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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 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 May 3, 2022 was 22,886,793.

Table of Contents

DOUGLAS DYNAMICS, INC.

Table of Contents

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

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

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021

4

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

5

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

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

37

Item 4. Controls and Procedures

38

PART II. OTHER INFORMATION

38

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

39

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

39

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

Signatures

41

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data)

March 31,

December 31,

2022

2021

(unaudited)

(unaudited)

Assets

  

  

Current assets:

Cash and cash equivalents

$

8,212

$

36,964

Accounts receivable, net

43,058

71,035

Inventories

143,839

104,019

Inventories - truck chassis floor plan

1,469

2,655

Refundable income taxes paid

1,473

1,222

Prepaid and other current assets

4,830

4,536

Total current assets

202,881

220,431

Property, plant, and equipment, net

65,635

66,787

Goodwill

113,134

113,134

Other intangible assets, net

139,479

142,109

Operating lease - right of use asset

17,264

18,462

Non-qualified benefit plan assets

10,140

10,347

Other long-term assets

1,927

1,206

Total assets

$

550,460

$

572,476

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

17,218

$

27,375

Accrued expenses and other current liabilities

27,243

36,126

Floor plan obligations

1,469

2,655

Operating lease liability - current

4,483

4,623

Short term borrowings

12,000

-

Current portion of long-term debt

11,137

11,137

Total current liabilities

73,550

81,916

Retiree benefits and deferred compensation

17,248

17,170

Deferred income taxes

30,767

29,789

Long-term debt, less current portion

203,367

206,058

Operating lease liability - noncurrent

14,329

15,408

Other long-term liabilities

4,108

7,525

Stockholders’ equity:

Common Stock, par value $0.01, 200,000,000 shares authorized, 22,976,150 and 22,980,951 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

230

230

Additional paid-in capital

162,451

163,552

Retained earnings

41,225

51,881

Accumulated other comprehensive income (loss), net of tax

3,185

(1,053)

Total stockholders’ equity

207,091

214,610

Total liabilities and stockholders’ equity

$

550,460

$

572,476

See the accompanying notes to condensed consolidated financial statements.

3

Table of Contents

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except share and per share data)

Three Months Ended

March 31,

March 31,

2022

2021

(unaudited)

Net sales

  

$

102,601

  

$

103,342

Cost of sales

81,537

77,090

Gross profit

21,064

26,252

Selling, general, and administrative expense

21,373

19,899

Intangibles amortization

2,630

2,705

Income (loss) from operations

(2,939)

3,648

Interest expense, net

(2,113)

(2,975)

Other income (expense), net

127

(8)

Income (loss) before taxes

(4,925)

665

Income tax benefit

(1,017)

(77)

Net income (loss)

$

(3,908)

$

742

Weighted average number of common shares outstanding:

Basic

22,982,538

22,881,416

Diluted

22,982,538

22,901,979

Earnings (loss) per common share:

Basic

$

(0.18)

$

0.03

Diluted

$

(0.18)

$

0.03

Cash dividends declared and paid per share

$

0.29

$

0.29

Comprehensive income

$

330

$

1,248

See the accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

March 31,

March 31,

2022

2021

(unaudited)

Operating activities

Net income (loss)

  

$

(3,908)

  

$

742

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

Depreciation and amortization

5,189

5,013

Gain on sales of fixed asset

(51)

-

Amortization of deferred financing costs and debt discount

121

392

Stock-based compensation

1,900

1,965

Adjustments on derivatives not classified as hedges

(172)

(1,454)

Provision for losses on accounts receivable

75

179

Deferred income taxes

978

324

Non-cash lease expense

1,198

1,036

Changes in operating assets and liabilities:

Accounts receivable

27,902

37,867

Inventories

(39,820)

(20,213)

Prepaid assets, refundable income taxes and other assets

(1,059)

(254)

Accounts payable

(9,315)

3,347

Accrued expenses and other current liabilities

(8,883)

(4,094)

Benefit obligations and other long-term liabilities

(148)

(701)

Net cash provided by (used in) operating activities

(25,993)

24,149

Investing activities

Capital expenditures

(2,198)

