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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)  

ý

 

ANNUAL REPORT PURSUANT TO SECTIONAnnual Report Pursuant to Section 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OFor 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 20102013

or

o

 

TRANSITION REPORT PURSUANT TO SECTIONTransition Report Pursuant to Section 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OFor 15(d) of the Securities Exchange Act of 1934

For the Transitiontransition period from                        to                       

Commission File No. 001-34728

DOUGLAS DYNAMICS, INC.


(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
 134275891

(I.R.S. Employer
Identification No.)

7777 N 73rd Street


Milwaukee, Wisconsin
(Address of principal executive offices)

 

53223
(Zip Code)

Registrant's telephone number, including area code
(414) 354-2310

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Common Stock, $.01 Par Value
Name of each exchange on which registered
Common Stock, $.01 Par Value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:NONE

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý.

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý.

         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 ý    No o.

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationsRegulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oý    No o.

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýo

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer oý Non-accelerated filer ýo
(Do not check if a
smaller reporting company)
 Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý.

         At June 30, 2010,28, 2013, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was approximately $130$288 million (based upon the closing price of Registrant's Common Stock on the New York Stock Exchange on such date). At March 4, 2011,11, 2014, the Registrant had outstanding an aggregate of 21,662,24222,260,082 shares of its Common Stock.

Documents Incorporated by Reference:

         Portions of the Proxy Statement for the Registrant's Annual Meeting of Shareholders to be held on May 4, 2011April 30, 2014, which Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended December 31, 2013, are incorporated into Parts II and III.


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PART I

 3
 

Item 1.

 

Business

 34

Item 1A.

 

Risk Factors

 910

Item 1B.

 

Unresolved Staff Comments

 1820

Item 2.

 

Properties

 1820

Item 3.

 

Legal Proceedings

 1820

Item 4.

 

(Removed and Reserved)Mine Safety Disclosures

 18
 20

Executive Officers of the Registrant

 18

PART II

 
2021

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 2021

Item 6.

 

Selected Consolidated Financial Data

 2223

Item 7.

 

Management'sManagement Discussion and Analysis of Financial Condition and Results of Operations

 2425

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 4244

Item 8.

 

Financial Statements and Supplementary Data

 4244

Item 9.

 

Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

 4244

Item 9A.

 

Controls and Procedures

 4245

Item 9B.

 

Other Information

 4346

PART III

 
4446

Item 10.

 

Directors, Executive Officers and Corporate Governance

 4446

Item 11.

 

Executive Compensation

 4446

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related StockholderShareholder Matters

 4446

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 4446

Item 14.

 

Principal AccountantAccounting Fees and Services

 4447

PART IV

 
4547

Item 15.

 

Exhibits and Financial Statement Schedules

 4547

Signatures

 4648

Exhibit Index

 4749

Index to Consolidated Financial Statements

 F-1

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PART I

Forward Looking Statements

        This Annual Report on Form 10-K contains "forward-looking statements" made within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will" and similar expressions are intended to identify forward-lookingforward- looking statements. In addition, statements covering our future sales or financial performance and our plans, performance and other objectives, expectations or intentions are forward-looking statements, such as statements regarding our liquidity, debt, planned capital expenditures, and adequacy of capital resources and reserves. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

        We undertake no obligation to revise the forward-looking statements included in this Annual Report on Form 10-K to reflect any future events or circumstances. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors in addition to those listed above that could cause or contribute to such differences are discussed in Item 1A, "Risk Factors" of the Annual Report on Form 10-K.


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Item 1.    Business

Overview

        Douglas Dynamics, Inc. (the "Company," "we," "us," "our") is the North American leader in the design, manufacture and sale of snow and ice control equipment for light trucks, which consists of snowplows, sand and salt spreaders, and related parts and accessories. We sell our products under the WESTERN®, FISHER® and BLIZZARD® brands which are among the most established and recognized in the industry. We believe that in 2010 our shareOn May 6, 2013, the Company acquired substantially all of the light truck snowassets of TrynEx. The acquired assets include TrynEx's full line of product offerings, including its SnowEx, TurfEx and ice control equipment market was greater than 50%.SweepEx brands, and access to TrynEx's network of authorized dealers. We operate as a single segment.

        We offer the broadest and most complete product line of snowplows and sand and salt spreaders for light trucks in the U.S. and Canadian markets. We also provide a full range of related parts and accessories, which generates an ancillary revenue stream throughout the lifecycle of our snow and ice control equipment. For the yearyears ended December 31, 2010, 86%2013, December 31, 2012 and December 31, 2011 85%, 88% and 85% of our net sales were generated from


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sales of snow and ice control equipment, respectively and 14%15%, 12% and 15% of our net sales were generated from sales of parts and accessories.accessories, respectively.

        We sell our products through a distributor network primarily to professional snowplowers who are contracted to remove snow and ice from commercial, municipal and residential areas. Over the last 50 years, we have engendered exceptional customer loyalty for our products because of our ability to satisfy the stringent demands of our customers for a high degree of quality, reliability and service. As a result, we believe our installed base is the largest in the industry with over 500,000 snowplows and sand and salt spreaders in service. Because sales of snowplows and sand and salt spreaders are primarily driven by the need of our core end-user base to replace worn existing equipment, we believe our substantial installed base provides us with a high degree of predictable sales over any extended period of time.

        We believe we have the industry's most extensive North American distributordistribution network worldwide, which primarily consists of over 7202,100 points of sale. Direct points of shipment are predominantly through North American truck equipment and lawn care equipment distributors. Most of our distributors who purchase directly from us and are located throughout the snowbeltsnow belt regions in North America (primarily the Midwest, East and Northeast regions of the United States as well as all provinces of Canada). We have longstanding relationships with many of our distributors, with an average tenure of approximately 15 years.distributors. We continually seek to grow and optimize our network by opportunistically adding high-quality, well-capitalized distributors in select geographic areas and by cross-selling our industry-leading brands within our distribution network. Beginning in 2005, we began to extend our reach to international markets, establishing distribution relationships in Northern Europe and Asia, where we believe meaningful growth opportunities exist.

        We believe we are the industry's most operationally efficient manufacturer due to our vertical integration, highly variable cost structure and intense focus on lean manufacturing. We continually seek to use lean principles to reduce costs and increase the efficiency of our manufacturing operations. We currently manufacture our products in twothree facilities that we own in Milwaukee, Wisconsin, Rockland, Maine and Rockland, Maine. We closed our Johnson City, Tennessee facility in August 2010.Madison Heights, Michigan. Furthermore, our manufacturing efficiency allows us to deliver desired products quickly to our customers during times of sudden and unpredictable snowfall events when our customers need our products immediately.


        On May 10, 2010, we completed our initial public offering ("IPO"). In connection with our IPO, we listed our common stock on the New York Stock Exchange ("NYSE") under the stock symbol "PLOW."Table of Contents

Our Industry

        The light truck snow and ice control equipment industry in North America consists predominantly of domestic participants that manufacture their products in North America. The annual demand for snow and ice control equipment is driven primarily by the replacement cycle of the existing installed base, which is predominantly a function of the average life of a snowplow or spreader and is driven by usage and maintenance practices of the end-user. We believe actively-used snowplows are typically replaced, on average, every 79 to 812 years.

        The primary factor influencing the replacement cycle for snow and ice control equipment is the level, timing and location of snowfall. Sales of snow and ice control equipment in any given year and region are most heavily influenced by local snowfall levels in the prior snow season. Heavy snowfall during a given winter causes equipment usage to increase, resulting in greater wear and tear and shortened life cycles, thereby creating a need for replacement equipment and additional parts and accessories.

        While snowfall levels vary within a given year and from year-to-year, snowfall, and the corresponding replacement cycle of snow and ice control equipment, is relatively consistent over multi-year periods. The following chart depicts aggregate annual and eight-yearten-year (based on the typical


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life of our snowplows) rolling average of the aggregate snowfall levels in 66 cities in 26 snowbeltsnow belt states across the Northeast, East, Midwest and Western United States where we monitor snowfall levels from 1980 to 2010.2013. As the chart indicates, since 19821984 aggregate snowfall levels in any given rolling eight-yearten-year period have been fairly consistent, ranging from 2,742 to 3,3463,318 inches.


Snowfall in Snowbelt States (inches)
(for October 1 through March 31)


Note:
The 8-year10-year rolling average snowfall is not presented prior to 19821984 for purposes of the calculation due to lack of snowfall data prior to 1975. Snowfall data in this chart is not adjusted for snowfall outside of the 66 cities in the 26 states reflected.

Source:
National Oceanic and Atmospheric Administration's National Weather Service.

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        The demand for snow and ice control equipment can also be influenced by general economic conditions in the United States, as well as local economic conditions in the snowbeltsnow-belt regions in North America. In stronger economic conditions, our end-users may choose to replace or upgrade existing equipment before its useful life has ended, while in weak economic conditions, our end-users may seek to extend the useful life of equipment, thereby increasing the sales of parts and accessories. However, since snow and ice control management is a non-discretionary service necessary to ensure public safety and continued personal and commercial mobility in populated areas that receive snowfall, end-users cannot extend the useful life of snow and ice control equipment indefinitely and must replace equipment that has become too worn, unsafe or unreliable, regardless of economic conditions. While our parts and accessories yield slightly higher gross margins than our snow and ice control equipment, they yield significantly lower revenue than equipment sales, which adversely affects our results of operations.

        Sales of parts and accessories for 2009 and 2010, respectively,2013 were approximately 44.5% and 34.4%31% higher than average annual parts and accessories sales over the preceding ten years, which management believes is largely a resultyears. The higher than average parts and accessories sales was partially due to acquisition of the deferralTrynEx business. TrynEx parts and accessories sales contributed approximately 9% of new equipment purchases dueincreased parts and accessory sales. The remaining 22% increase can be attributed to the recent economic downturn. Although salestiming of the snowfall for the six-month snow and ice control units increased in 2010season ended March 31, 2013. From October 2012 through January 2013, there was very little snowfall across our key markets, while the snow season as compared to 2009, management believes that absenta whole was slightly above historical average snowfall levels. Consequently, the recent economic downturn, equipment sales in 2009 and 2010 would have been considerably higher due to the high levelsmajority of snowfall during these years, ascame in February and March of 2013. When snowfall occurs late in the snow season, end users will typically choose to repair rather than replace existing equipment unit sales in 2009thus driving up parts and 2010 remained below the ten-year average, while snowfall levels in 2009 and 2010 were considerably above the ten-year average. Management believes this deferral of new equipment purchases could result in an elevated multi-year replacement cycle as the economy recovers.accessory sales.

        Long-term growth in the overall snow and ice control equipment market also results from geographic expansion of developed areas in the snowbeltsnow belt regions of North America, as well as


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consumer demand for technological enhancements in snow and ice control equipment and related parts and accessories that improves efficiency and reliability. Continued construction in the snowbeltsnow belt regions in North America increases the aggregate area requiring snow and ice removal, thereby growing the market for snow and ice control equipment. In addition, the development and sale of more reliable, more efficient and more sophisticated products have contributed to an approximate 2% to 4% average unit price increase in each of the past five years.

Our Competitive Strengths

        We compete solely with other North American manufacturers who do not benefit from our extensive distributor network, manufacturing efficiencies and depth and breadth of products. As the market leader in snow and ice control equipment for light trucks, we enjoy a set of competitive advantages versus smaller equipment providers, which allows us to generate robust cash flows in all snowfall environments and to support continued investment in our products, distribution capabilities and brand regardless of annual volume fluctuations. We believe these advantages are rooted in the following competitive strengths and reinforces our industry leadership over time.

        Exceptional Customer Loyalty and Brand Equity.    Our brands enjoy exceptional customer loyalty and brand equity in the snow and ice control equipment industry with both end-users and distributors, which have been developed through over 50 years of superior innovation, productivity, reliability and support, consistently delivered season after season. We believe past brand experience, rather than price, is the key factor impacting snowplow purchasing decisions.

        Broadest and Most Innovative Product Offering.    We provide the industry's broadest product offering with a full range of snowplows, sand and salt spreaders and related parts and accessories. We believe we maintain the industry's largest and most advanced in-house new product development program, historically introducing several new and redesigned products each year. Our broad product offering and


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commitment to new product development is essential to maintaining and growing our leading market share position as well as continuing to increase the profitability of our business.

        Extensive North American Distributor Network.    With over 720 direct distributors,2,100 points of sale, we benefit from having the most extensive North American direct distributor network in the industry, providing a significant competitive advantage over our peers. Our distributors function not only as sales and support agents (providing access to parts and service), but also as industry partners providing real-time end-user information, such as retail inventory levels, changing consumer preferences or desired functionality enhancements, which we use as the basis for our product development efforts.

        Leader in Operational Efficiency.    We believe we are a leader in operational efficiency in our industry, resulting from our application of lean manufacturing principles and a highly variable cost structure. By utilizing lean principles, we are able to adjust production levels easily to meet fluctuating demand, while controlling costs in slower periods. This operational efficiency is supplemented by our highly variable cost structure, driven in part by our access to a sizable temporary workforce (comprising approximately 10-15% of our total workforce)workforce during average snowfall years), which we can quickly adjust, as needed. These manufacturing efficiencies enable us to respond rapidly to urgent customer demand during times of sudden and unpredictable snowfalls, allowing us to provide exceptional service to our existing customer base and capture new customers from competitors that we believe cannot service their customers' needs with the same speed and reliability.

        Strong Cash Flow Generation.    We are able to generate significant cash flow as a result of relatively consistent high profitability, low capital spending requirements and predictable timing of our working capital requirements. Our cash flow results will also benefit substantially from approximately $18$19.5 million of annual tax-deductible intangible and goodwill expense over the next ninefive years, which has the impact of reducing our corporate taxes owed by approximately $6.7$7.4 million on an annual basis


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during this period, in the event we have sufficient taxable income to utilize such benefit. Our significant cash flow has allowed us to reinvest in our business, pay down long term debt, and pay substantial dividends on a pro rata basis to our stockholders.

        Experienced Management Team.    We believe our business benefits from an exceptional management team that is responsible for establishing our leadership in the snow and ice control equipment industry for light trucks. Our senior management team, consisting of four officers, has an average of approximately 2023 years of weather-related industry experience and an average of over ninethirteen years with our company. James Janik, our President and Chief Executive Officer, has been with us for over 1821 years and in his current role since 2000, and through his strategic vision, we have been able to expand our distributor network and grow our market leading position.

Our Business Strategy

        Our business strategy is to capitalize on our competitive strengths to maximize cash flow to pay dividends, reduce indebtedness and reinvest in our business to create stockholder value. The building blocks of our strategy are:

        Continuous Product Innovation.    We believe new product innovation is critical to maintaining and growing our market-leading position in the snow and ice control equipment industry. We will continue to focus on developing innovative solutions to increase productivity, ease of use, reliability, durability and serviceability of our products and on incorporating lean manufacturing concepts into our product development process, which has allowed us to reduce the overall cost of development and, more importantly, to reduce our time-to-market by nearly one-half.

        Distributor Network Optimization.    We will continually seek opportunities to continue to expand our extensive distribution network by adding high-quality, well-capitalized distributors in select geographic


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areas and by cross-selling our industry-leading brands within our distribution network to ensure we maximize our ability to generate revenue while protecting our industry leading reputation, customer loyalty and brands. We will also focus on optimizing this network by providing in-depth training, valuable distributor support and attractive promotional and incentive opportunities. As a result of these efforts, we believe a majority of our distributors choose to sell our products exclusively. We believe this sizable high quality network is unique in the industry, providing us with valuable insight into purchasing trends and customer preferences, and would be very difficult to replicate.

        Aggressive Asset Management and Profit Focus.    We will continue to aggressively manage our assets in order to maximize our cash flow generation despite seasonal and annual variability in snowfall levels. We believe our ability is unique in our industry and enables us to achieve attractive margins in all snowfall environments. Key elements of our asset management and profit focus strategies include:


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        Additionally, although modest, our capital expenditure requirements and operating expenses can be temporarily reduced in response to anticipated or actual lower sales in a particular year to maximize cash flow.

        Flexible, Lean Enterprise Platform.    We will continue to utilize lean principles to maximize the flexibility, efficiency and productivity of our manufacturing operations while reducing the associated costs, enabling us to increase distributor and end-user satisfaction. For example, in an environment where shorter lead times and near-perfect order fulfillment are important to our distributors, we believe our lean processes have helped us to improve our shipping performance and build a reputation for providing industry leading shipping performance. In 2010, we fulfilled 96.1% of our orders on or before the requested ship date, without error in content, packaging or delivery, as compared to 98.2% in 2009 and 81.5% in 2008. In January 2009, we opened a sourcing office in China, which we expect to become our central focus for specific component purchases and provide a majority of our procurement cost savings in the future.

Our Growth Opportunities

        Opportunistically Seek New Products and New Markets.    On May 6, 2013, the Company acquired substantially all of the assets of Trynex, including its full line of product offerings and access to its network of authorized dealers. We expect to continue to consider external growth opportunities within the snow and ice control industry and other equipment or component markets. We plan to continue to evaluate other acquisition opportunities within our industry that can help us expand our distribution reach, enhance our technology and as a consequence improve the breadth and depth of our product lines. We also consider diversification opportunities in adjacent markets that complement our business model and could offer us the ability to leverage our core competencies to create stockholder value.

        Increase Our Industry Leading Market Share.    We plan to leverage our industry leading position, distribution network and new product innovation capabilities to capture market share in the North American snow and ice control equipment market, focusing our primary efforts on increasing penetration in those North American markets where we believe our overall market share is less than 50%. We also plan to continue growing our presence in the snow and ice control equipment market outside of North America, particularly in Asia and Europe, which we believe could provide significant growth opportunities in the future.


        Opportunistically Seek New Products and New Markets.    We will consider external growth opportunities within the snow and ice control industry and other equipment or component markets. We plan to continue to evaluate acquisition opportunities within our industry that can help us expand our distribution reach, enhance our technology and as a consequence improve the breadth and depthTable of our product lines. We also consider diversification opportunities in adjacent markets that complement our business model and could offer us the ability to leverage our core competencies to create stockholder value.Contents

Employees

        As of December 31, 2010,2013, we employed approximately 450520 employees on a full-time basis. None of our employees are represented by a union and we are not party to any collective bargaining agreements.

Financing program

        We are party to a financing program in which certain distributors may elect to finance their purchases from us through a third party financing company. We provide the third party financing company recourse against us regarding the collectability of the receivable under the program due to the fact that if the third party financing company is unable to collect from the distributor the amounts due in respect of the product financed, we would be obligated to repurchase any remaining inventory related to the product financed and reimburse any legal fees incurred by the financing company. During the years ended December 31, 2013, 2012 and 2011, distributors financed purchases of $2.9 million, $1.6 million and $2.8 million through this financing program, respectively. At both December 31, 2013 and December 31, 2012, there were $0.0 million, of uncollectible outstanding receivables related to sales financed under the financing program. The amount owed by our distributors to the third party financing company under this program at December 31, 2013 and 2012 was $1.3 million and $0.9 million, respectively. We were required to repurchase repossessed inventory of $0.0 million, $0.2 million and $0.1 million for the years ended December 31, 2013, December 31, 2012 and December 31, 2011, respectively.

        In the past, minimal losses have been incurred under this agreement. However, an adverse change in distributor retail sales could cause this situation to change and thereby require us to repurchase repossessed units. Any repossessed units are inspected to ensure they are current, unused product and are restocked and resold.

Intellectual Property

        We maintain patents relating to snowplow mounts, assemblies, hydraulics, electronics and lighting systems, brooms as well as sand, salt and fertilizer spreader assemblies and our patent applications relate to each of the foregoing except for hydraulics. Patents are valid for the longer period of 17 years from issue date or 20 years from filing date. The duration of the patents we currently possess range between three years and 13 years of remaining life. Our patent applications date from 1999 through 2013.

        We rely on a combination of patents, trade secrets and trademarks to protect certain of the proprietary aspects of our business and technology. We hold approximately 29 U.S. registered trademarks (including the trademarks WESTERN®, FISHER® BLIZZARD®, SNOWEX®, TURFEX® and SWEEPEX®), 10 Canadian registered trademarks, 5 European trademarks, 43 U.S. issued patents, 11 Canadian patents and two Chinese trademarks.

Raw Materials

        During 2013, we experienced slightly favorable commodity costs compared to the average prices paid for commodities in 2012. Historically, we have mitigated, and we currently expect to continue to mitigate, commodity cost increases in part by engaging in proactive vendor negotiations, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate.

        Most of the components of our products are also affected by commodity cost pressures and are commercially available from a number of sources. In 2013, we experienced no significant work stoppages because of shortages of raw materials or commodities. The highest raw material and component costs are generally for steel, which we purchase from several suppliers.


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Other Information

        We were formed as a Delaware corporation in 2004. We maintain a website with the address www.douglasdynamics.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this report. We make available free of charge (other than an investor's own Internet access charges) through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission ("SEC").


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Item 1A.    Risk Factors

The Company operates in an environment that involves numerous known and unknown risks and uncertainties. Our business, prospects, financial condition and operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The risk described below highlight some of the factors that have affected, and in the future could affect our operations.

Our results of operations depend primarily on the level, timing and location of snowfall. As a result, a decline in snowfall levels in multiple regions for an extended time could cause our results of operations to decline and adversely affect our ability to pay dividends.

        As a manufacturer of snow and ice control equipment for light trucks, and related parts and accessories, our sales depend primarily on the level, timing and location of snowfall in the regions in which we offer our products. A low level or lack of snowfall in any given year in any of the snowbeltsnow-belt regions in North America (primarily the Midwest, East and Northeast regions of the United States as well as all provinces of Canada) will likely cause sales of our products to decline in such year as well as the subsequent year, which in turn may adversely affect our results of operations and ability to pay dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Year-to-Year Variability." A sustained period of reduced snowfall events in one or more of the geographic regions in which we offer our products could cause our results of operations to decline and adversely affect our ability to pay dividends.

The year-to-year variability of our business can cause our results of operations and financial condition to be materially different from year-to-year; whereas the seasonality of our business can cause our results of operations and financial condition to be materially different from quarter-to-quarter.

        Because our business depends on the level, timing and location of snowfall, our results of operations vary from year-to-year. Additionally, because the annual snow season typically only runs from October 1 through March 31, our distributors typically purchase our products during the second and third quarters. As a result, we operate in a seasonal business. We not only experience seasonality in our sales, but also experience seasonality in our working capital needs. Consequently, our results of operations and financial condition can vary from year-to-year, as well as from quarter-to-quarter, which could affect our ability to pay dividends. If we are unable to effectively manage the seasonality and year-to-year variability of our business, our results of operations, financial condition and ability to pay dividends may suffer.

If economic conditions in the United States continue to remain weak or deteriorate further, our results of operations, financial condition and ability to pay dividends may be adversely affected.

        Historically, demand for snow and ice control equipment for light trucks has been influenced by general economic conditions in the United States, as well as local economic conditions in the snowbeltsnow-belt regions in North America. During the last few years, economic conditions throughout the United States


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have been extremely weak, andweak. Although conditions improved from 2011 through 2013, they may not improvebecome strong in the foreseeable future. Weakened economic conditions may cause our end-users to delay purchases of replacement snow and ice control equipment and instead repair their existing equipment, leading to a decrease in our sales of new equipment. Weakened economic conditions may also cause our end-users to delay their purchases of new light trucks. Because our end-users tend to purchase new snow and ice control equipment concurrent with their purchase of new light trucks, their delay in purchasing new light trucks can also result in the deferral of their purchases of new snow and ice control equipment. The deferral of new equipment purchases during periods of weak economic conditions may negatively affect our results of operations, financial condition and ability to pay dividends.

        Weakened economic conditions may also cause our end-users to consider price more carefully in selecting new snow and ice control equipment. Historically, considerations of quality and service have outweighed considerations of price, but in a weak economy, price may become a more important factor. Any refocus away from quality in favor of cheaper equipment could cause end-users to shift away from our products to less expensive competitor products, or to shift away from our more


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profitable products to our less profitable products, which in turn would adversely affect our results of operations and our ability to pay dividends.

Our failure to maintain good relationships with our distributors, the loss or consolidation of our distributor base or the actions or inactions of our distributors could have an adverse effect on our results of operations and our ability to pay dividends.

        We depend on a network of truck equipment distributors to sell, install and service our products. Nearly all of these sales and service relationships are at will, and less than 1% of our distributors have agreed not to offer products that compete with our products. As a result,so almost all of our distributors could discontinue the sale and service of our products at any time, and those distributors that primarily sell our products may choose to sell competing products at any time. Further, difficult economic or other circumstances could cause any of our distributors to discontinue their businesses. Moreover, if our distributor base were to consolidate or if any of our distributors were to discontinue their business, competition for the business of fewer distributors would intensify. If we do not maintain good relationships with our distributors, or if we do not provide product offerings and pricing that meet the needs of our distributors, we could lose a substantial amount of our distributor base. A loss of a substantial portion of our distributor base could cause our sales to decline significantly, which would have an adverse effect on our results of operations and ability to pay dividends.

        In addition, our distributors may not provide timely or adequate service to our end-users. If this occurs, our brand identity and reputation may be damaged, which would have an adverse effect on our results of operations and ability to pay dividends.

Lack of available financing options for our end-users or distributors may adversely affect our sales volumes.

        Our end-user base is highly concentrated among professional snowplowers, who comprise over 50% of our end-users, many of whom are individual landscapers who remove snow during the winter and landscape during the rest of the year, rather than large, well-capitalized corporations. These end-users often depend upon credit to purchase our products. If credit is unavailable on favorable terms or at all, our end-users may not be able to purchase our products from our distributors, which would in turn reduce sales and adversely affect our results of operations and ability to pay dividends.

        In addition, because our distributors, like our end-users, rely on credit to purchase our products, if our distributors are not able to obtain credit, or access credit on favorable terms, we may experience delays in payment or nonpayment for delivered products. Further, if our distributors are unable to obtain credit or access credit on favorable terms, they could experience financial difficulties or bankruptcy and cease purchases of our products altogether. Thus, if financing is unavailable on


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favorable terms or at all, our results of operations and ability to pay dividends would be adversely affected.

The price of steel, a commodity necessary to manufacture our products, is highly variable. If the price of steel increases, our gross margins could decline.

        Steel is a significant raw material used to manufacture our products. During 2008, 20092013, 2012 and 2010,2011, our steel purchases were approximately 15%13%, 18% and 13%15% of our revenue, respectively. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Steel prices are volatile and may increase as a result of increased demand from the automobile and consumer durable sectors. If the price of steel increases, our variable costs may increase. We may not be able to mitigate these increased costs through the implementation of


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permanent price increases or temporary invoice surcharges, especially if economic conditions remain weak and our distributors and end-users become more price sensitive. If we are unable to successfully mitigate such cost increases in the future, our gross margins could decline.

If petroleum prices increase, our results of operations could be adversely affected.

        Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic and market factors that are outside of our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. If the price of fuel increases, the demand for our products may decline, which would adversely affect our financial condition and results of operations.

We depend on outside suppliers who may be unable to meet our volume and quality requirements, and we may be unable to obtain alternative sources.

        We purchase certain components essential to our snowplows and sand and salt spreaders from outside suppliers, including off-shore sources. Most of our key supply arrangements can be discontinued at any time. A supplier may encounter delays in the production and delivery of such products and components or may supply us with products and components that do not meet our quality, quantity or cost requirements. Additionally, a supplier may be forced to discontinue operations. Any discontinuation or interruption in the availability of quality products and components from one or more of our suppliers may result in increased production costs, delays in the delivery of our products and lost end-user sales, which could have an adverse effect on our business and financial condition.

