PLOW 10-Q Quarter ended March 31, 2015

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 10-Q

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(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 3 1 , 201 5

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                  .

Commission file number: 001-34728

DOUGLAS DYNAMICS, INC.

(Exact name of registrant as specified in its charter)

7777 North 73rd Street

Milwaukee, Wisconsin 53223

(Address of principal executive offices) (Zip code)

(414) 354-2310

(Registrant’s telephone number, including area code)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation 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 ☒ No ☐

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Number of shares of registrant’s common shares outstanding as of May 5 , 201 5 was 22, 361,447 .

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DOUGLAS DYNAMICS, INC.

Table of Contents

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Consolidated Balance Sheet s

(In thousands except share data)

See the accompanying notes to consolidated financial statements

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Douglas Dynamics, Inc.

Consolidated Statements of Operations and Comprehensive Incom e

(In thousands, except share and per share data)

See the accompanying notes to consolidated financial statements.

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Douglas Dynamics, Inc.

Consolidated Statements of Cash Flow s

(in thousands)

See the accompanying notes to consolidated financial statements.

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Douglas Dynamics, Inc.

Notes to Unaudited Consolidated Financial Statements

(in thousands except share and per share data)

1. Basis of presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year-end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our 201 4 Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission on March 1 2 , 201 5 .

We operate as a single business unit.

Certain reclassifications have been made to the prior period financial statements to conform to the 2015 presentation. Deferred compensation has been combined with other long-term liabilities on the Consolidated Balance Sheet. Deferred compensation has been combined with Benefit obligations and other long-term liabilities on the Consolidated Statements of Cash Flows.

Interim Consolidated Financial Information

The accompanying consolidated balance sheet as of March 31 , 201 5 and the consolidated statements of oper ations and comprehensive income for the three months ended March 3 1 , 201 5 and 201 4 and cash flows for the three months ended March 3 1 , 201 5 and 201 4 have been prepared by the Company and have not been audited.

The Company is a counterparty to an interest-rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates. The Company entered into three interest rate swap agreements during the first quarter of 2015 with notional amounts of $45,000, $90,000 and $135,000 effective for the periods December 31, 2015 through March 29, 2018, March 29, 2018 through March 31, 2020 and March 31, 2020 through June 30, 2021, respectively.  Under the interest rate swap agreement, effective as of December 31, 2015 the Company will either receive or make payments on a monthly basis based on the differential between 6.105% and London Interbank Offered Rate (“ LIBOR ”) plus 4.25% (with a LIBOR floor of (1.0%).  Under the interest rate swap agreement, effective as of March 29, 2018 the Company will either receive or make payments on a monthly basis based on the differential between 6.916% and LIBOR plus 4.25% (with a LIBOR floor of (1.0%).  Under the interest rate swap agreement effective as of March 31, 2020 the Company will either receive or make payments on a monthly basis based on the differential between 7.168% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%). The negative fair value of the interest rate swap, net of tax, of ($8 0 2 ) at March 3 1 , 201 5 is included in “Accumulated other comprehensive loss” on the balance sheet. This fair value was determined using Level 2 inputs as defined in Accounting Standards Codification Topic (“ASC”) 820. Additionally, other comprehensive income includes the net income of the Company plus the Company’s adjustments for its defined benefit retirement plans based on the measurement date as of the Company’s year-end.  For further disclosure, refer to Note 14 to the Unaudited Consolidated Financial Statements.

The Company’s business is seasonal and consequently its results of operations and financial condition vary from quarter-to-quarter.  Because of this seasonality, the Company’s results of operations for any quarter may not be indicative of results of operations that may be achieved for a subsequent quarter or the full year, and may not be similar to results of operations experienced in prior years. The Company attempts to manage the seasonal impact of snowfall on its revenues in part through its pre-season sales program. This pre-season sales program encourages the Company’s distributors to re-stock their inventory during the second and third quarters in anticipation of the peak fourth quarter retail sales period by offering favorable pre-season pricing and payment deferral until the fourth quarter. Thus, the Company tends to generate its greatest volume of sales during the second and third quarters. By contrast, its revenue and operating results tend to be lowest during the first

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quarter, as management believes the Company’s end-users prefer to wait until the beginning of a snow season to purchase new equipment and as the Company’s distributors sell off inventory and wait for the pre-season sales incentive period to re-stock inventory. Fourth quarter sales vary from year-to-year as they are primarily driven by the level, timing and location of snowfall during the quarter. This is because most of the Company’s fourth quarter sales and shipments consist of re-orders by distributors seeking to restock inventory to meet immediate customer needs caused by snowfall during the winter months.