(2,177)

Net cash used in investing activities

(2,198)

(2,177)

Financing activities

Repurchase of common stock

(3,001)

-

Dividends paid

(6,748)

(6,790)

Net revolver borrowings

12,000

-

Repayment of long-term debt

(2,812)

(20,688)

Net cash used in financing activities

(561)

(27,478)

Change in cash and cash equivalents

(28,752)

(5,506)

Cash and cash equivalents at beginning of period

36,964

41,030

Cash and cash equivalents at end of period

$

8,212

$

35,524

Non-cash operating and financing activities

Truck chassis inventory acquired through floorplan obligations

$

713

$

16,225

See the accompanying notes to condensed consolidated financial statements.

5

Table of Contents

Douglas Dynamics, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Shares

Dollars

Capital

Earnings

Income (Loss )

Total

Three Months Ended March 31, 2022

Balance at December 31, 2021

22,980,951

$

230

$

163,552

$

51,881

$

(1,053)

$

214,610

Net loss

(3,908)

(3,908)

Dividends paid

(6,748)

(6,748)

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

(41)

(41)

Adjustment for interest rate swap, net of tax of ($1,503)

4,279

4,279

Repurchase of common stock

(81,731)

(1)

(3,000)

(3,001)

Stock based compensation

76,930

1

1,899

1,900

Balance at March 31, 2022

22,976,150

$

230

$

162,451

$

41,225

$

3,185

$

207,091

Three Months Ended March 31, 2021

Balance at December 31, 2020

22,857,457

$

229

$

157,758

$

47,712

$

(5,495)

$

200,204

Net income

742

742

Dividends paid

(6,790)

(6,790)

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

(58)

(58)

Adjustment for interest rate swap, net of tax of ($194)

564

564

Stock based compensation

98,015

1

1,964

1,965

Balance at March 31, 2021

22,955,472

$

230

$

159,722

$

41,664

$

(4,989)

$

196,627

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands except share and per share data)

1.Basis of presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year-end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our 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 March 31, 2022, the Condensed Consolidated Statements of Operations and Comprehensive Income and the Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022 and 2021, and the Condensed Cash Flows for the three months ended March 31, 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.  

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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

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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 $634 and increased revenue by $428 for the three months ended March 31, 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.

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Disaggregation of Revenue

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

Revenue by customer type was as follows:

Three Months Ended March 31, 2022

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 45,776

$ 30,251

$ 76,027

Government

-

12,010

12,010

Fleet

-

11,723

11,723

Other

-

2,841

2,841

Total revenue

$ 45,776

$ 56,825

$ 102,601

Three Months Ended March 31, 2021

Work Truck Attachments

Work Truck Solutions

Total Revenue

Independent dealer

$ 41,981

$ 33,648

$ 75,629

Government

-

12,450

12,450

Fleet

-

11,345

11,345

Other

-

3,918

3,918

Total revenue

$ 41,981

$ 61,361

$ 103,342

Revenue by timing of revenue recognition was as follows:

Three Months Ended March 31, 2022

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 45,776

$ 34,483

$ 80,259

Over time

-

22,342

22,342

Total revenue

$ 45,776

$ 56,825

$ 102,601

Three Months Ended March 31, 2021

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

$ 41,981

$ 40,710

$ 82,691

Over time

-

20,651

20,651

Total revenue

$ 41,981

$ 61,361

$ 103,342

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Contract Balances

The following table shows the changes in the Company’s contract liabilities during the three months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31, 2022

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

2,454

$

2,709

$

(2,547)

$

2,616

Three Months Ended March 31, 2021

Balance at Beginning of Period

Additions

Deductions

Balance at End of Period

Contract liabilities

$

2,746

$

3,165

$

(2,170)

$

3,741

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 March 31, 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 $349 and $415 during the three months ended March 31, 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 March 31, 2022, the Company had an allowance for credit losses on its trade accounts receivable of $1,530 and $1,412 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.

