UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
DOUGLAS DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
(Address of principal executive offices) (Zip code)
(
(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 |
| | | |
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.
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).
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:
| | | 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
Number of shares of registrant’s common shares outstanding as of November 1, 2022 was
DOUGLAS DYNAMICS, INC.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(In thousands except share data)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Inventories - truck chassis floor plan | ||||||||
| Refundable income taxes paid | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Operating lease - right of use asset | ||||||||
| Non-qualified benefit plan assets | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Floor plan obligations | ||||||||
| Operating lease liability - current | ||||||||
| Income taxes payable | ||||||||
| Short term borrowings | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Retiree benefits and deferred compensation | ||||||||
| Deferred income taxes | ||||||||
| Long-term debt, less current portion | ||||||||
| Operating lease liability - noncurrent | ||||||||
| Other long-term liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common Stock, par value $, shares authorized, and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss), net of tax | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to condensed consolidated financial statements.
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, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general, and administrative expense | ||||||||||||||||
| Intangibles amortization | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Income before taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Earnings per common share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Cash dividends declared and paid per share | $ | $ | $ | $ | ||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
See the accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(In thousands)
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss (gain) on disposal of fixed asset | ( | ) | ||||||
| Amortization of deferred financing costs and debt discount | ||||||||
| Loss on extinguishment of debt | ||||||||
| Stock-based compensation | ||||||||
| Adjustments on derivatives not classified as hedges | ( | ) | ( | ) | ||||
| Provision (credit) for losses on accounts receivable | ( | ) | ||||||
| Deferred income taxes | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid assets, refundable income taxes and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Benefit obligations and other long-term liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Payments of financing costs | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Net revolver borrowings | ||||||||
| Borrowings on long-term debt | ||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Non-cash operating and financing activities | ||||||||
| Truck chassis inventory acquired through floorplan obligations | $ | $ | ||||||
See the accompanying notes to condensed consolidated financial statements.
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 September 30, 2022 | ||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Dividends paid | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for postretirement benefit liability, net of tax of $ | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for interest rate swap, net of tax of ($) | — | |||||||||||||||||||||||
| Repurchase of common stock | ||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Dividends paid | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for pension and postretirement benefit liability, net of tax of $ | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for interest rate swap, net of tax of ($) | — | |||||||||||||||||||||||
| Shares withheld on restricted stock vesting | — | |||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Dividends paid | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for pension and postretirement benefit liability, net of tax of $ | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for interest rate swap, net of tax of ($) | — | |||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Dividends paid | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for pension and postretirement benefit liability, net of tax of $ | — | ( | ) | ( | ) | |||||||||||||||||||
| Adjustment for interest rate swap, net of tax of ($) | — | |||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See the accompanying notes to condensed consolidated financial statements.
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 segments: Work Truck Attachments and Work Truck Solutions. Under this reporting structure, the Company’s 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 September 30, 2022, 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, 2022 and 2021, and the Condensed Cash Flows for the nine months ended September 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.
| 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.
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 increased revenue by $
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, 2022 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Independent dealer | $ | $ | $ | |||||||||
| Government | ||||||||||||
| Fleet | ||||||||||||
| Other | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Three Months Ended September 30, 2021 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Independent dealer | $ | $ | $ | |||||||||
| Government | ||||||||||||
| Fleet | ||||||||||||
| Other | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2022 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Independent dealer | $ | $ | $ | |||||||||
| Government | ||||||||||||
| Fleet | ||||||||||||
| Other | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2021 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Independent dealer | $ | $ | $ | |||||||||
| Government | ||||||||||||
| Fleet | ||||||||||||
| Other | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
Revenue by timing of revenue recognition was as follows:
| Three Months Ended September 30, 2022 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Point in time | $ | $ | $ | |||||||||
| Over time | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Three Months Ended September 30, 2021 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Point in time | $ | $ | $ | |||||||||
| Over time | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2022 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Point in time | $ | $ | $ | |||||||||
| Over time | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2021 | Work Truck Attachments | Work Truck Solutions | Total Revenue | |||||||||
| Point in time | $ | $ | $ | |||||||||
| Over time | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
Contract Balances
The following table shows the changes in the Company’s contract liabilities during the three and nine months ended September 30, 2022 and 2021, respectively:
| Three Months Ended September 30, 2022 | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| Contract liabilities | $ | $ | $ | ( | ) | $ | ||||||||||
| Three Months Ended September 30, 2021 | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| Contract liabilities | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine Months Ended September 30, 2022 | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| Contract liabilities | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine Months Ended September 30, 2021 | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | ||||||||||||
| Contract liabilities | $ | $ | $ | ( | ) | $ | ||||||||||
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
The Company recognized revenue of $
| 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 September 30, 2022, the Company had an allowance for credit losses on its trade accounts receivable of $
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 nine months ended September 30, 2022 and 2021:
| | Balance at December 31, 2021 | Additions (reductions) charged to earnings | Writeoffs | Changes to reserve, net | Balance at September 30, 2022 | |||||||||||||||
| Nine Months Ended September 30, 2022 | | | | | | |||||||||||||||
| Work Truck Attachments | $ | $ | $ | $ | $ | |||||||||||||||
| Work Truck Solutions | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||
| Balance at December 31, 2020 | Additions charged to earnings | Writeoffs | Changes to reserve, net | Balance at September 30, 2021 | ||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Work Truck Attachments | $ | $ | $ | $ | $ | |||||||||||||||
| Work Truck Solutions | ( | ) | ||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| 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).