2. Fair Value

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 three 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 following table presents financial assets and liabilities measured at fair value on a recurring basis and discloses the fair value of long-term debt:

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(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 insurance policies approximates their fair value.

(b) The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for 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 face of the balance sheet.

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(c) Included in accrued expenses and other current liabilities in the amount of $ 2 , 032 at March 31, 2015 is an obligation for a portion of the potential earn out incurred in conjunction with the acquisition of substantially all of the assets of TrynEx, Inc. (“TrynEx”).  The carrying amount of the earn out approximates its fair value.  Fair value is based upon Level 3 inputs of a monte carlo simulation analysis using key inputs of forecasted future sales and financial performance as well as a growth rate reduced by the market required rate of return.  See reconciliation of liability included below:

(d) Included in accrued expenses and other current liabilities and other long term liabilities in the amounts of $ 19 3 and $442 , respectively, at March 31, 2015 is the fair value of an obligation for a portion of the potential earn out acquired in conjunction with the acquisition of Henderson Enterprise Group, Inc . (“Henderson”). Fair value is based upon Level 3 discounted cash flow analysis using key inputs of forecasted future sales as well as a growth rate reduced by the market required rate of return. See reconciliation of liability included below:

(e) Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g. interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Thus, inputs used to determine fair value of the interest rate swap are Level 2 inputs. Interest rate swaps of $8 8 and $ 1,205 are included in accrued expenses and other current liabilities and other long term liabilities, respectively .

3. Inventories

Inventories consist of the following:

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4. Property, plant and equipment

Property, plant and equipment are summarized as follows:

5.

Long-Term Debt

Long-term debt is summarized below:

The Company’s senior credit facilities consist of a $1 90 ,000 term loan facility and a $10 0,000 revolving credit facility with a group of banks , of which $10,000 will be available in the form of letters of credit and $5,000 will be available for the issuance of short-term swing line loans . The agreement for the term loan (the “Term Loan Credit Agreement”) provides for a senior secured term loan facility in the aggregate principal amount of $1 90 ,000 and generally bears interest (at the Company’s election) at either (i) 3.25% per annum plus the greatest 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 0.50% and (c) 1.00% plus the greater of (1) the LIBOR for a one month interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (2) 1.0 0% or (ii) 4.25% per annum plus the greater of (a) the LIBOR for the applicable interest period multiplied by the Statutory Reserve Rate and (b) 1.0 0% . The Term Loan Credit Agreement also allows the Company to request the establishment of one or more additional term loan commitments in an aggregate amount not in excess of $80,000 subject to specified terms and conditions, which amount may be further increased so long as the First Lien Debt Ratio (as defined in the Term Loan Credit Agreement) is not greater than 3.25 to 1.00.

The revolving credit facility (the “Revolving Credit Agreement”) provides that the Company has the option to select whether borrowings will bear interest at eithe r (i) a margin ranging from 1.5 0 % to 2.00% per annum , depending on the utilization of the facility, plus the LIBOR for the applicable interest period multiplied b y the Statutory Reserve Rate (as defined by the Revolving Credit Agreement) or (ii ) a margin ranging from 0.50% 1.00% per an num , depending on the utilization of the facility , plus the greatest of (a) the Prime Rate (as defined

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in the Revolving 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 0.50% and (c) the LIBOR for a one month interest period multiplied by the Statutory Reserve Rate plus 1% . The maturity date for the Revolving Credit Agreement is December 31 , 201 9 , and the Company’s term loan amortizes in nominal amounts quarterly with the balance payable on December 3 1, 20 21 .

The term loan was issued at a $1, 90 0 discount which is being amortized over the term of the term loan.

At March 3 1 , 201 5 , the Company had no outstanding borrowings on the R evolving C redit Agreement and remaining borrowing availability of $ 70 , 297 .

