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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 September 30, 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

13-4275891

(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 November 5, 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 September 30, 2019 and December 31, 2018

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018

4

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

5

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 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

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

Item 4. Controls and Procedures

41

PART II. OTHER INFORMATION

41

Item 1. Legal Proceedings

41

Item 1A. Risk Factors

41

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

42

Item 3. Defaults Upon Senior Securities

42

Item 4. Mine Safety Disclosures

42

Item 5. Other Information

42

Item 6. Exhibits

43

Signatures

44

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data)

September 30,

December 31,

2019

2018

(unaudited)

(unaudited)

Assets

  

  

Current assets:

Cash and cash equivalents

$

4,870

$

27,820

Accounts receivable, net

153,231

81,485

Inventories

90,406

81,996

Inventories - truck chassis floor plan

19,709

4,204

Refundable income taxes paid

171

-

Prepaid and other current assets

4,163

3,590

Total current assets

272,550

199,095

Property, plant, and equipment, net

56,764

55,195

Goodwill

241,006

241,006

Other intangible assets, net

166,461

174,678

Operating lease - right of use asset

22,203

-

Other long-term assets

7,925

6,219

Total assets

$

766,909

$

676,193

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

16,995

$

18,703

Accrued expenses and other current liabilities

27,613

23,306

Floor plan obligations

19,709

4,204

Operating lease liability - current

3,626

-

Income taxes payable

-

106

Short term borrowings

57,000

-

Current portion of long-term debt

2,143

32,749

Total current liabilities

127,086

79,068

Retiree health benefit obligation

6,531

6,240

Pension obligation

2,480

2,129

Deferred income taxes

48,640

48,198

Long-term debt, less current portion

242,411

242,946

Operating lease liability - noncurrent

18,813

-

Other long-term liabilities

20,944

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 September 30, 2019 and December 31, 2018, respectively

228

227

Additional paid-in capital

154,823

151,813

Retained earnings

155,492

136,765

Accumulated other comprehensive loss, net of tax

(10,539)

(6,049)

Total stockholders’ equity

300,004

282,756

Total liabilities and stockholders’ equity

$

766,909

$

676,193

See the accompanying notes to condensed consolidated financial statements.

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Table of Contents

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2019

2018

2019

2018

(unaudited)

(unaudited)

Net sales

  

$

141,869

  

$

124,832

$

411,412

  

$

372,242

Cost of sales

101,930

89,912

288,934

261,446

Gross profit

39,939

34,920

122,478

110,796

Selling, general, and administrative expense

17,269

16,592

52,680

53,281

Intangibles amortization

2,737

2,868

8,217

8,605

Income from operations

19,933

15,460

61,581

48,910

Interest expense, net

(4,271)

(4,379)

(12,610)

(12,420)

Other expense, net

(120)

(12)

(416)

(479)

Income before taxes

15,542

11,069

48,555

36,011

Income tax expense

3,113

1,148

10,949

6,802

Net income

$

12,429

$

9,921

$

37,606

$

29,209

Weighted average number of common shares outstanding:

Basic

22,795,412

22,700,991

22,773,546

22,675,450

Diluted

22,832,170

22,726,517

22,808,722

22,697,259

Earnings per common share:

Basic

$

0.54

$

0.43

$

1.63

$

1.27

Diluted

$

0.53

$

0.43

$

1.61

$

1.26

Cash dividends declared and paid per share

$

0.27

$

0.27

$

0.82

$

0.80

Comprehensive income

$

11,361

$

10,709

$

33,116

$

31,789

See the accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended

September 30,

September 30,

2019

2018

(unaudited)

Operating activities

Net income

  

$

37,606

  

$

29,209

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

14,335

14,215

Amortization of deferred financing costs and debt discount

910

911

Loss on disposal of fixed assets

-

185

Stock-based compensation

3,061

4,180

Provision for losses on accounts receivable

988

446

Deferred income taxes

442

7,178

Earnout liability

(217)

-

Changes in operating assets and liabilities:

Accounts receivable

(72,734)

(47,105)

Inventories

(8,410)