        In addition, weWe have beguncontinued to increase the number of our off-shore suppliers. Our increased reliance on off-shore sourcing may cause our business to be more susceptible to the impact of natural disasters, war and other factors that may disrupt the transportation systems or shipping lines used by our suppliers, a weakening of the dollar over an extended period of time and other uncontrollable factors such as changes in foreign regulation or economic conditions. In addition, reliance on off-shore suppliers may make it more difficult for us to respond to sudden changes in demand because of the longer lead time to obtain components from off-shore sources. We may be unable to mitigate this risk by stocking sufficient materials to satisfy any sudden or prolonged surges in demand for our products. If we cannot satisfy demand for our products in a timely manner, our sales could suffer as distributors can cancel purchase orders without penalty until shipment.


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We do not sell our products under long-term purchase contracts, and sales of our products are significantly impacted by factors outside of our control; therefore, our ability to estimate demand is limited.

        We do not enter into long-term purchase contracts with our distributors and the purchase orders we receive may be cancelled without penalty until shipment. Therefore, our ability to accurately predict future demand for our products is limited. Nonetheless, we attempt to estimate demand for our products for purposes of planning our annual production levels and our long-term product development and new product introductions. We base our estimates of demand on our own market assessment, snowfall figures, quarterly field inventory surveys and regular communications with our distributors. Because wide fluctuations in the level, timing and location of snowfall, economic conditions and other factors may occur, each of which is out of our control, our estimates of demand may not be accurate. Underestimating demand could result in procuring an insufficient amount of materials necessary for the production of our products, which may result in increased production costs, delays in product delivery, missed sale opportunities and a decrease in customer satisfaction. Overestimating demand could result in the procurement of excessive supplies, which could result in increased inventory and associated carrying costs.

If we are unable to enforce, maintain or continue to build our intellectual property portfolio, or if others invalidate our intellectual property rights, our competitive position may be harmed.

        Our patents relate to snowplow mounts, assemblies, hydraulics, electronics and lighting systems, brooms as well as sand, salt and fertilizer spreader assemblies and our patent applications relate to each of the foregoing except for hydraulics. Patents are valid for the longer period of 17 years from issue date or 20 years from filing date. The duration of the patents we currently possess range between three years and 13 years of remaining life. Our patent applications date from 1999 through 2013.

We rely on a combination of patents, trade secrets and trademarks to protect certain of the proprietary aspects of our business and technology. We hold approximately 2029 U.S. registered trademarks (including the trademarks WESTERN®, FISHER®, BLIZZARD® SNOWEX®, TURFEX® and BLIZZARD®SWEEPEX®), 510 Canadian registered trademarks, 285 European trademarks, 43 U.S. issued patents, 11 Canadian patents and 15 Canadian patents.two Chinese trademarks. Although we work diligently to protect our intellectual property rights, monitoring the unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent unauthorized use by others. In addition, in the


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event a third party challenges the validity of our intellectual property rights, a court may determine that our intellectual property rights may not be valid or enforceable. An adverse determination with respect to our intellectual property rights may harm our business prospects and reputation. Third parties may design around our patents or may independently develop technology similar to our trade secrets. The failure to adequately build, maintain and enforce our intellectual property portfolio could impair the strength of our technology and our brands, and harm our competitive position. Although the Company haswe have no reason to believe that itsour intellectual property rights are vulnerable, previously undiscovered intellectual property could be used to invalidate our rights.

If we are unable to develop new products or improve upon our existing products on a timely basis, it could have an adverse effect on our business and financial condition.

        We believe that our future success depends, in part, on our ability to develop on a timely basis new technologically advanced products or improve upon our existing products in innovative ways that meet or exceed our competitors' product offerings. Continuous product innovation ensures that our consumers have access to the latest products and features when they consider buying snow and ice control equipment. Maintaining our market position will require us to continue to invest in research and development and sales and marketing. Product development requires significant financial, technological and other resources. We may be unsuccessful in making the technological advances necessary to develop new products or improve our existing products to maintain our market position.


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Industry standards, end-user expectations or other products may emerge that could render one or more of our products less desirable or obsolete. If any of these events occur, it could cause decreases in sales, a failure to realize premium pricing and an adverse effect on our business and financial condition.

We face competition from other companies in our industry, and if we are unable to compete effectively with these companies, it could have an adverse effect on our sales and profitability. Price competition among our distributors could negatively affect our market share.

        We primarily compete with regional manufacturers of snow and ice control equipment for light trucks. While we are the most geographically diverse company in our industry, we may face increasing competition in the markets in which we operate. In saturated markets, price competition may lead to a decrease in our market share or a compression of our margins, both of which would affect our profitability. Moreover, current or future competitors may grow their market share and develop superior service and may have or may develop greater financial resources, lower costs, superior technology or more favorable operating conditions than we maintain. As a result, competitive pressures we face may cause price reductions for our products, which would affect our profitability or result in decreased sales and operating income. Additionally, saturation of the markets in which we compete or channel conflicts among our brands and shifts in consumer preferences may increase these competitive pressures or may result in increased competition among our distributors and affect our sales and profitability. In addition, price competition among the distributors that sell our products could lead to significant margin erosion among our distributors, which could in turn result in compressed margins or loss of market share for us. Management believes that, after us,ourselves, the next largest competitors in the market for snow and ice control equipment for light trucks are BOSSNorthern Star Industries, Inc. (the manufacturer of the Boss brand of snow and ice control equipment) and Meyer respectively,Products LLC, and accordingly represent our primary competitors for market share.

We are subject to complex laws and regulations, including environmental and safety regulations that can adversely affect the cost, manner or feasibility of doing business.

        Our operations are subject to certain federal, state and local laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation, disposal and discharge of hazardous and non-hazardous substances and materials into the environment, the manufacturing of


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motor vehicle accessories and employee health and safety. We cannot be certain that existing and future laws and regulations and their interpretations will not harm our business or financial condition. We currently make and may be required to make large and unanticipated capital expenditures to comply with environmental and other regulations, such as:

        While we monitor our compliance with applicable laws and regulations and attempt to budget for anticipated costs associated with compliance, we cannot predict the future cost of such compliance. While in the current periodIn 2013, the amount expended for such compliance was insignificant, but we could incur material expenses in the future in the event of future legislation changes or unforeseen events, such as a workplace accident or environmental discharge, or if we otherwise discover we are in non-compliance with an applicable regulation. In addition, under these laws and regulations, we could be liable for:


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        Our operations could be significantly delayed or curtailed and our costs of operations could significantly increase as a result of regulatory requirements, restrictions or claims. We are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.

Financial market conditions have had a negative impact on the return on plan assets for our pension plans, which may require additional funding and negatively impact our cash flows.

        Our pension expense and required contributions to our pension plan are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets and the actuarial assumptions we use to measure the defined benefit pension plan obligations. Due toDespite modest recent market recoveries, the recent significantfunding status of our pension plans, remain impacted by the financial market downturn over the last several years, which had severely impacted the funded status of our pension plans has declined.plans. As of December 31, 2010,2013, our pension plans were underfunded by approximately $10.8$7.1 million. In 2010,2013, contributions to our defined benefit pension plans were approximately $0.9$0.8 million. If plan assets continue to perform below expectations, future pension expense and funding obligations will increase, which would have a negative impact on our cash flows. Moreover, under the Pension Protection Act of 2006, it is possible that continued losses of asset values may necessitate accelerated funding of our pension plans in the future to meet minimum federal government requirements.

The statements regarding our industry, market positions and market share in this filing are based on our management's estimates and assumptions. While we believe such statements are reasonable, such statements have not been independently verified.

        Information contained in this Annual Report on Form 10-K concerning the snow and ice control equipment industry for light trucks, our general expectations concerning this industry and our market positions and other market share data regarding the industry are based on estimates our management prepared using end-user surveys, anecdotal data from our distributors and distributors that carry our competitors' products, our results of operations and management's past experience, and on assumptions


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made, based on our management's knowledge of this industry, all of which we believe to be reasonable. These estimates and assumptions are inherently subject to uncertainties, especially given the year-to-year variability of snowfall and the difficulty of obtaining precise information about our competitors, and may prove to be inaccurate. In addition, we have not independently verified the information from any third-party source and thus cannot guarantee its accuracy or completeness, although management also believes such information to be reasonable. Our actual operating results may vary significantly if our estimates and outlook concerning the industry, snowfall patterns, our market positions or our market shares turn out to be incorrect.

We are subject to product liability claims, product quality issues, and other litigation from time to time that could adversely affect our operating results or financial condition.

        The manufacture, sale and usage of our products expose us to a risk of product liability claims. If our products are defective or used incorrectly by our end-users, injury may result, giving rise to product liability claims against us. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage, and it is ultimately determined that we are liable, our business and financial condition could suffer. Any losses that we may suffer from any liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may divert management's attention from other matters and may have a


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negative impact on our business and operating results. Additionally, we could experience a material design or manufacturing failure in our products, a quality system failure or other safety issues, or heightened regulatory scrutiny that could warrant a recall of some of our products. A recall of some of our products could also result in increased product liability claims. Any of these issues could also result in loss of market share, reduced sales, and higher warranty expense.

We are heavily dependent on our Chief Executive Officer and management team.

        Our continued success depends on the retention, recruitment and continued contributions of key management, finance, sale and marketing personnel, some of whom could be difficult to replace. Our success is largely dependent upon our senior management team, led by our Chief Executive Officer and other key managers. The loss of any one or more of such persons could have an adverse effect on our business and financial condition.

Our indebtedness could adversely affect our operations, including our ability to perform our obligations and pay dividends.

        As of December 31, 2010,2013, we had approximately $121$110 million of senior secured indebtedness, $13.0 million in outstanding borrowings under our revolving credit facility and $60$48 million of remaining borrowing availability under ourthe revolving credit facility. We may also be able to incur substantial indebtedness in the future, including senior indebtedness, which may or may not be secured.

        Our indebtedness could have important consequences, including the following:


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        If any of these consequences occur, our financial condition, results of operations and ability to pay dividends could be adversely affected. This, in turn, could negatively affect the market price of our common stock, and we may need to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure you that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds that may be realized from those sales, or that additional financing could be obtained on acceptable terms, if at all.


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Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly and could impose adverse consequences.

        OurCertain of our borrowings, including our term loan and any revolving borrowings under our senior credit facilities, are at variable rates of interest and expose us to interest rate risk. In addition, the interest rate on any revolving borrowings is subject to an increase in the interest rate if the average daily availability under our revolving credit facility falls below a certain threshold. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows would correspondingly decrease.

Our senior credit facilities impose restrictions on us, which may also prevent us from capitalizing on business opportunities and taking certain corporate actions. One of these facilities also includes minimum availability requirements, which if unsatisfied, could result in liquidity events that may jeopardize our business.

        Our senior credit facilities contain, and future debt instruments to which we may become subject may contain, covenants that limit our ability to engage in activities that could otherwise benefit our company, includingcompany. Under the credit facilities as modified in April 2011 and amended again in November 2012, these covenants include restrictions on our ability to:

        Our amended revolving credit facility also includes limitations on capital expenditures and requires usthat if we fail to maintain at least $6 millionthe greater of $8,750,000 and 12.5% of the revolving commitments in borrowing availability. Failure to maintain such availability, would constitute a "liquidity event" under our revolving credit facility, and as a result we would be required tomust comply with a fixed charge coverage ratio test. In addition, if such a liquidity event occurs because our borrowing availability is less than the greater of $10,500,000 and 15% of the aggregate revolving commitments (or an event of default)default occurs and is continuing,continuing), subject to certain limited cure rights, all proceeds of our accounts receivable and other collateral will be applied to reduce obligations under our revolving credit facility,


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reduce obligations under our amended revolving credit facility, jeopardizing our ability to meet other obligations. Our ability to comply with the covenants contained in our senior credit facilities or in the agreements governing our future indebtedness, and our ability to avoid liquidity events, may be affected by events, or our future performance, which are subject to factors beyond our control, including prevailing economic, financial, industry and weather conditions, such as the level, timing and location of snowfall and general economic conditions in the snowbelt regions of North America. A failure to comply with these covenants could result in a default under our senior credit facilities, which could prevent us from paying dividends, borrowing additional amounts and using proceeds of our inventory and accounts receivable, and also permit the lenders to accelerate the payment of such debt. If any of our debt is accelerated or if a liquidity event (or event of default) occurs that results in collateral proceeds being applied to reduce such debt, we may not have sufficient funds available to repay such debt and our other obligations, in which case, our business could be halted and such lenders could proceed against any collateral securing that debt. Further, if the lenders accelerate the payment of the indebtedness under our senior credit facilities, our assets may not be sufficient to repay in full the indebtedness under our senior credit facilities and our other indebtedness, if any. We cannot assure you that these covenants will not adversely affect our ability to finance our future operations or capital needs to pursue available business opportunities or react to changes in our business and the industry in which we operate.

The closure of our Johnson City, Tennessee manufacturing facility may entail risks to our business.

        As part of our lean manufacturing strategy to lower our fixed costs, we closed our Johnson City, Tennessee manufacturing facility in the third quarter ending September 30, 2010 and thereby reduced our manufacturing facilities from three to two. In connection with this closure, we relocated our Johnson City operations and equipment into our remaining two facilities. We cannot assure you that we will realize contemplated cost savings from the closure of this facility. In addition, there may be risks associated with this closure for which we are unprepared, such as labor and employment litigation, difficulties implementing a smooth transition and the possibility that this closure leaves us with insufficient manufacturing capacity. It is therefore possible that our business could be negatively affected by the closure of this facility.

Our principal stockholders hold a significant portion of our common stock and may have different interests than us or you in the future.

        As of December 31, 2010, our principal stockholders had the right to vote or direct the vote of approximately 46% of our voting power. In light of their voting power, our principal stockholders will for the foreseeable future be able to influence the election and removal of our directors and influence our corporate and management policies, including virtually all matters requiring stockholder approval, such as potential mergers or acquisitions, asset sales and other significant corporate transactions. This concentration of ownership may delay or deter possible changes in control of our company. We cannot assure you that the interests of our principal stockholders will coincide with the interests of our other holders of common stock.

Provisions of Delaware law and our charter documents could delay or prevent an acquisition of us, even if the acquisition would be beneficial to you.

        Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include:


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        We are also subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits us from engaging in any business combination with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. This provision, together with the provisions discussed above, could also make it more difficult for you and our other stockholders to elect directors and take other corporate actions, and could limit the price that investors might be willing to pay in the future for shares of our common stock.


If we are unable to assess favorably the effectivenessTable of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, our stock price could be adversely affected.Contents

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, beginning with our Annual Report on Form 10-K for the year ending December 31, 2011, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, in connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If we cannot timely and favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal control over financial reporting, investor confidence and our stock price could decline.

Our dividend policy may limit our ability to pursue growth opportunities.

        If we continue to pay dividends at the current level undercontemplated by our dividend policy, as in effect on the date of this filing, or if we increase the level of our dividend payments in the future, we may not retain a sufficient amount of cash to finance growth opportunities, meet any large unanticipated liquidity requirements or fund our operations in the event of a significant business downturn. In addition, because a significant portion of cash available will be distributed to holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions, increased capital spending or other increases of our expenditures, will depend more than it otherwise would on our ability to obtain third party financing. We cannot assure you that such financing will be available to us at all, or at an acceptable cost. If we are unable to take timely


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advantage of growth opportunities, our future financial condition and competitive position may be harmed, which in turn may adversely affect the market price of our common stock.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

        In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to malicious attacks or breached due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings and/or regulatory penalties, disrupt our operations, damage our reputation, and/or cause a loss of confidence in our products and services, which could adversely affect our business.

We may be unable to identify, complete or benefit from strategic transactions.

        Our long-term growth strategy includes building value for our company through a variety of methods. These methods may include acquisition of, investment in, or joint ventures involving, complementary businesses. We cannot assure that we will be able to identify suitable parties for these transactions. If we are unable to identify suitable parties for strategic transactions we may not be able to capitalize on market opportunities with existing and new customers, which could inhibit our ability to gain market share. Even if we identify suitable parties to participate in these transactions, we cannot assure that we will be able to make them on commercially acceptable terms, if at all.

        In May 2013, we acquired substantially all of the assets of TrynEx. We may not be able to achieve the projected financial performance with the acquired assets, and may incur unexpected costs or liabilities related to the acquisition of the TrynEx assets. In addition, if in the future we acquire another company or its assets, it may be difficult to assimilate the acquired businesses, products, services, technologies and personnel into our operations. These difficulties could disrupt our ongoing business, distract our management and workforce, increase our expenses and adversely affect our operating results and ability to compete and gain market share. Mergers and acquisitions are inherently risky and are subject to many factors outside our control. No assurance can be given that any future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. In addition, we may incur debt or be required to issue equity securities to pay for future acquisitions or investments. The issuance of any equity securities could be dilutive to our stockholders. We also may need to make further investments to support any acquired company and may have difficulty identifying and acquiring appropriate resources. If we divest or otherwise exit certain portions of our business in connection with a strategic transaction, we may be required to record additional


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expenses, and our estimates with respect to the useful life and ultimate recoverability of our carrying basis of assets, including goodwill and purchased intangible assets, could change.

Item 1B.    Unresolved Staff Comments

        Not applicable.

Item 2.    Properties

        We are headquartered in Milwaukee, WI and currently have manufacturing facilities in Milwaukee, WI, Rockland, ME and Rockland, ME. We closed our Johnson City, TN facility in August 2010, and are currently holding it for sale. In January 2009,Madison Heights, MI. Additionally, we openedoperate a sourcing office in China. We operate as a single segment.

Item 3.    Legal Proceedings

        In the ordinary course of business, we are engaged in various litigation primarily including product liability and intellectual property disputes. However, management does not believe that any current litigation is material to our operations or financial position. In addition, we are not currently party to any environmental-related claims or legal matters.

Item 4.    (Removed and Reserved)Mine Safety Disclosures

        Not applicable.

Executive Officers of the Registrant

        Our executive officers as of December 31, 20102013 were as follows:

Name
 Age Position

James Janik

 5457 President and Chief Executive Officer; Director

Robert McCormick

 5053 Executive Vice President, Chief Financial Officer Treasurer and Secretary

Mark Adamson

 5255 Senior Vice President, Sales and Marketing

Keith Hagelin

 5053 Senior Vice President, Operations

        James Janik has been serving as our President and Chief Executive Officer since 2000 and as a director since 2004. Mr. Janik was General Manager of our Western Products division from 1994 to 2000 and Vice President of Marketing and Sales from 1998 to 2000. Prior to joining us, Mr. Janik was the Vice President of Marketing and Sales of Sunlite Plastics Inc., a custom extruder of thermoplastic materials, for two years. During the 11 prior years, Mr. Janik held a number of key marketing, sales and production management positions for John Deere Company.

        Robert McCormick has been serving as our Executive Vice President, Chief Financial Officer and Treasurer since September 2004 and as our Secretary since May 2005. Mr. McCormick served as our Assistant Secretary from September 2004 to May 2005.2005 and as our Treasurer from September 2004 through December 2010. Prior to joining us, Mr. McCormick served as President and Chief Executive Officer of Xymox Technology Inc. from 2001 to 2004. Prior to that, Mr. McCormick served in various capacities in the Newell Rubbermaid Corporation, including President from 2000 to 2001 and Vice President Group Controller from 1997 to 2000. While Mr. McCormick served as President, he was responsible for Newell's Mirro / Wearever Cookware, and as Vice President Group Controller, he was responsible for worldwide strategic and financial responsibilities for 12 company divisions with sales of over two billion dollars.


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        Mark Adamson has been serving as our Senior Vice President, Sales and Marketing since 2013. Prior to becoming our Senior Vice President, Sales and Marketing he had served as our Vice President, Sales and Marketing since 2007. Prior to joining us, Mr. Adamson held numerous senior level management positions with industry leaders in the grounds care industry, including John Deere Company from 1980 to 2002 and Gehl Corporation from 2002 to 2007. From 2003 to 2005, he was the Manager, Regional Sales & Distribution of Gehl Company, directing the sales and marketing activities of certain sales field managers in the


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northeastern United States responsible for Gehl product sales and rental., and from 2005 to 2007, he was the Director, Training and Customer Support, where he directed the aftermarket and training activities of five departments and thirty-two individuals responsible for Gehl and Mustang products worldwide. From 1980 to 2002, Mr. Adamson held several senior level management positions with John Deere Company.

        Keith Hagelin has been serving as our Senior Vice President, Operations since September 2013. Prior to becoming our Senior Vice President, Operations, he had served as our Vice President, Operations since 2009, having previously spent twelve years in progressive roles with us, including Plant Manager and General Manager—Rockland and most recently Vice President of Manufacturing from 2007 to 2009. Prior to joining Douglas, Mr. Hagelin spent 13 years at Raytheon Corporation in various manufacturing, production and new product development roles.

        Executive officers are elected by, and serve at the discretion of, the Board of Directors. There are no family relationships between any of our directors or executive officers.


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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        The Company's common stock is listed, and principallyOur Common Stock has been traded on the NYSE. The Company'sNew York Stock Exchange since the second quarter of 2010 under the symbol for its common stock is "PLOW." The followingprices in the table setsset forth below indicate the range of high and low per share sales prices of our Common Stock per the Company's common stockNew York Stock Exchange Composite Price History for each quarter in 2013 and per share dividends for the periods indicated. As the company was not listed until it listed its common stock in the second quarter 2010 in connection with the IPO, no market price data is available for the first quarter of 2010 or any periods of 2009.2012.


 2010  2013 2012 

 Price Range  Price Range Price Range 

 High Low Dividends  High Low Dividends High Low Dividends 

Fourth Quarter

 $16.84 $11.97 $0.20  $17.45 $14.41 $0.21 $15.67 $12.87 $0.21 

Third Quarter

 13.00 10.20 0.18  15.30 13.14 0.21 15.70 12.69 0.21 

Second Quarter

 12.54 10.93   14.55 12.72 0.21 14.27 12.52 0.21 

First Quarter

     14.86 12.65 0.21 14.93 12.37 0.21 

        At March 8, 2011,11, 2014, there were 3320 record holders of our Common Stock.

        In accordance with the Company's dividend policy, dividends are declared and paid quarterly at the discretion of the board of directors. Additionally, special dividends may be declared and paid at the discretion of the board of directors. TheIn the first, quarterlysecond and third quarters of 2012, the Company both declared and paid a dividend to common shareholders subsequent to IPO was made inof $0.205 per share. In the thirdfourth quarter of 2010 for $0.1825 per share paid on September 30, 2010. Additionally,2012, the Company increased its annual implied dividend from $0.82 to $0.83 and both declared and paid a $0.20dividend of $0.2075 per share quarterlyshare. In the first, second and third quarters of 2013, the Company both declared and paid a dividend on December 31, 2010.of $0.2075 per share. In the fourth quarter of 2013, the Company increased its annual implied dividend from $0.83 to $0.85 and both declared and paid a dividend of $0.2125 per share.

        The Company's senior credit agreement includes a number offacilities include certain negative and operating covenants, that require the Company to meet several distribution conditions in order for the Company to be ableincluding restrictions on its ability to pay a dividend. Additionally, the Company'sdividends, and other customary covenants, representations and warranties and events of default. The senior credit agreement provides distribution limitations which could limit the amount the Company can distribute. Distribution conditions include the Company maintaining positive net assets, maintaining a "leverage ratio", as definedfacilities entered into and recorded by the credit agreement, less than 6.0:1.0 and maintain borrowing availability over $12.0 million. Distribution limitations apply if the Company's adjusted EBITDA, as defined by the credit agreement were to fall below $40.0 million.


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Company's subsidiaries significantly restrict its subsidiaries from paying dividends and otherwise transferring assets to Douglas Dynamics, Inc. The terms of the Company's revolving credit facility specifically restrict the Company from paying dividends if a minimum availability under the revolving credit facility, the greater of $10.5 million and 15% of the aggregate revolving commitments at the time of determination, is not maintained. Additionally, both senior credit facilities restrict the Company from paying dividends above certain levels not to exceed $5.25 million in any fiscal quarter of 2011 calculated without regard to a one-time special dividend not to exceed $8.0 million, $5.5 million in any fiscal quarter of 2012, $5.75 million in any fiscal quarter of 2013, $6.0 million in any fiscal quarter of 2014, $6.25 million in any fiscal quarter of 2015 and $6.5 million in any fiscal quarter of 2016 and thereafter or at all if an event of default has occurred. These restrictions would affect the Company indirectly since the Company relies principally on distributions from its subsidiaries to have funds available for the payment of dividends.

Securities Authorized for Issuance under Equity Compensation Plans

        The following table sets forth information with respect to compensation plans under which equity securities of the Company are authorized for issuance as of December 31, 2010.2013.


Equity Compensation Plan Information

Plan Category
 Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
(a)
 Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
 Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
 

Equity Compensation plans approved by security holders(1):

          

2010 Stock Incentive Plan(2):

  74,518    1,415,636 

2004 Stock Incentive Plan

  37,240 $4.21   

Equity compensation plans not approved by security holders

       
        

Total(3)

  111,758 $4.21  1,415,636 
        
        

PLAN CATEGORY
 Number of securities
to be issued upon
the exercise of
outstanding options,
warrants and rights
 Weighted-average
exercise price of
outstanding options,
warrants and rights
 Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in the first column)
 

Equity compensation plans approved by security holders:(1)

          
 

2010 Stock Incentive Plan

      1,843,566 
 

2004 Stock Incentive Plan

  356,613 $4.21   

Equity compensation plans not approved by security holders

       
        

Total

  356,613 $4.21  1,843,566 
        

(1)
Includes the Company's 2010 Stock Incentive Plan and 2004 Stock Incentive Plan, both of which were approved by our stockholders prior to our initial public offering, or IPO.

(2)
Excludes 105,300 shares of restricted stock previously granted under the 2010 Stock Incentive Plan.

(3)
Calculated excluding the 74,518 securities shown as to be issued upon exercise of outstanding options, warrants and rights under the 20102 Stock Incentive Plan in column (a), which are subject to performance share awards and have no exercise price.

        The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing.


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        The graph set forth below compares the cumulative total stockholder return on our common stock between May 11,5, 2010 (the date of our initial public offering, or IPO) and December 31, 2010,2013, with the cumulative total return of The Dow Jones Industrial Average and Russell 2000 Index. This graph assumes the investment of $100 on May 11,5, 2010 in our common stock at our IPO offering price of


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$11.25 $11.25 per share, the Dow Jones Industrial Average and Russell 2000 Index, and assumes the reinvestment of dividends.

        We did not sell any equity securities during 2010,201, in offerings that were not registered under the Securities Act of 1933.

        We did not make any purchases of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the fourth quarter of 2010.

Item 6.    Selected Consolidated Financial Data

        The following table sets forth our selected historical consolidated financial data for the periods and at the dates indicated. The selected historical consolidated financial data as of December 31, 2008, 20092012 and 20102013 and for the three years in the period ended December 31, 20102013, 2012 and 2011 are derived from our audited consolidated financial statements included at Item 8.statements.

        The selected historical consolidated financial data as of December 2009, 2010 and 2011 and for the years ended December 31, 20062009 and 2007 are2010 is derived from our historical financial statements not included in this Annual Report on Form 10-K.


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        The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document.

