10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

OR

oTRANSITION 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)

Delaware	134275891
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

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 x No o

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 x No o

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):

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

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

Number of shares of registrant’s common shares outstanding as of May 7, 2013 was 22,225,050

DOUGLAS DYNAMICS, INC.

Table of Contents

PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Unaudited Consolidated Balance Sheet as of March 31, 2013 and audited Consolidated Balance Sheet as of December 31, 2012	1
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012	2
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012	3
Notes to Unaudited Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	20
PART II. OTHER INFORMATION	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	22
Signatures	23

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Consolidated Balance Sheets

(In thousands except share data)

	March 31,			December 31,
	2013			2012
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	11,073		$	24,136
Accounts receivable, net	11,299			25,425
Inventories	45,099			30,292
Refundable income taxes paid	8,220			4,870
Deferred income taxes	3,686			3,710
Prepaid and other current assets	1,382			1,149
Total current assets	80,759			89,582
Property, plant, and equipment, net	20,013			19,887
Assets held for sale	1,085			1,732
Goodwill	107,222			107,222
Other intangible assets, net	115,250			116,548
Deferred financing costs, net	2,650			2,794
Other long-term assets	1,151			606
Total assets	$	328,130		$	338,371
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,521		$	5,370
Accrued expenses and other current liabilities	8,686			10,329
Current portion of long-term debt	971			971
Total current liabilities	12,178			16,670
Retiree health benefit obligation	6,421			6,541
Pension obligation	14,678			14,401
Deferred income taxes	35,003			33,805
Deferred compensation	658			756
Long-term debt, less current portion	110,752			110,995
Other long-term liabilities	1,922			1,471
Stockholders’ equity:
Common Stock, par value $0.01, 200,000,000 shares authorized, 22,225,050 and 22,130,996 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively	222			221
Additional paid-in capital	133,869			133,072
Retained earnings	19,472			27,523
Accumulated other comprehensive loss, net of tax	(7,045		)	(7,084		)
Total stockholders’ equity	146,518			153,732
Total liabilities and stockholders’ equity	$	328,130		$	338,371

See the accompanying notes to consolidated financial statements

1

Douglas Dynamics, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share data)

	Three Months Ended
	March 31, 2013			March 31, 2012
	(unaudited)
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	)
Less net loss attributable to participating securities	(43		)	(54		)
Net loss attributable to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average number of common shares outstanding:
Basic	21,971,055			21,826,701
Diluted	21,971,055			21,826,701
Loss per share:
Basic	$	(0.15	)	$	(0.19	)
Diluted	$	(0.15	)	$	(0.19	)
Cash dividends declared and paid per share	$	0.21		$	0.21
Comprehensive loss	$	(3,365	)	$	(4,279	)

See the accompanying notes to consolidated financial statements.

2

Douglas Dynamics, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended
	March 31, 2013			March 31, 2012
	(unaudited)
Operating activities
Net loss	$	(3,404	)	$	(4,268	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,015			2,001
Amortization of deferred financing costs and debt discount	189			204
Loss recognized on impairment of assets held for sale	647			—
Stock-based compensation	935			365
Provision for losses on accounts receivable	113			113
Deferred income taxes	1,222			1,444
Changes in operating assets and liabilities:
Accounts receivable	14,013			26,290
Inventories	(14,807		)	(22,736		)
Prepaid and other assets and prepaid income taxes	(4,128		)	(4,312		)
Accounts payable	(2,849		)	(1,649		)
Accrued expenses and other current liabilities	(1,584		)	(7,856		)
Deferred compensation	(157		)	(157		)
Benefit obligations and other long-term liabilities	647			532
Net cash used in operating activities	(7,148		)	(10,029		)
Investing activities
Capital expenditures	(843		)	(437		)
Proceeds from sale of equipment	—			77
Net cash used in investing activities	(843		)	(360		)
Financing activities
Shares withheld on restricted stock vesting paid for employees’ taxes	(137		)	—
Dividends paid	(4,647		)	(4,543		)
Repayment of long-term debt	(288		)	(10,288		)
Net cash used in financing activities	(5,072		)	(14,831		)
Change in cash and cash equivalents	(13,063		)	(25,220		)
Cash and cash equivalents at beginning of period	24,136			39,432
Cash and cash equivalents at end of period	$	11,073		$	14,212

See the accompanying notes to consolidated financial statements.

3

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 2012 Form 10-K (Commission File No. 1-34728) filed with the Securities and Exchange Commission.

We operate as a single business unit.

Interim Consolidated Financial Information

The accompanying consolidated balance sheet as of March 31, 2013 and the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2013 and 2012 and cash flows for the three months ended March 31, 2013 and 2012 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. Under the interest rate swap agreement, effective as of July 18, 2011 the Company either receives or makes payments on a monthly basis based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%).  The negative fair value of the interest rate swap, net of tax, of ($305) at March 31, 2013 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. The interest rate swap contract on $50,000 notional amount of the term loan expires in December 2014. The Company does not expect to record any unrecognized loss into earnings in the next twelve months. Additionally, other comprehensive income (loss) includes the net income (loss) 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.   The Company did not have any items classified out of other comprehensive income (loss) in the three months ended March 31, 2013.     Additionally, the decrease in accumulated other comprehensive income (loss) only relates to adjustments to the fair value of the Company’s interest rate swap as discussed below in Note 5 to the 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 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).

4

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:

	Fair Value at 3/31/2013		Fair Value at 12/31/2012
Assets:
Other long-term assets (a)	$	1,035	$	491
Total Assets	$	1,035	$	491
Liabilities:
Long term debt (b)	$	110,326	$	110,566
Other long-term liabilities- Interest rate swaps(c)	481		544
Total Liabilities	$	110,807	$	111,110

(a)Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amounts of these 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 face of the balance sheet.

(c)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.

3.Inventories

Inventories consist of the following:

	March 31, 2013		December 31, 2012
Finished goods and work-in-process	$	43,985	$	29,119
Raw material and supplies	1,114		1,173
	$	45,099	$	30,292

4.Property, plant and equipment

Property, plant and equipment are summarized as follows:

	March 31, 2013			December 31, 2012
Land	$	960		$	960
Land improvements	1,777			1,768
Buildings	12,852			12,852
Machinery and equipment	24,314			24,286
Furniture and fixtures	7,492			7,465
Mobile equipment and other	1,201			1,138
Construction-in-process	1,004			351
Total property, plant and equipment	49,600			48,820
Less accumulated depreciation	(29,587		)	(28,933		)
Net property, plant and equipment	$	20,013		$	19,887

5

5.Long-Term Debt

Long-term debt is summarized below:

	March 31, 2013		December 31, 2012
Term Loan, net of debt discount of $901 and $946 at March 31, 2013 and December 31, 2012, respectively	$	111,723	$	111,966
Less current maturities	971		971
	$	110,752	$	110,995

The Company’s senior credit facilities consist of a $125,000 term loan facility and an $80,000 revolving credit facility with a group of banks. 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 $125,000 and generally bears interest at (at the Company’s election) 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 London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (2) 1.50% or (ii) 4.25% per annum plus the greater of (a) the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate and (b) 1.50%.  The revolving credit facility provides that the Company has the option to select whether borrowings will bear interest at either (i) 1.75% per annum plus the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate or (ii) 1.25% per annum plus the greatest of (a) the Prime Rate in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 0.50% and (c) the London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate plus 1%. The maturity date for the Company’s revolving credit facility is April 17, 2017, and the Company’s term loan amortizes in nominal amounts quarterly with the balance payable on April 18, 2018.

The term loan was issued at a $1,250 discount which is being amortized over the term of the term loan.

At March 31, 2013, the Company had no borrowings on the revolving credit facility and remaining borrowing availability of $38,267.

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 Company’s revolving credit facility specifically restrict subsidiaries from paying dividends if a minimum availability under the revolving credit 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 Company’s revolving credit facility includes a requirement that, subject to certain exceptions, capital expenditures may not exceed $10,000 in any calendar year and, if certain minimum availability under the revolving credit facility is not maintained, that the Company comply with a monthly minimum fixed charge coverage ratio test of 1.0:1.0. Compliance with the fixed charge coverage ratio test is subject to certain cure rights under the Company’s revolving credit facility. At March 31, 2013, 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 reduced to 25% or 0% upon the achievement of certain leverage ratio thresholds), for any fiscal year. Excess cash flow is defined in the senior credit facilities as consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) plus a working capital adjustment less the sum of repayments of debt and capital expenditures subject to certain adjustments, interest and taxes paid in cash, management fees and certain restricted payments (including dividends or distributions). Working capital adjustment is defined in the senior credit facilities as the change in working capital, defined as current assets excluding cash and cash equivalents less current liabilities excluding current portion of long term debt.  As of March 31, 2013, the Company was not required to make an excess cash flow payment.

