Douglas Dynamics, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 6 - Leases

Note 6 - Leases

12 Months Ended

Dec. 31, 2023

6. Leases

The Company has operating leases for manufacturing, upfit and office facilities, land and parking lots, warehousing space and certain equipment. The leases have remaining lease terms of less than one year to 13 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 were 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, 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 will continue to be amortized over the life of the lease.

As allowed under ASC 842, the Company has adopted the following practical expedients:

●

Short-term lease practical expedient

Allows the Company not to apply the recognition requirements in ASC 842 to short-term leases for all asset classes. Short term leases are leases that, at commencement date, have a term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

●

Separating lease components practical expedient

Allows the Company not to separate lease components from nonlease components for all asset classes and instead account for each separate lease and the nonlease components associated with that lease component as a single lease component.

Lease Expense

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

	*Year Ended*		*Year Ended*		*Year Ended*
	*December 31, 2023*		*December 31, 2022*		*December 31, 2021*
Operating lease expense	$	5,966	$	5,555	$	5,663
Short term lease cost	$	401	$	395	$	278
Total lease cost	$	6,367	$	5,950	$	5,941

Cash Flow

Supplemental cash flow information related to leases is as follows:

	*Year Ended*		*Year Ended*		*Year Ended*
	*December 31, 2023*		*December 31, 2022*		*December 31, 2021*

Cash paid for amounts included in the measurement of operating lease liabilities	$	6,195	$	5,753	$	5,566
Non-cash lease expense - right-of-use assets	$	5,097	$	4,745	$	1,768
Right-of-use assets obtained in exchange for operating lease obligations	$	5,853	$	3,768	$	2,671

Balance Sheet

Supplemental balance sheet information related to leases is as follows:

	*December 31, 2023*			*December 31, 2022*
Operating Leases
Operating lease right-of-use assets	$	18,008		$	17,432

Other current liabilities		5,347			4,862
Operating lease liabilities		13,887			14,025
Total operating lease liabilities	$	19,234		$	18,887

Weighted Average Remaining Lease Term (in months)
Operating leases		53			59

Weighted Average Discount Rate
Operating leases		5.36	%		4.69	%

Lease Maturities

Maturities of leases were as follows:

Year ending December 31,	*Operating Leases*
2024	$	6,244
2025		5,746
2026		4,062
2027		2,297
2028		1,265
Thereafter		1,849
Total Lease Payments		21,463
Less: imputed interest		(2,229	)
Total	$	19,234