(19,795)

Prepaid and refundable income taxes and other assets

(2,450)

(4,093)

Accounts payable

(1,594)

(872)

Accrued expenses and other current liabilities

4,418

4,360

Benefit obligations and other long-term liabilities

2,476

(6,723)

Net cash used in operating activities

(21,169)

(17,904)

Investing activities

Capital expenditures

(7,801)

(6,302)

Net cash used in investing activities

(7,801)

(6,302)

Financing activities

Shares withheld on restricted stock vesting paid for employees’ taxes

(50)

(23)

Dividends paid

(18,879)

(18,291)

Net revolver borrowings

57,000

38,000

Repayment of long-term debt

(32,051)

(32,355)

Net cash provided by (used) in financing activities

6,020

(12,669)

Change in cash and cash equivalents

(22,950)

(36,875)

Cash and cash equivalents at beginning of period

27,820

36,875

Cash and cash equivalents at end of period

$

4,870

$

-

Non-cash operating and financing activities

Truck chassis inventory acquired through floorplan obligations

$

40,974

$

30,034

See the accompanying notes to condensed consolidated financial statements.

5

Table of Contents

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

Three Months Ended September 30, 2019

Balance at June 30,2019

22,795,412

$

228

$

154,298

$

149,372

$

(9,470)

$

294,428

Net income

12,429

12,429

Dividends paid

(6,309)

(6,309)

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

53

53

Adjustment for interest rate swap, net of tax of $394

(1,122)

(1,122)

Stock based compensation

525

525

Balance at September 30, 2019

22,795,412

$

228

$

154,823

$

155,492

$

(10,539)

$

300,004

Nine Months Ended September 30, 2019

Balance at December 31, 2018

22,700,991

$

227

$

151,813

$

136,765

$

(6,049)

$

282,756

Net income

37,606

37,606

Dividends paid

(18,879)

(18,879)

Adjustment for pension and postretirement benefit liability, net of tax of ($54)

159

159

Adjustment for interest rate swap, net of tax of $1,634

(4,649)

(4,649)

Shares withheld on restricted stock vesting

(50)

(50)

Stock based compensation

94,421

1

3,060

3,061

Balance at September 30, 2019

22,795,412

$

228

$

154,823

$

155,492

$

(10,539)

$

300,004

Three Months Ended September 30, 2018

Balance at June 30,2018

22,700,991

$

227

$

151,428

$

123,208

$

(4,780)

$

270,083

Net income

9,921

9,921

Dividends paid

(6,097)

(6,097)

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

92

92

Adjustment for interest rate swap, net of tax of ($244)

696

696

Stock based compensation

15

15

Balance at September 30, 2018

22,700,991

$

227

$

151,443

$

127,032

$

(3,992)

$

274,710

Nine Months Ended September 30, 2018

Balance at December 31, 2017

22,590,897

$

226

$

147,287

$

115,737

$

(6,572)

$

256,678

Net income

29,209

29,209

Dividends paid

(18,291)

(18,291)

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

377

377

Adjustment for pension and postretirement benefit liability, net of tax of ($96)

276

276

Adjustment for interest rate swap, net of tax of ($809)

2,304

2,304

Shares withheld on restricted stock vesting

(23)

(23)

Stock based compensation

110,094

1

4,179

4,180

Balance at September 30, 2018

22,700,991

$

227

$

151,443

$

127,032

$

(3,992)

$

274,710

See the accompanying notes to condensed consolidated financial statements.

6

Table of Contents

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 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 throughout this Form 10-Q has been recast to conform to the current segment reporting structure.

Interim Condensed Consolidated Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and comprehensive income and the condensed consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2019 and 2018, and the condensed cash flows for the nine months ended September 30, 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

7

Table of Contents

above, Work Truck Attachments working capital needs are highest in the second and third quarters as its accounts 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 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 Income. 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:  
oTo not reassess whether any expired or existing contracts is or contains a lease.
oTo not reassess the lease classification of any expired or existing leases.
oTo not reassess the initial direct costs for any existing lease.

