PLOW_Current Folio_10Q_Taxonomy2017

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, 2019

 

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)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

PLOW

New York Stock Exchange

 

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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:

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

 

 

Emerging growth company ☐

 

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

 

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

 

Number of shares of registrant’s common shares outstanding as of May 7, 2019 was 22,795,412.

 

 


 

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, 2019 and December 31, 2018 

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018 

4

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 

5

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2019 and 2018 

6

Notes to Unaudited Condensed Consolidated Financial Statements 

7

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

27

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

37

Item 4. Controls and Procedures 

38

PART II. OTHER INFORMATION 

38

Item 1. Legal Proceedings 

38

Item 1A. Risk Factors 

39

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

39

Item 3. Defaults Upon Senior Securities 

39

Item 4. Mine Safety Disclosures 

39

Item 5. Other Information 

39

Item 6. Exhibits 

40

Signatures 

41

 

 

 

 

 

 


 

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,

 

 

2019

 

2018

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

Assets

  

 

 

  

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

348

 

$

27,820

Accounts receivable, net

 

 

55,282

 

 

81,485

Inventories

 

 

111,225

 

 

81,996

Inventories - truck chassis floor plan

 

 

7,382

 

 

4,204

Refundable income taxes paid

 

 

2,041

 

 

 -

Prepaid and other current assets

 

 

3,723

 

 

3,590

Total current assets

 

 

180,001

 

 

199,095

Property, plant, and equipment, net

 

 

53,817

 

 

55,195

Goodwill

 

 

241,006

 

 

241,006

Other intangible assets, net

 

 

171,937

 

 

174,678

Operating lease - right of use asset

 

 

21,537

 

 

 -

Other long-term assets

 

 

7,721

 

 

6,219

Total assets

 

$

676,019

 

$

676,193

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,443

 

$

18,703

Accrued expenses and other current liabilities

 

 

18,410

 

 

23,306

Floor plan obligations

 

 

7,382

 

 

4,204

Operating lease liability - current

 

 

3,335

 

 

 -

Income taxes payable

 

 

 -

 

 

106

Short term borrowings

 

 

16,000

 

 

 -

Current portion of long-term debt

 

 

2,749

 

 

32,749

Total current liabilities

 

 

64,319

 

 

79,068

Retiree health benefit obligation

 

 

6,345

 

 

6,240

Pension obligation

 

 

2,246

 

 

2,129

Deferred income taxes

 

 

49,208

 

 

48,198

Long-term debt, less current portion

 

 

242,465

 

 

242,946

Operating lease liability - noncurrent

 

 

18,222

 

 

 -

Other long-term liabilities

 

 

17,065

 

 

14,856

Stockholders’ equity:

 

 

 

 

 

 

Common Stock, par value $0.01,  200,000,000 shares authorized, 22,795,412 and 22,700,991 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

228

 

 

227

Additional paid-in capital

 

 

152,816

 

 

151,813

Retained earnings

 

 

130,176

 

 

136,765

Accumulated other comprehensive loss, net of tax

 

 

(7,071)

 

 

(6,049)

Total stockholders’ equity

 

 

276,149

 

 

282,756

Total liabilities and stockholders’ equity

 

$

676,019

 

$

676,193

 

 

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2019

 

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Net sales

  

$

93,187

  

$

83,964

 

Cost of sales

 

 

70,241

 

 

63,937

 

Gross profit

 

 

22,946

 

 

20,027

 

Selling, general, and administrative expense

 

 

16,644

 

 

16,146

 

Intangibles amortization

 

 

2,741

 

 

2,871

 

Income from operations

 

 

3,561

 

 

1,010

 

Interest expense, net

 

 

(4,150)

 

 

(3,945)

 

Other expense, net

 

 

(171)

 

 

(203)

 

Loss before taxes

 

 

(760)

 

 

(3,138)

 

Income tax benefit

 

 

(463)

 

 

(1,262)

 

Net loss

 

$

(297)

 

$

(1,876)

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

22,729,084

 

 

22,623,518

 

Diluted

 

 

22,729,084

 

 

22,623,518

 

Loss per common share:

 

 

 

 

 

 

 

Basic

 

$

(0.01)

 

$

(0.08)

 

Diluted

 

$

(0.01)

 

$

(0.08)

 

Cash dividends declared and paid per share

 

$

0.27

 

$

0.27

 

Comprehensive loss

 

$

(1,319)

 

$

(1,052)

 

 

 

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,

 

 

2019

 

2018

 

 

(unaudited)

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net loss

  

$

(297)

  

$

(1,876)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,808

 

 

4,701

Amortization of deferred financing costs and debt discount

 

 

303

 

 

304

Stock-based compensation

 

 

1,054

 

 

1,420

Provision for losses on accounts receivable

 

 

107

 

 

182

Deferred income taxes

 

 

1,010

 

 

1,749

Earnout liability

 

 

(217)

 

 

 -

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

26,096

 

 

40,193

Inventories

 

 

(29,229)

 

 

(25,275)

Prepaid and refundable income taxes and other assets

 

 

(3,676)

 

 

(1,199)

Accounts payable

 

 

(2,179)

 

 

(208)

Accrued expenses and other current liabilities

 

 

(1,451)

 

 

(5,950)

Benefit obligations and other long-term liabilities

 

 

(1,906)

 

 

234

Net cash provided by (used in) operating activities

 

 

(5,577)

 

 

14,275

Investing activities

 

 

 

 

 

 

Capital expenditures

 

 

(769)

 

 

(1,307)

Net cash used in investing activities

 

 

(769)

 

 

(1,307)

Financing activities

 

 

 

 

 

 

Shares withheld on restricted stock vesting paid for employees’ taxes

 

 

(50)

 

 

(23)

Dividends paid

 

 

(6,292)

 

 

(6,098)

Net revolver borrowings

 

 

16,000

 

 

 -

Repayment of long-term debt

 

 

(30,784)

 

 

(30,785)

Net cash used in financing activities

 

 

(21,126)

 

 

(36,906)

Change in cash and cash equivalents

 

 

(27,472)

 

 

(23,938)

Cash and cash equivalents at beginning of period

 

 

27,820

 

 

36,875

Cash and cash equivalents at end of period

 

$

348

 

$

12,937

 

 

 

 

 

 

 

Non-cash operating and financing activities

 

 

 

 

 

 

Truck chassis inventory acquired through floorplan obligations

 

$

10,299

 

$

7,301

 

 

 

 

 

 

 

 

 

See the accompanying notes to condensed consolidated financial statements.

 

 

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Douglas Dynamics, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

Dollars

 

Capital

 

Earnings

 

 

Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

22,590,897

 

$

226

 

$

147,287

 

$

115,737

 

 

$

(6,572)

 

$

256,678

 

 

Net loss

 

 

 

 

 

 

 

(1,876)

 

 

 

 

 

(1,876)

 

 

Dividends paid

 

 

 

 

 

 

 

(6,098)

 

 

 

 

 

(6,098)

 

 

Impact due to adoption of ASC 2014-09 (revenue recognition)

 

 

 

 

 

 

 

377

 

 

 

 

 

377

 

 

Adjustment for pension and postretirement benefit liability, net of tax of ($32)

 

 

 

 

 

 

 

 

 

 

92

 

 

92

 

 

Adjustment for interest rate swap, net of tax of ($257)

 

 

 

 

 

 

 

 

 

 

732

 

 

732

 

 

Shares withheld on restricted stock vesting

 

 

 

 

 

(23)

 

 

 

 

 

 

 

(23)

 

 

Stock based compensation

 

110,094

 

 

 1

 

 

1,419

 

 

 

 

 

 

 

1,420

 

Balance at March 31, 2018

 

22,700,991

 

 

227

 

 

148,683

 

 

108,140

 

 

 

(5,748)

 

 

251,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

22,700,991

 

$

227

 

$

151,813

 

$

136,765

 

 

$

(6,049)

 

$

282,756

 

 

Net loss

 

 

 

 

 

 

 

(297)

 

 

 

 

 

(297)

 

 