 
 As of December 31, 
 
 2006 2007 2008 2009 2010 
 
 (in thousands)
 

Selected Balance Sheet Data

                
 

Cash and cash equivalents

 $12,441 $35,519 $53,552 $69,073 $20,149 
 

Total current assets

  70,367  91,491  115,414  133,534  88,972 
 

Total assets

  365,168  375,649  391,264  404,619  348,043 
 

Total current liabilities

  18,089  19,013  23,858  25,187  15,976 
 

Total debt

  227,608  234,363  233,513  232,663  121,154 
 

Total liabilities

  271,447  283,705  293,203  296,395  178,550 
 

Total redeemable stock and stockholders' equity

  93,721  91,944  98,061  108,224  169,493 
 
 As of December 31, 
 
 2009 2010 2011 2012 2013 
 
 (in thousands)
 

Selected Balance Sheet Data

                

Cash and cash equivalents

 $69,073 $20,149 $39,432 $24,136 $19,864 

Total current assets

  133,534  88,972  103,462  89,582  98,372 

Total assets

  404,619  348,043  359,017  338,371  364,339 

Total current liabilities

  25,187  15,976  32,611  16,670  36,098 

Total debt

  232,663  121,154  122,937  111,966  123,994 

Total liabilities

  296,395  178,550  195,628  184,639  209,018 

Total redeemable stock and shareholders' equity

  108,224  169,493  163,389  153,732  155,321 

 

 
 For the year ended December 31, 
 
 2006 2007 2008 2009 2010 
 
 (in thousands, except per share data)
 

Consolidated Statement of Operations Data

                
 

Total sales

 $145,779 $140,065 $180,108 $174,342 $176,795 
 

Gross profit

  45,232  42,816  62,197  57,078  60,301 
 

Income from operations

  20,459  20,636  35,636  29,439  21,408 
 

Income tax expense (benefit)

  443  (749) 6,793  3,986  872 
 

Net income (loss)

  197  (1,057) 11,471  9,843  1,662 
 

Net income (loss) per basic share, as adjusted(1)

 $0.02 $(0.07)$0.79 $0.68 $0.09 
 

Net income (loss) per diluted share, as adjusted(1)

 $0.02 $(0.07)$0.77 $0.67 $0.09 
 
 For the year ended December 31, 
 
 2009 2010 2011 2012 2013 
 
 (in thousands, except per share data)
 

Consolidated Statement of Operations Data

                

Total sales

 $174,342 $176,795 $208,798 $140,033 $194,320 

Gross profit

  57,078  60,301  71,817  43,963  65,650 

Income from operations

  29,439  21,408  40,181  18,869  27,506 

Income tax expense

  3,986  872  11,332  4,144  7,378 

Net income

  9,843  1,662  19,040  6,012  11,639 

Net income per basic share, as adjusted(1)

 $0.68 $0.09 $0.87 $0.27 $0.52 

Net income per diluted share, as adjusted(1)

 $0.67 $0.09 $0.85 $0.26 $0.51 

Cash dividends paid per commmon share

 $ $0.38 $1.18 $0.82 $0.84 

 

 
 For the year ended December 31, 
 
 2009 2010 2011 2012 2013 
 
 (in thousands)
 

Other Data

                

Adjusted EBITDA

 $45,180 $47,345 $52,461 $29,732 $44,569 

Capital expenditures(2)

 $8,200 $3,009 $2,373 $1,446 $2,775 

 
 For the year ended December 31, 
 
 2006 2007 2008 2009 2010 
 
 (in thousands)
 

Other Data

                
 

Adjusted EBITDA

 $32,564 $32,745 $47,742 $45,180 $47,345 
 

Capital expenditures(2)

 $3,449 $1,049 $3,160 $8,200 $3,009 

(1)
Represents net income (loss) per share after giving effect to a 23.75-for-one stock split of our common stock that occurred in conjunction with the initial public offering.offering in 2010.

(2)
Capital expenditures for the year ended December 31, 2009 include $5 million related to the investments in our Milwaukee, Wisconsin and Rockland, Maine manufacturing facilities to support the closure of our Johnson City, Tennessee manufacturing facility.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2008, 20092011, 2012 and 20102013 should be read together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in this Annual Report on Form 10-K.

Results of Operations

Overview

        In assessing our results of operations in a given period, one of the primary factors we consider is the level of snowfall experienced within the prior snow season. We typically compare the snowfall level in a given period both to the snowfall level in the prior season and to those snowfall levels we consider to be average. References to "average snowfall" levels below refer to the aggregate average inches of snowfall recorded in 66 cities in 26 snowbeltsnow-belt states in the United States during the annual snow season, from October 1 through March 31, from 1980 to 2010.2013. During this period, snowfall averaged 3,0023,008 inches, with the low in such period being 2,0941,794 inches and the high being 4,502 inches.

        During the six monthsix-month snow season ended March 31, 2013 snowfall was 3,274 inches which was 9.0% higher than average. Meanwhile, during the six-month snow seasons endingended March 31, 2008, 2009 and 2010,2012, we experienced historically below average snowfall (approximately 40% below average). During the six-month snow season ended March 31, 2011, we experienced above average snowfall (approximately 22%, 22% and 20%39% above average). In addition to the severity of the low snowfall of snow season ended March 31, 2012, management believes that the timing of the snowfall in the snow season ended March 31, 2013, despite being slightly above average during six months endingin amount, negatively impacted our pre-season business in 2013. As the timing of the snowfall was predominantly in the second half of the snow season ended March 31, 2008, 20092013, management believes end users were more likely to repair existing equipment rather than replacing equipment. Consequently we believe our distributors entered the 2013 pre-season period with higher inventory levels than desired. As a result, we believe distributors ordered less equipment in the pre-season period in 2013. While we believe the historically low snowfall levels for the six-month snow season ended March 31, 2012, and 2010slow start to the March 31, 2013 snow seasons, respectively). Despite above average snowfalls during these periods,season and continued macro-economic uncertainty negatively impacted our business in 2013, we believe that other factors had a positive impact. These additional factors included the economic downturn resultedtiming, amount, and location of snowfall in lowerthe fourth quarter of 2013, positively trending light truck sales in 2013 and a large number of snowplows and sand and salt spreaders, but increased sales of our parts and accessories as a percentage of total net sales during the years ended December 31, 2008, 2009 and 2010 as compared to prior periods. We experienced lower equipment and higher parts and accessories sales as weakened economic conditions tend to cause our end-users to delay purchase of replacement snow and ice control equipment and instead repair their existing equipment.new products launched in 2013.

        Sales of parts and accessories for 20102013 and 20092012 were $25.0$29.9 million and $26.9$16.7 million, respectively, or approximately 34.4%31% higher than and 44.5% higher than27% below average annual parts and accessories sales over the preceding ten years, (from 2001respectively. Sales of equipment unit sales for 2013 and 2012 were $164.5 million and $123.3 million, respectively. In 2013, equipment unit sales increased 32.2% as we sold 45,560 equipment units in 2013 as compared to 2007, sales34,457 equipment units in 2012. We believe that the increase of both parts and accessories ranged from approximately $9 millionsales and equipment unit sales in 2013 as compared to $19 million perthe prior calendar year with an average of approximately $15 million). Management believes the increased sales of parts and accessories are largelyis a direct result of the deferralhistorically low snowfall of 2012. Meanwhile, we believe that pent up demand due to deferred new equipment purchases due tostill exists in the severe economic downturn from 2008 to 2010, as many end-users chose to extend the lifemarketplace and could be released in or following a year of their existing equipment beyond the typical replacement cycle. As sales of snow and ice control units decreasedaverage or better snowfall that is accompanied by 6.0% and 7.2% in 2010 and 2009, respectively, as compared to 2008, management believes that absent the recent economic downturn, equipment sales in 2010 and 2009 would have been considerably higher due to the high levels of snowfall during the year. Equipment unit sales in 2010 remained 12% below the immediately preceding ten-year average, despite the fact that snowfall levels were approximately 13% above the immediately preceding ten-year average (excluding units sold by Blizzard Corporation prior to its acquisition by us in November 2005). Equipment unit sales in 2009 remained 14% below the immediately preceding ten-year average, despite the fact that snowfall levels in 2008 were approximately 19% above the immediately preceding ten-year average (excluding units sold by Blizzard Corporation prior to its acquisition by us in November 2005). Management believesstronger macro-economic conditions. We believe this deferral of new equipment purchases could result in an elevated multi-year replacement cycle as the economy recovers.


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        The following table shows our sales of snow and ice control equipment and related parts and accessories as a percentage of net sales for the periods indicated. During the years ended December 31, 2008, 20092011, 2012 and 2010,2013, we sold 47,911, 44,44450,801, 34,457 and 45,05445,560 units of snow and ice control equipment, respectively.


 Year Ended December 31,  Year Ended
December 31,
 

 2008 2009 2010  2011 2012 2013 

Equipment

 84% 85% 86% 85% 88% 85%

Parts and accessories

 16% 15% 14% 
15

%
 
12

%
 
15

%

        The following table sets forth, for the periods presented, the consolidated statements of operationsincome of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the table below and throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations," consolidated statements of operationsincome data for the years ended December 31, 2008, 20092011, 2012 and 20102013 have been derived from our audited consolidated financial statements. The information contained in the table below should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.


 For the year ended December 31,  For the year ended December 31, 

 2008 2009 2010  2011 2012 2013 

 (in thousands)
  (in thousands)
 

Net sales

 $180,108 $174,342 $176,795  $208,798 $140,033 $194,320 

Cost of sales

 117,911 117,264 116,494  136,981 96,070 128,670 
              

Gross profit

 62,197 57,078 60,301  71,817 43,963 65,650 

Selling, general, and administrative expense

 19,032 20,085 26,509  
26,435
 
19,895
 
31,872
 

Intangibles amortization

 6,160 6,161 6,001  5,201 5,199 5,625 

Management fees-related party

 1,369 1,393 6,383 

Impairment of assets held for sale

   647 
              

Income from operations

 35,636 29,439 21,408  40,181 18,869 27,506 

Interest expense, net

 (17,299) (15,520) (10,943) 
(8,918

)
 
(8,393

)
 
(8,328

)

Loss on extinguishment of debt

   (7,967) (673)   

Other income (expense), net

 (73) (90) 36 

Other expense, net

 (218) (320) (161)
              

Income before taxes

 18,264 13,829 2,534  30,372 10,156 19,017 

Income tax expense

 6,793 3,986 872  
11,332
 
4,144
 
7,378
 
              

Net income

 $11,471 $9,843 $1,662  $19,040 $6,012 $11,639 
              
       

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        The following table sets forth, for the periods indicated, the percentage of certain items in our consolidated statement of operationsincome data, relative to net sales:


 For the year ended December 31,  For the year ended
December 31,
 

 2008 2009 2010  2011 2012 2013 

 (in thousands)
  (in thousands)
 

Net sales

 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of sales

 65.5% 67.3% 65.9% 65.6% 68.6% 66.2%
              

Gross profit

 34.5% 32.7% 34.1% 34.4% 31.4% 33.8%

Selling, general, and administrative expense

 10.6% 11.5% 15.0% 
12.7

%
 
14.2

%
 
16.4

%

Intangibles amortization

 3.4% 3.5% 3.4% 2.5% 3.7% 2.9%

Management fees-related party

 0.8% 0.8% 3.6%

Impairment of assets held for sale

 0.0% 0.0% 0.3%
              

Income from operations

 19.8% 16.9% 12.1% 19.2% 13.5% 14.2%

Interest expense, net

 (9.7)% (8.9)% (6.2)% 
(4.3

)%
 
(6.0

)%
 
(4.3

)%

Loss on extinguishment of debt

 0.0% 0.0% (4.5)% (0.3)% 0.0% 0.0%

Other income (expense), net

 0.0% (0.1)% 0.0%

Other expense, net

 (0.1)% (0.2)% (0.1)%
              

Income before taxes

 10.1% 7.9% 1.4% 14.5% 7.3% 9.8%

Income tax expense

 3.7% 2.3% 0.5% 
5.4

%
 
3.0

%
 
3.8

%
              

Net income

 6.4% 5.6% 0.9% 9.1% 4.3% 6.0%
              
       

Year Ended December 31, 20102013 Compared to Year Ended December 31, 20092012

        Net Sales.    Net sales were $176.8$194.3 million for the year ended December 31, 20102013 compared to $174.3$140.0 million in 2009,2012, an increase of $2.5$54.3 million, or 1.4%38.8%. This increase was primarily driven by a $4.3increases of $41.2 million increase in sales of snow and ice control equipment slightly offset by a $1.9and $13.1 million decrease in parts and accessories sales. The increase in sales of snow and ice control equipment for the year ended December 31, 20102013 was attributable to (1) an increase in sales volume of snow and ice control equipment of $2.1$39.7 million, or 1.4%32.2%, as compared to the prior year, and (2)by price increases that we implemented beginning in the second quarterthird and fourth quarters of 20102012 and an additional price increase that extended throughout 2010.was effective in the third and fourth quarters of 2013. The 1.4% increase in sales volume was largely a result of strengthening economic conditions towards the endtiming of 2010 whichlate snowfall for the snow season ending March 31, 2013 causing the snow season to be slightly above average in most of the markets we believe led to lower parts and accessories sales compared to 2009. However, compared to a ten year historical average, parts and accessories sales are still higher than average, while equipment sales are lower than average, as many end-users continue to repair their existing snow and ice control equipment instead of purchasing new equipment.serve. Net sales of parts and accessories declinedincreased in the year ended December 31, 20102013 from the year ended December 31, 20092012 by 7.0%78.5%, from $26.9$16.7 million to $25.0$29.9 million. Notwithstanding this decline, netNet sales of parts and accessories remained comparatively high in 2010, exceeding2013, above the preceding ten-year average by approximately 34.4%31.1%. As discussed above, the comparatively stronghigher sales of parts and accessories waswere due in large part to the continued downturn in general economic conditions and local economic conditionstiming of snowfall in the snowbelt regions,markets in which we believe led manyour products are sold. Additionally, equipment sales were lower (5% below the immediately preceding ten-year average), mainly due to the timing of our end-userssnowfall. Sales related to repair their existing snow and ice control equipment insteadTrynEx products of purchasing new equipment.$12.9 million for the year ended December 31, 2013 also contributed to the increase in net sales for the period.

        Cost of Sales.    Cost of sales was $116.5$128.7 million for the year ended December 31, 20102013 compared to $117.3$96.1 million in 2009, a decrease2012, an increase of $0.8$32.6 million, or 0.7%33.9%. This decreaseincrease was driven primarily by reduced costs due to material cost savings as steel costs were lower in 2010 as compared to 2009. Steel purchases were approximately 15% and 18% of our sales revenue for the years ending December 31, 2010 and 2009, respectively. Lower steel costs were slightly offset by increases in snow and ice control equipment unit volume as discussed above. Costsincreased volume. Cost of sales as a percentage of net sales decreased from 67.3%68.6% for the year ended December 31, 20092012 to 65.9%66.2% for the year ended December 31, 20102013 as a result of higher volumes to absorb fixed spending in the material cost savingsyear ending December 31, 2013 as discussed above.compared to the year ending December 31, 2012. Additionally, in 2013, inflationary commodity experience was slightly positive. As a percentage of cost of sales, fixed and


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percentage of cost of sales, fixed and variable costs were approximately 19%18% and 81%82%, respectively, for both of the yearyears ended December 31, 2010 versus approximately 17%2013 and 83%, respectively for the year ended December 31, 2009.2012.

        Gross Profit.    Gross profit was $60.3$65.7 million for the year ended December 31, 20102013 compared to $57.1$44.0 million in 2009,2012, an increase of $3.2$21.7 million, or 5.6%49.3%, due to the increase in net sales volume described above under "—Net Sales" And the reduction in material costs as described underand "—Cost of Sales." As a percentage of net sales, gross profit increased from 32.7%31.4% for the year ended December 31, 20092012 to 34.1%33.8% for the corresponding period in 2010,2013, as a result of the factors discussed above under "—Net Sales" and "—Cost of Sales."

        Selling, General and Administrative Expense.    Selling, general and administrative expenses, including intangiblesintangible asset amortization, and management fees, were $38.9$37.5 million for the year ended December 31, 20102013 compared to $27.6$25.1 million for the year ended December 31, 2009,2012, an increase of $11.3$12.4 million, or 40.9%49.4%, driven by non-recurring expenses incurred at the timehigher incentive based compensation of the IPO. The non-recurring charges associated with the IPO totaled $8.5$3.2 million and were compriseddue to better operating results. Additionally in 2013 we recorded $4.0 million of the buyout of the management services agreement at $5.8 million,earnout compensation expense associated with net exercises of stock options totaling $1.7 million and the expense and payment of cash bonuses under our liquidity bonus plan of $1.0 million. Additionally, there was non-recurring compensation expense associated with net exercises of stock options subsequentrelated to the IPO totaling $1.2 million. We also spent $1.3TrynEx acquisition and $2.2 million more in 2010 defending our patents comparedselling, general and administrative expenses related to 2009. Finally,TrynEx after the closure costs associated with the Johnson City facility increased $0.4 million compareddate of acquisition. The remaining increase in 2013 is a result of management returning to the priornormal discretionary spending which was significantly cut back in 2012 in order to preserve profitability in a low sales volume year. As a percentage of net sales, selling, general and administrative expenses, including intangibles amortization, and management fees, increased from 15.8%17.9% for the year ended December 31, 20092012 to 22.0%19.3% for the corresponding period in 20102013 due to the non-recurring chargesitems discussed above.

        Impairment of Assets Held for Sale.    We recorded assets held for sale on our balance sheet in conjunction with the closure of the Johnson City, Tennessee location in 2010. The land and building have been held for sale since the closure. In an effort to stimulate sales activity, we lowered the listed sale price which caused us to reassess the fair value of the assets held for sale. Consequently, we recorded an impairment charge of $0.6 million in the year ended December 31, 2013. On February 26, 2014, the Company entered into an agreement for the sale of the land and building, which the Company anticipates closing within seventy-five days of the sale agreement, subject to closing conditions.

        Interest Expense.    Interest expense was $10.9$8.3 million for the year ended December 31, 20102013 compared to $15.5$8.4 million in the corresponding period in 2009, a decrease of $4.6 million. This decrease was due to less interest expense as a result of the redemption of our 73/4% Senior Notes due 2012 ("Senior Notes") with proceeds from the IPO, additional borrowings under our senior credit facilities and cash on hand

        Loss on Extinguishment of Debt.    Loss on extinguishment of debt totaling $8.0 million for the year ended December 31, 2010 was entirely driven by costs associated with the amendment of our senior credit facilities and the redemption of the Senior Notes, including both the call premium on the redemption of our Senior Notes, and the write-off of unamortized deferred financing costs relating to the redemption of our Senior Notes and the amendment of our senior credit facilities.2012.

        Income Taxes.    Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The largest item affecting deferred taxes is the difference between book and tax amortization of goodwill and other intangibles amortization. Our effective combined federal and state tax rate for 20102013 was 34.4%38.8% compared to 28.8%40.8% for 2009.2012. The effective tax rate for the year ended December 31, 20102013 is higherlower than 2009 due to an increase in the valuation allowance for state net operating losses ("NOLs") related to the closure of the Johnson City, Tennessee facility. Additionally, the 2009 effective rate was lower2012 due to the release of a valuation allowance for Wisconsin NOLs2012 and 2013 Federal research and development credit recognition in the first quarter of 20092013 due to a tax law changeretroactive legislation passed in the state of Wisconsin resulting in the ability to utilize the NOLs in future periods.January 2013.

        Net Income.    Net income for the year ended December 31, 20102013 was $1.7$11.6 million compared to net income of $9.8$6.0 million for the corresponding period in 2009, a decrease2012, an increase of $8.1 million, or 82.7%.$5.6 million. This decreaseincrease was driven by the factors described above, and primarily by the non-recurring charges associated with the IPO.above.

Year Ended December 31, 20092012 Compared to Year Ended December 31, 20082011

        Net Sales.    Net sales were $174.3$140.0 million for the year ended December 31, 20092012 compared to $180.1$208.8 million in 2008,2011, a decrease of $5.8$68.8 million, or 3.2%33.0%. This declinedecrease was primarily driven by a


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$4$54.5 million decrease in sales of snow and ice control equipment.equipment and $14.3 million in parts and accessories sales. The declinedecrease in sales of snow and ice control equipment for the year ended December 31, 20092012 was attributable to a decrease in sales volume of $24.4snow and ice control equipment of $57.2 million, or 13.5%32.2%, as compared to the prior year, slightly offset by (1) price increases that we implemented beginning in the


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fourth quarter of 20082011 and that extended throughout 2009 to cover steel cost inflation, which resulted inthe remainder of 2011 and 2012 and an $11.8 millionadditional price increase to net sales as compared to the prior year and (2) the successful introduction of a new half-ton plow in June 2009, which together with other new product introductionsthat was effective in the last five years resulted in an $8.6 million increase to net sales as compared to the prior year.third and fourth quarters of 2012. The 13.5% decrease in sales volume was largely a result of weak economic conditions that persisted throughout 2009 and which we believe led many end-users to repair their existingthe below average snow and ice control equipment instead of purchasing new equipment. Further, our net sales for the year ended Decemberseason ending March 31, 2008 were higher than in 2009 as a heavy snowfall in December 2007 caused our order flow to be unusually high toward the end of December 2007, resulting in a backlog at the start of 2008 and the shipment of an above-average number of units in the first quarter of 2008.2012. Net sales of parts and accessories also declineddecreased in the year ended December 31, 20092012 from the year ended December 31, 20082011 by 6.3%46.0%, from $28.7$31.0 million to $26.9$16.7 million. Notwithstanding this decline, netNet sales of parts and accessories remained comparatively highlow in 2009, exceeding2012, below the preceding ten-year average by approximately 58.3%21.2%. As discussed above, the comparatively stronglower sales of parts and accessories was due in large part to below average snowfall resulting in decreased equipment usage. Additionally, equipment sales were lower (30% below the downturn in general economic conditions and local economic conditions in the snowbelt regions, which we believe led manyimmediately preceding ten-year average), mainly attributable to lack of our end-users to repair their existing snow and ice control equipment instead of purchasing new equipment.snowfall.

        Cost of Sales.    Cost of sales were $117.3was $96.1 million for the year ended December 31, 20092012 compared to $117.9$137.0 million in 2008,2011, a decrease of $0.6$40.9 million, or 0.5%29.9%. This decrease was driven primarily by reduced costs caused by the decrease in unit sales of snow and ice control equipment, as discussed above. Costsdecreased volume. Cost of sales as a percentage of net sales however, increased from 65.5%65.6% for the year ended December 31, 20082011 to 67.3%68.6% for the year ended December 31, 20092012 as a result of the declinelower volumes to absorb fixed spending. In 2012, inflationary commodity experience was cost neutral as compared to negative inflationary commodity experience throughout 2011. The favorability of inflation experienced in net sales for the year ended December 31, 2009, the increased2012 was more than offset by negative fixed cost absorption resulting from decreases in volume of steelequipment units and the implementation of price increases to cover the increased cost of steel (because these price increases increased both our net salesparts and our cost of sales).accessories. As a percentage of cost of sales, fixed and variable costs were approximately 17%18% and 83%82%, respectively, for the year ended December 31, 20092012 versus approximately 16%15% and 84%85%, respectively for the year ended December 31, 2008.2011.

        Gross Profit.    Gross profit was $57.1$44.0 million for the year ended December 31, 20092012 compared to $62.2$71.8 million in 2008,2011, a decrease of $5.1$27.8 million, or 8.2%38.7%, due primarily to the declinedecrease in net sales volume described above under "—Net Sales" and "—Cost of Sales." As a percentage of net sales, gross profit decreased from 34.5%34.4% for the year ended December 31, 20082011 to 32.7%31.4% for the corresponding period in 2009,2012, as a result of the factors discussed above under "—Net Sales" and "—Cost of Sales."

        Selling, General and Administrative Expense.    Selling, general and administrative expenses, including intangible asset amortization and management fees, were $27.6$25.1 million for the year ended December 31, 20092012 compared to $26.6$31.6 million for the year ended December 31, 2008, an increase2011, a decrease of $1.1$6.5 million, or 4%20.6%, driven by the restructuring chargeslower incentive based compensation of $1.1$3.4 million relateddue to the Johnson City closure.lower operating results. We spent $1.3 million in 2011 on offering costs to allow our former principal stockholders to dispose of their remaining holdings in our common stock while we did not incur any offering costs in 2012. The remaining decrease in 2012 is a result of management pulling back on discretionary spending in order to preserve profitability in a low sales volume year. As a percentage of net sales, selling, general and administrative expenses, including intangibles amortization and management fees, increased from 14.7%15.2% for the year ended December 31, 20082011 to 15.9%17.9% for the corresponding period in 20092012 due to the decline in net salesitems discussed above.

        Interest Expense.    Interest expense was $15.5$8.4 million for the year ended December 31, 20092012 compared to $17.3$8.9 million in the corresponding period in 2008, a2011. The decrease of $1.8 million. This decreasein interest expense for the year ended December 31, 2012 as compared to the prior year was due to reduced interest expense of $2.3a voluntary $10 million due to lower interest ratespayment made on ourthe term loan partially offsetin January 2012.

        Loss on Extinguishment of Debt.    Loss on extinguishment of debt was zero for the year ended December 31, 2012 compared to a total of $0.7 million for the year ended December 31, 2011. The loss on extinguishment of debt in 2011 was entirely driven by $0.5our entry into a new term loan facility resulting in a significant modification of our debt which resulted in the write off of unamortized capitalized deferred financing costs of $0.3 million and write off of reduced interest income due to lower interest rates on short term cash investments.unamortized debt discount of $0.3 million.


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        Income Taxes.    Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The largest item affecting deferred taxes is the difference between book and tax amortization of goodwill and other intangibles amortization. Our effective combined federal and state tax rate for 20092012 was 28.8%40.8% compared to 37.2%37.3% for 2008.2011. The effective tax rate for the year ended December 31, 2009 was lower2012 is higher than 2008 due


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to the release of2011 as we were in a valuation allowance for Wisconsin NOLstaxable loss position in the first quarter of 2009 due to a tax law change in the state of Wisconsin resulting in the ability2012 and thus unable to utilize the NOLsdomestic production activities deduction while we were in future periods.a taxable income position in 2011 and able to utilize the domestic production activities deduction.

        Net Income.    Net income for the year ended December 31, 20092012 was $9.8$6.0 million compared to net income of $11.5$19.0 million for the corresponding period in 2008,2011, a decrease of $1.6 million, or 14.2%.$13.0 million. This decrease was driven by the factors described above, and primarily by the lower level of unit sales of snow and ice control equipment for the year ended December 31, 2009 compared to the corresponding period in 2008. As a percentage of net sales, net income was 5.6% for the year ended December 31, 2009 compared to 6.4% for the year ended December 31, 2008.above.

Non-GAAP Financial Measures

        This Annual Report on Form 10-K contains financial information calculated other than in accordance with U.S. generally accepted accounting principles ("GAAP").

        These non-GAAP measures include:

        These non-GAAP disclosures should not be construed as an alternative to the reported results determined in accordance with GAAP.

        Free cash flow (as defined below) for the year ended December 31, 2013 was $29.5 million compared to $14.2 million in 2012, an increase in free cash flow of $15.3 million, or 107.7%. The increase in free cash flow is primarily a result of $16.6 million more cash provided by operating activities, as discussed below under Liquidity and Capital Resources. In addition to the changes in cash provided by operating activities, capital expenditures increased by $1.3 million. In 2013, there were higher capital expenditures due to reduced spending in 2012 to preserve cash flow following a low snowfall season ending March 2012.

        Free cash flow is a non-GAAP financial measure, which we define as net cash provided by operating activities less capital expenditures. Free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and cash flow provided by operations. We believe that free cash flow represents our ability to generate additional cash flow from our business operations.

        The following table reconciles net cash provided by operating activities, a GAAP measure, to free cash flow, a non-GAAP measure.