Short-term lease practical expedient
oAllows 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
oAllows 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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Table of Contents

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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Table of Contents

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 $839 and $16 for the three months ended September 30, 2019 and 2018, respectively. The change to over time recognition increased revenue by $983 and by $273 for the nine months ended September 30, 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 September 30, 2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 75,632

$ 29,007

$ 104,639

Government

-

18,373

18,373

Fleet

-

16,775

16,775

Other

-

2,082

2,082

Total revenue

$ 75,632

$ 66,237

$ 141,869

Three Months Ended September 30, 2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 69,806

$ 26,486

$ 96,292

Government

-

12,568

12,568

Fleet

-

13,955

13,955

Other

-

2,017

2,017

Total revenue

$ 69,806

$ 55,026

$ 124,832

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Nine Months Ended September 30, 2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 213,693

$ 91,199

$ 304,892

Government

-

49,985

49,985

Fleet

-

48,292

48,292

Other

-

8,243

8,243

Total revenue

$ 213,693

$ 197,719

$ 411,412

Nine Months Ended September 30, 2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 197,931

$ 86,921

$ 284,852

Government

-

35,351

35,351

Fleet

-

43,501

43,501

Other

-

8,538

8,538

Total revenue

$ 197,931

$ 174,311

$ 372,242

Revenue by timing of revenue recognition was as follows:

Three Months Ended September 30, 2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 75,632

$ 41,099

$ 116,731

Over time

-

25,138

25,138

Total revenue

$ 75,632

$ 66,237

$ 141,869

Three Months Ended September 30, 2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 69,806

$ 33,923

$ 103,729

Over time

-

21,103

21,103

Total revenue

$ 69,806

$ 55,026

$ 124,832

Nine Months Ended September 30, 2019

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 213,693

$ 120,577

$ 334,270

Over time

-

77,142

77,142

Total revenue

$ 213,693

$ 197,719

$ 411,412

Nine Months Ended September 30, 2018

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 197,931

$ 106,249

$ 304,180

Over time

-

68,062

68,062

Total revenue

$ 197,931

$ 174,311

$ 372,242

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Contract Balances

The following table shows the changes in the Company’s contract liabilities during the three and nine months ended September 30, 2019 and 2018, respectively:

Three Months Ended September 30, 2019

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

6,886

$

3,328

$

(6,147)

$

4,067

Three Months Ended September 30, 2018

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

3,316

$

2,434

$

(3,544)

$

2,206

Nine Months Ended September 30, 2019

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

2,006

$

13,479

$

(11,418)

$

4,067

Nine Months Ended September 30, 2018

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

2,048

$

8,605

$

(8,447)

$

2,206

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 September 30, 2019 or 2018. 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 $721 and $663 during the three months ended September 30, 2019 and 2018, respectively, which was included in contract liabilities at the beginning of each period. The Company recognized revenue of $2,006 and $2,048 during the nine months ended September 30, 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 September 30, 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.

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.

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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

September 30,

December 31,

2019

2018

Assets:

Other long-term assets (a)

  

$

6,893

  

$

5,064

Total Assets

$

6,893

$

5,064

Liabilities:

Interest rate swaps (b)

$

8,312

$

2,031

Long-term debt (c)

247,555

269,739

Earnout - Henderson (d)

17

352

Earnout - Dejana (e)

2,200

2,200

Total Liabilities

$

258,084

$

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 $1,475 and $6,837 at September 30, 2019 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively.  Interest 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.

(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 $17 at September 30, 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 $213 and $200, respectively, at September 30, 2018 is the fair value of an obligation

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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

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2019

2019

2018

2018

Beginning Balance

  

$

17

$

352

$

444

$

529

Adjustments to fair value

-

(217)

Payment to former owners

-

(118)

(31)

(116)

Ending balance

$

17

$

17

$

413

$

413

(e) Included in Other long-term liabilities in the amount of $2,200 at September 30, 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 September 30, 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.  There were no adjustments to fair value or payments to former owners in either the three and nine months ended September 30, 2019 or September 30, 2018.

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4.Inventories

Inventories consist of the following: