Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PLOW > SEC Filings for PLOW > Form 10-Q on 7-May-2013All Recent SEC Filings

Show all filings for DOUGLAS DYNAMICS, INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for DOUGLAS DYNAMICS, INC


7-May-2013

Quarterly Report


Item 2. 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 should be read in conjunction with our consolidated financial statements and related notes which are included in Item 1 of this Quarterly Report on Form 10-Q, as well as the information contained in our Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission.

In this Quarterly Report on Form 10-Q, unless the context indicates otherwise:
"Douglas Dynamics," the "Company," "we," "our," or "us" refer to Douglas Dynamics, Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include information relating to future events, product demand, the payment of dividends, future financial performance, strategies, expectations, competitive environment, regulation and availability of financial resources. These statements are often identified by use of words such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will" and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) weather conditions, particularly lack of or reduced levels of snowfall and timing of such snowfall;
(ii) a significant decline in economic conditions; (iii) our inability to maintain good relationships with our distributors; (iv) lack of available or favorable financing options for our end-users or distributors; (v) increases in the price of steel or other materials necessary for the production of our products that cannot be passed on to our distributors; (vi) increases in the price of fuel; (vii) the inability of our suppliers to meet our volume or quality requirements; (viii) inaccuracies in our estimates of future demand for our products; (ix) our inability to protect or continue to build our intellectual property portfolio; (x) the effects of laws and regulations and their interpretations on our business and financial condition; (xi) our inability to develop new products or improve upon existing products in response to end-user needs; (xii) losses due to lawsuits arising out of personal injuries associated with our products; (xiii) factors that could impact the future declaration and payment of dividends; and (xiv) our inability to compete effectively against our competitors, as well as those discussed in the sections entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any, or in our most recent Annual Report on Form 10-K. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. In addition, the forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof and we undertake no obligation, except as required by law, to update or release any revisions to any forward-looking statement, even if new information becomes available in the future.

Results of Operations

Overview

During the three months ended March 31, 2013 and 2012, we sold 2,120 and 1,614 units of snow and ice control equipment, respectively. 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 three months ended March 31, 2013 and 2012.

                          Three months ended
                        March 31,    March 31,
                           2013        2012
Equipment                       57 %        67 %

Parts and accessories           43 %        33 %

The following table sets forth, for the three months ended March 31, 2013 and 2012, the consolidated statements of operations of Douglas Dynamics, Inc. 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 operations data for the three months ended March 31, 2013 and 2012 have been derived from our unaudited 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 Quarterly Report on Form 10-Q.


Table of Contents

                                                  Three Months Ended
                                                March 31,     March 31,
                                                  2013          2012
                                                      (unaudited)
                                                    (in thousands)
Net sales                                      $    14,141   $     8,560
Cost of sales                                        9,815         6,740
Gross profit                                         4,326         1,820

Selling, general, and administrative expense         5,910         4,631
Intangibles amortization                             1,298         1,300
Impairment of assets held for sale                     647             -

Loss from operations                                (3,529 )      (4,111 )

Interest expense, net                               (1,983 )      (2,046 )
Other expense, net                                     (31 )         (78 )
Loss before taxes                                   (5,543 )      (6,235 )

Income tax benefit                                  (2,139 )      (1,967 )
Net loss                                       $    (3,404 ) $    (4,268 )

The following table sets forth for the three months ended March 31, 2013 and 2012, the percentage of certain items in our consolidated statement of operations, relative to net sales:

                                                 Three Months Ended
                                               March 31,    March 31,
                                                 2013         2012
                                                    (unaudited)
Net sales                                          100.0 %      100.0 %
Cost of sales                                       69.4 %       78.7 %
Gross profit                                        30.6 %       21.3 %

Selling, general, and administrative expense        41.8 %       54.1 %
Intangibles amortization                             9.2 %       15.2 %
Impairment of assets held for sale                   4.6 %        0.0 %

Loss from operations                               (25.0 )%     (48.0 )%

Interest expense, net                              (14.0 )%     (23.9 )%
Other expense, net                                  (0.2 )%      (0.9 )%
Loss before taxes                                  (39.2 )%     (72.8 )%

Income tax benefit                                 (15.1 )%     (23.0 )%
Net loss                                           (24.1 )%     (49.8 )%

Net Sales

Net sales were $14.1 million for the three months ended March 31, 2013 compared to $8.6 million in the three months ended March 31, 2012, an increase of $5.5 million, or 64.0%. This increase was due to 31.4% higher sales unit volume of equipment units and an increase in parts and accessories sales of $3.2 million or 113.0%. During the three months ended March 31, 2013 and 2012, we sold 2,120 and 1,614 units of snow and ice control equipment, respectively. The increases in both parts and accessories and units were due to slightly higher than average snowfall in the October 2012 through March 2013 snow season in North America, compared to record low snowfall levels in the prior year. Snowfall levels across most of our core markets were higher in the first quarter of 2013 as compared to the first quarter of 2012.


Table of Contents

Cost of Sales

Cost of sales was $9.8 million for the three months ended March 31, 2013 compared to $6.7 million for the three months ended March 31 2012, an increase of $3.1 million, or 46.3%. The increase in cost of sales for the three months ended March 31, 2013 compared to the corresponding period in 2012 was driven by increases in volume as discussed above under "-Net Sales". In addition, the Company experienced lower cost of sales as a percentage of sales of 69.4% for the three months ended March 31, 2013 compared to 78.7% for the three-month period ended March 31, 2012. Decrease in cost of sales as a percentage of sales is due to lower unit costs resulting from higher sales volumes. As a percentage of cost of sales, fixed and variable costs were approximately 30% and 70%, respectively, for the three months ended March 31, 2013, while fixed and variable costs were approximately 31% and 69%, respectively for the three months ended March 31, 2012.

Gross Profit

Gross profit was $4.3 million for the three months ended March 31, 2013 compared to $1.8 million in the three months ended March 31, 2012, an increase of $2.5 million, or 138.9%. Gross profit increased for the three month period due to an increase in units sold and lower cost of sales as a percentage of net sales. As a percentage of net sales, gross profit increased from 21.3% for the three months ended March 31, 2012 to 30.6% for the corresponding period in 2013.

Selling, General and Administrative Expense

Selling, general and administrative expenses, including intangibles amortization, were $7.2 million for the three months ended March 31, 2013, compared to $5.9 million for the three months ended March 31, 2012, an increase of $1.3 million, or 27.6%. The Company increased spending on advertising and promotions by $0.3 million in conjunction with launching a record number of new product development initiatives in 2013. Stock based compensation increased $0.6 million primarily due to the implementation of retirement vesting provisions on restricted stock units granted in 2013. The remainder of the increase can be attributed to higher incentive based compensation due to more favorable forecasted results in 2013 compared to 2012 driven by increased snowfall.

Impairment of assets held for sale

In an effort to stimulate sales activity, the Company lowered the listed sale price which caused the Company to reassess the fair value of the assets held for sale. Consequently, the Company recorded an impairment charge of $0.6 million in the three months ending March 31, 2013.

Interest Expense

Interest expense was $2.0 million for both the three months ended March 31, 2013 and March 31, 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. The Company estimates that the annual effective tax rate for 2013 will be approximately 37%. The Company's effective tax rate was 38.6% and 31.5% for the three months ended March 31, 2013 and 2012, respectively. The effective tax rate (benefit) for the three months ended March 31, 2013 was higher than the corresponding period in 2012 due to the Company recognizing a lower net loss in the current period as compared to the corresponding period in the prior year. The effective tax rate (benefit) for the three months ended March 31, 2013 was higher than the estimated annual effective tax rate for the entire year of 2013, due to the Company's seasonal income cycle which results in a loss in the first quarter but overall projected income for the year 2013 being higher than 2012.

