0001287213 DOUGLAS DYNAMICS, INC false --12-31 Q2 2022 0.01 0.01 200,000,000 200,000,000 22,886,793 22,886,793 22,980,951 22,980,951 14 525 28 2,028 20 340 40 534 2 2 0 1 2 444 499 0 1 2.718 2 1 1 5 37.57 2 2,739 Included in Non-qualified benefit plan 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. Amounts reclassified from accumulated other comprehensive income (loss): Amortization of Other Postretirement Benefit items: Actuarial gains $ (110 ) Tax expense 28 Reclassification net of tax $ (82 ) Realized losses on interest rate swaps reclassified to interest expense $ 1,796 Tax benefit (467 ) Reclassification net of tax $ 1,329 The fair value of the Company’s long-term debt, including current maturities, is based on rates for instruments with comparable maturities and credit quality (Level 2 inputs), and approximates its carrying value. Prior to the Company’s most recent debt refinancing, the fair value of the Company’s long-term debt, including current maturities, was estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, which was a Level 2 input. See Note 9 to the Unaudited Condensed Consolidated Financial Statements for additional information. 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. ? Reflects unrelated legal, severance, restructuring and consulting fees for the periods presented. ? 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 $1,051 and $665 at June 30, 2022 are included in Prepaid and other current assets and Other long-term assets, respectively. Interest rate swaps of $3,479 and $2,949 at December 31, 2021 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively. Reflects incremental costs incurred related to the COVID-19 pandemic for the periods presented. Such COVID-19 related costs include increased expenses directly related to the pandemic, and do not include either production related overhead inefficiencies or lost or deferred sales. Amounts reclassified from accumulated other comprehensive income (loss): Amortization of Other Postretirement Benefit items: Actuarial gains $ (156 ) Tax expense 41 Reclassification net of tax $ (115 ) Realized losses on interest rate swaps reclassified to interest expense $ 2,108 Tax benefit (548 ) Reclassification net of tax $ 1,560 00012872132022-01-012022-06-30 xbrli:shares 00012872132022-08-02 iso4217:USD 00012872132022-06-30 00012872132021-12-31 iso4217:USDxbrli:shares 00012872132022-04-012022-06-30 00012872132021-04-012021-06-30 00012872132021-01-012021-06-30 00012872132020-12-31 00012872132021-06-30 0001287213us-gaap:CommonStockMember2022-03-31 0001287213us-gaap:AdditionalPaidInCapitalMember2022-03-31 0001287213us-gaap:RetainedEarningsMember2022-03-31 0001287213us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-31 00012872132022-03-31 0001287213us-gaap:CommonStockMember2022-04-012022-06-30 0001287213us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-30 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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 June 30, 2022

 ​

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.)

11270 W Park Place Ste 300

Milwaukee, Wisconsin 53224

(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  August 2, 2022 was 22,886,793.

 

 

 

 

DOUGLAS DYNAMICS, INC.

 ​

Table of Contents

 ​

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2022 and 2021

4

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

5

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

28

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

Item 4. Controls and Procedures

40

PART II. OTHER INFORMATION

40

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

41

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

41

Item 3. Defaults Upon Senior Securities

41

Item 4. Mine Safety Disclosures

41

Item 5. Other Information

41

Item 6. Exhibits

42

Signatures

 43

 ​

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data) ​

 ​

  

June 30,

  

December 31,

 
  

2022

  

2021

 
  

(unaudited)

  

(unaudited)

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $6,041  $36,964 

Accounts receivable, net

  127,890   71,035 

Inventories

  131,518   104,019 

Inventories - truck chassis floor plan

  1,052   2,655 

Refundable income taxes paid

     1,222 

Prepaid and other current assets

  4,012   4,536 

Total current assets

  270,513   220,431 

Property, plant, and equipment, net

  66,171   66,787 

Goodwill

  113,134   113,134 

Other intangible assets, net

  136,849   142,109 

Operating lease - right of use asset

  16,152   18,462 

Non-qualified benefit plan assets

  8,726   10,347 

Other long-term assets

  1,939   1,206 

Total assets

 $613,484  $572,476 

Liabilities and stockholders’ equity

        

Current liabilities:

        

Accounts payable

 $18,092  $27,375 

Accrued expenses and other current liabilities

  32,140   36,126 

Floor plan obligations

  1,052   2,655 

Operating lease liability - current

  4,416   4,623 

Income taxes payable

  3,848    

Short term borrowings

  58,000    

Current portion of long-term debt

  11,137   11,137 

Total current liabilities

  128,685   81,916 

Retiree benefits and deferred compensation

  15,750   17,170 

Deferred income taxes

  30,838   29,789 

Long-term debt, less current portion

  200,677   206,058 

Operating lease liability - noncurrent

  13,302   15,408 

Other long-term liabilities

  4,577   7,525 

Stockholders’ equity:

        

Common Stock, par value $0.01, 200,000,000 shares authorized, 22,886,793 and 22,980,951 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

  229   230 

Additional paid-in capital

  162,605   163,552 

Retained earnings

  52,184   51,881 

Accumulated other comprehensive income (loss), net of tax

  4,637   (1,053)

Total stockholders’ equity

  219,655   214,610 

Total liabilities and stockholders’ equity

 $613,484  $572,476 

 ​ ​

See the accompanying notes to condensed consolidated financial statements.

 

 

3

 ​

 

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except share and per share data)

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
  

(unaudited)

  

(unaudited)

 
                 

Net sales

 $187,561  $157,530  $290,162  $260,872 

Cost of sales

  136,328   108,732   217,865   185,822 

Gross profit

  51,233   48,798   72,297   75,050 

Selling, general, and administrative expense

  23,024   21,982   44,397   41,881 

Intangibles amortization

  2,630   2,705   5,260   5,410 

Income from operations

  25,579   24,111   22,640   27,759 

Interest expense, net

  (2,473)  (4,372)  (4,586)  (7,347)

Loss on extinguishment of debt

     (4,936)     (4,936)

Other income (expense), net

  (16)  116   111   108 

Income before taxes

  23,090   14,919   18,165   15,584 

Income tax expense

  5,365   816   4,348   739 

Net income

 $17,725  $14,103  $13,817  $14,845 

Weighted average number of common shares outstanding:

                

Basic

  22,907,414   22,973,391   22,944,769   22,927,658 

Diluted

  22,907,414   22,985,233   22,947,352   22,943,836 

Earnings per common share:

                

Basic

 $0.76  $0.60  $0.59  $0.64 

Diluted

 $0.75  $0.60  $0.58  $0.63 

Cash dividends declared and paid per share

 $0.29  $0.29  $0.58  $0.57 

Comprehensive income

 $19,177  $15,021  $19,507  $16,269 

 ​ ​

See the accompanying notes to condensed consolidated financial statements.

 ​

4

 

 

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) ​

 ​

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

 
  

(unaudited)

 
         

Operating activities

        

Net income

 $13,817  $14,845 

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

        

Depreciation and amortization

  10,393   10,213 

Loss (gain) on disposal of fixed asset

  130   (57)

Amortization of deferred financing costs and debt discount

  244   646 

Loss on extinguishment of debt

     4,936 

Stock-based compensation

  5,053   6,020 

Adjustments on derivatives not classified as hedges

  (344)  (849)

Provision for losses on accounts receivable

  50   347 

Deferred income taxes

  1,049   477 

Non-cash lease expense

  2,310   1,681 

Changes in operating assets and liabilities:

        

Accounts receivable

  (56,905)  (9,279)

Inventories

  (27,499)  (14,155)

Prepaid assets, refundable income taxes and other assets

  2,634   (475)

Accounts payable

  (8,350)  2,929 

Accrued expenses and other current liabilities

  (139)  (2,851)

Benefit obligations and other long-term liabilities

  (647)  (1,287)

Net cash provided by (used in) operating activities

  (58,204)  13,141 

Investing activities

        

Capital expenditures

  (5,580)  (4,586)

Net cash used in investing activities

  (5,580)  (4,586)

Financing activities

        

Repurchase of common stock

  (6,001)   

Payments of financing costs

     (1,281)

Dividends paid

  (13,514)  (13,254)

Net revolver borrowings

  58,000    

Borrowings on long-term debt

     224,438 

Repayment of long-term debt

  (5,624)  (244,313)

Net cash provided by (used in) financing activities

  32,861   (34,410)

Change in cash and cash equivalents

  (30,923)  (25,855)

Cash and cash equivalents at beginning of period

  36,964   41,030 

Cash and cash equivalents at end of period

 $6,041  $15,175 
         

Non-cash operating and financing activities

        

Truck chassis inventory acquired through floorplan obligations

 $1,303  $26,056 

 ​ ​

See the accompanying notes to condensed consolidated financial statements.

 ​

5

 

 

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Shareholders Equity

(In thousands)

 

  

Common Stock

  

Additional Paid-in

  

Retained

  

Accumulated Other Comprehensive

     
  

Shares

  

Dollars

  

Capital

  

Earnings

  

Income (Loss)

  

Total

 

Three Months Ended June 30, 2022

                        

Balance at March 31, 2022

  22,976,150  $230  $162,451  $41,225  $3,185  $207,091 

Net income

           17,725      17,725 

Dividends paid

           (6,766)     (6,766)

Adjustment for postretirement benefit liability, net of tax of $14

              (41)  (41)

Adjustment for interest rate swap, net of tax of ($525)

              1,493   1,493 

Repurchase of common stock

  (89,357)  (1)  (2,999)        (3,000)

Stock based compensation

        3,153         3,153 

Balance at June 30, 2022

  22,886,793  $229  $162,605  $52,184  $4,637  $219,655 
                         

Six Months Ended June 30, 2022

                        

Balance at December 31, 2021

  22,980,951  $230  $163,552  $51,881  $(1,053) $214,610 

Net income

           13,817      13,817 

Dividends paid

           (13,514)     (13,514)

Adjustment for pension and postretirement benefit liability, net of tax of $28

              (82)  (82)

Adjustment for interest rate swap, net of tax of ($2,028)

              5,772   5,772 

Shares withheld on restricted stock vesting

                  

Repurchase of common stock

  (171,088)  (2)  (5,999)        (6,001)

Stock based compensation

  76,930   1   5,052         5,053 

Balance at June 30, 2022

  22,886,793  $229  $162,605  $52,184  $4,637  $219,655 
                         

Three Months Ended June 30, 2021

                        

Balance at March 31, 2021

  22,955,472  $230  $159,722  $41,664  $(4,989) $196,627 

Net income

           14,103      14,103 

Dividends paid

           (6,464)     (6,464)

Adjustment for pension and postretirement benefit liability, net of tax of $20

              (58)  (58)

Adjustment for interest rate swap, net of tax of ($340)

              976   976 

Stock based compensation

  25,479      4,055         4,055 

Balance at June 30, 2021

  22,980,951  $230  $163,777  $49,303  $(4,071) $209,239 
                         

Six Months Ended June 30, 2021

                        

Balance at December 31, 2020

  22,857,457  $229  $157,758  $47,712  $(5,495) $200,204 

Net income

           14,845      14,845 

Dividends paid

           (13,254)     (13,254)

Adjustment for pension and postretirement benefit liability, net of tax of $40

              (116)  (116)

Adjustment for interest rate swap, net of tax of ($534)

              1,540   1,540 

Stock based compensation

  123,494   1   6,019         6,020 

Balance at June 30, 2021

  22,980,951  $230  $163,777  $49,303  $(4,071) $209,239 

 ​

See the accompanying notes to condensed consolidated financial statements.

 ​

6

 

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 2021 Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission on February 22, 2022.

 ​

The Company conducts business in two segments: Work Truck Attachments and Work Truck Solutions. Under this 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.

 ​

 ​

Interim Condensed Consolidated Financial Information

 ​

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2022, the Condensed Consolidated Statements of Operations and Comprehensive Income and the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021, and the Condensed Cash Flows for the six months ended June 30, 2022 and 2021 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 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.  

 ​

7

 ​
 

2.

Revenue Recognition

 ​

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. In the case of a single order containing multiple upfits, the transaction price may represent multiple performance obligations.

 ​

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.

 

8

 

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. The Company books an adjustment to account for revenue over time related to customer owned vehicles, which decreased revenue by $549 and $168 for the three months ended June 30, 2022 and 2021, respectively. The adjustment increased revenue by $85 and $260 for the six months ended June 30, 2022 and 2021, 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.

 ​

9

 

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 June 30, 2022

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Independent dealer

 $130,364  $30,460  $160,824 

Government

  -   13,998   13,998 

Fleet

  -   11,428   11,428 

Other

  -   1,311   1,311 

Total revenue

 $130,364  $57,197  $187,561 

 

Three Months Ended June 30, 2021

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Independent dealer

 $104,638  $32,384  $137,022 

Government

  -   9,466   9,466 

Fleet

  -   9,295   9,295 

Other

  -   1,747   1,747 

Total revenue

 $104,638  $52,892  $157,530 

 

Six Months Ended June 30, 2022

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Independent dealer

 $176,140  $60,711  $236,851 

Government

  -   26,008   26,008 

Fleet

  -   23,151   23,151 

Other

  -   4,152   4,152 

Total revenue

 $176,140  $114,022  $290,162 

 

Six Months Ended June 30, 2021

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Independent dealer

 $146,619  $66,032  $212,651 

Government

  -   21,916   21,916 

Fleet

  -   20,640   20,640 

Other

  -   5,665   5,665 

Total revenue

 $146,619  $114,253  $260,872 

 

Revenue by timing of revenue recognition was as follows:

 

Three Months Ended June 30, 2022

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Point in time

 $130,364  $35,051  $165,415 

Over time

  -   22,146   22,146 

Total revenue

 $130,364  $57,197  $187,561 

 

Three Months Ended June 30, 2021

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Point in time

 $104,638  $32,690  $137,328 

Over time

  -   20,202   20,202 

Total revenue

 $104,638  $52,892  $157,530 

 ​

10

 

Six Months Ended June 30, 2022

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Point in time

 $176,140  $69,534  $245,674 

Over time

  -   44,488   44,488 

Total revenue

 $176,140  $114,022  $290,162 

 

Six Months Ended June 30, 2021

 

Work Truck Attachments

  

Work Truck Solutions

  

Total Revenue

 

Point in time

 $146,619  $73,400  $220,019 

Over time

  -   40,853   40,853 

Total revenue

 $146,619  $114,253  $260,872 

 

Contract Balances

 ​

The following table shows the changes in the Company’s contract liabilities during the three and six months ended June 30, 2022 and 2021, respectively:

 ​

Three Months Ended June 30, 2022

 

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Contract liabilities

 $2,616  $5,928  $(4,214) $4,330 

 

Three Months Ended June 30, 2021

 

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Contract liabilities

 $3,741  $7,564  $(4,702) $6,603 

 

Six Months Ended June 30, 2022

 

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Contract liabilities

 $2,454  $8,637  $(6,761) $4,330 

Six Months Ended June 30, 2021

 

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Contract liabilities

 $2,746  $10,729  $(6,872) $6,603 

 

The Company receives payments from customers based upon contractual billing schedules. Contract assets include amounts related to the contractual right to consideration for completed performance obligations. There were no contract assets as of June 30, 2022 or 2021. 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 $712 and $1,730 during the three months ended June 30, 2022 and 2021, respectively, which was included in contract liabilities at the beginning of each period. The Company recognized revenue of $1,061 and $2,145 during the six months ended June 30, 2022 and 2021, respectively, which was included in contract liabilities at the beginning of each period.

 ​

 

3.

Credit Losses

 ​

The majority of the Company’s accounts receivable are due from distributors of truck equipment and dealers of completed upfit trucks. Credit is extended based on an evaluation of a customer’s financial condition. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Accounts receivable are written off after all collection efforts have been exhausted. The Company takes a security interest in the inventory as collateral for the receivable but often does not have a priority security interest. The Company has short-term accounts receivable at its Work Truck Attachments and Work Truck Solutions segments subject to evaluation for expected credit losses. Expected credit losses are estimated based on the loss-rate and probability of default methods. On a periodic basis, the Company evaluates its accounts receivable and establishes the allowance for credit losses based on specific customer circumstances, past events including collections and write-off history, current conditions, and reasonable forecasts about the future. As of June 30, 2022, the Company had an allowance for credit losses on its trade accounts receivable of $1,634 and $1,288 at its Work Truck Attachments and Work Truck Solutions segments, respectively. As of December 31, 2021, the Company had an allowance for credit losses on its trade accounts receivable of $1,430 and $1,540 at its Work Truck Attachments and Work Truck Solutions segments, respectively.

 ​

11

 

The following table rolls forward the activity related to credit losses for trade accounts receivable at each segment, and on a consolidated basis for the six months ended June 30, 2022 and 2021:

 ​

 Balance at December 31, 2021  Additions charged to earnings  

Writeoffs

  Changes to reserve, net  Balance at June 30, 2022 

Six Months Ended June 30, 2022

 

  

  

  

  

 

Work Truck Attachments

 $1,430  $200  $-  $4  $1,634 

Work Truck Solutions

  1,540   (150)  (105)  3   1,288 

Total

 $2,970  $50  $(105) $7  $2,922 

 ​

  Balance at December 31, 2020  Additions charged to earnings  

Writeoffs

  Changes to reserve, net  Balance at June 30, 2022 

Six Months Ended June 30, 2021

                    

Work Truck Attachments

 $1,480  $200  $-  $2  $1,682 

Work Truck Solutions

  1,449   147   (47)  -   1,549 

Total

 $2,929  $347  $(47) $2  $3,231 

 ​

 ​

 

4.

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).

 ​

12

 

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

 
  

June 30,

  

December 31,

 
  

2022

  

2021

 

Assets:

        

Non-qualified benefit plan assets (a)

 $8,726  $10,347 

Interest rate swaps (b)

  1,716   - 
         

Total Assets

 $10,442  $10,347 
         

Liabilities:

        

Interest rate swaps (b)

 $-  $6,428 

Long-term debt (c)

  213,306   218,875 

Total Liabilities

 $213,306  $225,303 

  ​


(a)  Included in Non-qualified benefit plan 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 $1,051 and $665 at June 30, 2022 are included in Prepaid and other current assets and Other long-term assets, respectively.  Interest rate swaps of $3,479 and $2,949 at December 31, 2021 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 based on rates for instruments with comparable maturities and credit quality (Level 2 inputs), and approximates its carrying value. Prior to the Company’s most recent debt refinancing, the fair value of the Company’s long-term debt, including current maturities, was estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, which was a Level 2 input. See Note 9 to the Unaudited Condensed Consolidated Financial Statements for additional information. 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.

 ​

13

 ​
 

5.

Inventories

 ​

Inventories consist of the following: ​

 ​

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Finished goods

 $70,921  $50,416 

Work-in-process

  14,081   8,916 

Raw material and supplies

  46,516   44,687 
  $131,518  $104,019 

 ​ ​

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.  During the fourth quarter of 2021, a separate financing agreement was entered into that does not pass title of the truck chassis upon receipt of the inventory. As a result, most of the floor plan truck chassis previously recorded on the balance sheet fall under this new financing agreement, and only the trucks still covered under the previous floor plan financing agreement remain on the balance sheet. At June 30, 2022 and December 31, 2021, the Company had $1,052 and $2,655, respectively, of chassis inventory and $1,052 and $2,655 of related floor plan financing obligation, respectively. The Company recognizes revenue associated with up-fitting and service installations net of the truck chassis.

 ​

14

 ​
 

6.

Property, plant and equipment

 ​

Property, plant and equipment are summarized as follows: ​

 ​

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Land

 $3,969  $3,969 

Land improvements

  5,330   5,278 

Leasehold improvements

  5,423   5,405 

Buildings

  35,226   34,635 

Machinery and equipment

  69,729   68,939 

Furniture and fixtures

  22,878   22,275 

Mobile equipment and other

  4,863   4,737 

Construction-in-process

  5,921   4,235 

Total property, plant and equipment

  153,339   149,473 

Less accumulated depreciation

  (87,168)  (82,686)

Net property, plant and equipment

 $66,171  $66,787 

 

15

 

7.

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 14 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.

 ​

In the year ended December 31, 2021, it was determined that facility leases related to two locations in the Company’s Work Truck Solutions segment were impaired. These two facilities are being significantly downsized as part of a restructuring plan, and so it was determined that the carrying value exceeded the fair value of the facilities. As a result, an impairment of $1,211 was recorded in the year ended December 31, 2021, and is recorded under Impairment charges in the Company’s Consolidated Statements of Income (Loss), with an offset being a reduction to the Operating lease - right of use asset on the Company’s Consolidated Balance Sheets. Going forward, the remaining balance of the right of use asset for the impaired leases is being amortized on a straight-line basis. The lease liability for the impaired leases continues to be amortized over the life of the lease.

 ​

16

 

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 Income, were as follows:

 ​

  

Three Months Ended June 30, 2022

  

Six Months Ended June 30, 2022

  

Three Months Ended June 30, 2021

  

Six Months Ended June 30, 2021

 

Operating lease expense

 $1,383  $2,782  $1,411  $2,782 

Short term lease cost

 $89  $189  $43  $158 

Total lease cost

 $1,472  $2,971  $1,454  $2,940 

 

 

Cash Flow

 ​

Supplemental cash flow information related to leases is as follows:

 ​

  Six Months Ended June 30, 2022  Six Months Ended June 30, 2021 
         

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

 $2,870  $2,747 

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

 $2,310  $1,681 

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

 $133  $360 

 ​

 ​

Balance Sheet

 ​

Supplemental balance sheet information related to leases is as follows:  

 ​

  

June 30, 2022

  

December 31, 2021

 

Operating Leases

        

Operating lease right-of-use assets

 $16,152  $18,462 
         

Other current liabilities

  4,416   4,623 

Operating lease liabilities

  13,302   15,408 

Total operating lease liabilities

 $17,718  $20,031 
         

Weighted Average Remaining Lease Term

        

Operating leases (in months)

  59   62 
         

Weighted Average Discount Rate

        

Operating leases

  4.74%  4.79%

 ​

17

Lease Maturities

 ​

Maturities of leases were as follows:

 ​

Year ending December 31,

 

Operating Leases

 

2022 (excluding the six months ended June 30, 2022)

 $2,607 

2023

  4,929 

2024

  4,058 

2025

  3,256 

2026

  2,118 

Thereafter

  2,694 

Total Lease Payments

  19,662 

Less: imputed interest

  (1,944)

Total

 $17,718 

 

 

8.

Other Intangible Assets

 ​

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

 ​

  

Gross

  

Less

  

Net

 
  

Carrying

  

Accumulated

  

Carrying

 
  

Amount

  

Amortization

  

Amount

 

June 30, 2022

            

Indefinite-lived intangibles:

            

Trademark and tradenames

 $77,600  $-  $77,600 

Amortizable intangibles:

            

Dealer network

  80,000   73,000   7,000 

Customer relationships

  80,920   34,951   45,969 

Patents

  21,136   16,367   4,769 

Noncompete agreements

  8,640   8,640   - 

Trademarks

  5,459   3,948   1,511 

Amortizable intangibles, net

  196,155   136,906   59,249 

Total

 $273,755  $136,906  $136,849 

 

  

Gross

  

Less

  

Net

 
  

Carrying

  

Accumulated

  

Carrying

 
  

Amount

  

Amortization

  

Amount

 

December 31, 2021

            

Indefinite-lived intangibles:

            

Trademark and tradenames

 $77,600  $-  $77,600 

Amortizable intangibles:

            

Dealer network

  80,000   71,000   9,000 

Customer relationships

  80,920   32,366   48,554 

Patents

  21,136   15,739   5,397 

Noncompete agreements

  8,640   8,640   - 

Trademarks

  5,459   3,901   1,558 

Amortizable intangibles, net

  196,155   131,646   64,509 

Total

 $273,755  $131,646  $142,109 

 ​

18

 

Amortization expense for intangible assets was $2,630 and $2,705 for the three months ended June 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $5,260 and $5,410 for the six months ended June 30, 2022 and 2021, respectively. Estimated amortization expense for the remainder of 2022 and each of the succeeding five years is as follows:

 ​

2022

 $5,260 

2023

  10,520 

2024

  7,520 

2025

  6,075 

2026

  5,450 

2027

  5,450 

 

 

9.

Long-Term Debt

 ​

Long-term debt is summarized below:

 ​

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Term Loan, net of debt discount of $444 and $499 at June 30, 2022 and December 31, 2021, respectively

 $213,306  $218,875 

Less current maturities

  11,137   11,137 

Long-term debt before deferred financing costs

  202,169   207,738 

Deferred financing costs, net

  1,492   1,680 

Long-term debt, net

 $200,677  $206,058 

 ​

On June 9, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with a group of banks and financial institutions. The Credit Agreement provides for a senior secured term loan in the amount of $225,000 and a senior secured revolving credit facility in the amount of $100,000, of which $10,000 will be available in the form of letters of credit and $15,000 will be available for the issuance of short-term swingline loans. The Credit Agreement also allows the Company to request increases to the revolving commitments and/or incremental term loans in an aggregate amount not in excess of $175,000, subject to specified terms and conditions. The final maturity date of the Credit Agreement is June 9, 2026. The Company applied the proceeds of the senior secured term loan facility under the Credit Agreement to refinance its existing senior secured term loan and revolving credit facilities and for the payment of transaction consideration and expenses in connection with the Credit Agreement.

 

The Company will be required to pay a fee for unused amounts under the senior secured revolving facility in an amount ranging from 0.150% to 0.300% of the average daily unused portion of the senior secured revolving credit facility, depending on the Company’s Leverage Ratio (as defined in the Credit Agreement). The Credit Agreement provides that the senior secured term loan facility will bear interest at (i) the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate (as defined in the Credit Agreement) plus (ii) a margin ranging from 1.375% to 2.00%, depending on the Company’s Leverage Ratio. The Credit Agreement provides that the Company has the option to select whether the senior secured revolving credit facility borrowings will bear interest at either (i)(a) the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate (as defined in the Credit Agreement) plus (b) a margin ranging from 1.375% to 2.00%, depending on the Company’s Leverage Ratio, or (ii) a margin ranging from 0.375% to 1.00% per annum, depending on the Company’s Leverage Ratio, plus the greatest of (which if the following would be less than 1.00%, such rate shall be deemed to be 1.00%) (a) the Prime Rate (as defined in the Credit Agreement) in effect on such day, (b) the NYFRB Rate (as defined in the Credit Agreement) plus 0.50% and (c) the London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate plus 1%. If the London Interbank Offered Rate for the applicable interest period is less than zero, such rate shall be deemed to be zero for purposes of calculating the foregoing interest rates in the Credit Agreement.