 
 For the year ended December 31, 
 
 2011 2012 2013 
 
 (in thousands)
 

Net cash provided by operating activities

 $47,728 $15,619 $32,248 

Acquisition of property and equipment

  (2,373) (1,446) (2,775)
        

Free cash flow

 $45,355 $14,173 $29,473 
        
        

Adjusted net income represents net income as determined under GAAP, excluding non-recurringloss on extinguishment of debt incurred in 2011, costs incurred to pursue potential acquisitions in 2011, certain expenses incurred at the time of our IPO, namely the buyoutsecondary offerings in 2011 and a loss recognized on impairment


Table of our management services agreement, the loss on extinguishment Contents

of debt, stock based compensation expense associated with the net exercise of stock options and the payment of cash bonuses under our liquidity bonus plan.assets held for sale in 2013. We believe that the presentation of Adjustedadjusted net income for the yearyears ended December 31, 2010 provides useful information2011, December 31, 2012 and December 31, 2013 allows investors to investors by facilitatingmake meaningful comparisons to our historical performance due to the non-recurring expenses incurred at the time of our IPO in May 2010.operating performance between periods and to view our business from the same perspective as our management. Because the excluded items are not predictable or consistent, management does not consider them when evaluating our performance or when making decisions regarding allocation of resources.

        The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to adjusted net income for the yearyears ending December 31, 2010. There were no such adjustments during the year ended2011, December 31, 2009.2012 and December 31, 2013.

 
 Year Ended 
(in millions)
 December 31,
2010
 

Net Income—(GAAP)

 $1.7 

Addback non-recurring expenses, net of tax at 38.0%, incurred at the time of the IPO:

    
 

—Buyout of the Management Services Agreement

  3.6 
 

—Loss on extinguishment of debt

  4.9 
 

—Liquidity bonus payment

  0.6 
 

—Non-recurring stock based compensation expense

  1.9 
    

Adjusted Net Income—(non-GAAP)

 $12.7 
    
 
 Years Ended 
(in millions)
 December 31,
2011
 December 31,
2012
 December 31,
2013
 

Net income—(GAAP)

 $19.0 $6.0 $11.6 

Addback non-recurring expenses, net of tax at 37.0% and 38.8% for 2011 and 2013, respectively:

          

Loss on extinguishment of debt

  0.4     

Loss recognized on impairment of assets held for sale

      0.4 

Acquisition costs

  0.6     

Offering costs

  0.8     
        

Adjusted net income—(non-GAAP)

 $20.8 $6.0 $12.0 
        
        

        Adjusted EBITDA is presentedrepresents net income before interest, taxes, depreciation and amortization, as further adjusted for certain charges consisting of unrelated legal and consulting fees, as well as management fees paid by us to affiliates of our former principal stockholders, stock based compensation, payment of cash bonuses under our liquidity bonus plan, loss on extinguishment of debt, impairment on assets held for sale, certain purchase accounting expenses and offering costs. We use, and we believe our investors benefit from the presentation of Adjusted EBITDA in evaluating theour operating performance of the Company because it provides managementus and our investors with additional tools to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations .operations. In addition, we believe that Adjusted EBITDA is useful to investors and other external users of our consolidated financial statements in evaluating our operating performance as compared to that of other companies, because it allows them to measure a company's operating performance without regard to items such as interest expense, taxes, depreciation and depletion, and


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amortization, and accretion, which can vary substantially from company to company depending upon accounting methods and book value of assets and liabilities, capital structure and the method by which assets were acquired. Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Management also uses Adjusted EBITDA to evaluate our ability to make certain payments, including dividends, in compliance with our senior credit facilities, which is determined based on a calculation of "Consolidated Adjusted EBITDA" that is substantially similar to Adjusted EBITDA.

        Adjusted EBITDA has limitations as an analytical tool. As a result, you should not consider it in isolation, or as a substitute for net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Some of these limitations are:


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        Adjusted EBITDA for the year ended December 31, 20102013 was $47.3$44.6 million compared to $45.2$29.7 million in the corresponding period in 2009,2012, an increase of $2.1$14.9 million, or 4.6%49.9%. As a percentage of net sales, Adjusted EBITDA increased from 25.9%21.2% for the year ended December 31, 20092012 to 26.8%22.9% for the year ended December 31, 2010.2013. Adjusted EBITDA for the year ended December 31, 20092012 was $45.2$29.7 million compared to Adjusted EBITDA of $47.7$52.5 million for the year ended December 31, 2008,2011, a decrease of $2.5$22.8 million, or 5.2%43.4%. As a percentage of net sales, Adjusted EBITDA decreased from 26.5% in 200825.1% for the year ended December 31, 2011 to 25.9% in 2009.21.2% for the year ended December 31, 2012. In addition to the specific changes resulting from the exceptions, the changes to Adjusted EBITDA for the periods discussed resulted from factors discussed above under "—Results of Operations."

        The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to Adjusted EBITDA, for each of the periods indicated.

 
 For the year ended December 31, 
 
 2009 2010 2011 2012 2013 
 
 (in thousands)
 

Net income

 $9,843 $1,662 $19,040 $6,012 $11,639 

Interest expense—net

  15,520  10,943  8,918  8,393  8,328 

Income taxes

  3,986  872  11,332  4,144  7,378 

Depreciation expense

  5,797  5,704  2,975  2,819  3,068 

Amortization

  6,161  6,001  5,201  5,199  5,625 
            

EBITDA

  41,307  25,182  47,466  26,567  36,038 

Management fees

  1,393  6,383  46     

Stock based compensation

  732  4,029  1,873  2,166  2,587 

Loss on extinguishment of debt

    7,967  673     

Management liquidity bonus

    1,003       

Offering costs

      1,342     

Trynex purchase accounting(1)

          4,506 

Other charges(2)

  1,748  2,781  1,061  999  1,438 
            

Adjusted EBITDA

 $45,180 $47,345 $52,461 $29,732 $44,569 
            
            

 
 For the year ended December 31, 
 
 2006 2007 2008 2009 2010 
 
 (in thousands)
 

Net income (loss)

 $197 $(1,057)$11,471 $9,843 $1,662 
 

Interest expense—net

  20,095  19,622  17,299  15,520  10,943 
 

Income taxes

  443  (749) 6,793  3,986  872 
 

Depreciation expense

  4,284  4,632  4,650  5,797  5,704 
 

Amortization

  6,166  6,164  6,160  6,161  6,001 
            

EBITDA

  31,185  28,612  46,373  41,307  25,182 
 

Management fees

  1,379  1,400  1,369  1,393  6,383 
 

Stock based compensation

        732  4,029 
 

Loss on extinguishment of debt

    2,733      7,967 
 

Management Liquidity Bonus

          1,003 
 

Other non-recurring charges(1)

        1,748  2,781 
            

Adjusted EBITDA

 $32,564 $32,745 $47,742 $45,180 $47,345 
            

(1)
Reflects $3,951 and $555 in earn out compensation and inventory that was written up for purchase accounting and sold in the year ended 2013.

(2)
Reflects severance and one-time, non-recurring expenses for costs related to the closure of our Johnson City facility of $1,054 and $1,435 and $1,054 for the years ended December 31,2009 and 2010, respectively, $694, $2,013, $1,061, $999 and 2009, respectively, $2,013 and $694$790 of unrelated legal and consulting fees for the years ended December 31,2009, 2010, 2011, 2012 and 20092013, respectively, anda $667 gain on other post employment benefit plan

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Signatures

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 811th day of March, 2011.2014.

  DOUGLAS DYNAMICS, INC.

 

 

By:

 

/s/ JAMES JANIK

James L. Janik
President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities andindicated on the dates indicated.March 11, 2014.




/s/ JAMES L. JANIK

James L. Janik
 President and Chief Executive Officer (Principal Executive Officer) and Director

/s/ ROBERT L. MCCORMICK

Robert L. McCormick

 

Executive Vice President and Chief Financial Officer (Principal Financial Officer)

/s/ ROBERT J. YOUNG

Robert J. Young

 

Corporate Controller and Treasurer (Controller)

/s/ MICHAEL MARINOMARGARET S. DANO

Michael MarinoMargaret S. Dano


Director

/s/ KENNETH W. KRUEGER

Kenneth W. Krueger

 

Director

/s/ JAMES L. PACKARD

James L. Packard

 

Director

/s/ JACK O. PEIFFER

Jack O. Peiffer

 

Director

/s/ MARK ROSENBAUM

Mark Rosenbaum


Director

/s/ NAV RAHEMTULLA

Nav Rahemtulla


Director

/s/ JAMES D. STALEY

James D. Staley

 

Director

/s/ DONALD W. STURDIVANT

Donald W. Sturdivant

 

Director

/s/ MICHAEL W. WICKHAM

Michael W. Wickham

 

Director

Dated: March 8, 2011


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Exhibit Index

Exhibit
Number
 Title
 3.12.1 Asset Purchase Agreement, dated May 6, 2013 by and between Acquisition Tango LLC, TrynEx, Inc. and shareholders of Trynex, Inc. named therein [Incorporated by reference to Exhibit 2.1 to Douglas Dynamics, Inc.'s Current Report on Form 8-K filed May 6, 2013 (File No. 001-34728)].


2.2


First Amendment, dated August 6, 2013, to the Asset Purchase Agreement dated May 6, 2013 by and between TrynEx International LLC, Apex International, Inc. and shareholders of Apex International,  Inc. named therein [Incorporated by reference to Exhibit 2.1 to Douglas Dynamics, Inc.'s Current Report on Form 8-K filed August 5, 2013 (File No. 001-34728)].


3.1


Fourth Amended and Restated Certificate of Incorporation of Douglas Dynamics, Inc., to be in effect upon consummation of this offering [Incorporated by reference to Exhibit 3.3 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

3.2

 

Second Amended and Restated Bylaws of Douglas Dynamics, Inc., to be in effect upon consummation of this offering [Incorporated by reference to Exhibit 3.6 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

4.110.1

 

Indenture,Amended and Restated Credit and Guaranty Agreement, dated as of December 16, 2004,April 18, 2011, among Douglas Dynamics, L.L.C., Douglas Dynamics Finance Company Douglas Dynamics, Inc. and U.S. Bank National Association [Incorporated by reference to Exhibit 4.2 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


4.2


First Supplemental Indenture, dated as of June 28, 2005, among Fisher, LLC, Douglas Dynamics, L.L.C., Douglas Dynamics Finance Company, Douglas Dynamics, Inc. and U.S. Bank National Association [Incorporated by reference to Exhibit 4.3 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


4.3


Form of Global Note for Douglas Dynamics, L.L.C. and Douglas Dynamics Finance Company 73/4% senior notes due 2012 [Incorporated by reference to Exhibit 4.4 to Douglas Dynamics,  Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


4.4


Form of Douglas Holdings, Inc. Guarantee for Douglas Dynamics, L.L.C. and Douglas Dynamics Finance Company 73/4% senior notes due 2012 [Incorporated by reference to Exhibit 4.5 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.1


Amendment No. 2 to Senior Secured Term Credit and Guaranty Agreement, dated as of April 16, 2010 by and among Douglas Dynamics, L.L.C. and each of the lenders party thereto (including as Exhibit A thereto Senior Secured Term Credit and Guaranty Agreement, dated as of May 21, 2007, by and amongborrowers, Douglas Dynamics, Inc., Douglas Dynamics, L.L.C., Fisher, LLC and Douglas Dynamics Finance Company,as guarantor, the banks and financial institutions party theretolisted therein, as lenders, J.P. Morgan Securities LLC, as sole bookrunner and Credit Suisse, Cayman Islands Branchsole lead arranger, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and Wells Fargo Capital Finance, LLC, as amended by Amendment No. 1, dated as of December 19, 2008 and Amendment No. 2, dated as of April 16, 2010)syndication agent [Incorporated by reference to Exhibit 10.1 to Douglas Dynamics, Inc.'s Registration StatementCurrent Report on Form S-1 (Registration8-K filed April 20, 2011 (File No. 333-164590)001-34728)].

 

10.2

 

Exhibits and Schedules to Senior Secured Term Credit and Guaranty Agreement, dated as of May 21, 2007, by andApril 18, 2011, among Douglas Dynamics, L.L.C., as borrower, Douglas Dynamics, Inc., Douglas Dynamics L.L.C.,Finance Company and Fisher, LLC, and Douglas Dynamics Finance Company,as guarantors, the banks and financial institutions party theretolisted therein, as lenders, J.P. Morgan Securities LLC and Credit Suisse Cayman Islands BranchSecurities (USA) LLC, as joint bookrunners and joint lead arrangers, JPMorgan Chase Bank, N.A., as collateral agent and administrative agent, and Credit Suisse Securities (USA) LLC, as amended by Amendment No. 1, dated as of December 19, 2008 and Amendment No. 2, dated as of April 16, 2010 [Incorporatedsyndication agent Incorporated by reference to Exhibit 10.2 to Douglas Dynamics, Inc.'s Registration StatementCurrent Report on Form S-1 (Registration8-K filed April 20, 2011 (File No. 333-164590)001-34728)].

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10.3


Exhibit
Number
Title
10.3First Amendment, No. 1dated as of November 9, 2012, to Senior Secured Revolvingthe Amended and Restated Credit and Guaranty Agreement, dated as of April 16, 2010 by and18, 2011, among Douglas Dynamics, L.L.C., Fisher, LLC and Douglas Dynamics Finance Company and each of the lenders party thereto (includingFisher, LLC, as Exhibit A thereto Senior Secured Revolving Credit and Guaranty Agreement, dated as of May 21, 2007, by and amongborrowers, Douglas Dynamics, Inc., Douglas Dynamics, L.L.C., Fisher, LLC and Douglas Dynamics Finance Company,as guarantor, the banks and financial institutions party theretolisted therein, as lenders, J.P. Morgan Securities LLC, as sole bookrunner and Credit Suisse, Cayman Islands Branchsole lead arranger, and JPMorgan Chase Bank, N.A., as administrative agent as amended by Amendment No. 1, dated as of April 16, 2010)and collateral agent. [Incorporated by reference to Exhibit 10.310.1 to Douglas Dynamics, Inc.'s Registration StatementCurrent Report on Form S-1 (Registration8-K filed November 9, 2012 (File No. 333-164590)].


10.4


Exhibits and Schedules to Senior Secured Revolving Credit and Guaranty Agreement, dated as of May 21, 2007, by and among Douglas Dynamics, Inc., Douglas Dynamics, L.L.C., Fisher, LLC and Douglas Dynamics Finance Company, the banks and financial institutions party thereto and Credit Suisse, Cayman Islands Branch as administrative agent as amended by Amendment No. 1, dated as of April 16, 2010 [Incorporated by reference to Exhibit 10.4 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)001-34728)].

 

10.510.4

#

Employment Agreement between Robert McCormick and Douglas Dynamics, Inc., dated September 7, 2004, as amended by that certain amendment, dated as of October 1, 2008 [Incorporated by reference to Exhibit 10.5 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

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10.6
Exhibit
Number
Title
10.5#
Form of Amendment No. 2 to Employment Agreement between Robert McCormick and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.6 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.710.6

#

Employment Agreement between James L. Janik and Douglas Dynamics, Inc., dated March 30, 2004 [Incorporated by reference to Exhibit 10.7 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.810.7

#

Form of Amendment No. 1 to Employment Agreement between James L. Janik and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.8 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.9

#

Employment Agreement between Mark Adamson and Douglas Dynamics, Inc., dated August 27, 2007 [Incorporated by reference to Exhibit 10.9 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.10

#

Form of Amendment No. 1 to Employment Agreement between Mark Adamson and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.10 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.11

#

Securities Repurchase and Cancellation Agreement made and entered into as of December 22, 2008 by and between James Janik and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.11 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.12

#

Securities Repurchase and Cancellation Agreement made and entered into as of January 23, 2009 by and between James Janik and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.12 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

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Exhibit
Number
Title
10.13#Securities Repurchase and Cancellation Agreement made and entered into as of December 22, 2008 by and between Robert McCormick and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.13 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.14

#

Securities Repurchase and Cancellation Agreement made and entered into as of January 23, 2009 by and between Robert McCormick and Douglas Dynamics, Inc. [Incorporated by reference to Exhibit 10.14 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.15

#

Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.16 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.1610.12

#

Form of Amended and Restated Management Incentive Option Agreement under Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.18 to Douglas Dynamics,  Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.1710.13

#

Form of Management Non-Qualified Stock Option Agreement under Douglas Dynamics, Inc. 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.19 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.1810.14

#

Form of Amended and Restated Management Non-Qualified Option Agreement under Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.20 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.1910.15

#

Form of Non-Employee Director Non-Qualified Option Agreement under Douglas Dynamics, Inc. 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.21 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.2010.16

#

Form of Amended and Restated Non-Employee Director Non-Qualified Option Agreement under Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10.22 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.2110.17

#

Amended and Restated Management Incentive Option Agreement under Douglas Dynamics, Inc. 2004 Stock Incentive Plan between Douglas Dynamics, Inc. and James L. Janik, dated March 31, 2004 [Incorporated by reference to Exhibit 10.23 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

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10.22
Exhibit
Number
Title
10.18#
Form of Second Amended and Restated Management Incentive Option Agreement under Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan between Douglas Dynamics, Inc. and James L. Janik [Incorporated by reference to Exhibit 10.24 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.2310.19

#

Amended and Restated Non-Qualified Option Agreement under Douglas Dynamics, Inc. 2004 Stock Incentive Plan between Douglas Dynamics, Inc. and James L. Janik, dated March 31, 2004 [Incorporated by reference to Exhibit 10.25 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

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10.20
Exhibit
Number
Title
10.24#
Form of Second Amended and Restated Non-Qualified Option Agreement under Douglas Dynamics, Inc. Amended and Restated 2004 Stock Incentive Plan between Douglas Dynamics, Inc. and James L. Janik [Incorporated by reference to Exhibit 10.26 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.2510.21

#

Form of Amended and Restated Deferred Stock Unit Agreement [Incorporated by reference to Exhibit 10.27 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].

 

10.2610.22

#

Douglas Dynamics 20092012 Annual Incentive Plan [Incorporated by reference to Exhibit 10.2810.1 to Douglas Dynamics, Inc.'s Registration StatementQuarterly Report on Form S-1 (Registration10-Q for the Quarterly Period Ended March 31, 2012 (File No. 333-164590)001-34728)].

 

10.27

#

Douglas Dynamics, L.L.C. Annual Incentive Plan 2009 [Incorporated by reference to Exhibit 10.29 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].


10.2810.23

#

Douglas Dynamics, L.L.C. Long Term Incentive Plan 2009 [Incorporated by reference to Exhibit 10.30 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].

 

10.29

#

Douglas Dynamics, Inc. Liquidity Bonus Plan [Incorporated by reference to Exhibit 10.31 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].


10.3010.24

#

Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.32 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].

 

10.3110.25

#

Form of Restricted Stock Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.33 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.3210.26

#

Alternative Form of Restricted Stock Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.34 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.3310.27

#

Form of Restricted Stock Units Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.35 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.3410.28

#

Form of Nonqualified Stock Option Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.36 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.3510.29

#

Form of Incentive Stock Option Agreement under 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.37 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

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10.36
Exhibit
Number
Title
10.30#
Form of Restricted Stock Grant Notice and Standard Terms and Conditions under the Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.1 to Douglas Dynamics, Inc.'s Current Report on Form 8-K filed December 30, 2010 (File No. 001-34728)].

 

10.3710.31

#

Form of Restricted Stock Unit Grant Notice and Standard Terms and Conditions under the Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.1 to Douglas Dynamics,  Inc.'s Current Report on Form 8-K filed December 30, 2010 (File No. 001-34728)].

Table of Contents



10.32
Exhibit
Number
Title
10.38#
Form of Nonemployee Director Restricted Stock Unit Grant Notice and Standard Terms and Conditions under the Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.1 to Douglas Dynamics, Inc.'s Current Report on Form 8-K filed December 30, 2010 (File No. 001-34728)].


10.39

#

Second Amended and Restated Securityholders Agreement among Douglas Dynamics, Inc. and certain of its stockholders, optionholders and warrantholders, dated June 30, 2004 [Incorporated by reference to Exhibit 10.38 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.40

#

First Amendment to Second Amended and Restated Securityholders Agreement among Douglas Dynamics, Inc. and certain of its stockholders, optionholders and warrantholders, dated December 27, 2004 [Incorporated by reference to Exhibit 10.39 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.41

#

Form of Second Amendment to Second Amended and Restated Securityholders Agreement among Douglas Dynamics, Inc. and certain of its stockholders, optionholders and warrantholders [Incorporated by reference to Exhibit 10.40 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].


10.4210.33

#

Form of Second Amended and Restated Joint Management Services Agreement among Douglas Dynamics, Inc., Douglas Dynamics, L.L.C., Aurora Management Partners LLC, and ACOF Management, L.P. [Incorporated by reference to Exhibit 10.42 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590)].

 

10.4310.34

#

Form of Director and Officer Indemnification Agreement [Incorporated by reference to Exhibit 10.43 to Douglas Dynamics, Inc.'s Registration Statement on Form S-1 (Registration No. 333-164590) ].

 

10.35

#

Douglas Dynamics Nonqualified Deferred Compensation Plan [Incorporated by reference to Exhibit 10.34 to Douglas Dynamics, Inc.'s Annual Report on Form 10-K for the period ending December 31, 2011.]


10.36

#

Form of Restricted Stock Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan. [Incorporated by reference to Exhibit 10.36 to Douglas Dynamics, Inc.'s Annual Report on Form 10-K for the period ending December 31, 2012.]


10.37

#

Form of Performance Share Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan. [Incorporated by reference to Exhibit 10.37 to Douglas Dynamics, Inc.'s Annual Report on Form 10-K for the period ending December 31, 2012.]


10.38

#*

Douglas Dynamics 2014 Annual Incentive Plan.


10.39


Real Estate Purchase and Sale Agreement, dated May 6, 2013, by and between Dynamex Properties LLC and Acquisition Tango LLC [Incorporated by reference to Exhibit 10.1 to Douglas Dynamics,  Inc.'s Current Report on Form 8-K filed May 6, 2013 (File No. 001-34728)].


10.40

#

Form of Nonemployee Director Restricted Stock Unit Grant Notice and Standard Terms and Conditions under Douglas Dynamics, Inc. 2010 Stock Incentive Plan. [Incorporated by reference to Exhibit 10.4 to Douglas Dynamics, Inc.'s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2013 (File No. 001-34728)].


21.1

*

Subsidiaries of Douglas Dynamics, Inc.

 

23.1

*

Consent of Ernst & Young LLP.

 

31.1

*

Certification of the Company's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

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31.2

Exhibit
Number
Title
31.2*Certification of the Company's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

 

32.1

*

Certification of Periodic Financial Report by the Company's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.

 

99.1

 

Proxy Statement for the 20112014 Annual Meeting of Stockholders [To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after December 31, 2010;2014; except to the extent specifically incorporated by reference, the Proxy Statement for the 20112014 Annual Meeting of Stockholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K]


101.INS


XBRL Instance Document


101.SCH


XBRL Taxonomy Extension Schema


101.CAL


XBRL Taxonomy Extension Calculation Linkbase


101.DEF


XBRL Taxonomy Extension Definition Linkbase


101.LAB


XBRL Taxonomy Extension Label Linkbase


101.PRE


XBRL Taxonomy Extension Presentation Linkbase

#
A management contract or compensatory plan or arrangement.

*
Filed herewith.

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Index to Consolidated Financial Statements

 
 Page

Consolidated Financial Statements

  


ReportReports of Independent Registered Public Accounting Firm



 

F-2


Consolidated Balance Sheets



 

F-3F-5


Consolidated Statements of Income



 

F-4F-6


Consolidated Statements of Comprehensive Income




F-7


Consolidated Statements of Changes in Shareholders' Equity



 

F-5F-8


Consolidated Statements of Cash Flows



 

F-6F-9


Notes to Consolidated Financial Statements



 

F-7F-10


Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Douglas Dynamics, Inc.

        We have audited the accompanying consolidated balance sheets of Douglas Dynamics, Inc. (the Company) as of December 31, 20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2010.2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, andas well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Douglas Dynamics, Inc. at December 31, 20102013 and 2009,2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010,2013, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin
March 8, 201111, 2014


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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Douglas Dynamics, Inc.

        We have audited Douglas Dynamics, Inc.'s internal control over financial reporting as of December 31, 2013, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Douglas Dynamics, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of TrynEx, Inc., which is included in the 2013 consolidated financial statements of Douglas Dynamics, Inc. and constituted 8.6% and 15.1% of total and net assets, respectively, as of December 31, 2013 and 6.6% and (19.0)% of net sales and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Douglas Dynamics, Inc. also did not include an evaluation of the internal control over financial reporting of TrynEx, Inc.