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 Company’s subsidiaries significantly restrict its subsidiaries from paying dividends and otherwise transferring assets to Douglas Dynamics, Inc. The terms of the R evolving C redit Agreement specifically restrict subsidiaries from paying dividends if a minimum availability under the R evolving C redit Agreement facility is not maintained, 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 R evolving C redit Agreement includes a requirement that, subject to certain exceptions, capital expenditures may not exceed $1 2,5 00 in any calendar year (plus the unused portion of permitted capital expenditures from the preceding year subject to a $12,500 cap and a separate one-time $15,000 capital expenditures  to be used for the consolidation of facilities and costs associated with the acquiring and/or development and construction of one new manufacturing facility) and, if certain minimum availability under the R evolving C redit Agreement 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 R evolving C redit Agreement . At March 3 1 , 201 5 , the Company was in compliance with the respective covenants. The credit facilities are collateralized by substantially all assets of the Company.

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 certain distributions (which percentage is reduce d to 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 March 3 1 , 201 5 , the Company was not required to make an excess cash flow payment.

T he Company ent er ed into an interest rate hedge agreement on February 20, 2015 to reduce its exposure to interest rate volatility. T he three inte rest rate swap agreement s have notional amount s of $45,000 , $90,000 and $135,000 effective for the periods December 31, 2015 through March 29, 2018, March 29, 2018 through March 31, 2020 and March 31, 2020 through June 30, 2021, respectively. The interest rate swap s ’ negative fair value at March 3 1 , 201 5 was $1,29 3 , of which $88 and $1,205 are included in accrued expenses and other current liabilities and other long-term liabilities on the Consolidated Balance Sheet , respectively .  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 December 31 , 201 5 , the Company will either receive or make payments on a monthly basis based on the differential between 6.10 5% and LIBOR plus 4.25% (with a LIBOR floor of 1.0 %) . Under the interest rate swap agreement, effective as of March 29 , 201 8 , the Company will either receive or make payments on a monthly basis based on the differential between 6. 9 1 6 % and LIBOR plus 4.25% (with a LIBOR floor of 1.0%) . Under the interest rate

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swap agreement, effective as of March 31, 20 20 , the Company will either receive or make payments on a monthly basis based on the differential between 7 .1 68 % and LIBOR plus 4.25% (with a LIBOR floor of 1.0%) .

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other liabilities are summarized as follows:

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

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

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8. Employee Retirement Plans

The components of net periodic pension cost consist of the following:

The Company estimates its total required minimum contributions to its pe nsion plans in 201 5 will be $1, 1 26 . Through March 3 1 , 201 5 , the Company has made $ 226 of cash contributions to the pension plans versus $ 5 06 through the same period in 201 4 .

Components of net periodic other postretirement benefit cost (gain) consist of the following:

9. 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 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.

As restricted shares and restricted stock units both participate in dividends, in accordance with ASC 260, the Company has calculated earnings per share pursuant to the two-class method, which is an earnings

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

10. Employee Stock Plans

Amended and Restated 2004 Stock Incentive Plan

As of March 31 , 201 5 , 37,240 shares of common stock are reserved for issuance upon the exercise of outstanding options under the Company’s Amended and Restated 2004 Stock Incentive Plan (the “A&R 2004 Plan”).  All outstanding options are fully vested.  All options expire 10 years from the date of grant. No further awards are permitted to be issued under the A&R 2004 Plan.

There were no stock options exercised with respect to the Company’s stock under the A&R 2004 Plan for the three months ende d March 3 1 , 201 5 or March 31, 2014 .

2010 Stock Incentive Plan

In May 2010, the Company’s Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (the “2010 Plan”). The Company’s Board of Directors approved an amendment and restatement of the 2010 Plan on March 5, 2014, contingent on stockholder approval of the performance goals under the 2010 Plan, and the

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amendment and restatement became effective upon stockholder approval of the performance goals at the 2014 annual meeting of stockholders held on April 30, 2014. The 2010 Plan provides for the issuance of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and restricted stock units (“RSUs”), any of which may be performance-based, and for incentive bonuses, which 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.

Restricted Stock Awards

A summary of restricted stock ac tivit y for the three months ended March 31 , 201 5 is as follows:

The fair value of the Company’s restricted stock awards is the closing stock price on the date of grant. The Company recognized $ 1 6 5 of compensation expense related to restricted stock awards granted for the three months ended March 3 1, 2015 . The Company recognized $2 15 of compensation expense related to restricted stock awards granted for the three months ended March 3 1 , 201 4 . The unrecognized compensation expense calculated under the fair value method for sha res expected to vest as of March 31 , 201 5 was approximately $ 19 4 and is expected to be recognized over a weighted average period of 0 . 25 years.