Dividends paid

 

 

 

 

 

 

 

(6,292)

 

 

 

 

 

(6,292)

 

 

Adjustment for pension and postretirement benefit liability, net of tax of ($18)

 

 

 

 

 

 

 

 

 

 

53

 

 

53

 

 

Adjustment for interest rate swap, net of tax of $378 

 

 

 

 

 

 

 

 

 

 

(1,075)

 

 

(1,075)

 

 

Shares withheld on restricted stock vesting

 

 

 

 

 

(50)

 

 

 

 

 

 

 

(50)

 

 

Stock based compensation

 

94,421

 

 

1

 

 

1,053

 

 

 

 

 

 

 

1,054

 

Balance at March 31, 2019

 

22,795,412

 

$

228

 

$

152,816

 

$

130,176

 

 

$

(7,071)

 

$

276,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2018 Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission on February 26, 2019.

 

The Company currently conducts business in two segments: Work Truck Attachments and Work Truck Solutions. During the first quarter of 2019, the Company reorganized its business segments to reflect a new operating structure as a result of a change in how the Company’s chief operating decision maker allocates resources, makes operating decisions and assesses the performance of the business. Under this revised reporting structure, the Company’s two reportable business segments are as follows: 

 

Work Truck Attachments.  The Work Truck Attachments segment includes commercial snow and ice management attachments sold under the FISHER®, WESTERN® and SNOWEX® brands.  This segment consists of our operations that manufacture and sell snow and ice control products.

 

Work Truck Solutions.  The Work Truck Solutions segment includes manufactured municipal snow and ice control products under the HENDERSON® brand and the up-fit of market leading attachments and storage solutions under the HENDERSON® brand, and the DEJANA® brand and its related sub-brands.

 

See Note 15 to the Unaudited Condensed Consolidated Financial Statements for financial information regarding these segments. As a result of the revised reporting structure, the prior period presentation of reportable segments has been recast to conform to the current segment reporting structure.

 

Interim Condensed Consolidated Financial Information

 

The accompanying condensed consolidated balance sheet as of March 31, 2019, the condensed consolidated statements of operations and comprehensive loss and the condensed consolidated statements of shareholders’ equity for the three months ended March 31, 2019 and 2018, and the condensed cash flows for the three months ended March 31, 2019 and 2018 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. In addition, due to the factors noted above, Work Truck Attachments working capital needs are highest in the second and third quarters as its accounts

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receivable rise from pre-season sales. These working capital needs decline in the fourth quarter as the Company receives payments for its pre-season shipments.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 Leases (Topic 842). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11 Leases: Targeted Improvements which allows entities to apply the new lease standard at the adoption date, rather than at the earliest period presented. In transition, lessees and lessors are required to recognize and measure leases using a modified retrospective approach.

 

The Company adopted the standard effective January 1, 2019. The Company elected several available practical expedients, as discussed in Note 6, and implemented certain internal controls to ensure the accurate presentation of financial information on adoption.

 

The standard had a material impact on the Company’s Condensed Consolidated Balance Sheets, but did not have an impact on the Condensed Consolidated Statements of Operations and Comprehensive Loss. There was no cumulative catch-up adjustment made to opening retained earnings. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while the accounting for finance leases (previously capital leases) remained substantially unchanged. As the Company elected to apply the standard at adoption as allowed under ASU No. 2018-11, there is no impact to previously reported results. The impact of this standard was the recognition of a lease liability and right-of-use asset of approximately $22.0 million, with immaterial differences related to prepaid rent, on the Consolidated Balance Sheet for lease contracts which were previously accounted for as operating leases. 

 

As allowed under ASC 842, the Company has adopted the following practical expedients:

 

·

Practical expedient package, which allows the following: 

o

To not reassess whether any expired or existing contracts is or contains a lease.

o

To not reassess the lease classification of any expired or existing leases.

o

To not reassess the initial direct costs for any existing lease.

