Douglas Dynamics, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Mar. 31, 2019

6.Leases

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

Lease Expense

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


		Three Months Ended
		March 31, 2019
Operating lease expense		$ 1,132

Short term lease cost		$ 100

Total lease cost		$ 1,232

Cash Flow

Supplemental cash flow information related to leases is as follows:


	Three Months Ended
	March 31, 2019

Cash paid for amounts included in the measurement of operating lease liabilities	$ 765
Non-cash lease expense - right-of-use assets	$ 785
Right-of-use assets obtained in exchange for operating lease obligations	$ 56

Balance Sheet

Supplemental balance sheet information related to leases is as follows:


	March 31, 2019
Operating Leases
Operating lease right-of-use assets	$ 21,537

Other current liabilities	3,335
Operating lease liabilities	18,222
Total operating lease liabilities	$ 21,557

Weighted Average Remaining Lease Term
Operating leases	87	months

Weighted Average Discount Rate
Operating leases	5.35%

Lease Maturities

Maturities of leases were as follows:


Year ending December 31,		Operating Leases
2019 (excluding the three months ended March 31, 2019)		$ 3,288
2020		3,936
2021		3,657
2022		3,267
2023		2,879
Thereafter		8,617
Total Lease Payments		25,644
Less: imputed interest		(4,087)
Total		$ 21,557

Related party leases

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

ASC 840 Disclosure

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


		Related Party Leases		Third Party Leases		Total Leases

2019	$	2,250	$	2,009	$	4,259
2020		2,250		1,654		3,904
2021		2,250		1,364		3,614
2022		2,250		949		3,199
2023		2,130		574		2,704
Thereafter		4,410		1,500		5,910
Total lease obligations	$	15,540	$	8,050	$	23,590