6

Each of the senior secured facilities includes a hedge provision, which required the Company to enter into an interest rate hedge commencing 90 days after the closing date. The hedging provision requires the Company to hedge the interest rate on at least 25% of the aggregate outstanding principal amount of the term loans.  The purpose of the interest rate swap is to reduce the Company’s exposure to interest rate volatility.  Effective June 20, 2011, the Company entered into an interest rate swap agreement with a notional amount of $50,000. The interest rate swap negative fair value at March 31, 2013 of $481 is included in other long-term liabilities on the Consolidated Balance Sheet.  The Company has counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. This risk lies with one global financial institution. Under the interest rate swap agreement, effective as of July 18, 2011, the Company either receives or makes payments on a monthly basis based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%).  The interest rate swap contract on the term loan expires in December 2014.

6.Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities are summarized as follows:

	March 31, 2013		December 31, 2012
Payroll and related costs	$	2,776	$	1,429
Employee benefits	1,217		2,731
Accrued warranty	2,859		3,628
Other	1,834		2,541
	$	8,686	$	10,329

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:

	Three months ended
	March 31, 2013			March 31, 2012
Balance at the beginning of the period	$	3,628		$	4,188
Warranty provision	125			130
Claims paid/settlements	(894		)	(812		)
Balance at the end of the period	$	2,859		$	3,506

7

8.             Employee Retirement Plans

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

	Three months ended
	March 31, 2013			March 31, 2012
Component of net periodic pension cost:
Service cost	$	62		$	67
Interest cost	362			370
Expected return on plan assets	(352		)	(318		)
Amortization of net loss	301			192
Net periodic pension cost	$	373		$	311

The Company estimates its total required minimum contributions to its pension plans in 2013 will be $827.  Through March 31, 2013, the Company has made $95 of cash contributions to the pension plans in 2013 versus $347 through the same period in 2012.

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

	Three months ended
	March 31, 2013			March 31, 2012
Components of net periodic other postretirement benefit cost
Service cost	$	63		$	70
Interest cost	61			90
Amortization of net gain	(43		)	(4		)
Net periodic other postretirement benefit cost	$	81		$	156

9.     Earnings per Share

Basic earnings per share of common stock is computed by dividing net income (loss) 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 (loss) 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. There were 54,866 and 89,270 shares excluded from diluted earnings per share for the three months ended March 31, 2013 and 2012, respectively, as the shares would be anti-dilutive for those periods as the Company incurred a net loss.

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 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.

8

	Three months ended
	March 31, 2013			March 31, 2012
Basic loss per common share
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)
Loss per common share assuming dilution
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
Incremental shares applicable to stock based compensation	—			—
Weighted average common shares assuming dilution	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)

10.Employee Stock Plans

Amended and Restated 2004 Stock Incentive Plan

As of March 31, 2013, 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.

Stock Options

The following table summarizes information with respect to the Company’s stock option activity under the A&R 2004 Plan for the three months ended March 31, 2013.

	Three months ended
	March 31, 2013
Stock options - beginning of period	37,240
Options exercised	—
Stock options — end of period	37,240

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 2010 Plan provides for the issuance of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and restricted stock units, any of which may be performance-based, and for incentive bonuses, which 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.

9

Restricted Stock Share Awards

A summary of restricted stock activity for the three months ended March 31, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	208,823		$	12.63	1.94 years
Granted	44,022		$	14.78	2.75 years
Vested	(41,325	)	$	14.64
Cancelled and forfeited	—		—
Unvested at March 31, 2013	211,520		$	12.68	2.08 years
Expected to vest in the future at March 31, 2013	203,905		$	12.68	2.08 years

The fair value of the Company’s restricted stock awards is the closing stock price on the date of grant. The Company recognized $286 of compensation expense related to restricted stock awards granted for the three months ended March 31, 2013.  The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of March 31, 2013 was approximately $2,012 and is expected to be recognized over a weighted average period of 2.08 years.