 

19

The Credit Agreement was issued at a $563 discount which is being amortized over the term of the term loan. Additionally, deferred financing costs of $1,409 are being amortized over the term of the loan. The Company’s entrance into the Credit Agreement and subsequent settlement of its prior credit agreements is accounted for as an extinguishment of the Company’s prior debt under ASC 470-50, which resulted in the write off of unamortized capitalized deferred financing costs of $972 as well as the write off of unamortized debt discount of $3,964, resulting in a loss on extinguishment of debt of $4,936 in the Consolidated Statement Operations and Comprehensive Income for the three and six months ended June 30, 2021.

 ​

At June 30, 2022, the Company had outstanding borrowings under its term loan of $213,306, $58,000 in outstanding borrowings on its revolving credit facility, and remaining borrowing availability of $41,050. At December 31, 2021, the Company had outstanding borrowings under its term loan of $218,875, no outstanding borrowings on its revolving credit facility, and remaining borrowing availability of $99,050.  

 

The Credit Agreement includes customary representations, warranties and negative and affirmative covenants, as well as customary events of default and certain cross default provisions that could result in acceleration of the Credit Agreement. In addition, the Credit Agreement requires the Company to have a Leverage Ratio of not more than 3.50 to 1.00 as of the last day of any fiscal quarter commencing with the fiscal quarter ending June 30, 2021, and to have a Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of not less than 3.00 to 1.00 as of the last day of any fiscal quarter commencing with the fiscal quarter ending June 30, 2021. As of  June 30, 2022, the Company was in compliance with the respective covenants.

 ​

In accordance with the Company’s prior credit agreements, the Company was required to make additional principal prepayments over the above scheduled payments under certain conditions. This included, 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 was 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 was 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. The Company made a voluntary payment of $20,000 on its debt on March 31, 2021.

 ​

On June 13, 2019, the Company entered into an interest rate swap agreement to reduce its exposure to interest rate volatility. The interest rate swap has a notional amount of $175,000 effective for the period May 31, 2019 through May 31, 2024. The Company may have counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. The risk lies with one global financial institution. Under the interest rate swap agreement, the Company will either receive or make payments on a monthly basis based on the differential between 2.495% and LIBOR. The interest rate swap was previously accounted for as a cash flow hedge. During the first quarter of 2020, the swap was determined to be ineffective. As a result, the swap was dedesignated on March 19, 2020, and the remaining losses included in Accumulated other comprehensive income (loss) on the Condensed Consolidated Balance Sheets would be amortized into interest expense on a straight-line basis through the life of the swap. The amount amortized from Accumulated other comprehensive income (loss) into earnings during the three months ended June 30, 2022 and 2021 was ($291) and $402, respectively. The amount amortized from Accumulated other comprehensive income (loss) into earnings during the six months ended June 30, 2022 and 2021 was ($582) and $1,150, respectively. A mark-to-market adjustment of $119 and $204 was recorded as Interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended  June 30, 2022 and 2021, respectively, related to the swap. A mark-to-market adjustment of $238 and ($1,998) was recorded as Interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income for the six months ended June 30, 2022 and 2021, respectively, related to the swap.

 ​

On June 9, 2021, in conjunction with entering into the Credit Agreement described above, the Company re-designated its swap. As a result, the swap will be recorded at fair value with changes recorded in Accumulated other comprehensive income (loss). The amortization from Accumulated other comprehensive income into earnings from the previous dedesignation has been adjusted as of June 9, 2021 to include the de-recognition of previously recognized mark-to-market gains and the amortization of the off-market component as of the re-designation date, and will continue to be recognized through the life of the swap. The amount expected to be amortized from Accumulated other comprehensive income (loss) into earnings in the next twelve months is $687.

 

On May 19, 2022, the Company entered into an interest rate swap agreement to further reduce its exposure to interest rate volatility. The interest rate swap has a notional amount of $125,000 effective for the period May 31, 2024 through June 9, 2026. The Company may have counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. The risk lies with two global financial institutions. Under the interest rate swap agreement, the Company will either receive or make payments on a monthly basis based on the differential between 2.718% and SOFR. The interest rate swap is accounted for as a cash flow hedge.

 ​

20

 

The interest rate swaps' positive fair value at June 30, 2022 was $1,716, of which $1,051 and $665 are included in Prepaid and other current assets and Other long-term assets on the Condensed Consolidated Balance Sheet, respectively.  The interest rate swaps' negative fair value at  December 31, 2021 was $6,428, of which $3,479 and $2,949 are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheet, respectively. 

 

 ​

 

10.

Accrued Expenses and Other Current Liabilities

 ​

Accrued expenses and other current liabilities are summarized as follows:

 ​

  

June 30,

  

December 31,

 
  

2022

  

2021

 
         

Payroll and related costs

 $10,658  $13,299 

Employee benefits

  9,345   8,933 

Accrued warranty

  3,784   3,645 

Interest rate swaps

  -   3,479 

Other

  8,353   6,770 
  $32,140  $36,126 

 

 

11.