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        In our opinion, Douglas Dynamics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Douglas Dynamics, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2013 and our report dated March 11, 2014, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin
March 11, 2014


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DOUGLAS DYNAMICS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands, Except Per Share Data)



 December 31,
2010
 December 31,
2009
  December 31,
2013
 December 31,
2012
 

Assets

Assets

      

Current assets:

Current assets:

      

Cash and cash equivalents

 
$

19,864
 
$

24,136
 

Accounts receivable, net

 42,343 25,425 

Inventories

 27,977 30,292 

Refundable income taxes paid

 2,648 4,870 

Deferred income taxes

 4,223 3,710 

Prepaid and other current assets

 1,317 1,149 

Cash and cash equivalents

 
$

20,149
 
$

69,073
      

Accounts receivable, net

 37,040 32,172 

Inventories

 23,481 26,697 

Deferred income taxes

 7,142 3,729 

Prepaid income taxes

 29  

Prepaid management fees-related party

  417 

Prepaid and other current assets

 1,131 1,446 
     

Total current assets

Total current assets

 88,972 133,534  98,372 89,582 

Property, plant, and equipment, net

 
21,962
 
26,661
 

Property, plant and equipment, net

 
24,866
 
19,887
 

Assets held for sale

Assets held for sale

 1,779   1,085 1,732 

Goodwill

Goodwill

 107,222 107,222  113,132 107,222 

Other intangible assets, net

Other intangible assets, net

 126,948 132,950  123,422 116,548 

Deferred financing costs, net

Deferred financing costs, net

 953 3,311  2,216 2,794 

Other long-term assets

Other long-term assets

 207 941  1,246 606 
          

Total assets

Total assets

 $348,043 $404,619  $364,339 $338,371 
          

Liabilities, redeemable stock and stockholders' equity

 
     

Liabilities and shareholders' equity

     

Current liabilities:

Current liabilities:

      

Accounts payable

 
$

7,709
 
$

5,370
 

Accrued expenses and other current liabilities

 14,418 10,329 

Short-term borrowings

 13,000  

Current portion of long-term debt

 971 971 

Accounts payable

 
$

2,847
 
$

5,170
      

Accrued expenses and other current liabilities

 11,923 12,598 

Accrued interest

 23 5,367 

Income taxes payable

  1,202 

Current portion of long-term debt

 1,183 850 
     

Total current liabilities

Total current liabilities

 15,976 25,187  36,098 16,670 

Retiree health benefit obligation

Retiree health benefit obligation

 
7,235
 
7,848
  4,654 6,541 

Pension obligation

Pension obligation

 10,753 8,957  7,077 14,401 

Deferred income taxes

Deferred income taxes

 22,650 18,913  45,046 33,805 

Deferred compensation

Deferred compensation

 1,067 1,482  658 756 

Long-term debt, less current portion

Long-term debt, less current portion

 119,971 231,813  110,023 110,995 

Other long-term liabilities

Other long-term liabilities

 898 2,195  5,462 1,471 

Redeemable preferred stock—Series A, par value $0.01, 65,000 shares authorized, no shares outstanding at December 31, 2010 and December 31, 2009

 
 
 

Redeemable preferred stock—Series B, par value $0.01, no shares outstanding at December 31, 2010 and one share outstanding at December 31, 2009

  1 

Redeemable preferred stock—Series C, par value $0.01, no shares outstanding at December 31, 2010 and one share outstanding at December 31, 2009

  1 

Stockholders' equity:

 

Shareholders' equity:

 
 
 
 
 

Common Stock, par value $0.01, 200,000,000 shares authorized, 22,223,454 and 22,130,996 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively

 
222
 
221
 

Additional paid-in capital

 
135,498
 
133,072
 

Retained earnings

 20,463 27,523 

Accumulated other comprehensive loss, net of tax

 (862) (7,084)

Common Stock, par value $0.01, 200,000,000 and 23,750,000 shares authorized at December 31, 2010 and December 31, 2009, respectively, 21,579,655 and 14,421,736 shares issued and outstanding at December 31, 2010 and December 31, 2009, respectively

 216 144      

Total shareholders' equity

 155,321 153,732 

Additional paid-in capital

 127,695 59,973      

Total liabilities and shareholders' equity

 $364,339 $338,371 

Stockholders' notes receivable

 (482) (1,013)     

Retained earnings

 46,495 53,055      

Accumulated other comprehensive loss, net of tax

 (4,431) (3,937)
     

Total stockholders' equity

 169,493 108,222 
     

Total liabilities, redeemable stock and stockholders' equity

 $348,043 $404,619 
     

See accompanying Notes to Consolidated Financial Statements


Table of Contents


DOUGLAS DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

 Years ended December 31, 


 2010 2009 2008  2013 2012 2011 

Net sales

Net sales

 $176,795 $174,342 $180,108  $194,320 $140,033 $208,798 

Cost of sales

Cost of sales

 116,494 117,264 117,911  128,670 96,070 136,981 
              

Gross profit

Gross profit

 60,301 57,078 62,197  65,650 43,963 71,817 

Selling, general, and administrative expense

Selling, general, and administrative expense

 
26,509
 
20,085
 
19,032
  
31,872
 
19,895
 
26,435
 

Intangibles amortization

Intangibles amortization

 6,001 6,161 6,160  5,625 5,199 5,201 

Management fees-related party

 6,383 1,393 1,369 

Impairment of assets held for sale

 647   
              

Income from operations

Income from operations

 21,408 29,439 35,636  27,506 18,869 40,181 

Interest expense, net

Interest expense, net

 
(10,943

)
 
(15,520

)
 
(17,299

)
 
(8,328

)
 
(8,393

)
 
(8,918

)

Loss on extinguishment of debt

Loss on extinguishment of debt

 (7,967)      (673)

Other income (expense), net

 36 (90) (73)

Other expense, net

 (161) (320) (218)
              

Income before taxes

Income before taxes

 2,534 13,829 18,264  19,017 10,156 30,372 

Income tax expense

Income tax expense

 
872
 
3,986
 
6,793
  
7,378
 
4,144
 
11,332
 
              

Net income

Net income

 $1,662 $9,843 $11,471  $11,639 $6,012 $19,040 
              

Less: Net income attributable to participating securities

Less: Net income attributable to participating securities

 12    179 69 233 
       
��       

Net income attributable to common shareholders

Net income attributable to common shareholders

 $1,650 $9,843 $11,471  $11,460 $5,943 $18,807 
              
       

Earnings per share:

Earnings per share:

        

Basic earnings per common share attributable to common shareholders

 $0.09 $0.68 $0.79 

Earnings per common share assuming dilution attributable to common shareholders

 $0.09 $0.67 $0.77 

Basic earnings per common share attributable to common shareholders

 $0.52 $0.27 $0.87 

Earnings per common share assuming dilution attributable to common shareholders

 $0.51 $0.26 $0.85 

Cash dividends declared and paid per share

Cash dividends declared and paid per share

 $0.38 $0.00 $0.00  $0.84 $0.82 $1.18 

See accompanying Notes to Consolidated Financial Statements


Table of Contents

DOUGLAS DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Dollars In Thousands)

 
 Redeemable Securities  
  
  
  
  
  
  
  
 
 
 Series A Redeemable Preferred Stock Series B Redeemable Preferred Series C Redeemable Preferred  
  
  
  
  
  
  
  
 
 
 Common Stock  
  
  
 Accumulated
Other
Comprehensive
Loss
  
  
 
 
 Additional
Paid-in
Capital
 Stockholders'
Notes
Receivable
 Retained
Earnings
  
 Comprehensive
Income (Loss)
 
 
 Shares Dollars Shares Dollars Shares Dollars Shares Dollars Total 

Balance at January 1, 2008

   $  1 $1  1 $1  14,618,861 $146 $62,153 $(1,742)$31,855 $(468)$91,944    
 

Net income

                      11,471    11,471 $11,471 
 

Adjustment for pension and postretirement benefit liability, net of tax of $1,913

                        (2,449) (2,449) (2,449)
 

Change in pension measurement date, net of tax of $964

                      (114) (1,642) (1,756)  
 

Interest on stockholders' notes receivable

                    (77)     (77)  
 

Stock repurchases and retirement

              (164,493) (2) (1,775) 703      (1,074)  
                              

Balance at December 31, 2008

      1  1  1  1  14,454,369  144  60,378  (1,116) 43,212  (4,559) 98,059 $9,022 
                              
 

Net income

                      9,843    9,843 $9,843 
 

Adjustment for pension and postretirement benefit liability, net of tax of $365

                        622  622  622 
 

Interest on stockholders' notes receivable

                    (34)     (34)  
 

Stock repurchases and retirement

              (32,633)   (405) 137      (268)  
                              

Balance at December 31, 2009

   $  1 $1  1 $1  14,421,736 $144 $59,973 $(1,013)$53,055 $(3,937)$108,222 $10,465 
                              
 

Net income

                      1,662    1,662 $1,662 
 

Dividends paid

                      (8,222)   (8,222)  
 

Adjustment for pension and postretirement benefit liability, net of tax of $327

                        (494) (494) (494)
 

Interest on stockholders' notes receivable

                    (28)     (28)  
 

Issuance and sales of common stock by Company through IPO

              6,500,000  65  63,864        63,929   
 

Issuance of non-vested common stock in connection with IPO

              208,130  2  (2)       0   
 

Shares issued for options exercised in connection with IPO

              180,567  2  1,659        1,661   
 

Fractional shares repurchased and retired in connection with IPO

              (7)              
 

Stock repurchases and retirement

      (1) (1) (1) (1)          559       559   
 

Deferred stock units converted

              174,229  2  (2)       (0)  
 

Stock option exercises

              95,000  1  1,067                
 

Stock based compensation

                  1,136        1,136   
                              

Balance at December 31, 2010

   $   $   $  21,579,655 $216 $127,695 $(482)$46,495 $(4,431)$169,493 $1,168 
                              

See accompanying Notes to Consolidated Financial Statements


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DOUGLAS DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

 
 Years ended December 31, 
 
 2013 2012 2011 

Net income

 $11,639 $6,012 $19,040 

Adjustment for pension and postretirement benefit liability, net of tax of ($3,838) in 2013, ($219) in 2012 and $1,560 in 2011

  
6,062
  
349
  
(2,658

)

Adjustment for interest rate swap, net of tax of ($102) in 2013, ($30) in 2012, and $230 in 2011

  160  47  (391)
        

Comprehensive income

 $17,861 $6,408 $15,991 
        
        

See accompanying Notes to Consolidated Financial Statements


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DOUGLAS DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars In Thousands)

 
 Common Stock  
  
  
 Accumulated
Other
Comprehensive
Loss
  
 
 
 Additional
Paid-in
Capital
 Shareholders'
Notes
Receivable
 Retained
Earnings
  
 
 
 Shares Dollars Total 

Balance at December 31, 2010

  21,579,655 $216 $127,695 $(482)$46,495 $(4,431)$169,493 
                

Net income

          19,040    19,040 

Dividends paid

          (25,793)   (25,793)

Adjustment for pension and postretirement benefit liability, net of tax of $1,560

            (2,658) (2,658)

Adjustment for interest rate swap, net of tax of $230

            (391) (391)

Interest on shareholders' notes receivable

        (7)     (7)

Repayment of shareholders' note receivable

        489      489 

Shares issued for options exercised

  319,383  3  1,340        1,343 

Stock based compensation

  121,656  1  1,872        1,873 
                

Balance at December 31, 2011

  22,020,694 $220 $130,907 $ $39,742 $(7,480)$163,389 
                

Net income

          6,012    6,012 

Dividends paid

          (18,231)   (18,231)

Adjustment for pension and postretirement benefit liability, net of tax of ($219)

            349  349 

Adjustment for interest rate swap, net of tax of ($30)

            47  47 

Stock based compensation

  110,302  1  2,165        2,166 
                

Balance at December 31, 2012

  22,130,996 $221 $133,072 $ $27,523 $(7,084)$153,732 
                

Net income

          11,639    11,639 

Dividends paid

          (18,699)   (18,699)

Adjustment for pension and postretirement benefit liability, net of tax of ($3,838)

            6,062  6,062 

Adjustment for interest rate swap, net of tax of ($102)

            160  160 

Shares withheld on restricted stock vesting

      (160)       (160)

Stock based compensation

  92,458  1  2,586        2,587 
                

Balance at December 31, 2013

  22,223,454 $222 $135,498 $ $20,463 $(862)$155,321 
                
                

See accompanying Notes to Consolidated Financial Statements


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DOUGLAS DYNAMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 Years ended December 31, 


 2010 2009 2008  2013 2012 2011 

Operating activities

Operating activities

        

Net income

Net income

 $1,662 $9,843 $11,471  $11,639 $6,012 $19,040 

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

 8,693 8,018 8,176 

Amortization of deferred financing costs and debt discount

 758 955 832 

Loss on extinguishment of debt

   673 

Loss recognized on impairment of assets held for sale

 647   

Stock-based compensation

 2,587 2,166 1,873 

Provision for losses on accounts receivable

 329 259 47 

Deferred income taxes

 10,728 8,090 6,497 

Earnout liability

 3,951   

Changes in operating assets and liabilities:

       

Accounts receivable

 (16,643) 8,335 2,974 

Inventories

 6,445 (6,287) (524)

Prepaid and other assets and refundable income taxes

 1,717 (5,459) 201 

Accounts payable

 1,559 330 2,193 

Accrued expenses and other current liabilities

 2,885 (6,171) 4,554 

Deferred compensation

 (98) (156) (155)

Benefit obligations and other long-term liabilities

 (2,949) (473) 1,347 

Depreciation and amortization

 11,705 11,958 10,810        

Amortization of deferred financing costs and debt discount

 872 1,209 1,138 

Loss on extinguishment of debt

 7,967   

Stock-based compensation

 4,029 732  

Provision for losses on accounts receivable

 445 133 81 

Deferred income taxes

 641 1,810 3,946 

Changes in operating assets and liabilities:

 

Accounts receivable

 (5,313) (3,717) (1,182)

Inventories

 3,216 2,105 (11,716)

Prepaid and other assets and prepaid income taxes

 1,437 (776) 4,105 

Accounts payable

 (2,323) 218 335 

Accrued expenses and other current liabilities

 (7,201) 1,127 4,476 

Deferred compensation

 (415) (162) (45)

Benefit obligations and other long-term liabilities

 (945) 1,091 (8)
       

Net cash provided by operating activities

Net cash provided by operating activities

 15,777 25,571 23,411  32,248 15,619 47,728 

Investing activities

Investing activities

  
 
 
 
 
 
 

Capital expenditures

Capital expenditures

 (3,009) (8,200) (3,160) (2,775) (1,446) (2,373)

Proceeds from sale of equipment

Proceeds from sale of equipment

 226  47   80 67 

Acquisition of Trynex

 (26,734)   
              

Net cash used in investing activities

Net cash used in investing activities

 (2,783) (8,200) (3,113) (29,509) (1,366) (2,306)

Financing activities

Financing activities

  
 
 
 
 
 
 

Stock repurchases

 (166) (1,000) (1,101)

Payment of call premium and post payoff interest on senior notes redemption

 (3,876)   

Collection of stockholders' notes receivable

 531   

Shares withheld on restricted stock vesting paid for employees' taxes

 (160)   

Proceeds from exercise of stock options

   1,343 

Collection of shareholders' notes receivable

   482 

Payments of financing costs

Payments of financing costs

 (2,605)  (314)  (168) (3,471)

Proceeds from initial public offering, net

 63,929   

Borrowings on long-term debt

Borrowings on long-term debt

 40,000      123,750 

Dividends paid

Dividends paid

 (8,222)    (18,699) (18,231) (25,793)

Revolver borrowings

 13,000   

Repayment of long-term debt

Repayment of long-term debt

 (151,509) (850) (850) (1,152) (11,150) (122,450)
              

Net cash used in financing activities

Net cash used in financing activities

 (61,918) (1,850) (2,265) (7,011) (29,549) (26,139)
              

Change in cash and cash equivalents

Change in cash and cash equivalents

 (48,924) 15,521 18,033  (4,272) (15,296) 19,283 

Cash and cash equivalents at beginning of year

Cash and cash equivalents at beginning of year

 69,073 53,552 35,519  24,136 39,432 20,149 
              

Cash and cash equivalents at end of year

Cash and cash equivalents at end of year

 $20,149 $69,073 $53,552  $19,864 $24,136 $39,432 
              
       

Supplemental disclosure of cash flow information

Supplemental disclosure of cash flow information

        

Income Taxes Paid

 $1,663 $1,895 $2,832 

Interest Paid

 $16,886 $14,410 $16,730 

Income taxes paid

 $2,355 $1,558 $2,479 

Interest paid

 $7,597 $7,435 $7,767 

See accompanying Notes to Consolidated Financial Statements


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Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

1. Description of business and basis of presentation

        Douglas Dynamics, Inc., (the "Company") is the North American leader in the design, manufacture and sale of snow and ice control equipment for light trucks, which is comprised of snowplows and sand and salt spreaders, and related parts and accessories. The Company's snow and ice control products are sold through a network of over 7202,100 points of sale. Direct points of shipment are predominantly through North American truck equipment and lawn care equipment distributors. Most of our distributors that purchase directly from the Company and are located throughout the snowbeltsnow belt regions in North America (primarily the Midwest, East and Northeast regions of the United States as well as all provinces of Canada). The Company sells its products under the WESTERN®, FISHER®, BLIZZARD®, SNOWEX®, TURFEX® and BLIZZARD® brands.SWEEPEX® brands which are among the most established and recognized in the industry. The Company is headquartered in Milwaukee, WI and currently has manufacturing facilities in Milwaukee, WI, Rockland, ME, and Rockland, ME.Madison Heights, MI. The Company closed its Johnson City, TN facility in August 2010.2010 which it currently is holding for sale. The Company operates as a single segment.

        All share and per share data reported herein have been retrospectively restated to reflect the 23.75-for-one stock split of the Company's common stock that occurred on May 7, 2010, immediately prior to the consummation of the Company's initial public offering ("IPO").

        On May 10, 2010, the Company completed its IPO of 10,000,000 shares of common stock at a public offering price of $11.25 per share, less underwriting discounts. The 10,000,000 shares sold included 6,500,000 shares sold by the Company and 3,500,000 shares sold by certain selling stockholders. In addition, on May 14, 2010, the selling stockholders in the IPO closed the sale of an additional 1,500,000 shares to the underwriters at the public offering price of $11.25 per share, less underwriting discounts, pursuant to the underwriters' exercise in full of their overallotment option. The Company received $73,125 in gross proceeds from the issuance and sale of its common stock in the IPO and $63,929 in net proceeds after deducting underwriting discounts and total expenses related to the offering. The Company did not receive any proceeds from the sale of its stock by the selling stockholders in the IPO.

        Capitalization summary upon closing of IPO:

Common stock issued and outstanding at December 31, 2009

14,421,736

Issuance and sales of common stock by Company through IPO

6,500,000

Issuance of non-vested common stock in connection with IPO

208,130

Shares issued for options exercised in connection with IPO

180,567

Fractional shares repurchased and retired in connection with IPO

(7)

Common stock issued and outstanding upon closing of IPO

21,310,426

        Concurrent with the closing of the IPO, the Company repurchased its one issued and outstanding share of Series B preferred stock and one issued and outstanding share of Series C preferred stock, each at a price of $1,000 per share. Subsequent to the repurchase of the preferred stock, the Company has no preferred stock outstanding.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies

Principles of consolidation

        The accompanying consolidated financial statements include the accounts of Douglas Dynamics, Inc. and its direct wholly-owned subsidiary, Douglas Dynamics, L.L.C., and its indirect wholly-owned subsidiaries, Douglas Dynamics Finance Company (an inactive subsidiary) and Fisher, LLC (hereinafter collectively referred to as the "Company"). All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

        The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.

Accounts receivable and allowance for doubtful accounts

        The Company carries its accounts receivable at their face amount less an allowance for doubtful accounts. The majority of the Company's accounts receivable are due from distributors of truck equipment. Credit is extended based on an evaluation of a customer's financial condition. On a periodic basis, the Company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions based on a history of write-offs and collections. A receivable is considered past due if payments have not been


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

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.

Financing program

        The Company is party to a financing program in which certain distributors may elect to finance their purchases from the Company through a third party financing company. The Company provides the third party financing company recourse against the Company regarding the collectability of the receivable under the program due to the fact that if the third party financing company is unable to collect from the distributor the amounts due in respect of the product financed, the Company would be obligated to repurchase any remaining inventory related to the product financed and reimburse any legal fees incurred by the financing company. During the years ended December 31, 2010, 20092013, 2012 and 2008,2011, distributors financed purchases of $1,696, $3,269$2,926, $1,579 and $3,462$2,752 through this financing program, respectively. ThereAt both December 31, 2013 and December 31, 2012, there were no$0 of uncollectible outstanding or uncollectible amountsreceivables related to sales financed under the


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)


financing program for the years ended December 31, 2010 and 2009.program. The amount owed by our distributors to the third party financing company under this program at December 31, 20102013 and 20092012 was $1,267$1,300 and $3,202,$943, respectively. The Company was required to repurchase repossessed inventory of $91$0, $233, and $19$41 for the years ended December 31, 20102013, December 31, 2012 and December 31, 2009,2011, respectively. There were no required repurchases of repossessed inventory during the year ended December 31, 2008.

        In the past, minimal losses have been incurred under this agreement. However, an adverse change in distributor retail sales could cause this situation to change and thereby require the Company to repurchase repossessed units. Any repossessed units are inspected to ensure they are current, unused product and are restocked and resold.

Interest Rate Swap

        As required by the 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 based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%). See Consolidated Statement of Comprehensive income (loss) for treatment of gains and losses on the interest rate swap agreement.

Inventories

        Inventories are stated at the lower of cost or market. Market is determined based on estimated realizable values. Inventory costs are primarily determined by the first-in, first-out (FIFO) method. The Company periodically reviews ourits inventory for slow moving, damaged and discontinued items and provides reserves to reduce such items identified to their recoverable amounts.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Property, plant and equipment

        Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using straight-line methods over the estimated useful lives for financial statement purposes and an accelerated method for income tax reporting purposes. The estimated useful lives of the assets are as follows:

 
 Years 

Land improvements and buildings

  15–15 - 40 

Machinery and equipment

  3–3 - 20 

Furniture and fixtures

  3–3 - 12 

Mobile equipment and other

  3–3 - 10 

        Depreciation expense was $5,704, $5,797,$3,068, $2,819, and $4,650$2,975 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively.

        Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to operations when incurred. Repairs and maintenance expenses amounted to $2,909, $3,079$3,509, $2,855 and $2,610$4,025 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. When assets are sold or retired, the cost of the asset and the related accumulated depreciation are eliminated from the accounts and any gain or loss is recognized in the results of operations.

Impairment of long-lived assets

        Long-lived assets are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)


held and used is measured by comparison of the carrying value of such assets to the undiscounted future cash flows expected to be generated by the assets. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment provision is recognized to the extent that the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or the fair value of the asset, less costs of disposition. Management of the Company considers such factors as current results, trends and future prospects, current market value, and other economic and regulatory factors in performing these analyses. The Company determined that no long-lived assets were impaired as of December 31, 20102013 and 2009.2012.

Goodwill and other intangible assets

        Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter,as of December 31, or sooner if impairment indicators arise. The fair value of indefinite-lived intangible assets is estimated based upon a market approach. In reviewing goodwill for impairment, potential impairment is identified by comparing the estimated fair value of the reporting unit to its carrying value. The Company has determined it has one reporting unit. When the fair value is less than the carrying value of the net assets of the reporting unit, including goodwill, an impairment loss may be


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Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

recognized. The Company has determined that goodwill and indefinite lived assets were not impaired as of December 31, 20102013 and 2009.2012.

        Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and alsoare reviewed at least annually for potential impairment or aswhen events or circumstances arise.indicate that the carrying amount of the asset may not be recoverable. The Company amortizes its distribution network intangible over periods ranging from 15 to 20 years, trademarks over 7 to 1025 years, patents over 7 to 20 years, customer relationships over 19.5 years and noncompete agreements over 5 years. The Company has determined that finite lived intangible assets were not impaired as of December 31, 20102013 and 2009.2012.

Income taxes

        Deferred income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period. Deferred income tax assets are reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized. Additionally, when applicable, the Company would classify interest and penalties related to uncertain tax positions in income tax expense.


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Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Deferred financing costs

        The costs of obtaining financing are capitalized and amortized over the term of the related financing on a basis that approximates the effective interest method. The changes in deferred financing costs are as follows:

Balance at January 1, 2008

 $5,344 

Amortization of deferred financing costs

 (1,138)

Debt amendment

 314 
   

Balance at December 31, 2008

 4,520 

Amortization of deferred financing costs

 (1,209)
   

Balance at December 31, 2009

 3,311 

Balance at January 1, 2011

 $953 

Write-off of unamortized deferred financing costs

 (2,045) 
(335

)

Deferred financing costs capitalized on new debt

 559  3,471 

Amortization of deferred financing costs

 (872) (687)
      

Balance at December 31, 2010

 $953 

Balance at December 31, 2011

 3,402 

Deferred financing costs capitalized on new debt

 
168
 

Amortization of deferred financing costs

 (776)
      

Balance at December 31, 2012

 2,794 

Amortization of deferred financing costs

 
(578

)
   

Balance at December 31, 2013

 $2,216 
   
   

        For the year ended December 31, 2010,2012, the Company extended the term on its revolving line of credit and capitalized $168 of deferred financing costs associated with the refinancing. For the year ended December 31, 2011, the Company recorded the write-off of deferred financing costs as a loss on


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Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

extinguishment of debt, in the consolidated statements of operationsincome as a result of an amendment to the Company's term loan facility and the repayment of the senior notes.facility. The amendment of the term loan facility resulted in a significant modification of the debt which resulted in the write off of unamortized capitalized deferred financing costs of $995. The Company wrote off $1,050 of unamortized deferred financing costs related to the senior notes. These amounts are included as a loss on extinguishment of debt in the consolidated statements of operations. See further details in Note 7.$335.

Fair valuesValue

        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 financial instrumentsthree 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).

        The Company'sfollowing table presents financial instruments consist of cash, trade receivables, trade accounts payable,assets and long-term debt. The Company's estimate ofliabilities measured at fair value on a recurring basis and discloses the fair value of alllong-term debt:

 
 Fair Value at
12/31/2013
 Fair Value at
12/31/2012
 

Assets:

       

Other assets(a)

 $1,127 $491 
      

Total Assets

 $1,127 $491 
      

Liabilities:

       

Long term debt(b)

  110,439  110,566 

Other long-term liabilities—

       

Earnout—Trynex(c)

  3,587   

Interest rate swap(d)

  282  544 
      

Total Liabilities

 $114,308 $111,110 
      

(a)
Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amounts of these financial instrumentsinsurance policies approximates their carrying amounts at December 31, 2010 and 2009, except for long-term debt. fair value.

(b)
The fair value of the Company's long-term debt, as of December 31, 2010 and December 31, 2009 was approximately $120,397 and $218,703, respectively, whichincluding current maturities, is estimated using discounted cash flows based on the Company's current incremental borrowing rates currently available tofor similar types of borrowing arrangements, which is a Level 2 input for all periods presented. Meanwhile, long-term debt is recorded at carrying amount, net of discount, as disclosed on the Companyface of the balance sheet.

(c)
Included in other long term liabilities is an obligation for debta portion of the potential earn out incurred in conjunction with similar terms and maturities.

the acquisition of substantially all of TrynEx's assets. The carrying amount of the earn out approximates its fair value. Fair value measurements

        The Company applies the guidance in Accounting Standards Codification (ASC) 820-10Fair Value Measurements and Disclosures ("ASC 820-10"). ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As

based upon

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Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)


 
 2013 

Balance at January 1

 $ 

Additions

  3,587 

Adjustments to fair value

   
    

Balance at December 31

 $3,587 
    
    
(d)
Valuation models are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entitycalibrated to develop its own assumptions.

        Assets and liabilities measured at fair valueinitial trade price. Subsequent valuations are based on observable inputs to the market approach, which is pricesvaluation model (e.g. interest rates and other relevant information generatedcredit spreads). Model inputs are changed only when corroborated by market transactions involving identical or comparable assets or liabilities. At December 31, 2010 and 2009,data. A credit risk adjustment is made using observable market credit spreads. Thus, inputs used to determine fair value of the Company did not have any financial instruments accounted for at fair value.

interest rate swap are Level 2 inputs.

Concentration of credit risk

        The Company's cash is deposited with multiple financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant risk on these balances.

        No distributor represented more than 10% of the Company's net sales or accounts receivable during the years ended December 31, 2010, 20092013, 2012 and 2008.2011.

Revenue recognition

        The Company recognizes revenues upon shipment to the customer, which is when titlerisk of loss passes and all of the following conditions are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) the product has been shipped and the Company has no further obligations. Customers have no right of return privileges. Historically, product returns have not been material and are permitted on an exception basis only.

        The Company offers a variety of discounts and sales incentives to ourits distributors. The estimated liability for sales discounts and allowances is 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.

Cost of sales

        Cost of sales includes all costs associated with the manufacture of the Company's products, including raw materials, purchased parts, freight, plant operating expenses, property insurance and taxes, and plant depreciation. All payroll costs and employee benefits for the hourly workforce, manufacturing management, and engineering costs are included in cost of sales.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

taxes, and plant depreciation. All payroll costs and employee benefits for the hourly workforce, manufacturing management, and engineering costs are included in cost of sales.

Warranty cost recognition

        The Company accrues for estimated warranty costs as revenue is recognized. See note 9 for further details.

Advertising expenses

        Advertising expenses include costs for the production of marketing media, literature, CD-ROM, and displays. The Company participates in trade shows and advertises in the yellow pages and billboards. Advertising expenses amounted to $2,805, $2,528$3,037, $1,815 and $3,028$2,718 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. The Company also provides its distributors with pre-approved, cooperative advertising programs, which are recorded as advertising expense in selling, general and administrative expense. All costs associated with the Company's advertising programs are expensed as incurred.

Shipping and handling costs

        Generally, shipping and handling costs are paid directly by the customer to the shipping agent. Those shipping and handling costs billed by the Company are recorded as a component of sales with the corresponding costs included in cost of sales.

Reclassifications

        Certain prior year amounts in the financial statements have been reclassified to conform to the current year presentation.

Share-based payments

        The Company applies the guidance codified in ASC 718—Compensation-StockCompensation—Stock Compensation. This standard requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award at the grant date and recognition of the compensation expense over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). Because the Company used the minimum-value method to measure compensation cost for employee stock options prior to January 1, 2006, the date on which ASC 718 was adopted, under this previous guidance, it was required to use the prospective method of adoption for this standard. Under the prospective method, the Company continues to account for non-vested awards outstanding at the date of adoption using the same method as prior to adoption for financial statement recognition purposes. All awards granted, modified, or settled after the date of adoption are accounted for using the measurement, recognition, and attribution provisions of ASC 718.