Performance Share Unit Awards

The Company granted performance share units as performance based awards under the 2010 Plan in the first quarter of 2013 that are subject to performance conditions.  Upon meeting the prescribed performance conditions, in the first quarter of the year subsequent to grant, employees will be issued restricted stock units (“RSUs”) that 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 $14.40. The Company recognized $16 of compensation expense related to the awards in the three months ended March 31, 2013. The unrecognized compensation expense calculated under the fair value method for shares that were, as of March 31, 2013, expected to be earned through the requisite service period was approximately $898 and is expected to be recognized through 2016.

Restricted Stock Unit Awards

RSU’s are granted to both the non-employee directors and management.    Prior to 2013, RSUs were only issued to directors, however, in 2013, the Company changed the timing and form of management’s annual stock grants.   For both management and non-employee directors, 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 are 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.

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

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A summary of RSU activity for the three months ended March 31, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	26,046		$	14.73	0.72 years
Granted	69,736		$	14.52	1.99 years
Vested	(53,022	)	$	14.68
Cancelled and forfeited	—		—
Unvested at March 31, 2013	42,760		$	14.46	2.44 years
Expected to vest in the future at March 31, 2013	41,721		$	14.46	2.44 years

The Company recognized $639 of compensation expense related to the RSU awards in the three months ended March 31, 2013. The unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares that were, as of March 31, 2013, expected to be earned through the requisite service period was approximately $561 and is expected to be recognized through 2016.

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.  Meanwhile, 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 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.

13.Impairment of Assets Held For Sale

During the first quarter of 2013, the Company lowered the asking price for its assets held for sale.    The Company recorded assets held for sale on its balance sheet in conjunction with the closure of the Johnson City, Tennessee location in 2010.    The land and building have been held for sale since the closure.   In an effort to stimulate sales activity, the Company lowered the listed sale price which caused the Company to reassess the fair value of the assets held for sale.  The Company valued the fair value of the assets held for sale based upon Level 2 market price inputs for similar assets.   The Company used comparable properties sold and held for sale in the Johnson City, TN industrial real estate market to determine an appropriate fair value.  Consequently, the Company incurred a $647 loss recognized on the impairment of assets held for sale and is included in “Impairment of assets held for sale” on the Consolidated Statements of Operations and Comprehensive Income (Loss).

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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,  2013		March 31, 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.

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	Three Months Ended
	March 31, 2013			March 31, 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, 2013		March 31, 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.

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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.

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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.

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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.

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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,  2013			March 31,  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.

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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
	March 31, 2013		December 31, 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 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 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

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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:

·the employment of a highly variable cost structure facilitated by a core group of workers that we supplement with a temporary workforce as sales volumes dictate, which allows us to adjust costs on an as-needed basis in response to changing demand;

·our enterprise-wide lean concept, which allows us to adjust production levels up or down to meet demand;

·the pre-season order program described above, which incentivizes distributors to place orders prior to the retail selling season; and

·a vertically integrated business model.

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.

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.

19

As of March 31, 2013, we had outstanding borrowings under our term loan of $111.7 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 31, 2013 by $0.0 million, $0.1 million and $0.1 million, respectively.  We have entered into an interest rate swap, which became effective beginning July 2011 and matures December 2014, to hedge the variability in future cash flows associated with our variable-rate term loans.  The swap fixes the adjusting rate on $50.0 million of our term loan to an interest rate of 2.085%.  As of March 31, 2013, 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 38.6% and 88.3% for the three months ended March 31, 2013 and 2012, respectively.  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, 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.

PART II. OTHER 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, 2012.

20

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

Unregistered Sales of Equity Securities

During the three months ended March 31, 2013, the Company sold no securities that were not registered under the Securities Act of 1933, as amended.

Purchases of Equity Securities

In January 2013 and March of 2013, the Company withheld approximately 6,844 and 2,502 shares, respectively, 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.

21

Item 6.Exhibits

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

Exhibit Numbers	Description
10.1	Form of Restricted Stock Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.36 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.2	Form of Performance Share Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.37 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.3	Douglas Dynamics, Inc. 2013 Annual Incentive Plan [Incorporated by reference to Exhibit 10.38 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.4*	Form of Nonemployee Director Restricted Stock Unit Grant Notice and Standard Terms and Conditions under Douglas Dynamics, Inc. 2010 Stock Incentive Plan.
31.1*	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Financial statements from the quarterly report on Form 10-Q of Douglas Dynamics, Inc. for the quarter ended March 31, 2013, filed on May 7, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive Income; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to the Consolidated Financial Statements

*Filed herewith.