Net Loss

Net loss for the three months ended March 31, 2013 was $3.4 million compared to net loss of $4.3 million for the corresponding period in 2012, a decrease in net loss of $0.9 million, or 20.9%. This decrease in net loss was driven by the factors described above under "- Net Sales," "-Cost of Net Sales," " - Selling, General and Administrative" and "- Other Expense.". As a percentage of net sales, net loss was (24.1%) for the three months ended March 31, 2013 compared to (49.8%) for the three months ended March 31, 2012.


Table of Contents

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2013 was $0.2 million compared to ($1.8) million in the corresponding period in 2012, an increase of $2.0 million. For the three-month period ended March 31, 2013 the increase in Adjusted EBITDA is primarily attributable to increased unit sales of snow and ice control equipment and parts and accessories.

Free Cash Flow

Free cash flow for the three months ended March 31, 2013 was ($8.0) million compared to ($10.5) million in the corresponding period in 2012, a decrease in cash used of $2.5 million, or 23.8%. The increase in free cash flow is primarily a result of lower cash used in operating activities of $2.9 million, as discussed below under Liquidity and Capital Resources. Slightly offsetting the decrease in cash used by operating activities was an increase in capital expenditures of $0.4 million.

Non-GAAP Financial Measures

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

These non-GAAP measures include:

          Free cash flow;

          Adjusted net loss; and

          Adjusted EBITDA.

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

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.

                                          Three months ended
                                           2013        2012
                                            (In Thousands)
Net cash used in operating activities   $   (7,148 ) $ (10,029 )
Acquisition of property and equipment         (843 )      (437 )

Free cash flow                          $   (7,991 ) $ (10,466 )

Adjusted net loss represents net income as determined under GAAP, excluding a loss recognized on impairment of assets held for sale. We believe that the presentation of adjusted net loss for the three months ended March 31, 2013 and March 31, 2012 allows investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. Because the excluded item is not predictable or consistent, management does not consider it when evaluating our performance or when making decisions regarding allocation of resources.


Table of Contents

The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to adjusted net loss for the three months ended March 31, 2013 and March 31, 2012.

                                                            Three months ended
                                                         March 31,     March 31,
(in millions)                                               2013          2012
Net loss - (GAAP)                                        $     (3.4 )  $     (4.3 )
Addback expenses, net of tax at 37.0% for 2013:
-Loss recognized on impairment of assets held for sale          0.4             -
Adjusted net loss - (Non-GAAP)                           $     (3.0 )  $     (4.3 )

Adjusted EBITDA represents net loss before interest, taxes, depreciation and amortization, as further adjusted for certain charges related to certain unrelated legal fees and consulting fees, impairment on assets held for sale and stock based compensation. We use, and we believe our investors benefit from the presentation of Adjusted EBITDA in evaluating our operating performance because it provides us 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. 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 amortization, 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:

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

Other companies, including other companies in our industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure; and

Adjusted EBITDA does not reflect tax obligations whether current or deferred.


Table of Contents

The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to Adjusted EBITDA as well as the resulting calculation of Adjusted EBITDA for the three months ended March 31, 2013 and 2012:

                               Three months ended
                           March 31,      March 31,
                              2013           2012

Net Loss                   $    (3,404 ) $     (4,268 )

Interest Expense - Net           1,983          2,046
Income Taxes                    (2,139 )       (1,967 )
Depreciation Expense               717            701
Amortization                     1,298          1,300
EBITDA                          (1,545 )       (2,188 )

Stock Based Compensation           935            365
Other charges (1)                  846             13

Adjusted EBITDA            $       236   $     (1,810 )



(1) Reflects expenses of $199 and $13 for one time, unrelated legal and consulting fees for the three months ended March 31, 2013 and March 31, 2012, respectively. Includes write down of asset held for sale of $647 for the three months ended March 31, 2013.

Discussion of Critical Accounting Policies

For a discussion of our critical accounting policies, please see the disclosure included in our Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies."

New Accounting Pronouncements

For the three months ended March 31, 2013, the Company did not adopt any new accounting pronouncements that had a significant impact to the Company's consolidated financial statements.