Comprehensive income (loss)

        Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner resources and is comprised of net income or loss and "other comprehensive income (loss)". The Company's other comprehensive income (loss) is comprised of the adjustments for pension and


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)


resources and is comprisedpostretirement benefit liabilities as well as the impact of net income orits interest rate swap. 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 and "other comprehensive income (loss)". The Company'sinto earnings in the next twelve months. Additionally, other comprehensive income (loss) is comprised exclusivelyincludes the net income (loss) of the Company plus/minus the Company's adjustments for pension and postretirementits defined benefit liabilities.retirement plans based on the measurement date as of the Company's year-end. See Note 19 for the components of accumulated other comprehensive loss.

Segment Reporting

        The Company operates in and reports as a single operating segment, which is the manufacture and sale of snow and ice control products. Net sales are generated through the sale of snow and ice control products and accessories to distributors. The chief operating decision maker (the Company's CEO)Chief Executive Officer) manages and evaluates its operations as one segment primarily due to similarities in the nature of the products, production processes and methods of distribution. All of the Company's identifiable assets are located in the United States. The Company's sales outside North America are not material, representing less than 1%3% of net sales.

        The Company's product offerings primarily consist of snow and ice control products and accessories. Equipment and parts and accessories are each a similar class of products based on similar customer usage.


 Year ended December 31,  Year ended December 31, 

 2010 2009 2008  2013 2012 2011 

Equipment

 $151,808 $147,478 $151,450  $164,460 $123,308 $177,806 

Parts and accessories

 24,987 26,864 28,658  29,860 16,725 30,992 
              

Net Sales

 $176,795 $174,342 $180,108  $194,320 $140,033 $208,798 
              
       

3. Related-Party TransactionsAcquisition

        On May 6, 2013, the Company acquired substantially all of the assets of TrynEx for the purpose of expanding its current market presence in the snow and ice segment. Total consideration paid was $26,734 including an estimated working capital adjustment. The working capital adjustment was further adjusted to reduce the purchase price at December 31, 2013 by $262 which the Company received after the date of these financial statements. The acquisition was financed with $28,000 of revolver borrowings under the Company's credit facility discussed in Note 7. The Company incurred $1,239 of transaction expenses related to this acquisition that are included in selling, general and administrative expense in the Consolidated Statements of Income.

        The Company is partyTrynEx purchase agreement includes contingent consideration in the form of an earnout capped at $7,000. Under the earnout the former owners of TrynEx are entitled to a Joint Management Services Agreement with Aurora Management Partners, LLC ("AMP")receive payments contingent upon the revenue growth and ACOF Management, LP ("ACOF"), affiliates of its principal stockholders. Prior to the IPO, this agreement obligated the Company to pay an annual management fee of $1,250 per annum, to AMP and ACOF, pro rata in accordance with their respective holdings, plus reimbursement of reasonable out-of-pocket expenses, in exchange for consultation and advice in fields such as financial services, accounting, general business management, acquisitions, dispositions and banking.

        In connection with the Company's IPO, the Company amended and restated the terms of its Joint Management Services Agreement to, among other things, (i) extend the term of service until the earlier of (A) the fifth anniversaryperformance of the consummationacquired business for the years 2014, 2015 and 2016. On August 5, 2013, the purchase agreement was amended to remove the requirement that the former owners of the Company's IPO, (B) such time as AMP and ACOF, together with their affiliates, collectively hold less than 5% of the Company's outstanding common stock and (C) such time as all parties mutually agree in writing, while eliminating all other termination events (other than termination for cause); (ii) eliminate the annual management fee, as well as the provision obligating the Company to pay AMP and ACOF a transaction feeTrynEx remain employed in the event of an acquisition or any sale or disposition of the Company or any of its divisions or any sale of substantially all Company assets or similar transactions in exchange for a one-time fee of $5,800 upon2014 and 2015 performance


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

3. Related-Party TransactionsAcquisition (Continued)


the consummationperiods, resulting in recognition of the IPO, pro ratafair value of the contingent consideration for 2014 and 2015 of $3,587 at that date. The requirement of continued employment remains in accordance with their respective holdings; and (iii) modify the expense reimbursement provisions to include reimbursement for out-of-pocket expenses incurred in connection with SEC and other legally required filings made by each of AMP and ACOF with respect to the Company's securities and certain other expenses. The one-time management fee was paid on May 10, 2010, and is included in management fees—related party expenseplace for the year ended December 31, 2010.2016 performance period.

        The Company recognized management feesfollowing table summarizes the allocation of the purchase price paid and related expensethe subsequent working capital adjustment to the fair value of $6,383, $1,393 and $1,369the net assets acquired as of the acquisition date:

Accounts receivable

  604 

Inventories

  4,130 

Other current assets

  29 

Property and equipment

  5,272 

Goodwill

  5,910 

Intangible assets

  12,499 

Accounts payable and other liabilities

  (1,972)
    

Total

 $26,472 
    
    

        The goodwill for the acquisition is a result of acquiring and retaining the existing workforces and expected synergies from integrating the operations into the Company. The Company is amortizing its goodwill for income tax purposes over a fifteen-year period starting at the date of acquisition. The acquired intangible assets include customer relationships of $8,820 being amortized over 19.5 years, endedpatents of $1,320 being amortized over 17 years and trademarks of $2,359 being amortized over 25 years.

        The acquisition was accounted for under the purchase method, and accordingly, the results of operations are included in the Company's financial statements from the date of acquisition. From the date of acquisition through December 31, 2010, 20092013, the TrynEx assets contributed $12,879 of revenues and 2008, respectively. In addition, because fees under this agreement are payable in semi-annual installments on May 1 and November 1($3,334) of each year, at December 31, 2009,pre-tax operating losses, including $4,506 of certain purchase accounting expenses, related to the Company's balance sheet included a prepayment of management fees of $417. Meanwhile, at December 31, 2010, the Company's balance sheet did not include a prepayment of management fee as the fee was eliminated upon the consummation of the IPO.Company.

4. Inventories

        Inventories consist of the following:

 
 December 31, 
 
 2010 2009 

Finished goods and work-in-process

 $21,896 $24,639 

Raw material and supplies

  1,585  2,058 
      

 $23,481 $26,697 
      

5. Property, plant and equipment

        Property, plant and equipment are summarized as follows:

 
 December 31, 
 
 2010 2009 

Land

 $960 $1,000 

Land improvements

  1,768  2,218 

Buildings

  12,554  13,766 

Machinery and equipment

  22,343  23,092 

Furniture and fixtures

  6,482  6,934 

Mobile equipment and other

  1,019  969 

Construction-in-process

  422  4,252 
      

Total property, plant and equipment

  45,548  52,231 

Less accumulated depreciation

  (23,586) (25,570)
      

Net property, plant and equipment

 $21,962 $26,661 
      
 
 December 31, 
 
 2013 2012 

Finished goods and work-in-process

 $26,175 $29,119 

Raw material and supplies

  1,802  1,173 
      

 $27,977 $30,292 
      
      

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

5. Property, plant and equipment

        Property, plant and equipment are summarized as follows:

 
 December 31, 
 
 2013 2012 

Land

 $1,160 $960 

Land improvements

  1,849  1,768 

Buildings

  16,743  12,852 

Machinery and equipment

  25,756  24,286 

Furniture and fixtures

  8,772  7,465 

Mobile equipment and other

  1,267  1,138 

Construction-in-process

  1,113  351 
      

Total property, plant and equipment

  56,660  48,820 

Less accumulated depreciation

  (31,794) (28,933)
      

Net property, plant and equipment

 $24,866 $19,887 
      
      

6. Other Intangible Assets

        The following is a summary of the Company's other intangible assets:

 
 Gross
Carrying
Amount
 Less
Accumulated
Amortization
 Net
Carrying
Amount
 

December 31, 2010:

          
 

Indefinite-lived intangibles:

          
  

Trademark and tradenames

 $60,000 $ $60,000 

Amortizable intangibles:

          
 

Dealer network

  80,000  27,000  53,000 
 

Customer relations

  2,000  689  1,311 
 

Patents

  15,116  3,977  11,139 
 

Noncompete agreements

  
5,050
  
5,050
  
 
 

Trademark—Blizzard

  3,100  1,602  1,498 
 

License

  20  20   
        

Amortizable intangibles, net

  105,286  38,338  66,948 
        

Total

 $165,286 $38,338 $126,948 
        




 Gross
Carrying
Amount
 Less
Accumulated
Amortization
 Net
Carrying
Amount
  Gross
Carrying
Amount
 Less
Accumulated
Amortization
 Net
Carrying
Amount
 

December 31, 2009:

 

December 31, 2013:

       

Indefinite-lived intangibles:

 
 
 
 
 
 
 

Trademark and tradenames

 $60,000 $ $60,000 

Amortizable intangibles:

       

Dealer network

 80,000 39,000 41,000 

Customer relationships

 10,820 1,404 9,416 

Patents

 16,436 6,293 10,143 

Noncompete agreements

 
5,050
 
5,050
 
 

Trademarks

 5,459 2,596 2,863 

License

 20 20  

Indefinite-lived intangibles:

        
 

Trademark and tradenames

 $60,000 $ $60,000 

Amortizable intangibles:

 

Dealer network

 80,000 23,000 57,000 

Customer relations

 2,000 555 1,445 

Patents

 15,077 3,180 11,897 

Noncompete agreements

 
4,820
 
4,020
 
800
 

Trademark—Blizzard

 3,100 1,292 1,808 

License

 17 17  
       

Amortizable intangibles, net

Amortizable intangibles, net

 105,014 32,064 72,950  117,785 54,363 63,422 
              

Total

Total

 $165,014 $32,064 $132,950  $177,785 $54,363 $123,422 
              
       

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

6. Other Intangible Assets (Continued)


 
 Gross
Carrying
Amount
 Less
Accumulated
Amortization
 Net
Carrying
Amount
 

December 31, 2012:

          

Indefinite-lived intangibles:

  
 
  
 
  
 
 

Trademark and tradenames

 $60,000 $ $60,000 

Amortizable intangibles:

          

Dealer network

  80,000  35,000  45,000 

Customer relationships

  2,000  956  1,044 

Patents

  15,116  5,491  9,625 

Noncompete agreements

  
5,050
  
5,050
  
 

Trademark—Blizzard

  3,100  2,221  879 

License

  20  20   
        

Amortizable intangibles, net

  105,286  48,738  56,548 
        

Total

 $165,286 $48,738 $116,548 
        
        

        Amortization expense for intangible assets was $6,001, $6,161$5,625, $5,199 and $6,160$5,201 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. Estimated amortization expense for the next five years is as follows:

2011

 $5,201 

2012

  5,199 

2013

  5,193 

2014

  5,193 

2015

  5,142 

2014

 $5,818 

2015

  5,767 

2016

  5,508 

2017

  5,508 

2018

  5,508 

        The weighted average remaining life for intangible assets is 13.312.1 years.

7. Long-Term Debt

        Long-term debt is summarized below:

 
 December 31, 
 
 2010 2009 

Term Loan, net of debt discount of $358 at December 31, 2010

 $121,154 $82,663 

Senior notes

    150,000 
      

Total long-term debt

  121,154  232,663 

Less current maturities

  1,183  850 
      

 $119,971 $231,813 
      
 
 December 31, 
 
 2013 2012 

Term Loan, net of debt discount of $766 and $946 at December 31, 2013 and December 31, 2012, respectively

 $110,994 $111,966 

Less current maturities

  971  971 
      

 $110,023 $110,995 
      
      

        The scheduled maturities on long-term debt at December 31, 2010, are as follows:

2011

 $1,183 

2012

  1,183 

2013

  80,446 

2014

  333 

2015

  333 

Thereafter

  37,676 
    

 $121,154 
    

        As of December 31, 2009, the Company's senior credit facilities consisted of an $85,000 term loan facility and a $60,000 revolving credit facility with a group of banks and the Company also had outstanding $150,000 of 7.75% senior notes (the "Senior Notes") due January 15, 2012. Concurrent with the consummation of the IPO in 2010, the Company amended its senior credit facilities to, among other things, (i) allow it to redeem the Senior Notes, (ii) increase the size of its term loan facility by $40,000 and (iii) amend certain of the provisions in its senior credit facilities which govern the Company's ability to pay dividends. Consequently, at December 31, 2010, the Company's senior credit


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

7. Long-Term Debt (Continued)


        The scheduled maturities on long-term debt at December 31, 2013, are as follows:

2014

  971 

2015

  971 

2016

  971 

2017

  971 

2018

  107,110 
    

 $110,994 
    
    

        The Company's senior credit facilities consist of a $125,000 term loan facility and a $60,000an $80,000 revolving credit facility with a group of banks. In connection with the amendments to the Company's senior credit facilities, the interest on the existing portion ofThe agreement for the term loan (the "Term Loan Credit Agreement") provides for a senior secured term loan facility was revised. The change consistedin the aggregate principal amount of an increase from an$125,000 and generally bears interest rate equal toat (at the Company's option)election) either (i) 3.25% per annum plus the base rategreatest of (a) the Prime Rate (as defined in the Term Loan Credit Agreement) in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 1.25%0.50% and (c) 1.00% plus the greater of (1) the London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (2) 1.50% or (ii) 4.25% per annum plus the eurodollar rate plus 2.25% to (atgreater of (a) the Company's option) either the base rate (which shall be no less than 3%) plus 3.5% or the eurodollar rate (which shall be no less than 2%) plus 4.5%. The interestLondon Interbank Offered Rate for the additional $40,000 increase inapplicable interest period multiplied by the Company's term loan facility is an interest rate equal to (at the Company's option) either the base rate (which shall be no less than 3%) plus 4% or the eurodollar rate (which shall be no less than 2%) plus 5%Statutory Reserve Rate and (b) 1.50%. Under the

        The revolving credit facility as amended and restated (the "Revolving Credit and Guaranty Agreement") provides that the marginCompany has the option to select whether borrowings will bear interest at either (i) 1.75% per annum plus the London Interbank Offered Rate for base rate loans is either 0.25%the applicable interest period multiplied by the Statutory Reserve Rate or (ii) 1.25% per annum plus the greatest of (a) the Prime Rate in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 0.50% and (c) the margin for eurodollar rate loans is either 1.25% or 1.50%, in each case determined based on the Company's leverage ratio from time to time. The amendment of the term loan facility resulted in a significant modification of the debt which resulted in the write off of unamortized capitalized deferred financing costs of $995 and expenditures of $2,045 related to financing costs paid to existing lenders which was recorded as a loss on extinguishment of debt in the consolidated statements of operations in the year ended December 31, 2010.

        On June 9, 2010, the Company completed the redemption of its Senior Notes. The Company redeemed its Senior Notes with the proceeds from the additional term loan, together with the net IPO proceeds and cash on handLondon Interbank Offered Rate for a total of $157,557, which includes $3,681 ofone month interest that accrued throughperiod multiplied by the date of deposit with the trustee, $969 of interest that accrued from the date of deposit with the trustee to the date of redemption and a $2,907 redemption call premium of 1.938%Statutory Reserve Rate plus 1%. In addition, the Company wrote off $1,050 of unamortized deferred financing costs related to the Senior Notes.

        After effecting the discharge of the Senior Notes, theThe maturity date for the Company's amended and restated revolving credit facility is May 21, 2012,April 17, 2017, and the Company's term loan amortizes in nominal amounts quarterly with the balance payable on May 21,April 18, 2018. The Company incurred and paid interest expense of $446 related to its revolving credit facility borrowings in the year ended December 31, 2013 with respect toat an average rate of 2.0%.

        The term loan was issued at a $1,250 discount which is being amortized over the existing term loans and May 21, 2016 with respect toof the additional term loans.loan.

        At December 31, 20102013, the Company had nooutstanding borrowings under the term loan of $110,994 and $13,000 of outstanding borrowings on the revolving credit facility and remaining borrowing availability of $60 million.$48,324.

        The Company's senior credit facilities include certain negative and operating covenants, including restrictions on its ability to pay dividends, and other customary covenants, representations and warranties and events of default. The senior credit facilities entered into and recorded by the


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

7. Long-Term Debt (Continued)

Company's subsidiaries significantly restrict its subsidiaries from paying dividends and otherwise transferring assets to Douglas Dynamics, Inc. The terms of the Company's revolving credit facility specifically restrict subsidiaries from paying dividends if a minimum availability under the revolving credit facility is not maintained, (such event, a "liquidity event"), and both senior credit facilities restrict subsidiaries from paying dividends above certain levels or at all if an event of default has occurred. These restrictions would affect the Company indirectly since the Company relies principally on distributions from its subsidiaries to have funds available for the payment of dividends. In addition, the Company's revolving credit facility includes a requirement that, subject to certain exceptions, capital expenditures may not exceed $10,000 in any calendar year and, duringif certain minimum availability under the occurrence of a liquidity event,revolving credit facility is not maintained, that the Company comply with a monthly minimum fixed charge coverage ratio test of 1.0:1.0. Compliance with the fixed charge coverage ratio test is subject to certain cure rights under the Company's revolving credit facility. At December 31, 2010,2013, the Company was in compliance with the respective covenants. The credit facilities are collateralized by substantially all assets of the Company.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

7. Long-Term Debt (Continued)

        In accordance with the senior credit facilities, the Company is required to make additional principal prepayments over the above scheduled payments under certain conditions. This includes, in the case of the term loan facility, 100% of the net cash proceeds of certain asset sales, certain insurance or condemnation events, certain debt issuances, and, within 150 days of the end of the fiscal year, 50% of excess cash flow, as defined, including a deduction for allowedcertain distributions (which percentage is reduced to 25% or 0% upon the achievement of certain leverage ratio thresholds), for any fiscal year. Excess cash flow is defined in the senior credit facilities as consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) plus a working capital adjustment less the sum of repayments of debt and capital expenditures subject to certain adjustments, interest and taxes paid in cash, management fees and certain restricted payments (including dividends or distributions). Working capital adjustment is defined in the senior credit facilities as the change in working capital, defined as current assets excluding cash and cash equivalents less current liabilities excluding current portion of long term debt. As of December 31, 2010 and 2009,2013, the Company was not required to make an excess cash flow payment.

        AsEach of the senior secured facilities include a hedge provision, which required the Company to enter into an interest rate hedge commencing 90 days after the closing date. The hedging provision required the Company to hedge the interest rate on at least 25% of the aggregate outstanding principal amount of the term loans. The purpose of the interest rate swap is to reduce the Company's exposure to interest rate volatility. Effective June 20, 2011, the Company entered into an interest rate swap agreement with a notional amount of $50,000. The interest rate swap negative fair value at December 31, 20102013 and 2009,2012 of $282 and $544, respectively, is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. The Company has counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. This risk lies with one global financial institution. Under the interest rate swap agreement, effective as of July 18, 2011, the Company had no letterseither receives or makes payments on a monthly basis based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of credit outstanding.1.5%). The interest rate swap contract on the term loan expires in December 2014.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

8. Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities are summarized as follows:


 December 31,  December 31, 

 2010 2009  2013 2012 

Payroll and related costs

 $2,993 $3,659  $2,857 $1,429 

Employee benefits

 2,334 2,534  4,522 2,731 

Accrued warranty

 3,399 3,040  3,808 3,628 

Other

 3,197 3,365  3,231 2,541 
          

 $11,923 $12,598  $14,418 $10,329 
          
     

9. Warranty Liability

        The Company accrues for estimated warranty costs as sales are recognized and periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. The Company's warranties generally provide, with respect to its snow and ice control equipment, that all material and workmanship will be free from defect for a period of two years after the date of purchase by the end-user, and with respect to its parts and accessories purchased separately, that such parts and accessories will be free from defect for a period of one year after the date of purchase by the end-user. Certain snowplows only provide for a one year warranty. The Company determines the amount of the estimated warranty costs (and its corresponding warranty reserve) based on the Company's prior five years of warranty history utilizing a formula driven by historical warranty expense and applying management's judgment. The companyCompany adjusts its historical warranty costs to take into account unique factors such as the introduction of new products into the marketplace that do not provide a historical


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

9. Warranty Liability (Continued)


warranty record to assess. The warranty reserve is included with Accrued Expenses and Other Current Liabilities in the accompanying consolidated balance sheets.

        The following is a rollforward of the Company's warranty liability:

 
 December 31, 
 
 2010 2009 2008 

Balance at the beginning of the period

 $3,040 $2,272 $1,593 

Warranty provision

  2,604  2,913  2,523 

Claims paid/settlements

  (2,245) (2,145) (1,844)
        

Balance at the end of the period

 $3,399 $3,040 $2,272 
        

10. Income Taxes

        The provision for income tax expense (benefit) consists of the following:

 
 Year ended December 31 
 
 2010 2009 2008 

Current:

          
 

Federal

 $ $1,284 $2,642 
 

State

  231  892  205 
        

  231  2,176  2,847 

Deferred:

          
 

Federal

  363  3,165  3,449 
 

State

  278  (1,355) 497 
        

�� 641  1,810  3,946 
        

 $872 $3,986 $6,793 
        

        A reconciliation of income tax expense (benefit) computed at the federal statutory rate to the provision for income taxes for the years ended December 31, 2010, 2009 and 2008 is as follows:

 
 2010 2009 2008 

Federal income tax expense at statutory rate

 $862 $4,840 $6,392 

State taxes (benefit), net of federal benefit

  7  302  (135)

Valuation allowance changes

  311  (1,129) 599 

Change in uncertain tax positions, net

  (349) 276  149 

Research and development credit

  (117) (194) (40)

Rate change

  95     

Other

  63  (109) (172)
        

 $872 $3,986 $6,793 
        
 
 December 31, 
 
 2013 2012 2011 

Balance at the beginning of the period

 $3,628 $4,188 $3,399 

Establish warranty liability for Trynex

  600     

Warranty provision

  1,452  846  3,386 

Claims paid/settlements

  (1,872) (1,406) (2,597)
        

Balance at the end of the period

 $3,808 $3,628 $4,188 
        
        

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Per Share Data)

10. Income Taxes

        The provision for income tax expense (benefit) consists of the following:

 
 Year ended December 31 
 
 2013 2012 2011 

Current:

          

Federal

 $712 $(3,994)$2,697 

State

  (190) 289  326 
        

  522  (3,705) 3,023 

Deferred:

  
 
  
 
  
 
 

Federal

  5,582  7,375  7,855 

State

  1,274  474  454 
        

  6,856  7,849  8,309 
        

 $7,378 $4,144 $11,332 
        
        

        A reconciliation of income tax expense computed at the federal statutory rate to the provision for income taxes for the years ended December 31, 2013, 2012 and 2011 is as follows:

 
 2013 2012 2011 

Federal income tax expense at statutory rate

 $6,656 $3,555 $10,630 

State taxes, net of federal benefit

  236  218  1,522 

Valuation allowance changes

    451  (47)

Change in uncertain tax positions, net

  8  8  (150)

Research and development credit

  (305) (26) (111)

Rate change

  758  67  (162)

Manufacturing tax benefits

  (44)   (552)

Other

  69  (129) 202 
        

 $7,378 $4,144 $11,332 
        
        

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

10. Income Taxes (Continued)

        Significant components of the Company's deferred tax liabilities and assets are as follows:



 December 31,  December 31, 


 2010 2009  2013 2012 

Deferred tax assets:

Deferred tax assets:

      

Allowance for doubtful accounts

 $401 $223 

Inventory reserves

 638 445 

Warranty liability

 1,455 1,346 

Deferred compensation

 570 383 

Earnout liability

 1,531  

Pension and retiree health benefit obligations

 (869) 7,072 

Accrued vacation

 587 631 

Medical claims reserve

 263 261 

State net operating losses

 3,294 2,633 

Other accrued liabilities

 865 746 

Valuation allowance for state net operating losses

 (1,395) (1,374)

Allowance for doubtful accounts

 $456 $284      

Inventory reserves

 533 726 

Warranty liability

 1,291 1,143 

Deferred compensation

 666 264 

Pension and retiree health benefit obligations

 6,145 6,103 

Accrued vacation

 428 523 

Medical claims reserve

 214 214 

State net operating losses

 3,160 2,490 

Federal net operating losses

 3,310  

Valuation allowance for state net operating losses

 (877) (566)

Other accrued liabilities

 886 784 
     

Total deferred tax assets

Total deferred tax assets

 16,212 11,965  7,340 12,366 

Deferred tax liabilities:

Deferred tax liabilities:

      

Tax deductible goodwill and other intangibles

 (45,872) (39,664)

Accelerated depreciation

 (2,040) (2,205)

Other

 (251) (592)

Tax deductible goodwill

 (17,474) (14,789)     

Other intangibles

 (12,960) (10,758)

Accelerated depreciation

 (865) (1,280)

Prepaid insurance

 (241) (209)

Deferred stock units

 (180) (113)
     

Total deferred tax liabilities

Total deferred tax liabilities

 (31,720) (27,149) (48,163) (42,461)
          

Net deferred tax liabilities

Net deferred tax liabilities

 $(15,508)$(15,184) $(40,823)$(30,095)
          
     

        Deferred income tax balances reflect the effects of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

        State operating loss carry forwards for tax purposes were $61,112are $64,378 at December 31, 20102013, and will result in future tax benefits of approximately $3,160.$3,294. These loss carry-forwards will begin to expire beginning in 2019. The Company evaluated the need to maintain a valuation allowance against certain deferred tax assets. Based on this evaluation, which included a review of recent profitability and future projections of profitability, the Company concluded that a valuation allowance of approximately $877$1,395 is necessary at December 31, 20102013 for the state net operating loss carry-forwards which are likely to expire prior to the Company's ability to use the tax benefit.

        InA reconciliation of the first quarter of 2009 the Company reversed $1,213 of its valuation allowancebeginning and ending liability for state net operating losses in Wisconsin due to auncertain tax law change, which was effective January 1, 2009.positions is as follows:

 
 2013 2012 

Balance at beginning of year

 $328 $320 

Increases for tax position taken in prior years

  8  8 
      

Balance at the end of year

 $336 $328 
      
      

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

10. Income Taxes (Continued)

        A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:

 
 2010 2009 

Balance at beginning of year

 $2,095 $1,613 

Increases for tax positions taken in the current year

    356 

Increases for tax positions taken in prior years

    126 

Decreases due to settlements with taxing authorities

  (1,297)  
      

Balance at the end of year

 $798 $2,095 
      

        The amount of the unrecognized tax benefits that would affect the effective tax rate, if recognized, was approximately $591 and $1,154$219 at December 31, 2010 and 2009 respectively.2013. The Company recognizes interest and penalties related to the unrecognized tax benefits in income tax expense. Approximately $174$70 and $653$62 of accrued interest and penalties is reported as an income tax liability at December 31, 20102013 and 2009,2012, respectively. The liability for unrecognized tax benefits is reported in Other Long-term Liabilities on the consolidated balance sheets at December 31, 20102013 and 2009. The Company recognized ($478) and $153 of (benefits) expenses related to interest and penalties in income tax expense for the years ended December 31, 2010 and 2009, respectively.2012.

        The Company files income tax returns in the United States (Federal), Wisconsin (state), Maine (state) and various other states. Tax years open to examination by tax authorities under the statute of limitations include 2008, 20092011, 2012 and 20102013 for Federal and 20062009 through 20102013 for most states. Tax returns for the 20102013 tax year have not yet been filed.

