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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 Form 10-K (Commission File No. 1-34728) filed with the Securities and Exchange Commission.
We operate as a single business unit.
Secondary Public Offering
On May 20, 2011, certain of the stockholders of Douglas Dynamics, Inc. (the Company), including affiliates of Aurora Capital Group and Ares Management, closed a registered secondary offering of 5,750,000 shares (the Shares) of the Companys common stock. The Company did not receive any proceeds from the sale of its stock by the selling stockholders in the offering.
Capitalization summary upon closing of the secondary offering:
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Common stock issued and outstanding prior to secondary offering:
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21,848,947
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Shares issued for options exercised in connection with offering:
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154,965
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Common stock issued and outstanding subsequent to secondary offering:
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22,003,912
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Interim Consolidated Financial Information
The accompanying consolidated balance sheet as of September 30, 2011 and the consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010 have been prepared by the Company and have not been audited.
As required by the new debt agreement the Company entered into in the second quarter of 2011, the Company entered into an interest-rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates. Under the interest rate swap agreement, effective as of July 18, 2011 the Company either receives or makes payments on a monthly basis starting July 18, 2011, which is one month from the date the interest rate swap agreement was entered into, based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%). The tax effected negative fair market value of the interest rate swap of ($382) is included in Accumulated other comprehensive loss at September 30, 2011 on the balance sheet. This fair value was determined using level 2 inputs as defined in Accounting Standards Codification (ASC) 820. The interest rate swap contract on $50,000 notional amount of the term loan expires in December 2014. The Company does not expect to record any unrecognized loss into earnings in the next twelve months. Additionally, other comprehensive income (loss) includes the net income (loss) of the Company plus the Companys adjustments for its defined benefit retirement plans based on the measurement date as of the Companys year-end. Other comprehensive income (loss) was $3,649 and $12,508 for the three and nine months ended September 30, 2011, respectively. Other comprehensive income (loss) was $2,185 and ($3,322) for the three and nine months ended September 30, 2010, respectively.
The Companys business is seasonal and consequently its results of operations and financial condition vary from quarter-to-quarter. Because of this seasonality, the Companys results of operations 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 Companys distributors to re-stock their inventory 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 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 Companys end-users prefer to wait until the beginning of a snow season to purchase new equipment and as the Companys distributors sell off 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 Companys 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.
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