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, | |||||||
| 2022 | 2021 | |||||||
| Assets: | ||||||||
| Non-qualified benefit plan assets (a) | $ | $ | ||||||
| Interest rate swaps (b) | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Interest rate swaps (b) | $ | $ | ||||||
| Long-term debt (c) | ||||||||
| Total Liabilities | $ | $ | ||||||
(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 $
(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.
| 5. | Inventories |
Inventories consist of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Work-in-process | ||||||||
| Raw material and supplies | ||||||||
| $ | $ | |||||||
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 September 30, 2022 and December 31, 2021, the Company had $
| 6. | Property, plant and equipment |
Property, plant and equipment are summarized as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Leasehold improvements | ||||||||
| Buildings | ||||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Mobile equipment and other | ||||||||
| Construction-in-process | ||||||||
| Total property, plant and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property, plant and equipment | $ | $ | ||||||
| 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 year to
In the year ended December 31, 2021, it was determined that facility leases related to 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 $
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 September 30, 2022 | Nine Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short term lease cost | $ | $ | $ | $ | ||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Cash Flow
Supplemental cash flow information related to leases is as follows:
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | ||||||
| Non-cash lease expense - right-of-use assets | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
Balance Sheet
Supplemental balance sheet information related to leases is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases (in months) | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
Lease Maturities
Maturities of leases were as follows:
| Year ending December 31, | Operating Leases | |||
| 2022 (excluding the nine months ended September 30, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total Lease Payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ | |||
| 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 | ||||||||||
| September 30, 2022 | ||||||||||||
| Indefinite-lived intangibles: | ||||||||||||
| Trademark and tradenames | $ | $ | - | $ | ||||||||
| Amortizable intangibles: | ||||||||||||
| Dealer network | ||||||||||||
| Customer relationships | ||||||||||||
| Patents | ||||||||||||
| Noncompete agreements | ||||||||||||
| Trademarks | ||||||||||||
| Amortizable intangibles, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Gross | Less | Net | ||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| December 31, 2021 | ||||||||||||
| Indefinite-lived intangibles: | ||||||||||||
| Trademark and tradenames | $ | $ | - | $ | ||||||||
| Amortizable intangibles: | ||||||||||||
| Dealer network | ||||||||||||
| Customer relationships | ||||||||||||
| Patents | ||||||||||||
| Noncompete agreements | ||||||||||||
| Trademarks | ||||||||||||
| Amortizable intangibles, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
Amortization expense for intangible assets was $
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 |
| 9. | Long-Term Debt |
Long-term debt is summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Term Loan, net of debt discount of $ and $ at September 30, 2022 and December 31, 2021, respectively | $ | $ | ||||||
| Less current maturities | ||||||||
| Long-term debt before deferred financing costs | ||||||||
| Deferred financing costs, net | ||||||||
| Long-term debt, net | $ | $ | ||||||
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 $
The Company will be required to pay a fee for unused amounts under the senior secured revolving facility in an amount ranging from
The Credit Agreement was issued at a $
At September 30, 2022, the Company had outstanding borrowings under its term loan of $
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
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,
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 $
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 $
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 $
The interest rate swaps' positive fair value at September 30, 2022 was $
| 10. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities are summarized as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Payroll and related costs | $ | $ | ||||||
| Employee benefits | ||||||||
| Accrued warranty | ||||||||
| Interest rate swaps | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| 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 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 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 year warranty. The Company determines the amount of the estimated warranty costs (and its corresponding warranty reserve) based on the Company’s prior 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 $
The following is a rollforward of the Company’s warranty liability:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Balance at the beginning of the period | $ | $ | $ | $ | ||||||||||||
| Warranty provision | ||||||||||||||||
| Claims paid/settlements | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at the end of the period | $ | $ | $ | $ | ||||||||||||
| 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Basic earnings per common share | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Less income allocated to participating securities | ||||||||||||||||
| Net income allocated to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Earnings per common share assuming dilution | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Less income allocated to participating securities | ||||||||||||||||
| Net income allocated to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Incremental shares applicable to non-participating RSUs | ||||||||||||||||
| Weighted average common shares assuming dilution | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 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
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 $
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 . The Company recognized $
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.
A summary of RSU activity for the nine months ended September 30, 2022 is as follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Grant Date | Contractual | |||||||||||
| Shares | Fair value | Term (in years) | ||||||||||
| Unvested at December 31, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested | ( | ) | $ | - | ||||||||
| Cancelled and forfeited | ( | ) | $ | - | ||||||||