Performance Share Unit Awards

The Company granted performance share units as performance based awards under the 2010 Plan in the first quarter of 201 5 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 a portion of which 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.  The fair value per share of the awards is the closing stock price on the date of grant, which was $22. 63 . The Company recognized $1 2 7 of compensation expense related to the awards in the three months ended March 3 1 , 201 5 . The Company recognized $49 of compensation expense related to the awards in the three months ended March 31, 2014. The unrecognized compensation expense calculated under the fair value method f or shares that were, as of March 3 1 , 201 5 , expected to be earned through the requisite service period was approximately $ 1,32 7 and is expected to be recognized through 201 8 .

Restricted Stock Unit Awards

RSUs are granted to both non-employee directors and management.  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.

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RSUs issued to management include a retirement provision under which 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 $303 and $2 78 in additional expense in the first quarter of 201 5 and 201 4 , respectively, for employees who meet the thresholds of the retirement provision.  In 2013, the Company’s nominating and governance committee approved a retirement provision for the RSUs issued to non-employee directors that accelerates the vesting of such RSUs upon retirement.  Su ch awards are fully expensed immediately upon grant in accordance with ASC 718, as the retirement provision eliminates substantive service conditions associated with the awards.

A summa ry of RSU activity for the three months ended March 3 1, 2015 is as follows:

The Company recognized $83 2 of compensation expense related to the RSU awards in the three months ended March 3 1 , 201 5 . The Company recognized $ 758 of compensation expense related to the RSU awards in the three months ended March 3 1 , 201 4 . The unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method f or shares that were, as of March 3 1 , 201 5 , expected to be earned through the requisite service period was approximately $ 1,196 and is expected to be recognized through 201 8 .

Vested director 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.  Vested management 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 vesting.

11. 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.  In addition, the Company is not currently a party to any environmental-related claims or legal matters.

12. 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’s eff ective tax rate was 3 6 . 5 % and 3 2 . 8 % for the three months ended March 3 1 , 201 5

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and 201 4 , respectively. The effective tax rate for the three months ended March 3 1 , 201 5 is highe r than the corr esponding period in 2014 due to the Company generating additional state nexus with the acquisition of Henderson.

13. Acquisition

On December 31, 2014, the Company acquired by merger all of the outstanding common stock of Henderson for the purpose of expanding its current market presence in the snow and ice segment. Total consideration was $98,676 including a working capital adjustment of $4,688 . The Company paid the former shareholders of Henderson $4,141 of the working capital adjustment in the three months ended March 31, 2015 and , as of March 31, 2015 and December 31, 2014 ha d an outstanding payable to a former Henderson shareholder. The outstanding amount payable to the former Henderson shareholder was $3,887 and $3,340 at March 31, 2015 and December 31, 2014, respectively and is included in accrued expenses and other current liabilities. As required by the merger agreement, the Company also paid the sellers $3,790 in cash that was acquired at December 31, 2014 in the three months ended March 31, 2015 . The acquisition was financed by amending the Company’s senior credit facilities, which are described above in Note 5 and through the use of on hand cash.  The Company did not incur any transaction expenses related to this acquisition in the three months ended March 31, 2014.

The following table summarizes the preliminary allocation of the purchase price paid and the subsequent working capital adjustment to the fair value of the net assets acquired as of the acquisition date:

The fair values of the assets acquired and liabilities assumed included in the table above are preliminary and subject to change as the Company assesses certain reserves.

The following unaudited pro forma information presents the consolidated results of operations of the Company and Henderson for the three months ended March 31, 2014, as if the acquisition had occurred on January 1, 2014, with pro forma adjustments to give effect to amortization of intangible assets, depreciation of fixed assets, an increase in interest expense from acquisition financing, and certain other adjustments:

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This information is presented for information purposes only and is not necessarily indicative of what the Company’s results of operations would have been had the acquisition been in effect for the periods presented or future results.

14. Changes in Accumulated Other Comprehensive Loss by Component

Changes to accumulated other comprehensiv e loss by component for the three months ended March 3 1 , 201 5 are as follows:

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Changes to accumulated other comprehensi v e loss by component for the three months ended March 3 1, 2014 are as follows:

(a) These components are included in the computation of benefit plan costs in Note 8.