22

SIGNATURES

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.

	DOUGLAS DYNAMICS, INC.
	By:	/s/ ROBERT MCCORMICK
		Robert McCormick
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)
Dated: May 7, 2013

23

Exhibit Index to Form 10-Q for the Period Ended March 31, 2013

Exhibit Numbers	Description
10.1	Form of Restricted Stock Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.36 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.2	Form of Performance Share Unit Agreement under Douglas Dynamics, Inc. 2010 Stock Incentive Plan [Incorporated by reference to Exhibit 10.37 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.3	Douglas Dynamics, Inc. 2013 Annual Incentive Plan [Incorporated by reference to Exhibit 10.38 to Douglas Dynamics, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34728)].
10.4*	Form of Nonemployee Director Restricted Stock Unit Grant Notice and Standard Terms and Conditions under Douglas Dynamics, Inc. 2010 Stock Incentive Plan.
31.1*	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Financial statements from the quarterly report on Form 10-Q of Douglas Dynamics, Inc. for the quarter ended March 31, 2013, filed on May 7, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive Income; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to the Consolidated Financial Statements

*Filed herewith.

24

EX-10.4

Exhibit 10.4

DOUGLAS DYNAMICS, INC.
GRANT NOTICE FOR 2010 STOCK INCENTIVE PLAN
RESTRICTED STOCK UNITS
(NONEMPLOYEE DIRECTOR)

FOR GOOD AND VALUABLE CONSIDERATION, Douglas Dynamics, Inc. (the “Company”), hereby grants to Participant named below the number of restricted stock units specified below (the “Award”), upon the terms and subject to the conditions set forth in this Grant Notice, the Douglas Dynamics, Inc. 2010 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) adopted under such Plan and provided to Participant, each as amended from time to time.  Each restricted stock unit subject to this Award represents the right to receive one share of the Company’s common stock, par value $0.01 (the “Common Stock”), subject to the conditions set forth in this Grant Notice, the Plan and the Standard Terms and Conditions.  This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

Name of Participant:                      

Grant Date:                          , 20   

Number of restricted stock units subject to the Award:                             

Vesting Schedule:Subject to the terms and conditions set forth in the Standard Terms and Conditions:

                              restricted stock units shall vest on                          , 20   

                              restricted stock units shall vest on                          , 20   

                              restricted stock units shall vest on                          , 20   

By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

DOUGLAS DYNAMICS, INC.
	Participant Signature
By:
Title:
	Address (please print)

DOUGLAS DYNAMICS, INC.
STANDARD TERMS AND CONDITIONS FOR
RESTRICTED STOCK UNITS
(NONEMPLOYEE DIRECTOR)

These Standard Terms and Conditions apply to the Award of restricted stock units granted pursuant to the Douglas Dynamics, Inc. 2010 Stock Incentive Plan (the “Plan”), which are evidenced by a Grant Notice that specifically refers to these Standard Terms and Conditions.  In addition to these Terms and Conditions, the restricted stock units shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference.  Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

1.TERMS OF RESTRICTED STOCK UNITS

Douglas Dynamics, Inc., a Delaware corporation (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of a number of restricted stock units (the “Award” or the “Restricted Stock Units”) specified in the Grant Notice.  Each Restricted Stock Unit represents the right to receive one share of the Company’s common stock, $0.01 par value per share (the “Common Stock”), upon the terms and subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions, and the Plan, each as amended from time to time.  For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

2.VESTING OF RESTRICTED STOCK UNITS

The Award shall not be vested as of the Grant Date set forth in the Grant Notice and shall be forfeitable unless and until otherwise vested pursuant to the terms of the Grant Notice and these Standard Terms and Conditions.  After the Grant Date, subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Award shall become vested as described in the Grant Notice with respect to that number of Restricted Stock Units as set forth in the Grant Notice.  The vesting of the Restricted Stock Units shall accelerate, and all of the Restricted Stock Units shall become fully vested, upon the occurrence of a Change of Control or upon the Participant’s Termination of Employment.  Restricted Stock Units that have vested and are no longer subject to forfeiture are referred to herein as “Vested Restricted Stock Units.”

