Truck Solutions

 

202,045

 

 

 -

 

Corporate & Eliminations

 

19,716

 

 

55,190

 

 

$

651,213

 

$

486,589

 

 

 

 

 

 

 

 

Capital Expenditures

 

 

 

 

 

 

Work Truck Attachments

$

873

 

$

1,165

 

Work Truck Solutions

 

433

 

 

 -

 

Corporate & Eliminations

 

 -

 

 

 -

 

 

$

1,306

 

$

1,165

 

 

 

 

 

 

 

 

All intersegment sales are eliminated in consolidation.

 

 

14.Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The largest item affecting deferred taxes is the difference between book and tax amortization of goodwill and other intangibles amortization.  The Company’s effective tax rate (benefit) was (45.1%) and 38.7% for the three months ended March 31,  2017 and 2016, respectively.  The effective tax rate (benefit)  for the three months ended March  31, 2017 is higher than the corresponding period in 2016 due to excess stock compensation benefit recognized for the three months ended March 31, 2017.    

 

20


 

Table of Contents 

 

15.Changes in Accumulated Other Comprehensive Loss by Component

 

Changes to accumulated other comprehensive loss by component for the three months ended March 31, 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

Retiree

 

 

 

 

 

 

 

 

on Interest

 

 

Health

 

 

 

 

 

 

 

 

Rate

 

 

Benefit

 

Pension

 

 

 

 

 

Swap

 

 

Obligation

 

Obligation

 

Total

Balance at December 31, 2016