15.  Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09 "Revenue from Contracts with Customers." ASU 2014-09 provides a single principles-based, five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, to identify the performance obligations in the contact, to determine the transaction price, to allocate the transaction price to the performance obligations in the contract and to recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 will be effective for the Company beginning on January 1, 2017 and the standard allows for either full retrospective adoption or

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modified retrospectiv e adoption. The Company is continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.

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 the 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; (xiv) our inability to compete effectively against competition; (xv) our inability to achieve the projected financial performance with the assets of TrynEx, which we acquired in 2013, or the business of Henderson, which we acquired in 2014; and (xvi) unexpected costs or liabilities related to the such acquisitions, 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

The following table sets forth, for the three months ended March 3 1 , 201 5 and 201 4 , the consolidated statements of operations 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 operations data for the three months ended March 3 1 , 201 5 and 201 4 have been derived from our unaudited consolidated financial statements.  The

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information contained in the table below should be read in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.

The following table sets forth for the three months ended March 3 1 , 201 5 and 201 4 , the percentage of certain items in our consolidated statement of operations, relative to net sales:

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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 three months ended March 31, 2015 and 2014.

Net Sales

Ne t sales were $ 53 . 9 million for the three months ended March 3 1 , 201 5 compared to $ 36 . 4 million in the three months ended March 3 1 , 201 4 , an increase of $ 17 . 5 million, or 48 . 1 %. The increase in net sales for the three months ended March 3 1 , 201 5 was attributable to $19.9 million in sales at Henderson , which was acquired on December 31, 2014 . Due to sales of snow and ice control equipment at Henderson, overall sales of snow and ice control equipment increased to $39.9 million for the three months ended March 31, 2014, an increase of $17.7 million, or 80.1% . Parts and accessories sales decreased slightly by 1.8% for the three months ended March 31, 2015 compared to the corresponding period in 2014. The decrease in sales of parts and accessories was due to only modestly higher than average snowfall in the October 2014 through March 2015 snow season in North America, compared to significantly higher than average snowfall in the October 2013 through March 2014 snow season.

Cost of Sales

Cost of sales was $ 37 . 5 million for the three months ended March 3 1 , 201 5 compared to $22 . 3 million for the three months ended March 3 1 , 201 4 , an increase of $1 5 . 2 million, or 6 8 . 2 %. The increase in cost of sales for the three months ended March 3 1 , 201 5 compared to the corresponding period in 201 4 was driven by $16.7 million in cost of the $19.9 million in sales at Henderson as discussed above under “—Net Sales”.  The Company experienced high er cost of sales as a percent of sales of 6 9 . 5 % for the three-month period ended March 3 1 , 201 5 compared to 6 1 . 2 % for the three month period ended March 3 1 , 201 4 . The increases in cost of sales as a percentage of sales was due to higher cost of sales as a percentage of sales for Henderson products, most of which was attributable to a $ 2.0 million fair value purchase accounting write up of inventory that was sold during the period. As a percentage of cost of sales, fixed and variable costs were approximately 20 % and 8 0 %, respectively, for the three months ended March 3 1 , 201 5 versus approximately 16 % and 8 4 %, respectively , for the three months ended March 3 1 , 201 4 .

Gross Profit

Gross profit was $ 16 . 4 million for the three months ended March 3 1 , 201 5 compared to $ 1 4 . 1 million in the three months ended March 3 1 , 201 4 , an increase of $ 2 . 3 million, or 16 . 3 %.  Gross profit increased for the three month period due to the sale of Henderson products and an increase in equipment units sold, slightly offset by decreases in parts and accessories sold.  As a percentage of net sales, gross profit de creased from 3 8 . 8 % for the three months ended March 3 1 , 201 4 to 3 0 . 5 % for the corresponding period in 201 5 . The reasons for the de crease in gross profit as a percentage of net sales are the same as those relating to the in crease in cost of sales as a percentage of sales discussed above under “—Cost of Sales.”

Selling, General and Administrative Expense

Selling, general and administrative expenses, including in tangibles amortization, were $ 13 . 3 million for the three months ended March 3 1 , 201 5 , compared to $ 9 . 8 million for the three months ended March 3 1 , 201 4 , a n in crease of $ 3 . 5 million, or 35 . 7 %. The in crease compared to 201 4 was mostly due to expenses related to ongoing operations at Henderson of $2.5 million. Intangible amortization expense increased $0.4 million due to additional intangible assets created as a result of the Henderson acquisition. The remainder of the increase is due to the timing of advertising and promotional expenses.