11. Deferred Compensation

        The Company has a long-term incentive compensation plan covering certain management employees. Under the terms of the plan, theprior to December 31, 2010 participants earn (lose)earned (lost) additional compensation based upon a percentage of the Company's cash flow from operations reduced by capital expenditures under a predetermined formula. In addition, participants' account balances under the plan increaseincreased or decreasedecreased on an annual basis based upon the Company's cash flow from operations reduced by capital expenditures under a predetermined formula. Amounts credited to participant accounts under the plan arewere, and continue to be as of December 31, 2013, non-forfeitable unless a participant is terminated for cause or voluntarily terminates his or her employment with the Company. In either of these events, the terminated participant will forfeit any positive amounts allocated to his or her account for the two years preceding the year of termination.

        Compensation earned under the plan is deferred until such time as the participant has an account balance of more than two times his or her base compensation, at which point 20% of the balance is


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

11. Deferred Compensation (Continued)


paid to the participant in cash in a lump sum. Participants are paid their vested account balances under the plan upon separation from the Company as follows:

 
 Payment Method

Death, long-term disability, or normal retirement

Lump sum

Balance of less than $75,000

 Lump sum

Balance greater than $75,000

 5 equal annual installments

        With respect to account balances paid in installments, participants earn interest each year on the unpaid balance at the one-year U.S. Treasury rate in effect at the beginning of the year.

        Activity for the plan is as follows:

 
 December 31 
 
 2010 2009 

Balance at beginning of year

 $1,705 $1,791 

Participant earnings according to the terms of the plan

  128  120 

Payments to current and former participants

  (258) (206)

Adjustments to Plan

  (283)  
      

Balance at end of year

  1,292  1,705 

Less current portion

  (225) (223)
      

Long Term balance at end of year

 $1,067 $1,482 
      

Effective December 31, 2010, the Company modifiedfroze the deferred compensationlong-term incentive plan. The Company will continue to pay its obligations to previously designated recipients in accordance with the deferred compensation plan. However,plan, but no new compensation will be earned under the deferred compensation plan. As there were modifications


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

11. Deferred Compensation (Continued)

        Activity for the deferred compensation plan the Company reduced its obligation for expected forfeitures which was based on historical turnoveris as included above as "Adjustments to Plan."follows:

 
 December 31 
 
 2013 2012 

Balance at beginning of year

 $911 $1,067 

Payments to current and former participants

  (155) (156)
      

Balance at end of year

  756  911 

Less current portion

  (98) (155)
      

Long term balance at end of year

 $658 $756 
      
      

12. Employee Retirement Plans

Pension benefits

        The Company provides noncontributory defined benefit pension plans for most employees. Plans covering salaried employees generally provide pension benefits that are based on the employee's average earnings and credited service. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company's funding policy for the plans is to contribute amounts sufficient to meet the minimum funding requirement of the Employee Retirement Income Security Act of 1974, plus any additional amounts that the Company may determine to be appropriate.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        The reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans, and amounts recognized in the consolidated balance sheets consisted of the following:

 
 December 31 
 
 2010 2009 

Change in projected benefit obligation:

       
 

Benefit obligation at beginning of year

 $24,723 $23,010 
 

Service cost

  800  820 
 

Interest cost

  1,432  1,355 
 

Actuarial loss

  2,884  403 
 

Benefits paid

  (956) (865)
 

Effect of curtailment

  (326)  
      

Benefit obligation at end of year

  28,557  24,723 

Change in plan assets:

       
 

Fair value of plan assets at beginning of year

  15,766  12,648 
 

Actual return on plan assets

  2,085  2,630 
 

Employer contributions through December 31

  909  1,353 
 

Benefits paid

  (956) (865)
      

Fair value of plan assets at end of year

  17,804  15,766 
      

Funded Status: accrued pension liability

 $(10,753)$(8,957)
      

        In May 2010, in connection with the upcoming closure of the Company's manufacturing facility in Johnson City, TN substantially all the employees at this facility were terminated. This resulted in a cessation of all future benefit accruals for these employees under the Company's pension and other post employment benefit ("OPEB") plans. A curtailment gain of $326 was recognized as a reduction to the net actuarial loss, as the curtailment liability gain was less than the unrecognized net actuarial loss prior to the curtailment for the pension plan in the year ending December 31, 2010. Therefore, this did not impact the consolidated statement of operations for the year ending December 31, 2010.

        The components of net periodic pension cost consisted of the following for the years ended December 31,

 
 2010 2009 2008 

Component of net periodic pension cost:

          
 

Service cost

 $800 $820 $1,159 
 

Interest cost

  1,432  1355  1,667 
 

Expected return on plan assets

  (1,162) (984) (1,914)
 

Amortization of net loss

  324  519  0 
        

Net periodic pension cost

 $1,394  1,710 $912 
        
 
 December 31 
 
 2013 2012 

Change in projected benefit obligation:

       

Benefit obligation at beginning of year

 $36,209 $32,800 

Service cost

  246  268 

Interest cost

  
1,449
  
1,482
 

Actuarial (gain) loss

  (5,031) 2,944 

Benefits paid

  (1,158) (1,285)
      

Benefit obligation at end of year

  31,715  36,209 

Change in plan assets:

       

Fair value of plan assets at beginning of year

  21,808  18,637 

Actual return on plan assets

  3,160  2,442 

Employer contributions through December 31

  828  2,014 

Benefits paid

  (1,158) (1,285)
      

Fair value of plan assets at end of year

  24,638  21,808 
      

Funded Status: accrued pension liability

 $(7,077)$(14,401)
      
      

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        In November 2011, the Company took the following actions with respect to its pension plans effective as of December 31, 2011: It froze benefits as of January 1, 2012 for all employees under the Company's Pension Plan for Hourly Employees, froze benefits as of January 1, 2012 for all employees under the Company's Salaried Pension Plan for employees with less than five years of service and grandfathered employees (other than certain highly compensated employees) under the Company's Salaried Pension Plan with five or more years of service, but reduced the benefit accrual from 1.67% of pay to 1.00% of pay. In order to offset the loss of these benefit to employees, the Company has enhanced its defined contribution plan. The Company also established a nonqualified deferred compensation plan effective as of January 1, 2012, for certain highly compensated employees whose participation in the qualified plan is restricted. A liability gain of $1,408 from this curtailment was recognized as a reduction to the net actuarial loss, as the liability gain was less than the unrecognized net actuarial loss prior to the curtailment for the pension plan in the year ended December 31, 2011. Therefore, this did not impact the consolidated statement of income for the year ended December 31, 2011.

        The components of net periodic pension cost consisted of the following for the years ended December 31,

 
 2013 2012 2011 

Component of net periodic pension cost:

          

Service cost

 
$

246
 
$

268
 
$

961
 

Interest cost

  1,449  1,482  1,539 

Expected return on plan assets

  (1,409) (1,274) (1,357)

Amortization of net loss

  1,205  770  454 
        

Net periodic pension cost

 $1,491  1,246 $1,597 
        
        

        The accumulated benefit obligation for all pension plans as of December 31, 20102013 and 2009,2012, was $26,078$31,623 and $22,957,$34,949, respectively.

        In accordance with its adoption of ASC 715-20, the Company useduses December 31 as its measurement date for all periods presented. Assumptions used in determining net periodic pension cost for the plans consisted of the following:


 Year ended December 31  Year ended December 31 

 2010 2009 2008  2013 2012 2011 

Discount rates

 6.0% 6.0% 6.0% 4.1% 4.6% 5.5%

Rates of increase in compensation levels:

  
 
 
 
 
 
 

Salaried

 3.5 3.5 3.5  3.5 3.5 3.5 

Hourly

 N/A N/A N/A  N/A N/A N/A 

Expected long-term rate of return on assets

 8.0 8.0 8.0  
7.25
 
7.25
 
8.0
 

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

12. Employee Retirement Plans (Continued)

        The discount rate used to determine the benefit obligation at December 31, 20102012 was 4.1% for both hourly and 2009 is 5.5%salaried pension plans. Meanwhile the discount rate used to determine the benefit obligation at December 31, 2013 was 4.9% and 6.0%,4.8% for the hourly and salaried pension plans, respectively.

        For 2011,2014, the expected long-term rate of return on plan assets is 8.0%7.25%. To determine the long-term rate of return assumption for plan assets, the Company studies historical markets and preserves the long-term historical relationships between equities and fixed-income securities consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. The Company evaluates current market factors such as inflation and interest rates before it determines long-term capital market assumptions and reviews peer data and historical returns to check for reasonableness and appropriateness.

        The expected benefit payments under the pension plans are as follows:

2011

 $1,160 

2012

  1,240 

2013

  1,280 

2014

  1,310 

2015

  1,330 

2016-2019

  7,600 

2014

 $1,330 

2015

  1,340 

2016

  1,360 

2017

  1,400 

2018

  1,440 

2019 - 2023

  8,250 

        The Company made required minimum pension funding contributions of $909$828 to the pension plans in 20102013 and currently expects to make $1,917$1,410 of required minimum pension funding contributions in 2011.2014.

        The Company maintains target allocation percentages among various asset classes based on an investment policy established for the pension plans, which is designed to achieve long-term objectives of return, while mitigating downside risk and considering expected cash flows. The current weighted-average target asset allocations are reflective of actual investments at December 31, 20102013 and 2009.2012. The investment policy is reviewed periodically in order to achieve overall objectives in light of current circumstances.

        The Company's weighted-average asset allocation and actual allocation for the qualified pension plans by asset category at December 31 is as follows:

 
 Target 2013 2012 

Large Cap Equity

  37%$7,373  30%$6,766  31%

Mid Cap Equity

  4% 938  4% 859  4%

Small Cap Equity

  3% 935  4% 876  4%

International Equity

  12% 2,485  10% 2,448  11%

Emerging markets Equity

  2% 617  2% 598  3%

Fixed Income and Cash Equivalents

  34% 9,830  40% 8,019  37%

Real Estate

  8% 2,460  10% 2,242  10%
            

Total

  100%$24,638  100%$21,808  100%
            
            

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        The Company's weighted-average asset allocation for the qualified pension plans by asset category at December 31 is as follows:

 
 Target 2010 2009 

Large Cap Equity

  37%$6,297  35%$6,106  39%

Mid Cap Equity

  4% 799  5% 601  4%

Small Cap Equity

  3% 772  4% 586  4%

International Equity

  12% 2,379  13% 2,015  13%

Emerging markets Equity

  2% 284  2% 240  2%

Fixed Income and Cash Equivalents

  34% 6,148  35% 5,241  33%

Real Estate

  8% 1,125  6% 977  6%
            

Total

  100%$17,804  100%$15,766  100%
            

        The investment strategy is to build an efficient, well-diversified portfolio based on a long-term, strategic outlook of the investment markets. The investment market outlook utilizes both historical-based and forward-looking return forecasts to establish future return expectations for various asset classes. These return expectations are used to develop a core asset allocation based on the needs of the plan. The core asset allocation utilizes investment portfolios of various asset classes and multiple investment managers in order to help maximize the plan's return while providing multiple layers of diversification to help minimize risk.

        The following table presents the fair values of the plan assets related to the Company's pension plans within the fair value hierarchy as defined in Note 2.

        The fair values of the Company's pension plan assets as of December 31, 20102013 are as follows (in thousands):follows:


 Balance as of
December 31,
2010
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
  Balance as of
December 31, 2013
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs (Level 3)
 

Assets:

          

Equity holdings

 $10,938 $ $10,938 $  
$

13,582
 
$

 
$

13,582
 
$

 

Fixed-income holdings

 6,148  6,148   9,830  9,830  

Alternative investments

 718   718  1,226   1,226 
                  

Total pension plan assets

 $17,804 $ $17,086 $718  $24,638 $ $23,412 $1,226 
                  
         

        The fair values of the Company's pension plan assets as of December 31, 2012 are as follows:

 
 Balance as of
December 31,
2012
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable
Inputs (Level 3)
 

Assets:

             

Equity holdings

 
$

12,672
 
$

 
$

12,672
 
$

 

Fixed-income holdings

  8,019    8,019   

Alternative investments

  1,117      1,117 
          

Total pension plan assets

 $21,808 $ $20,691 $1,117 
          
          

        Level 2 investments are based on quoted prices for similar assets in markets that are not active while Level 3 investments are comprised of a real estate fund for which the fair value is determined by taking the appraised values of the properties on hand plus other assets and subtracting mortgage loans and other liabilities.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        The fair values of the Company's pension plan assets as of December 31, 2009 are as follows (in thousands):

 
 Balance as of
December 31,
2009
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
 

Assets:

             

Equity holdings

 $9,906 $ $9,906 $ 

Fixed-income holdings

  5,241    5,241   

Alternative investments

  619      619 
          

Total pension plan assets

 $15,766 $ $15,147 $619 
          

        The following table presents a reconciliation of the fair value measurements using significant unobservable inputs (Level 3) (in thousands):


 December 31,  December 31, 

 2010 2009  2013 2012 

Balance, beginning of year

 $619 $905  $1,117 $1,096 

Deposits

 41 187 

Actual return on plan assets held at reporting date

 99 (286) 
149
 
125
 

Withdrawals

 (81) (291)
          

Balance, end of year

 $718 $619  $1,226 $1,117 
          
     

        The fair value of the real estate fund is determined by taking the appraised values of the properties on hand plus other assets and subtracting mortgage loans and other liabilities.

Postretirement benefits

        The Company provides postretirement healthcare benefits for certain employee groups. The postretirement healthcare plans are contributory and contain certain other cost-sharing features such as deductibles and coinsurance. The plans are unfunded. Employees do not vest until they retire from active employment with the Company and have at least twelve years of service. These benefits can be amended or terminated at anytime and are subject to the same ongoing changes as ourthe Company's healthcare benefits for employees with respect to deductible, co-insurance and participant contributions.

        Effective January 1, 2004, the postretirement healthcare benefits were extended to all active employees of the Company as of December 31, 2003. The period of coverage was reduced and the retiree contribution percentage was increased in order to keep the cost of the plan equivalent to the previous plan design.

        Maximum coverage under the plan is limited to ten years. All benefits terminate upon the death of the retiree. Employees who began working for the Company after December 31, 2003, are not eligible for postretirement healthcare benefits.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        The reconciliation of the beginning and ending balances of the projected benefit obligation for the Company consisted of the following:



 December 31  December 31 


 2010 2009  2013 2012 

Change in projected benefit obligation:

Change in projected benefit obligation:

      

Benefit obligation at beginning of year

 $6,812 $8,402 

Service cost

 
250
 
281
 

Interest cost

 245 360 

Participant contributions

 100 103 

Changes in actuarial assumptions

 (2,085) (1,590)

Benefits paid

 (448) (744)
     

Projected benefit obligation at end of year

 $4,874 $6,812 
     
     

Amounts recognized in the consolidated balance sheets consisted of:

     

Accrued expenses and other current liabilities

 $220 $271 

Retiree health benefit obligation

 4,654 6,541 
     

Benefit obligation at beginning of year

 $8,198 $7,155  $4,874 $6,812 

Service cost

 308 305      

Interest cost

 455 420      

Participant contributions

 94 86 

Changes in actuarial assumptions

 (154) 701 

Benefits paid

 (294) (469)

Plan Curtailment

 (1,031)  
     

Projected benefit obligation at end of year

 $7,576 $8,198 
     

Amounts recognized in the consolidated balance sheets consisted of:

 

Accrued expenses and other current liabilities

 $341 $350 

Retiree health benefit obligation

 7,235 7,848 
     

 $7,576 $8,198 
     

        In May 2010, in connection with the upcoming closureThe components of postretirement healthcare benefit cost consisted of the Company's manufacturing facility in Johnson City, TN substantially all the employees at this facility were terminated. This resulted in a cessation of all future benefit accruals for these employees under the Company's pension and other post employment benefit ("OPEB") plans. The curtailment gainfollowing for the OPEB plan, exceeded the unrecognized net actuarial loss prioryears ended December 31,

 
 2013 2012 2011 

Component of net postretirement health benefit cost:

          

Service cost

 $250 $281 $263 

Interest cost

  245  360  407 

Amortization of net gain

  (172) (17) (61)
        

Net postretirement healthcare benefit cost

 $323 $624 $609 
        
        

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Douglas Dynamics, Inc.

Notes to the curtailment and resulted in a gain of $1,031 of which $667 was recorded in selling, general and administrative expense in the consolidated statement of operations for yearConsolidated Financial Statements (Continued)

Years ended December 31, 20102013, 2012 and $364 (before taxes) was recognized as a reduction to the net actuarial loss2011

(Dollars in accumulated other comprehensive loss at December 31, 2010.Thousands Except Per Share Data)

12. Employee Retirement Plans (Continued)

        The assumed discount and healthcare cost trend rates are summarized as follows:

 
 Year Ended
December 31
 
 
 2013 2012 2011 

Discount rate

  3.7% 4.4% 5.5%

Immediate healthcare cost trend rate

  7.0  8.0  9.0 

Ultimate healthcare cost trend rate

  4.5  4.5  5.0 

Assumed annual reduction in trend rate

  *  **  *** 

Participation

  80  80  80 

 
 December 31 
 
 2010 2009 2008 

Discount rate

  5.5% 6.0% 6.0%

Immediate healthcare cost trend rate

  9.0  9.0  8.5 

Ultimate healthcare cost trend rate

  5.0  5.0  5.0 

Assumed annual reduction in trend rate

  **  0.5  0.5 

Participation

  80  80  80 

*
Health Care Cost Trend rate is assumed to be 7.0% beginning in 2013 gradually reducing to an ultimate rate of 4.5% in 2020.

**
Health Care Cost Trend rate is assumed to be 8.0% beginning in 2012 gradually reducing to an ultimate rate of 4.5% in 2019.

***
Health Care Cost Trend rate is assumed to be 9.0% beginning in 2011 gradually reducing to an ultimate rate of 5.0% in 2017.

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

12. Employee Retirement Plans (Continued)

        The discount rate used to determine the benefit obligation at December 31, 2010, 20092013 and 20082012 is 5.5%, 6.0%,4.5% and 6.0%3.7%, respectively. In all years presented the combination of pension cash flows were used to develop a single equivalent discount rate. For December 31, 2010,2013, the health care cost trend rate is assumed to be 9.0%7.0% for participants under 65 and 5.0% for those over 65 beginning in 20112014 gradually reducing to an ultimate rate of 5.0%4.5% in 2017. In 20092020 for both participants under 65 and 2008 a flat rate of 0.5% was used forover 65. For December 31, 2012, the health care cost trend.trend rate is assumed to be 8.0% for participants under 65 and 6.0% for those over 65 beginning in 2013 gradually reducing to an ultimate rate of 4.5% in 2021 for both participants under 65 and over 65. For December 31, 2011, the health care cost trend rate is assumed to be 8.0% beginning in 2012 gradually reducing to an ultimate rate of 4.5% in 2019.

        A one percentage point change in the healthcare cost trend rate would have the following effect at December 31, 2010:2013:


 1% Increase 1% Decrease  1%
Increase
 1%
Decrease
 

Effect on total service and interest cost

 $98 $(83) $51 $(44)

Effect on postretirement benefit obligation

 904 (774) 555 (482)

        Amounts included in other comprehensive loss, net of tax, at December 31, 2010,2013, which have not yet been recognized in net periodic pension or OPEB cost, were net actuarial gain (loss) of $(4,835)($2,912) and $404$2,234 for the pension plans and postretirement healthcare benefits,benefit plans, respectively. The estimated actuarial gain (loss) for the defined benefit plans that will be amortized from accumulated other comprehensive loss into net periodic pension or OPEB cost during 20112014 are ($454)202) and $61$398 for the pension plans and postretirement healthcare benefits,benefit plans, respectively.


        During the yearTable of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2008 the Company adopted the guidance originally issued under FAS No. 158 (codified under ASC 715-20) to measure the funded status of the plan as of its year end, December 31 versus the previous measurement date of October 1. Upon adoption of this requirement, the Company recorded a reduction to retained earnings of $114 net of tax of $682013, 2012 and an increase to accumulated other comprehensive loss of $1,642, net of tax of $896.2011

(Dollars in Thousands Except Per Share Data)

12. Employee Retirement Plans (Continued)

Defined contribution plan

        The Company has a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code thatand provides substantially all employees an opportunity to accumulate personal funds for their retirement. Contributions are made on a before-tax basis to these plans.the plan and are invested, at the employees' direction, among a variety of investment alternatives including, commencing January 1, 2013, a Company common stock fund designated as an employee stock ownership plan.

        As determined by the provisions of the plan, the Company matches a portion of the employees' basic voluntary contributions. The Company matching contributions to the plan were approximately $123, $137$213, $198 and $140 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. Beginning January 1, 2012, the Company amended its defined contribution plan to permit non-discretionary employer contributions. The Company made non-discretionary employer contributions of $807 and $871 in the years ended December 31, 2013 and December 31, 2012, respectively.

Non-qualified plan

        The Company also maintains a supplemental non-qualified plan for certain officers and other key employees. Expense for this plan was $450 and $471 for the years ended December 31, 2013 and December 31, 2012, respectively. The amount accrued was $1,105 and $497 as of December 31, 2013 and December 31, 2012, respectively. Amounts were determined based on the fair value of the liability at December 31, 2013 and December, 31, 2012, respectively.

13. Stock-Based Compensation

Amended and Restated 2004 Stock Incentive Plan

        In connection with the IPO, in May 2010, the Company's Board of Directors and stockholders amended and restated the Company's 2004 Stock Incentive Plan (as amended and restated, the "A&R 2004 Plan") and certain outstanding award agreements thereunder, to among other things, eliminate the ability of the holders thereunder to use a promissory note to pay any portion of the exercise price of the options, to provide that the use of "net exercises" to pay any portion of the exercise price of the options shall be at the sole discretion of the committee administering the A&R 2004 Plan, and to effect


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

13. Stock-Based Compensation (Continued)


certain ministerial changes under the A&R 2004 Plan. In addition, in connection with the IPO, the Board of Directors also resolved not to issue any further awards under the A&R 2004 Plan. As of December 31, 2010, 356,6132013, 37,240 shares of common stock are reserved for issuance upon the exercise of outstanding options under the A&R 2004 Plan. All outstanding options are fully vested, excluding 47,500 options, of which 23,750 will vest on August 27, 2011 and the remaining options will vest on August 27, 2012.vested. All options expire 10 years from the date of grant.

2010 Stock Incentive Plan

        In connection with the IPO, in May 2010, the Company's Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (the "2010 Plan"). The 2010 Plan provides for the issuance of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and restricted stock units, any of which may be performance-based, and for incentive bonuses, which


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

13. Stock-Based Compensation (Continued)

may be paid in cash or stock or a combination of both, to eligible employees, officers, non-employee directors and other service providers to the Company and its subsidiaries. A maximum of 2,130,000 shares of common stock may be issued pursuant to all awards under the 2010 Plan.

        In May 2010, in connection with the IPO, an aggregate of 208,130 shares of restricted stock were granted to certain officers and employees under the 2010 Plan. The restricted stock awards were time-based and vest over a five-year period in equal annual installments of 20% per year, commencing on the first anniversary of the grant date. In the fourth quarter of 2010, the compensation committee retroactively modified the participation of the restricted stock to the IPO. Previously, the restricted stock did not carry voting or dividend rights until the stock vested. Subsequent to the amendment, the restricted stock carried both voting and dividend rights retroactively to the IPO date.

        In the final quarter of 2010, the compensation committee approved a long-term incentive program (the "LTIP") under the 2010 Plan. Under the LTIP, executive officers, including its named executive officers, will be issued shares of the Company's common stock. The initial awards under the LTIP consist of (i) a performance-based incentive award that will result in an issuance to the executive officers of 44,350 unrestricted shares of common stock in March 2011 based upon performance metrics both performed and earned through December 31, 2010 and (ii) an issuance of 33,954 shares of restricted stock, subject to vesting contingent on the executive officer's continuous employment with the Company through the applicable vesting date. The first tranche will be immediately vested upon issuance. The remaining two tranches will vest in January 2012 and 2013, contingent on the executive officer's continuous employment through the applicable vesting date. The restricted shares granted in October of 2010 carry dividend rights once the shares are issued, but no voting rights until vesting.

Stock Options

        The following table summarizes information with respect to the Company's stock option activity under the A&R 2004 Plan for the years ended December 31, 2010, 2009 and 2008. In connection with the IPO, certain of the Company's selling stockholders exercised 288,001 stock options and sold the underlying shares. Such stockholders paid the exercise price of such options through a net exercise. Subsequent to the IPO, certain of the Company's option holders exercised 174,571 stock options and


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

13. Stock-Based Compensation (Continued)


paid the exercise price of such options through a net exercise, resulting in an additional 95,000 outstanding shares. The options exercised in conjunction with the IPO as well as those exercised subsequently in the year ended December 31, 2010 were granted under APB 25 with an exercise price equal to fair value at date of grant, and accordingly no compensation expense was recorded at the time of grant. Because of the net exercise mechanism, the option holders did not bear the risk and rewards of the options. As such, the Company recorded $2,975 of stock based compensation expense for the year ended December 31, 2010 related to stock options.

 
 December 31, 2010 December 31, 2009 December 31, 2008 
 
 Options Weighted
average
exercise price
 Options Weighted
average
exercise price
 Options Weighted
average
exercise price
 

Outstanding—beginning of year

  819,185 $4.21  908,556 $4.21  1,058,894 $4.21 

Granted

             

Canceled

      (89,371) 4.21  (150,338) 4.21 

Exercised

  (462,572) 4.21         
              

Outstanding—end of year

  356,613 $4.21  819,185 $4.21  908,556 $4.21 
              

Exercisable—end of year

  309,113 $4.21  747,935 $4.21  659,656 $4.21 
              

As of December 31, 2010, 2009 and 2008, the weighted-average remaining contractual life of all outstanding options was 4.0, 4.8 and 5.8 years, respectively. As of December 31, 2010, 2009 and 2008, the weighted-average remaining contractual life of all exercisable options was 3.6, 4.6 and 5.5 years, respectively.

        The aggregate intrinsic value of the options at December 31, 2010 was $3,901 and $3,382 for options outstanding and exercisable, respectively. The aggregate intrinsic value of the options at December 31, 2009 was $6,752 and $6,165 for options outstanding and exercisable, respectively. There were no options exercised for the years ended December 31, 2009 and 2008. The aggregate intrinsic value of stock options exercised during 2010 was $2,885.

        On January 23, 2009, the Company entered into securities repurchase agreements with certain members of management. Pursuant to these agreements, the Company repurchased at fair value and subsequently retired 32,633 shares of common stock and 89,371 stock options in exchange for aggregate consideration of $1,137, comprised of a cash payment of $1,000 and the satisfaction of the remaining principal amount of $137 on promissory notes held by the members of management. As a result of the repurchase of stock options, the Company recorded $732 of compensation expense in the first quarter of 2009, which represented the fair value of the repurchased options. See footnote 16, "Redeemable stock and stockholders' equity." Stock-based compensation for the years ended December 31, 2008 was not material.

        As of December 31, 2010 and 2009, the Company has stockholders' notes receivable with recourse of $482 and $1,013 including accrued interest, respectively, related to the exercise of options, which are included as a component of stockholders' equity. The stockholders' notes receivable are payable in 2014 and bear interest of 5%.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

13. Stock-Based Compensation (Continued)

Restricted Stock

        A summary of restricted stock activity for the year ended December 31, 2010 is as follows:

 
 Shares
(In thousands)
 Weighted
Average
Grant Date
Fair value
 Weighted
Average
Remaining
Contractual
Term
 

Unvested at December 31, 2009

       

Granted

  242,084 $11.68   

Vested

       

Cancelled and forfeited

       
         

Unvested at December 31, 2010

  242,084 $11.68  4.01 years 
        

Expected to vest in the future at December 31, 2010

  233,369 $11.68  4.01 years 
        

        The fair value of the Company's restricted stock awards is the closing stock price on the date of grant. The closing price the date the restricted shares were granted at the time of the IPO was $11.25 per share, while the closing price of the restricted shares granted in the fourth quarter was $14.32 per share. The Company recognized $419 of compensation expense related to restricted stock awards for the year ended December 31, 2010. The unrecognized compensation expense for shares expected to vest as of December 31, 2010 was approximately $2,311 and is expected to be recognized over a weighted average period of 4.01 years.

