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

Quarterly report pursuant to Section 13 or 15(d)

Note 7 - Leases

Note 7 - Leases

9 Months Ended

Sep. 30, 2022

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.

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	$	1,376	$	4,158	$	1,433	$	4,215
Short term lease cost	$	85	$	274	$	34	$	192
Total lease cost	$	1,461	$	4,432	$	1,467	$	4,407

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	$	4,301	$	4,142
Non-cash lease expense - right-of-use assets	$	3,566	$	2,360
Right-of-use assets obtained in exchange for operating lease obligations	$	2,126	$	865

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	$	16,980		$	18,462

Other current liabilities		4,748			4,623
Operating lease liabilities		13,726			15,408
Total operating lease liabilities	$	18,474		$	20,031

Weighted Average Remaining Lease Term
Operating leases (in months)		57			62

Weighted Average Discount Rate
Operating leases		4.64	%		4.79	%

Lease Maturities

Maturities of leases were as follows:

Year ending December 31,	*Operating Leases*
2022 (excluding the nine months ended September 30, 2022)	$	1,397
2023		5,377
2024		4,503
2025		3,694
2026		2,555
Thereafter		2,916
Total Lease Payments		20,442
Less: imputed interest		(1,968	)
Total	$	18,474