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Interest Expense

Interest expense was $ 2 . 5 million for the three months ended March 3 1 , 201 5 which was higher than the $2. 0 million incurred in the same period in the prior year. Interest expense increased due to modification s made to the Company’s exi s ting term loan facility in connection with the financing of the Henderson acquisition .

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 oth er intangibles amortization. The Company’s effective tax rate s w ere 36.5% and 32.8% for the three months ended March 31, 2015 and 2014, respectively. The effective tax rate for the three months ended March 31, 2015 is higher than the corresponding period in 2014 due to the Company g enerating additional state tax liabilities with the acquisition of Henderson.

Net Income

Net income for the three months ended March 3 1 , 201 5 was $ 0 . 4 million compared to net income of $ 1 . 6 million for t he corresponding period in 201 4 , a de c rease in net income of $ 1 . 2 million. The de crease in net income for the three months ended March 3 1 , 201 5 was driven by the factors described above under “— Net Sales,” “—Cost of Sales ” “— Selling, General and Administrative Expense” and “—Interest Expense.” As a percentage of ne t sales, net income was 0 . 8 % for the three months ended March 3 1 , 201 5 compared to 4.3% for the three months ended March 3 1 , 201 4 .

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31 , 201 5 was $ 9 . 6 million compared to $ 8 . 3 million in the corresponding period in 201 4 , an increase of $ 1 . 6 million .  For the three month period ended March 31 , 201 5 the increase in Adjusted EBITDA is attributable to the increase in sales resulting from the Henderson acquisition and the increase in sales of snow and ice control equipment slightly offset by the de crease in sales of parts and accessories.

Free Cash Flow

Free cash flow for the three months ended March 3 1 , 201 5 was $ 1 0 . 1 million compared to $ 8 . 9 million in the corresponding period in 201 4 , a n in crease in cash provided of $ 1. 2 million .  The in crease in free cash flow is primarily a result of higher cash provided by operating activities of $ 1 . 1 million, as discussed below under “Liquidity and Capital Resources.”  Meanwhile, acquisitions of property and equipment de creased from $ 1 . 3 million for the three months ended March 3 1 , 201 4 to $ 1 . 2 million for the three months ended March 3 1 , 201 5 .

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:

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

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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.

Adjusted EBITDA represents net income before interest, taxes, depreciation and amortization, as further adjusted for certain charges consisting of unrela ted legal and consulting fees, stock based compensation and certain purchase accounting expenses. 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:

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The following table presents a reconciliation of net income, 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 , 201 5 and 201 4 :

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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

In May 2014, the Financial Acco unting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09 "Revenue from Contracts with Customers." ASU 2014-09 provides a single principles-based, five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, to identify the performance obligations in the contact, to determine the transaction price, to allocate the transaction price to the performance obligations in the contract and to recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 will be effective for the Company beginning on January 1 , 2017 and the standard allows for either full retrospective adoption or modified retrospective adoption. The Company is continuing to evaluate the impact that the adoption of this guidance will have on our financial condition, results of operations and the presentation of our financial statements.

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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 , 201 5 , we had $ 91 . 1 million of total liquidity, comprised of $ 20 . 8 million in cash and cash equivalents a nd borrowing availability of $70 . 3 million under our revolving credit facility, compared with total liquidity as of December 31, 201 4 of approximately $ 99 . 3 million , comprised of approximately $ 24 . 2 million in cash and cash equivalents and borrowing a vailability of approximately $ 75 . 1 million under our re volving credit facility. The de crease in our total liquidity from December 31, 201 4 is primarily due to working capital needs and our borrowing base .  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.

The following table shows our cash and cash equivalents and inventories in thousands at March 3 1 , 201 5 , December 31, 201 4 and March 3 1 , 201 4 .

We had cash and cash equivalents of $ 20.8 million at March 3 1 , 201 5 compared to cash and cash equivalents of $24 . 2 million and $ 10 . 5 million at December 31, 201 4 and March 3 1 , 201 4 , respectively.  The table below sets forth a summary of the significant sources and uses of cash for the periods presented in thousands.

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Net cash provided by operating activities in creased $ 1 . 1 million from the three months ended March 3 1 , 201 4 to the three months ended March 3 1 , 201 5 . The in crease in cash provided by operating activities was due to a $ 0 . 5 million increase in net income adjusted for reconciling items and favorable changes in working capital of $ 0 . 6 million .