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.  All of the Company’s warranties are assurance-type warranties. 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 was $6,518 at June 30, 2022, of which $2,734 is included in Other long-term liabilities and $3,784 is included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheet. The warranty reserve was $6,368 at December 31, 2021, of which $2,723 is included in Other long-term liabilities and $3,645 is included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheet. 

 

21

 ​

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

 ​

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Balance at the beginning of the period

 $5,451  $4,677  $6,368  $5,812 

Warranty provision

  1,560   1,735   2,401   2,705 

Claims paid/settlements

  (493)  (989)  (2,251)  (3,094)

Balance at the end of the period

 $6,518  $5,423  $6,518  $5,423 

 

 

12.

Earnings per Share

 ​

Basic earnings per share of common stock is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings 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 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 losses. 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 earnings per share is calculated by dividing net earnings attributable to common stockholders by the weighted average number of common stock and dilutive common stock outstanding during the period.  Potential common shares in the diluted net income per share computation are excluded to the extent that they would be anti-dilutive. 

 ​

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Basic earnings per common share

                

Net income

 $17,725  $14,103  $13,817  $14,845 

Less income allocated to participating securities

  345   224   260   255 

Net income allocated to common shareholders

 $17,380  $13,879  $13,557  $14,590 

Weighted average common shares outstanding

  22,907,414   22,973,391   22,944,769   22,927,658 
  $0.76  $0.60  $0.59  $0.64 
                 

Earnings per common share assuming dilution

                

Net income

 $17,725  $14,103  $13,817  $14,845 

Less income allocated to participating securities

  345   224   260   255 

Net income allocated to common shareholders

 $17,380  $13,879  $13,557  $14,590 

Weighted average common shares outstanding

  22,907,414   22,973,391   22,944,769   22,927,658 

Incremental shares applicable to non-participating RSUs

  -   11,842   2,583   16,178 

Weighted average common shares assuming dilution

  22,907,414   22,985,233   22,947,352   22,943,836 
  $0.75  $0.60  $0.58  $0.63 

 ​

22

 
 

13.

Employee Stock Plans

 ​

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 material terms of the performance goals under the 2010 Plan, as amended and restated, were approved by stockholders at the Company’s 2014 annual meeting of stockholders and the plan’s term was extended further by the stockholders at the Company’s 2020 annual meeting of stockholders.  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.

 ​

Equity awards 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 equity awards upon retirement. The retirement provision also stipulates that the employee remain employed by the Company for six months after the first day of the fiscal year of the grant.  As the retirement provision does not qualify as a substantive service condition, the Company incurred $2,801 and $3,286 in the three months ended  June 30, 2022 and 2021, respectively, and $3,724 and $4,145 in the in six months ended June 30, 2022 and 2021, respectively, in additional expense for employees who meet the thresholds of the retirement provision. In 2013, the Company’s Nominating and Governance Committee of its Board of Directors approved a retirement provision for the RSUs issued to non-employee directors that accelerates the vesting of such awards 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.

 ​

Performance Share Unit Awards

 ​

The Company grants performance share units as performance-based awards under the 2010 Plan that are subject to performance conditions over a three year performance period beginning in the year of the grant. Upon meeting the prescribed performance conditions, employees will be issued shares which vest immediately at the end of the measurement 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 $37.57. The Company recognized $2,052 and $2,463 of compensation expense related to the awards in the three months ended June 30, 2022 and 2021, respectively. The Company recognized $2,711 and $3,274 of compensation expense related to the awards in the six months ended June 30, 2022 and 2021, respectively. The unrecognized compensation expense calculated under the fair value method for shares that were, as of  June 30, 2022 expected to be earned through the requisite service period was approximately $2,708 and is expected to be recognized through 2025.

 ​

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 that participates in dividend equivalents, and a second that does 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.

 ​

23

 

A summary of RSU activity for the six months ended June 30, 2022 is as follows: 

 ​

          

Weighted

 
      

Weighted

  

Average

 
      

Average

  

Remaining

 
      

Grant Date

  

Contractual

 
  

Shares

  

Fair value

  

Term (in years)

 
             

Unvested at December 31, 2021

  79,903  $48.87   1.91 

Granted

  113,047  $36.78   1.53 

Vested

  (77,535) $40.97   - 

Cancelled and forfeited

  (5,770) $48.62   - 
             

Unvested at June 30, 2022

  109,645  $42.00   2.20 
             

Expected to vest in the future at June 30, 2022

  107,070