·

Short-term lease practical expedient

o

Allows the Company not to apply the recognition requirements in ASC 842 to short term leases for all asset classes. Short term leases are leases that, at commencement date, have a term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

·

Separating lease components practical expedient

o

Allows the Company not to separate lease components from nonlease components for all asset classes and instead account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

 

2.Revenue Recognition

 

During the first quarter of 2019, the Company reorganized its segments. See Note 1 to the Unaudited Condensed Consolidated Financial Statements for additional information regarding these segments.

 

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Revenue Streams

 

The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers. Additionally, contract amounts represent the full amount of the transaction price as agreed upon with the customer at the time of order, resulting in a single performance obligation in all cases.

 

Work Truck Attachments

 

The Company recognizes revenue upon shipment of equipment to the customer. Within the Work Truck Attachments segment, the Company offers a variety of discounts and sales incentives to its distributors. The estimated liability for sales discounts and allowances is calculated using the expected value method and recorded at the time of sale as a reduction of net sales. The liability is estimated based on the costs of the program, the planned duration of the program and historical experience.

 

The Work Truck Attachments segment has two revenue streams, as identified below.

 

Independent Dealer Sales – Revenues from sales to independent dealers are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment. In these instances, each product is considered a separate performance obligation, and revenue is recognized upon shipment of the goods. Any shipping and handling activities performed by the Company after the transfer of control to the customer (e.g., when control transfers upon shipment) are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.

 

 

Parts & Accessory Sales – The Company’s equipment is used in harsh conditions and parts frequently wear out. These parts drive recurring revenues through parts and accessory sales. The process for recording parts and accessory sales is consistent with the independent dealer sales noted above.

 

Work Truck Solutions

 

The Work Truck Solutions segment primarily participates in the truck and vehicle upfitting industry in the United States. Customers are billed separately for the truck chassis by the chassis manufacturer.  The Company only records sales for the amount of the upfit, excluding the truck chassis.   Generally, the Company obtains the truck chassis from the truck chassis manufacturer through either its floor plan agreement with a financial institution or bailment pool agreement with the truck chassis manufacturer. Additionally, in some instances the Company upfits chassis which are owned by the end customer.  For truck chassis acquired through the floor plan agreement, the Company holds title to the vehicle from the time the chassis is received by the Company until the completion of the up-fit.  Under the bailment pool agreement, the Company does not take title to the truck chassis, but rather only holds the truck chassis on consignment.   The Company pays interest on both of these arrangements.  The Company records revenue in the same manner net of the value of the truck chassis in both the Company’s floor plan and bailment pool agreements. The Company does not set the price for the truck chassis, is not responsible for the billing of the chassis and does not have inventory risk in either the bailment pool or floor plan agreements. The Work Truck Solutions segment also has manufacturing operations of municipal snow and ice control equipment, where revenue is recognized upon shipment of equipment to the customer.

Revenues from the sales of the Work Truck Solutions products are recognized net of the truck chassis with the selling price to the customer recorded as sales and the manufacturing and up-fit cost of the product recorded as cost of sales. In these cases, the Company acts as an agent as it does not have inventory or pricing control over the truck chassis.  Within the Work Truck Solutions segment, the Company also sells certain third-party products for which it acts as an agent.  These sales do not meet the criteria for gross sales recognition, and thus are recognized on a net basis at the time of sale. Under net sales recognition, the cost paid to the third-party service provider is recorded as a reduction to sales, resulting in net sales being equal to the gross profit on the transaction.

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The Work Truck Solutions segment has four revenue streams, as identified below.

 

State and Local Bids – The Company records revenue of separately sold snow and ice equipment upon shipment and fully upfit vehicles upon delivery.  The state and local bid process does not obligate the entity to buy any products from the Company, but merely allows the entity to purchase products in the future typically for a fixed period of time. The entity commits to actually purchasing products from the Company when it issues purchase orders off of a previously awarded bid, which lists out actual quantities of equipment being ordered and the delivery terms. On upfit transactions, the Company is providing a significant service by assembling and integrating the individual products onto the customer’s truck. Each individual product and installation activity is highly interdependent and highly interrelated, and therefore the Company considers the manufacture and upfit of a truck a single performance obligation. Any shipping and handling activities performed by the Company after the transfer of control to the Customer (e.g., when control transfers upon shipment) are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.