Net cash used in investi ng activities in creased $ 7 . 9 million for the three months ended March 31 , 201 5 , compared to the corresponding period in 201 4 . This in cre ase was primarily due to the $7 . 9 million cash payments that occurred in the three months ended March 31, 2015 related to the acquisition of Henderson .

Net cash used in financing activities de creased $ 12 . 7 million for the three months ended March 3 1 , 201 5 compared to the corresponding period in 201 4 . The de crease in cash used in financing activities was primarily a result of the repayment of $13.0 million outstanding on our revolving credit facility during the three months ended March 31, 2014 while we did not make any payments in the three months ending March 31, 2015 as we had no outstanding borrowings on our revolving credit facility at December 31, 2014.

Contractual Obligations

There have been no material changes to our contractual obligations in the three months ended March 3 1 , 201 5 .

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 results of operations and financial condition vary from quarter-to-quarter and from year-to-year as well. In addition, because of this seasonality and variability, our results of operations for any quarter may not be indicative of results of operations that may be achieved for a subsequent quarter or the full year, and may not be similar to results of operations experienced in prior years. That being the case, 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.

Sales of our products are significantly impacted by the level, timing and location of snowfall, with sales in any given year and region most heavily influenced by snowfall levels in the prior snow season (which we consider to begin in October and end in March) in that region. This is due to the fact that end-user demand for our products is driven primarily by the condition of their snow and ice control equipment, and in the case of professional snowplowers, by their financial ability to purchase new or replacement snow and ice control equipment, both of

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which are significantly affected by snowfall levels. Heavy snowfall during a given winter causes usage of our products to increase, resulting in greater wear and tear to our products and a shortening of their life cycles, thereby creating a need for replacement snow and ice control equipment and related parts and accessories. In addition, when there is a heavy snowfall in a given winter, the increased income our professional snowplowers generate from their professional snowplow activities provides them with increased purchasing power to purchase replacement snow and ice control equipment prior to the following winter. To a lesser extent, sales of our products are influenced by the timing of snowfall in a given winter. Because an early snowfall can be viewed as a sign of a heavy upcoming snow season, our end-users may respond to an early snowfall by purchasing replacement snow and ice control equipment during the current season rather than delaying purchases until after the season is over when most purchases are typically made by end-users.

We attempt to manage the seasonal impact of snowfall on our revenues in part through our pre-season sales program, which involves actively soliciting and encouraging pre-season distributor orders in the second and third quarters by offering our distributors a combination of pricing, payment and freight incentives during this period. These pre-season sales incentives encourage our distributors to re-stock their inventory during the second and third quarters in anticipation of the peak fourth quarter retail sales period by offering pre-season pricing and payment deferral until the fourth quarter. As a result, we tend to generate our greatest volume of sales (an average of over two-thirds over the last ten years) during the second and third quarters, providing us with manufacturing visibility for the remainder of the year. By contrast, our revenue and operating results tend to be lowest during the first quarter, as management believes our end-users prefer to wait until the beginning of a snow season to purchase new equipment and as our distributors sell off inventory and wait for our pre-season sales incentive period to re-stock inventory. Fourth quarter sales vary from year-to-year as they are primarily driven by the level, timing and location of snowfall during the quarter. This is because most of our fourth quarter sales and shipments consist of re-orders by distributors seeking to restock inventory to meet immediate customer needs caused by snowfall during the winter months.

Because of the seasonality of our sales, we experience seasonality in our working capital needs as well. In the first quarter, we typically require capital as we are generally required to build our inventory in anticipation of our second and third quarter pre-season sales. During the second and third quarters, our working capital requirements rise as our accounts receivable increase as a result of the sale and shipment of products ordered through our pre-season sales program and we continue to build inventory. Working capital requirements peak towards the end of the third quarter and then begin to decline through the fourth quarter through a reduction in accounts receivable when we receive the majority of the payments for pre-season shipped products.

We also attempt to manage the impact of seasonality and year-to-year variability on our business costs through the effective management of our assets. Our asset management and profit focus strategies include:

These asset management and profit focus strategies, among other management tools, allow us to adjust fixed overhead and sales, general and administrative expenditures to account for the year-to-year variability of our sales volumes.