Unrestricted Stock

        The Company granted 44,350 shares of unrestricted stock as performance based awards under the 2010 plan. The fair value of the Company's unrestricted stock awards is the closing stock price on the date of grant, or $14.32 per share. The Company recognized $635 of compensation expense related to unrestricted stock awards granted for the year ended December 31, 2010. The unrestricted awards will be issued in March 2011. There is no required vesting period for the unrestricted stock units as recipients are entitled to shares upon grant and performance satisfaction, which both occurred by the year ended December 31, 2010.

        As of December 31, 2010,2013, the Company had 1,843,5661,595,858 shares of common stock available for future issuance of awards under the 2010 Plan. The shares of common stock to be issued under the 2010 Plan will be made available from authorized and unissued Company common stock.

Stock Options

        The following table summarizes information with respect to the Company's stock option activity under the A&R 2004 Plan for the years ended December 31, 2013, 2012 and 2011.

 
 December 31, 2013 December 31, 2012 December 31, 2011 
 
 Options Weighted
average
exercise
price
 Options Weighted
average
exercise
price
 Options Weighted
average
exercise
price
 

Outstanding—beginning of year

  37,240 $4.21  37,240 $4.21  356,623 $4.21 

Granted

             

Canceled

             

Exercised

          (319,383) 4.21 
              

Outstanding—end of year

  37,240 $4.21  37,240 $4.21  37,240 $4.21 
              

Exercisable—end of year

  37,240 $4.21  37,240 $4.21  37,240 $4.21 
              
              

        No stock options were exercised in either of the years ended December 31, 2013 or December 31, 2012. Certain of the Company's option holders exercised 319,383 stock options during the year ended December 31, 2011, of which 184,236 options were exercised utilizing a broker assisted cashless exercise. The options exercised were granted under APB 25 with an exercise price equal to fair value at date of grant, and accordingly so, no compensation expense was recorded at the time of grant. The Company did not bear the risk and rewards of the options and thus, did not record stock based compensation expense. The option holders paid the Company the required exercise price for the remaining options at the time of exercise and therefore the Company did not record any stock based compensation expense.

        As of December 31, 2013, 2012 and 2011, the weighted-average remaining contractual life of all outstanding options was 2.7, 3.7 and 4.7 years, respectively. As of December 31, 2013, 2012 and 2011, the weighted-average remaining contractual life of all exercisable options was 2.7, 3.7 and 4.7 years, respectively.

        The aggregate intrinsic value of the options at December 31, 2013 was $470 for both options outstanding and exercisable. The aggregate intrinsic value of the options at December 31, 2012 was $379 for both options outstanding and exercisable. There were no options exercised for the years ended December 31, 2013 and December 31, 2012. The aggregate intrinsic value of stock options exercised during 2011 was $3,200.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

13. Stock-Based Compensation (Continued)

Restricted Stock

        Restricted stock carries both voting and dividend rights. A summary of restricted stock activity for the years ended December 31, 2013, 2012 and 2011 is as follows:

 
 Shares Weighted
Average
Grant Date
Fair value
 Weighted
Average
Remaining
Contractual Term

Unvested at December 31, 2010

  242,088 $11.68 4.01 years

Granted

  43,690  14.99 2.00 years

Vested

  (50,111) 11.77 

Cancelled and forfeited

     
       

Unvested at December 31, 2011

  235,667  12.27 2.83 years

Granted

  42,077  14.57 2.00 years

Vested

  (68,921) 12.61 

Cancelled and forfeited

     
       

Unvested at December 31, 2012

  208,823  12.63 1.94 years

Granted

  44,022  14.78 2.00 years

Vested

  (82,942) 12.97 

Cancelled and forfeited

     
       

Unvested at December 31, 2013

  169,903 $13.03 1.34 years
       
       

Expected to vest in the future at December 31, 2013

  163,786 $13.03 1.34 years
       
       

        The fair value of the Company's restricted stock awards is the closing stock price on the date of grant. The Company recognized $1,126 , $1,092, and $848 of compensation expense related to restricted stock awards for the years ended December 31, 2013, December 31, 2012, and December 31, 2011, respectively. The unrecognized compensation expense for shares expected to vest as of December 31, 2013 and December 31, 2012 was approximately $1,218 and $1,685, respectively.

Unrestricted Stock

        The Company did not grant any shares of unrestricted stock in the year ended December 31, 2013. The Company granted 58,441, and 68,224 shares of unrestricted stock as performance based awards under the 2010 plan in the years ended December 31, 2012 and December 31, 2011, respectively. The fair value of the Company's unrestricted stock awards is the closing stock price on the date of grant, or $12.94, and $15.01 per share, for grants in years ended December 31, 2012 and December 31, 2011, respectively. The Company recognized $756 and $1,024 of compensation expense related to unrestricted stock awards granted for the years ended December 31, 2012 and December 31, 2011, respectively. The shares of unrestricted stock subject to awards granted in 2011 were issued in March 2012, while the shares of unrestricted stock subject to awards granted in 2012 were issued in March 2013. There is no


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

13. Stock-Based Compensation (Continued)

required vesting period for the unrestricted shares of stock as recipients are entitled to the shares following grant and satisfaction of performance requirements of the award, both of which occurred by the years ended December 31, 2011 and December 31, 2012.

Restricted Stock Units

        Restricted stock units ("RSUs") are granted to both non-employee directors and management. Prior to 2013, RSUs were only issued to directors. However, in 2013, the Company changed the timing and form of management's annual stock grants and began to grant RSUs to management. For both non-employee directors and maangement, RSUs carry dividend equivalent rights but do not carry voting rights. Each RSU represents the right to receive one share of the Company's common stock and is subject to time based vesting restrictions. Participants are not required to pay any consideration to the Company at either the time of grant of a RSU or upon vesting.

        In 2013, the Company's compensation committee approved a retirement provision for RSUs issued to management. The retirement provision provides that members of management who either (1) are age 65 or older or (2) have at least ten years of service and are at least age 55 will continue to vest in unvested RSUs upon retirement. As the retirement provision does not qualify as a substantive service condition, the Company incurred $261 in additional expense in the year ended December 31, 2013 as a result of accelerated stock based compensation expense for employees who meet the thresholds of the retirement provision. The Company's nominating and governance committee also approved a retirement provision for the RSUs issued to non-employee directors that accelerates the vesting of such RSUs upon retirement. Such awards are fully expensed immediately upon grant in accordance with ASC 718, as the retirement provision eliminates substantive service conditions associated with the awards.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

13. Stock-Based Compensation (Continued)

        A summary of RSU activity for the years ended December 31, 2013 and 2012 is as follows:

 
 Shares Weighted
Average
Grant Date
Fair value
 Weighted
Average
Remaining
Contractual
Term
 

Unvested at December 31, 2010

       

Granted

  20,612 $15.21   

Vested

  (1,719) 15.25   

Cancelled and forfeited

       
         

Unvested at December 31, 2011

  18,893  15.20  2.00 years 

Granted

  14,367  14.35  1.02 years 

Vested

  (7,214) 15.21   

Cancelled and forfeited

       
        

Unvested at December 31, 2012

  26,046  14.73  0.72 years 

Granted

  70,324  14.52  0.82 years 

Vested

  (53,022) 14.68    

Cancelled and forfeited

       
        

Unvested at December 31, 2013

  43,348 $14.46  1.55 years 
        
        

Expected to vest in the future at December 31, 2013

  41,787 $14.46  1.55 years 
        
        

        The Company recognized $852 of compensation expense related to the RSU awards in the year ended December 31, 2013. The unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares that were, as of December 31, 2013, expected to be earned through the requisite service period was approximately $357 and is expected to be recognized through 2016.

        Vested RSUs are "settled" by the delivery to the participant or a designated brokerage firm of one share of common stock per vested RSU as soon as reasonably practicable following a termination of service of the participant that constitutes a separation from service, and in all events no later than the end of the calendar year in which such termination of service occurs or, if later, two and one-half months after such termination of service.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

13. Stock-Based Compensation (Continued)

Performance Share Unit Awards

        The Company granted performance share units as performance based awards under the 2010 Plan in the first quarter of 2013 that are subject to performance conditions. Upon meeting the prescribed performance conditions, in the first quarter of the year subsequent to grant, employees will be issued RSUs of which one third will vest immediately upon issuance. The remaining RSU's issued will be subject to vesting over the two years following the end of the performance period. In accordance with ASC 718, such awards are being expensed over the vesting period from the date of grant through the requisite service period, based upon the most probable outcome. As of December 31, 2013, the performance conditions for share units granted in the year ended December 31, 2013 have been met. Thus, in the first quarter of 2014, management estimates that 74,516 performance shares units will be converted into RSU's. Upon conversion the first third of the RSU's issued will immediately vest and converted into common shares. The remaining two thirds of the RSU's issued will vest ratably over the remaining two-year vesting period. The fair value per share of the awards is the closing stock price on the date of grant, which was $14.40. The Company recognized $609 of compensation expense related to the awards in the year ended December 31, 2013. The unrecognized compensation expense calculated under the fair value method for shares that were, as of December 31, 2013, expected to be recognized through the requisite service period was $453 and is expected to be recognized through 2016.

14. Earnings Per Share

        Basic earnings per share of common stock is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common stock is computed by dividing net income by the weighted average number of common shares and common stock equivalents related to the assumed exercise of stock options, using the two-class


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

14. Earnings Per Share (Continued)


method. Stock options for which the exercise price exceeds the average fair value have an anti-dilutive effect on earnings per share and are excluded from the calculation. There were no shares excluded from diluted earnings per share for the years presented.

        Subsequent to the payment of the third quarter 2010 dividend, which was the first dividend payment made subsequent to the IPO, management retroactively approved allAll restricted stockholders for shares issued and outstanding toRSU holders participate in dividends. As such,Thus, the Company has calculated earnings per share pursuant to the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

14. Earnings Per Share (Continued)

(distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends.


 2010 2009 2008  2013 2012 2011 

Basic earnings per common share

        

Net income

 $1,662 $9,843 $11,471  $11,639 $6,012 $19,040 

Less income allocated to participating securities

 12    179 69 233 
              

Net income allocated to common shareholders

 $1,650 $9,843 $11,471  $11,460 $5,943 $18,807 
       
              

Weighted average common shares outstanding

 18,799,761 14,423,470 14,611,855  22,029,374 21,894,569 21,650,736 
              

 $0.09 $0.68 $0.79  $0.52 $0.27 $0.87 
              
       

Earnings per common share assuming dilution

        

Net income a

 $1,662 $9,843 $11,471 

Net income

 $11,639 $6,012 $19,040 

Less income allocated to participating securities

 12    179 69 233 
              

Net income allocated to common shareholders

 $1,650 $9,843 $11,471  $11,460 $5,943 $18,807 
       
              

Weighted average common shares outstanding

 18,799,761 14,423,470 14,611,855  22,029,374 21,894,569 21,650,736 

Incremental shares applicable to stock based compensation

 487,685 325,328 360,834  37,800 69,742 163,881 
       

Weighted average common shares assuming dilution

 19,287,446 14,748,798 14,972,689  22,067,174 21,964,311 21,814,617 
              

 $0.09 $0.67 $0.77  $0.51 $0.26 $0.85 
              
       

15. Commitments and Contingencies

        In the ordinary course of business, the Company is engaged in various litigation including product liability and intellectual property disputes. However, the Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity. In addition, the Company is not currently a party to any environmental-related claims or legal matters.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

16. Redeemable stock and stockholders' equity

Series A Redeemable Convertible Preferred StockImpairment of Assets Held For Sale

        The authorized capital stockDuring the first quarter of 2013, the Company includes 100,000 shares of preferred stock, of which 65,000 shares have been designated as Series A preferred stock ("Series A"). All shares of Series A have been redeemed and therefore no shares of Series A were issued and outstanding as of December 31, 2010 and 2009. The par value of Series A is $0.01 per share.

        The Series A is non-voting except as required by Delaware law, and Series A stockholders do not havelowered the right to elect any members of the Company's Board of Directors. The Series A ranks senior to the Series B and C preferred stock and common stock related to dividend rights and distributions upon liquidation, dissolution or winding up of the Company. Dividends accrue on the Series A at a rate of 10% per annum on the stated value of the Series A plus 10% of the aggregate of all annual dividends that a holder of Series A will have become entitled to receive but which has not been declared and paid by the Company.asking price for its assets held for sale. The Company accretes dividends basedrecorded assets held for sale on the terms of the Series A set forth in the Company's certificate of incorporation.

        The Series A is subject to redemption at anytime, in whole or in part, at the option of the Board of Directors, which is controlled by the preferred stockholders and thus outside the control of the Company, at a redemption price per share equal to Series A stated value of $1,000 per share plus all accrued but unpaid cumulative dividends.

Series B Redeemable Preferred Stock

        One share of preferred stock has been designated as Series B preferred stock ("Series B") and no shares and one share was issued and outstanding as of December 31, 2010 and December 31, 2009, respectively. The par value of Series B is $0.01 per share.

        In addition to any voting rights to which the holders of the Series B may be entitled by law, so long as the Series B remains outstanding, the holder of the share, voting as a single series, are entitled to elect four directors to the Company's Board of Directors. The Series B ranks junior to the Series A, on parity with the Series C preferred stock and senior to the common stock as to dividend rights and distributions upon liquidation, dissolution or winding up of the Company. The holder of Series B is not entitled to receive dividends. However, subject to certain exceptions, so long as any shares of Series B or Series C preferred stock are outstanding, the Company may not pay dividends or make other distributions with respect to its junior securities (including common stock). This dividend restriction may be waived by the affirmative vote of a majority of the outstanding shares of Series B and Series C preferred stock, voting as a single class.

        The Series B is subject to mandatory redemption at any time the holder's ownership of both preferred stock and common stock falls below certain percentages. The fixed redemption price per share is $1,000 per share, which equals the initial amount paid for the share. At the time of any such redemption, any members of the Company's Board of Directors elected by the Series B shall cease to be members of the Board without further action of any kind by the Company or its stockholders. The Series B share was redeemedbalance sheet in conjunction with the IPOclosure of the Johnson City, Tennessee location in May2010. The land and building have been held for sale since the closure. In an effort to stimulate sales activity, the Company lowered the listed sale price which caused the Company to reassess the fair value of 2010.the assets held for sale. The Company valued the fair value of the assets held for sale based upon Level 2 market price inputs for similar assets. The Company used comparable properties sold and held for sale in the Johnson City, TN industrial real estate market to determine an appropriate fair value. Consequently, the Company incurred a $647 loss recognized on the impairment of assets held for sale and is included in "Impairment of assets held for sale" on the Consolidated Statements of Income (Loss).


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

16. Redeemable stock and stockholders'17. Stockholders' equity (Continued)

Series C Redeemable Preferred Stock

        One shareThe Company is authorized to issue 5,000,000 shares of preferred stock, has been designated as Series Bpar value $0.01 per share. Subject to any limitations under law or the Company's certificate of incorporation, the Company's board of directors is authorized to provide for the issuance of the shares of preferred stock ("Series C")in one or more series; to establish the number of shares to be included in each series; and noto fix the designation, powers, privileges, preferences, relative participating, optional or other rights (if any), and the qualifications, limitations or restrictions of the shares and one share was issued and outstanding asof each series. As of December 31, 20102013 and December 31, 2009, respectively. The par value2012, no shares of Series C is $0.01 per share.

        In addition to any voting rights to which the holders of the Series C may be entitled by law, so long as the Series C remains outstanding, the holder of the share, voting as a single series, is entitled to elect two directors to the Company's Board of Directors. The Series C ranks junior to the Series A, on a parity with the Series B preferred stock were issued and senior to the common stock as to dividend rights and distributions upon liquidation, dissolution or winding up of the Company. The holder of Series C is not entitled to receive dividends. However, subject to certain exceptions, so long as any shares of Series B or Series C preferred stock are outstanding, the Company may not pay dividends or make other distributions with respect to its junior securities (including common stock). This dividend restriction may be waived by the affirmative vote of a majority of the outstanding shares of Series B and Series C preferred stock, voting as a single class.

        The Series C is subject to mandatory redemption at any time the holder's beneficial ownership of both preferred stock and common stock falls below certain percentages. The fixed redemption price per share is $1,000 per share, which equals the initial amount paid for the share. At the time of any such redemption, any members of the Company's Board of Directors elected by the Series C shall cease to be members of the Board without further action of any kind by the Company or its stockholders. The Series C share was redeemed in conjunction with the IPO in May of 2010.outstanding.

Common Stock

        The Company has 200,000,000 shares of common stock authorized, of which 21,579,65522,223,454 and 14,421,73622,130,996 shares were issued and outstanding as of December 31, 20102013 and 2009,2012, respectively. The par value of the common stock is $0.01 per share.

        The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, common stockholders would be entitled to share ratably in the Company's assets and funds remaining after payment of liabilities and after provision is made for each class of stock having preference over the Company's common stock, including Series A, B and C preferred stock.

Deferred Stock Plan

        The Company has previously issued to certain members of management deferred common stock units and deferred preferred stock units, in each case representing the right to receive less than 1% of its fully-diluted equity capitalization. These deferred units were issued in consideration for the cancellation of accrued award balances in the Douglas Dynamics, LLC Long Term Incentive Plan. Deferred units were issued at a price equal to the fair value of the common stock at the date of issuance. Deferred units have all rights of common and preferred shareholders, excluding voting rights, and convert to common and preferred stock upon a change in control, or initial public offering of theliabilities.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

16. Redeemable stock and stockholders' equity (Continued)


Company's stock. As of December 31, 2010 and 2009 there were no deferred preferred stock units outstanding.

        As of December 31, 2010 and 2009, the Company had no deferred common stock units and 174,229 deferred common stock units outstanding, respectively. In the fourth quarter of 2010, the 174,229 deferred stock units converted into common stock, subsequent to the IPO of the Company's stock, upon expiration of the lock-up agreement.

Common Stock Repurchase

        During 2008, the Company entered into securities repurchase agreements with certain members of management. Pursuant to these agreements, the Company repurchased at fair value and subsequently retired 164,493 shares of common stock for aggregate consideration of $1,775, comprised of a cash payment of $1,101 and the satisfaction of $703 of promissory notes held by members of management.

        On January 23, 2009, the Company entered into securities repurchase agreements with certain members of management. Pursuant to these agreements, the Company repurchased at fair value and subsequently retired 32,633 shares of common stock and 89,371 stock options in exchange for aggregate consideration of $1,137, comprised of a cash payment of $1,000 and the satisfaction of the remaining principal amount of $137 on promissory notes held by the members of management. As a result of the repurchase of stock options, the Company recorded $732 of compensation expense in the first quarter of 2009, which represented the fair value of the repurchased options.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

17.18. Valuation and qualifying accounts

        The Company's valuation and qualifying accounts for the years ended December 31, 2010, 20092013, 2012 and 20082011 are as follows: (dollars in thousands):

 
 Balance at
beginning
of year
 Additions
charged to
earnings
 Changes to
reserve,
net(1)
 Balance at
end of
year
 

Year ended December 31, 2013

             

Allowance for doubtful accounts

 $600 $329 $122 $1,051 

Reserves for inventory

  1,199  757  (357) 1,599 

Valuation of deferred tax assets

  
1,374
  
  
21
  
1,395
 

Year ended December 31, 2012

             

Allowance for doubtful accounts

 $1,247 $259 $(906)$600 

Reserves for inventory

  1,288  715  (804) 1,199 

Valuation of deferred tax assets

  
830
  
  
544
  
1,374
 

Year ended December 31, 2011

             

Allowance for doubtful accounts

 $1,200 $1,106 $(1,059)$1,247 

Reserves for inventory

  1,404  1,080  (1,196) 1,288 

Valuation of deferred tax assets

  
877
  
  
(47

)
 
830
 

 
 Balance at
beginning
of year
 Additions
charged to
earnings
 Changes to
reserve, net(1)
 Balance
at end
of year
 

Year ended December 31, 2010

             
 

Allowance for doubtful accounts

 $755 $966 $(521)$1,200 
 

Reserves for inventory

  1,931  930  (1,457) 1,404 
 

Valuation of deferred tax assets

  566  343  (32) 877 

Year ended December 31, 2009

             
 

Allowance for doubtful accounts

 $622 $281 $(148)$755 
 

Reserves for inventory

  1,736  1,347  (1,153) 1,931 
 

Valuation of deferred tax assets

  1,695  84  (1,213) 566 

Year ended December 31, 2008

             
 

Allowance for doubtful accounts

 $541 $271 $(190)$622 
 

Reserves for inventory

  1,741  1296  (1,301) 1,736 
 

Valuation of deferred tax assets

  1,096  599    1,695 

(1)
Deductions from the allowance for doubtful accounts equal accounts receivable written off, less recoveries, against the allowance. Deductions from the reserves for inventory excess and obsolete items equal inventory written off against the reserve as items were disposed of. Deductions to the valuation of deferred tax assets relate to the reversals due to changes in management's judgments regarding the future realization of the underlying deferred tax assets.

18. Restructuring

        On April 27, 2009, the Company announced a plan to close its Johnson City, TN manufacturing facility and move production from this facility to its Milwaukee, WI and Rockland, ME facilities. The company completed the closure of this facility as of August 31, 2010. The Company expects to realize significant annual cost savings and improved customer delivery performance as a result. The closure has resulted in the elimination of approximately 100 positions in Johnson City and the addition of approximately 50 positions in Rockland and approximately 35 positions in Milwaukee.

        Related to the facility closure, the Company recorded $50 of employee termination costs and $1,385 for other closure costs for the year ended December 31, 2010, respectively. Restructuring expenses of $1,054 were recorded for the year ended December 31, 2009. The Company does not expect to incur any additional costs related to the closure. These costs are included in the selling, general and administrative expense line in the Company's consolidated statements of operations.


Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 2009 and 2008

(in Thousands Except Share and Per Share Data)

18. Restructuring (Continued)

        The following represents a reconciliation of changes in the restructuring reserves related to this project through December 31, 2010.

 
 Employee
Termination
Costs
 Other Exit
Costs
 Total 

Accrued restructuring reserves as of December 31, 2008

 $ $ $ 

Activity during year ended December 31, 2009:

          
 

Charges to earnings

  690  364  1,054 
 

Payments

    (364) (364)
        

Accrued restructuring reserves as of December 31, 2009

 $690 $ $690 

Activity during year ended December 31, 2010:

          
 

Charges to earnings

  50  1,385  1,435 
 

Payments

  (710) (1,385) (2,095)
        

Accrued restructuring reserves as of December 31, 2010

 $30   $30 
        

        In connection with the restructuring, the Company reassessed the useful lives of its manufacturing facility and certain equipment. As a result of this assessment, the Company assigned shorter useful lives to these assets and recorded accelerated depreciation of $2,071 for the year ended December 31, 2010. This change in estimate reduced basic and diluted earnings per share by $0.07 and $0.07 for the year ended December 31, 2010. The Company recorded accelerated depreciation of $900 for the year ended December 31, 2009. This change in estimate reduced basic and diluted earnings per share by $0.04 and $0.04 for the year ended December 31, 2009.

        Because of actions taken in the restructuring, the Johnson City property is being actively marketed for sale and is classified as held for sale in the consolidated balance sheet.

19. Quarterly Financial Information (Unaudited)

 
 2010 
 
 First Second Third Fourth 

Net sales

 $14,647 $66,243 $47,448 $48,457 

Gross profit

 $1,980 $25,061 $15,227 $18,033 

Income (loss) before taxes

 $(9,424)$(1,302)$4,464 $8,796 

Net income (loss) attributable to common shareholders

 $(5,719)$75 $2,185 $5,121 

Basic net earnings (loss) per common share attributable to common shareholders

 $(0.40)$ $0.10 $0.24 

Earnings (loss) per common share assuming dilution attributable to common shareholders

 $(0.40)$ $0.10 $0.23 

Dividends per share

 $ $ $0.18 $0.20 

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2010, 20092013, 2012 and 20082011

(Dollars in Thousands Except Share and Per Share Data)

19. Changes in Accumulated Other Comprehensive Loss by Component

        Changes to accumulated other comprehensive loss by component for the year ended December 31, 2013 is as follows:

 
 Unrealized
Net Loss
on Interest
Rate Swap
 Retiree
Health
Benefit
Obligation
 Pension
Obligation
 Total 

Balance at December 31, 2012

 $(344)$1,063 $(7,803)$(7,084)

Other comprehensive gain (loss) before reclassifications

  
(22

)
 
1,066
  
4,154
  
5,197
 

Amounts reclassified from accumulated other comprehensive loss(1)

  182  105  737  1,025 
          

Balance at December 31, 2013

 $(184)$2,234 $(2,912)$(862)
          
          

(1)
Amounts reclassified from accumulated other comprehensive loss:

 
 December 31,
2013
 

Amortization of Other Postretirement Benefit items:

    

Actuarial loss(a)

  172 

Tax benefit

  (67)
    

Reclassification net of tax

 $105 
    
    

Amortization of pension items:

    

Actuarial loss(a)

 $1,205 

Tax benefit

  (468)
    

Reclassification net of tax

 $737 
    
    

Realized losses on interest rate swap reclassified to interest expense

  297 

Tax benefit

  (115)
    

Reclassification net of tax

 $182 
    
    

(a)
These components are included in the computation of benefit plan costs in Note 12.

Table of Contents


Douglas Dynamics, Inc.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2013, 2012 and 2011

(Dollars in Thousands Except Per Share Data)

20. Quarterly Financial Information (Unaudited) (Continued)

 
 2013 
 
 First Second Third Fourth 

Net sales

 $14,141 $55,156 $52,026 $72,997 

Gross profit

 $4,326 $18,878 $15,044 $27,402 

Income (loss) before taxes

 $(5,543)$9,261 $694 $14,605 

Net income (loss)

 $(3,404)$5,909 $603 $8,531 

Basic net earnings (loss) per common share attributable to common shareholders

 $(0.15)$0.26 $0.03 $0.38 

Earnings (loss) per common share assuming dilution attributable to common shareholders

 $(0.15)$0.26 $0.02 $0.38 

Dividends per share

 $0.21 $0.21 $0.21 $0.21 



 2009  2012 

 First Second Third Fourth  First Second Third Fourth 

Net sales

 $15,173 $59,637 $50,396 $49,136  $8,560 $65,499 $37,774 $28,200 

Gross profit

 $3,013 $19,515 $15,155 $19,395  $1,820 $23,060 $11,566 $7,517 

Income (loss) before taxes

 $(8,455)$8,684 $4,463 $9,137  $(6,235)$13,719 $3,091 $(419)

Net income (loss) attributable to common shareholders

 $(4,462)$5,665 $2,738 $5,902 

Net income (loss)

 $(4,268)$8,972 $2,346 $(1,038)

Basic net earnings (loss) per common share attributable to common shareholders

 $(0.31)$0.39 $0.19 $0.41  $(0.19)$0.41 $0.11 $(0.05)

Earnings (loss) per common share assuming dilution attributable to common shareholders

 $(0.31)$0.38 $0.19 $0.40  $(0.19)$0.40 $0.10 $(0.05)

Dividends per share

 $ $ $ $  $0.21 $0.21 $0.21 $0.21 

        Due to changes in stock prices during the year and timing of issuance of shares, the sum of quarterly earnings per share may not equal the annual earnings per share.