 

Fleet Upfit Sales – The Company enters into contracts with certain fleet customers. Fleet agreements create enforceable rights without the issuance of a purchase order. Typically, these agreements outline the terms of sale, payment terms, standard pricing, and the rights of the customer and seller. Fleet sales are performed on both customer owned vehicles as well as non-customer owned vehicles.  For non-customer owned vehicles, revenue is recognized at a point in time upon delivery of the truck to the customer. For customer-owned vehicles, per Topic 606, revenue is recognized over time based on a cost input method. The Company accumulates costs incurred on partially completed customer-owned upfits based on estimated margin and completion. This change to over time recognition for customer owned vehicles increased revenue by $145 and $294 for the three months ended March 31, 2019 and 2018, respectively.

 

Dealer Upfit Sales – The Company upfits work trucks for independent dealer customers. Dealer upfit revenue is recorded upon delivery. The customer does not own the vehicles during the upfit process, and as such revenue is recorded at a point in time upon delivery to the customer.

 

Over the Counter / Parts & Accessory Sales – Work Truck Solutions part and accessory sales are recorded as revenue upon shipment. Additionally, customers can purchase parts at any of the Company’s showrooms.  In these instances, each product is considered a separate performance obligation, and revenue is recognized upon shipment of the goods or customer pick up.

 

Disaggregation of Revenue

 

The following table provides information about disaggregated revenue by customer type and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable segments.

 

Revenue by customer type was as follows:

 

 

 

 

 

Three Months Ended March 31,  2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 25,817

$ 33,043

$ 58,860

Government

-

15,529

$ 15,529

Fleet

-

14,952

$ 14,952

Other

-

3,846

$ 3,846

Total revenue

$ 25,817

$ 67,370

$ 93,187

 

 

 

 

Three Months Ended March 31,  2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 24,596

$ 26,725

$ 51,321

Government

 -

13,821

$ 13,821

Fleet

 -

14,352

$ 14,352

Other

 -

4,470

$ 4,470

Total revenue

$ 24,596

$ 59,368

$ 83,964

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Revenue by timing of revenue recognition was as follows:

 

 

 

 

Three Months Ended March 31,  2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 25,817

$ 42,023

$ 67,840

Over time

 -

25,347

$ 25,347

Total revenue

$ 25,817

$ 67,370

$ 93,187

 

 

 

 

Three Months Ended March 31,  2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 24,596

$ 36,031

$ 60,627

Over time

 -

23,337

$ 23,337

Total revenue

$ 24,596

$ 59,368

$ 83,964

 

 

 

 

Contract Balances

 

The following table shows the changes in the Company’s contract liabilities during the three months ended March 31, 2019 and 2018, respectively:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,  2019

 

Balance at Beginning of Period

 

Additions

 

Deductions

 

Balance at End of Period

Contract liabilities

$

2,006

$

2,335

$

(2,041)

 $

2,300

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,  2018

 

Balance at Beginning of Period

 

Additions

 

Deductions

 

Balance at End of Period

Contract liabilities

$

2,048

$

1,819

$

(1,648)

 $

2,219

 

The Company receives payments from customers based upon contractual billing schedules. Contract assets include amounts related to our contractual right to consideration for completed performance objectives not yet invoiced. There were no contract assets as of March 31, 2019. Contract liabilities include payments received in advance of performance under the contract, variable freight allowances which are refunded to the customer, and rebates paid to distributors under our municipal rebate program, and are realized with the associated revenue recognized under the contract.

 

The Company recognized revenue of $372 and $279 during the three months ended March 31, 2019 and 2018, respectively, which was included in contract liabilities at the beginning of each period.

 

 

Transaction Price Allocated to the Remaining Performance Obligations

 

Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2019. The guidance provides certain optional exemptions that limit this requirement. The Company has various contracts that meet the following optional exemptions provided by ASC 606:

 

1.

The performance obligation is part of a contract that has an original expected duration of one year or less.

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2.

Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer in accordance with ASC 606-10-55-18.