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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 three months ended March 31, 2022 and 2021:

Balance at

Additions

Changes to

Balance at

December 31,

charged to

Writeoffs

reserve, net

March 31,

2021

earnings

2022

Three Months Ended March 31, 2022

Work Truck Attachments

$

1,430

$

100

$

-

$

-

$

1,530

Work Truck Solutions

1,540

(25)

(105)

2

1,412

Total

$

2,970

$

75

$

(105)

$

2

$

2,942

Balance at

Additions

Changes to

Balance at

December 31,

charged to

Writeoffs

reserve, net

March 31,

2020

earnings

2021

Three Months Ended March 31, 2021

Work Truck Attachments

$

1,480

$

100

$

-

$

2

$

1,582

Work Truck Solutions

1,449

79

(25)

(39)

1,464

Total

$

2,929

$

179

$

(25)

$

(37)

$

3,046

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).

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

Fair Value at

Fair Value at

March 31,

December 31,

2022

2021

Assets:

Non-qualified benefit plan assets (a)

  

$

10,140

  

$

10,347

Interest rate swaps (b)

725

-

Total Assets

$

10,865

$

10,347

Liabilities:

Interest rate swaps (b)

$

1,199

$

6,428

Long-term debt (c)

216,091

218,875

Total Liabilities

$

217,290

$

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 $1,199 and $725 at March 31, 2022 are included in Accrued expenses and other current liabilities 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.

5.Inventories

Inventories consist of the following:

March 31,

December 31,

2022

2021

Finished goods

  

$

86,654

  

$

50,416

Work-in-process

11,894

8,916

Raw material and supplies

45,291

44,687

$

143,839

$

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

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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 March 31, 2022 and December 31, 2021, the Company had $1,469 and $2,655, respectively, of chassis inventory and $1,469 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.

6.

Property, plant and equipment

Property, plant and equipment are summarized as follows:

March 31,

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

70,026

68,939

Furniture and fixtures

22,587

22,275

Mobile equipment and other

4,724

4,737

Construction-in-process

3,496

4,235

Total property, plant and equipment

150,781

149,473

Less accumulated depreciation

(85,146)

(82,686)

Net property, plant and equipment

$

65,635

$

66,787

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.

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Lease Expense

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

Three Months Ended

Three Months Ended

March 31, 2022

March 31, 2021

Operating lease expense

$ 1,399

$ 1,371

Short term lease cost

$ 100

$ 115

Total lease cost

$ 1,499

$ 1,486

Cash Flow

Supplemental cash flow information related to leases is as follows:

Three Months Ended

Three Months Ended

March 31, 2022

March 31, 2021

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

$ 1,442

$ 1,356

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

$ 1,198

$ 1,036

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

$ 46

$ 65

Balance Sheet

Supplemental balance sheet information related to leases is as follows:  

March 31, 2022

December 31, 2021

Operating Leases

Operating lease right-of-use assets

$ 17,264

$ 18,462

Other current liabilities

4,483

4,623

Operating lease liabilities

14,329

15,408

Total operating lease liabilities

$ 18,812

$ 20,031

Weighted Average Remaining Lease Term

Operating leases

60

months

62

months

Weighted Average Discount Rate

Operating leases

4.77%

4.79%

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Lease Maturities

Maturities of leases were as follows:

Year ending December 31,

Operating Leases

2022 (excluding the three months ended March 31, 2022)

$ 4,018

2023

4,899

2024

4,028

2025

3,244

2026

2,118

Thereafter

2,694

Total Lease Payments

21,001

Less: imputed interest

(2,189)

Total

$ 18,812

l

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

March 31, 2022

Indefinite-lived intangibles:

Trademark and tradenames

$

77,600

$

-

$

77,600

Amortizable intangibles:

Dealer network

80,000

72,000

8,000

Customer relationships

80,920

33,659

47,261

Patents

21,136

16,053

5,083

Noncompete agreements

8,640

8,640

-

Trademarks

5,459

3,924

1,535

Amortizable intangibles, net

196,155

134,276

61,879

Total

$

273,755

$

134,276

$

139,479

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

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Amortization expense for intangible assets was $2,630 and $2,705 for the three months ended March 31, 2022 and 2021 respectively. Estimated amortization expense for the remainder of 2022 and each of the succeeding five years is as follows:

2022

    

$

7,890

2023