Additionally, although modest, our annual capital expenditure requirements can be temporarily reduced by up to approximately 40% in response to actual or anticipated decreases in sales volumes. If we are unsuccessful in our asset management initiatives, the seasonality and year-to-year variability effects on our business may be compounded and in turn our results of operations and financial condition may suffer.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not use financial instruments for speculative trading purposes, and do not hold any derivative financial instruments that could expose us to significant market risk. Our primary market risk exposures are changes in interest rates and steel price fluctuations.

Interest Rate Risk

We are exposed to market risk primarily from changes in interest rates.  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.  A portion of our interest rate risk associated with our term loan is mitigated through an interest rate swap as discussed in Note 5 to the Consolidated Financial Statements, above.  In addition, the interest rate on any revolving borrowings is subject to an increase in the interest rate based on our average daily availability under our revolving credit facility.

As of March 3 1 , 201 5, we had outstanding borrowings under our term loan of $1 87.7 million. A hypothetical interest rate change of 1%, 1.5% and 2% on our term loan would have changed interest incurred for the three months ended March 3 1 , 201 5 by $0. 1 million, $0. 4 million and $0.6 million, respe ctively. We entered into three interest rate swap agreements with notional a mounts of $45.0 million , $90 .0 million and $135 .0 million effective for the periods December 31, 2015 through March 29, 2018, March 29, 2018 through March 31, 2020 and March 31, 2020 through June 30, 2021, respectively.  We have counterparty credit risk resulting from the interest rate swap, which we monitor on an on-going basis. This risk lies with one global financial institution. Under the interest rate swap agreement, effective as of December 31, 2015, we will either receive or make payments on a monthly basis based on the differential between 6.105% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%).  Under the interest rate swap agreement, effective as of March 29, 2018, we will either receive or make payments on a monthly basis based on the differential between 6.91 6 % and LIBOR plus 4.25% (with a LIBOR floor of 1.0%).  Under the interest rate swap agreement, effective as of March 31, 2020, we will either receive or make payments on a monthly basis based on the differential between 7.168% and LIBOR plus 4.25% (with a LIBOR floor of 1.0%). As of March 3 1 , 201 5 , we had no outstanding borrowings under our revolving credit facility.

Commodity Price Risk

In the normal course of business, we are exposed to market risk related to our purchase of steel, the primary commodity upon which our manufacturing depends. Our steel purchases as a percentage of revenue were 2 1 . 9 % for the three a months ended March 31 , 201 5 , compared to 26.0 % for the three months ended March 3 1 , 201 4 . While steel is typically available from numerous suppliers, the price of steel is a commodity subject to fluctuations that apply across broad spectrums of the steel market. We do not use any derivative or hedging instruments to manage steel price risk. If the price of steel increases, our variable costs could also increase. While historically we have successfully mitigated these increased costs through the implementation of either permanent price increases and/or temporary invoice surcharges, in the future we may not be able to successfully mitigate these costs, which could cause our gross margins to decline. If our costs for steel were to increase by $1.00 in a period where we are not able to pass any of this increase onto our distributors, our gross margins would decline by $1.00 in the period in which such inventory was sold.

Item 4. Controls And Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that the information required to be disclosed by us in such reports is accumulated and communicated to our management,

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including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHE R INFORMATION

Item 1. 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 1A. Risk Factors

There have been no significant changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, 201 4 .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Dur ing the three months ended March 3 1 , 201 5 , the Company sold no securities that were not registered under the Securities Act of 1933, as amended.

Purchase of Equity Securities

In March 2015, the Company with held approximately 1,191 shares of the Company’s common stock from employees to satisfy minimum tax withholding obligations that arose upon vesting of restricted stock granted pursuant to the Company’s shareholder-approved equity incentive plan.

Dividend Payment Restrictions

The Company’s senior credit facilities include certain restrictions on its ability to pay dividends. The senior credit facilities also restrict the Company’s subsidiaries from paying dividends and otherwise transferring assets to Douglas Dynamics, Inc. For additional detail regarding these restrictions, see Note 5 to the notes to the consolidated financial statements.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

The following documents are filed as Exhibits to this Quarterly Report on Form 10-Q:

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* Filed herewith.

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SIGNATURE S

Pursuant to the requirements 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.

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Exhibit Inde x to Form 10-Q for the Period Ended March 3 1 , 201 5

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* Filed herewith.

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