 

3.

The variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met.

 

After considering the above optional exemptions, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period is immaterial. Specifically, all obligations are expected to be less than one year, revenue is recognized from the satisfaction of the performance obligations and variable consideration is allocated entirely to wholly unsatisfied performance obligations.

 

 

 

 

 

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,

 

 

2019

 

2018

Assets:

 

 

 

 

 

 

Other long-term assets (a)

  

$

6,623

  

$

5,064

 

 

 

 

 

 

 

Total Assets

 

$

6,623

 

$

5,064

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Interest rate swaps (b)

 

$

3,484

 

$

2,031

Long-term debt (c)

 

 

248,012

 

 

269,739

Earnout - Henderson (d)

 

 

44

 

 

352

Earnout - Dejana (e)

 

 

2,200

 

 

2,200

Total Liabilities

 

$

253,740

 

$

274,322

 

 

 


(a)  Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amount of these insurance policies approximates their fair value and is considered Level 2 inputs.  

 

(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 $379 and $3,105 at March 31, 2019 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectivelyInterest rate swaps of $127 and $1,904 at December 31, 2018 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively.

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(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.

 

(d) Included in Accrued expenses and other current liabilities in the amount of $44 at March 31, 2019 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 $33 and $442, respectively, at March 31, 2018 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,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Beginning Balance

  

$

352

 

$

529

 

Adjustments to fair value

 

 

(217)

 

 

 

Payment to former owners

 

 

(91)

 

 

(54)

 

Ending balance

 

$

44

 

$

475

 

 

 

 

 

(e) Included in Other long-term liabilities in the amount of $2,200 at March 31, 2019 is the fair value of an obligation for a portion of the potential earnout incurred in conjunction with the acquisition of substantially all of the assets of Dejana Truck & Utility Equipment Company, Inc. and certain entities directly or indirectly owned by the Peter Paul Dejana Family Trust dated 12/31/98 (“Dejana”). Included in Other long-term liabilities in the amount of $3,100 at March 31, 2018 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

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Beginning Balance

  

$

2,200

 

 

$

3,100

 

Adjustments to fair value

 

 

 

 

 

 

Payment to former owners

 

 

 

 

 

 

Ending balance

 

$

2,200

 

 

$

3,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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4.Inventories

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2019

 

2018

 

 

 

 

 

 

 

Finished goods

  

$

69,623

  

$

43,192

Work-in-process

 

 

8,021

 

 

7,357

Raw material and supplies

 

 

33,581

 

 

31,447

 

 

$

111,225

 

$

81,996

 

 

The inventories in the table above do not include truck chassis inventory financed through a floor plan financing agreement, which are recorded separately on the balance sheet. The Company takes title to truck chassis upon receipt of the inventory through its 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 the dealer customer upon delivery.  At March 31, 2019 and December 31, 2018, the Company had $7,382 and $4,204 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.

 

 

 

 

 

5.Property, plant and equipment

 

Property, plant and equipment are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2019

 

2018

 

 

 

 

 

 

 

Land

 

$

2,378

 

$

2,378

Land improvements

 

 

4,450

 

 

4,357

Leasehold improvements

 

 

4,087

 

 

4,079

Buildings

 

 

28,616

 

 

28,238

Machinery and equipment

 

 

50,703

 

 

50,129

Furniture and fixtures

 

 

16,457

 

 

16,360

Mobile equipment and other

 

 

4,883

 

 

4,883

Construction-in-process

 

 

2,545

 

 

3,084

Total property, plant and equipment

 

 

114,119

 

 

113,508

Less accumulated depreciation

 

 

(60,302)

 

 

(58,313)

Net property, plant and equipment

 

$

53,817

 

$

55,195

 

 

 

 

 

 

6.Leases

 

The Company has operating leases for manufacturing and upfit facilities, land and parking lots, warehousing space and certain equipment. The leases have remaining lease terms of less than one year to 17 years, some of which include options to extend the leases for up to 10 years. Such renewal options were not included in the determination of the lease term unless deemed reasonably certain of exercise. The discount rate used in measuring the lease liabilities is based on the Company’s interest rate on its secured Term Loan Credit Agreement. Certain of the Company’s leases contain escalating rental payments based on an index. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