Liquidity and Capital Resources

Our principal sources of cash have been and we expect will continue to be cash from operations and borrowings under our senior credit facilities.

Our primary uses of cash are to provide working capital, meet debt service requirements, finance capital expenditures, pay dividends under our dividend policy and support our growth, including through potential acquisitions, and for other general corporate purposes. For a description of the seasonality of our working capital rates see "-Seasonality and Year-To-Year Variability."

Our Board of Directors has adopted a dividend policy that reflects an intention to distribute to our stockholders a regular quarterly cash dividend. The declaration and payment of these dividends to holders of our common stock is at the discretion of our Board of Directors and depends upon many factors, including our financial condition and earnings, legal requirements, taxes and other factors our Board of Directors may deem to be relevant. The terms of our indebtedness may also restrict us from paying cash dividends on our common stock under certain circumstances. As a result of this dividend policy, we may not have significant cash available to meet any large unanticipated liquidity requirements. As a result, we may not retain a sufficient amount of cash to fund our operations or to finance unanticipated capital expenditures or growth opportunities, including acquisitions. Our Board of Directors may, however, amend, revoke or suspend our dividend policy at any time and for any reason.

As of March 31, 2013, we had $49.4 million of total liquidity, comprised of $11.1 million in cash and cash equivalents and borrowing availability of $38.3 million under our revolving credit facility. Borrowing availability under our revolving credit facility is governed by a borrowing base, the calculation of which includes cash on hand. Accordingly, use of cash on hand may also result in a reduction in the amount available for borrowing under our revolving credit facility. Furthermore, our revolving credit facility requires us to maintain at least $10.5 million of borrowing availability and 15% of the aggregate revolving commitments at the time of determination. We expect that cash on hand and cash we generate from operations, as well as available credit under our senior credit facilities will provide adequate funds for the purposes described above for at least the next 12 months.


Table of Contents

The following table shows our cash and cash equivalents and inventories in thousands at March 31, 2013, December 31, 2012 and March 31, 2012.

                                                  As of
                                               December 31,
                            March 31, 2013         2012        March 31, 2012
Cash and cash equivalents   $        11,073   $       24,136   $        14,212
Inventories                          45,099           30,292            46,741

We had cash and cash equivalents of $11.1 million at March 31, 2013 compared to cash and cash equivalents of $24.1 million and $14.2 million at December 31, 2012 and March 31, 2012, respectively. The table below sets forth a summary of the significant sources and uses of cash for the periods presented in thousands.

                                      Three months ended March 31,
Cash Flows (in thousands)               2013                2012            Change    % Change

Net cash used in operating
activities                        $        (7,148 )  $        (10,029 )  $    2,881       (28.7 )%
Net cash used in investing
activities                                   (843 )              (360 )        (483 )     134.2 %
Net cash used in financing
activities                                 (5,072 )           (14,831 )       9,759       (65.8 )%

Decrease in cash                  $       (13,063 )  $        (25,220 )  $   12,157       (48.2 )%

Net cash used in operating activities decreased $2.9 million from the three months ended March 31, 2012 to the three months ended March 31, 2013. The decrease in cash used in operating activities was primarily due to a $1.9 million increase in net income adjusted for reconciling items. The remaining increase is attributable to working capital changes.

Net cash used in investing activities increased $0.5 million for the three months ended March 31, 2013, compared to the corresponding period in 2012. This increase was primarily due to higher capital expenditures in 2013 compared to 2012.

Net cash used in financing activities decreased $9.8 million for the three months ended March 31, 2013 compared to the corresponding period in 2012. The decrease in cash used was primarily a result of making a voluntary payment on long term debt of $10.0 million in the three month period March 31, 2012.

Contractual Obligations

There have been no material changes to our contractual obligations in the three months ended March 31, 2013.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Seasonality and Year-to-Year Variability

Our business is seasonal and also varies from year-to-year. Consequently, our . . .

  Add PLOW to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PLOW - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.