 

 

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Lease Expense

 

The components of lease expense, which are included in Cost of sales and Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss, were as follows:

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2019

Operating lease expense

 

$ 1,132

 

 

 

Short term lease cost

 

$ 100

 

 

 

Total lease cost

 

$ 1,232

 

 

Cash Flow

 

Supplemental cash flow information related to leases is as follows:

 

 

 

 

Three Months Ended

 

March 31, 2019

 

 

Cash paid for amounts included in the measurement  of operating lease liabilities

$ 765

Non-cash lease expense - right-of-use assets

$ 785

Right-of-use assets obtained in exchange for operating lease obligations

$ 56

 

 

Balance Sheet

 

Supplemental balance sheet information related to leases is as follows: 

 

 

 

 

 

March 31, 2019

 

Operating Leases

 

 

Operating lease right-of-use assets

$ 21,537

 

 

 

 

Other current liabilities

3,335

 

Operating lease liabilities

18,222

 

    Total operating lease liabilities

$ 21,557

 

 

 

 

Weighted Average Remaining Lease Term

 

 

    Operating leases

87

months

 

 

 

Weighted Average Discount Rate

 

 

    Operating leases

5.35%

 

 

 

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Lease Maturities

 

Maturities of leases were as follows:

 

 

 

 

Year ending December 31,

 

Operating Leases

2019 (excluding the three months ended March 31, 2019)

 

$ 3,288

2020

 

3,936

2021

 

3,657

2022

 

3,267

2023

 

2,879

Thereafter

 

8,617

    Total Lease Payments

 

25,644

Less: imputed interest

 

(4,087)

    Total

 

$ 21,557

 

 

Related party leases

 

The Company entered into lease agreements at the time of the close of the Dejana acquisition with parties that are affiliated with the former owners of Dejana and are still employed at Dejana post - acquisition.  The related parties continue to own land and buildings where Dejana conducts business.  As of March 31, 2019, the Company had 9 operating leases at Dejana upfitting and manufacturing facilities with related party affiliates. The Company incurred $534 of total rent expense to related parties in the three months ended March 31, 2019.  As the Company makes monthly payments to the related parties, there are no amounts owed to the related parties at March 31, 2019.

 

ASC 840 Disclosure

 

As required in transition, the below summarizes the Company’s future minimum lease payments at December 31, 2018 under ASC 840:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related Party Leases

 

Third Party Leases

 

Total Leases

 

 

 

 

 

 

 

 

2019

 

$

2,250

$

2,009

$

4,259

2020

 

 

2,250

 

1,654

 

3,904

2021

 

 

2,250

 

1,364

 

3,614

2022

 

 

2,250

 

949

 

3,199

2023

 

 

2,130

 

574

 

2,704

Thereafter

 

 

4,410

 

1,500

 

5,910

Total lease obligations

 

$

15,540

$

8,050

$

23,590

 

 

 

 

 

 

 

 

 

 

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7. Other Intangible Assets

 

The following is a summary of the Company’s other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Less

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

March 31,  2019

 

 

 

 

 

 

 

 

 

Indefinite-lived intangibles:

 

 

 

 

 

 

 

 

 

Trademark and tradenames

 

$

77,600

 

$

 -

 

$

77,600

Amortizable intangibles:

 

 

 

 

 

 

 

 

 

Dealer network

 

 

80,000

 

 

60,000

 

 

20,000

Customer relationships

 

 

80,920

 

 

17,935

 

 

62,985

Patents

 

 

21,136

 

 

12,288

 

 

8,848

Noncompete agreements

 

 

8,640

 

 

7,952

 

 

688

Trademarks

 

 

5,459

 

 

3,643

 

 

1,816

Backlog

 

 

1,900

 

 

1,900

 

 

 -

License

 

 

20

 

 

20

 

 

 -

Amortizable intangibles, net

 

 

198,075

 

 

103,738

 

 

94,337

Total

 

$