3.SETTLEMENT OF RESTRICTED STOCK UNITS

Vested Restricted Stock Units shall be settled by the delivery to the Participant or a designated brokerage firm of one share of Common Stock per Vested Restricted Stock Unit as soon as reasonably practicable following a Termination of Employment of the Participant that constitutes a “Separation from Service” (as defined in authoritative guidance under Section 409A of the Code), and in all events no later than the end of the calendar year in which such Termination of Employment occurs or, if later, two and one-half months after such Termination of Employment (unless delivery is subsequently deferred pursuant to a nonqualified deferred compensation plan in accordance with the requirements of Section 409A of the Code).

4.RIGHTS AS STOCKHOLDER; DIVIDEND EQUIVALENTS

The Participant shall not have voting rights with respect to shares of Common Stock underlying Restricted Stock Units unless and until such shares of Common Stock are reflected as issued and outstanding shares on the Company’s stock ledger.

The Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the shares of Common Stock underlying the Restricted Stock Units, so long as the applicable record date occurs before such Restricted Stock Units are forfeited.  If, however, any dividends or distributions with respect to the Common Stock underlying the Restricted Stock Units are paid in Shares rather than cash, the Participant shall be credited with additional restricted stock units equal to the number of Shares that the Participant would have received had the Restricted Stock Units been actual Shares, and such restricted stock units shall be deemed Restricted Stock Units subject to the same risk of forfeiture and other terms of the Grant Notice, these Standard Terms and Conditions and the Plan as are the other Restricted Stock Units granted under this Award.  Any amounts due to the Participant under this provision shall be paid to the Participant, in cash, no later than the end of the calendar year in which the dividend or other distribution is paid to stockholders of the Company or, if later, the 15th day of the third month following the date the dividends are paid to stockholders; provided that, in the case of any distribution with respect to which the Participant is credited with additional Restricted Stock Units, distribution shall be made at the same time as payment is made in respect of the other Restricted Stock Units granted under this Award.

5.RESTRICTIONS ON RESALES OF SHARES

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Common Stock issued in respect of Vested Restricted Stock Units, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

6.TAXES

The Company shall not deliver shares in respect of any Restricted Stock Units unless and until the Participant has made arrangements satisfactory to the Company for the satisfaction of any applicable withholding tax obligations.  The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.  Unless the Participant pays the withholding tax obligations to the Company by cash or check in connection with the delivery of the Common Stock, withholding may be effected, at the Company’s option, by withholding Common Stock issuable in connection with the Award (provided that shares of Common Stock may be

2

withheld only to the extent that such withholding will not result in adverse accounting treatment for the Company).  The Participant acknowledges that the Company shall have the right to deduct any taxes required to be withheld by law in connection with the Award from any amounts payable by it to the Participant (including, without limitation, future cash wages).

7.NON-TRANSFERABILITY OF AWARD

The Participant represents and warrants that the Restricted Stock Units are being acquired by the Participant solely for the Participant’s own account for investment and not with a view to or for sale in connection with any distribution thereof.  The Participant further understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Administrator, the Restricted Stock Units may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of.

8.OTHER AGREEMENTS SUPERSEDED

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Restricted Stock Units.  Any prior agreements, commitments or negotiations concerning the Restricted Stock Units are superseded.

9.LIMITATION OF INTEREST IN SHARES SUBJECT TO RESTRICTED STOCK UNITS

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award.  Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.

10.GENERAL

In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

3

These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Plan shall control.  In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Administrator in its total and absolute discretion.

11.ELECTRONIC DELIVERY

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the Restricted Stock Units via Company web site or other electronic delivery.

4

EX-31.1

Exhibit 31.1

Section 302 Certification

I, James L. Janik, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Douglas Dynamics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ James L. Janik
		James L. Janik
		President and Chief Executive Officer
Dated: May 7, 2013

EX-31.2

Exhibit 31.2

Section 302 Certification

I, Robert McCormick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Douglas Dynamics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Robert McCormick
		Robert McCormick
		Executive Vice President and Chief Financial Officer
Dated: May 7, 2013

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Douglas Dynamics, Inc., or the Company, on Form 10-Q for the fiscal quarter ended March 31, 2013 as filed with the U.S. Securities and Exchange Commission on the date hereof, or Report, and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the Company certifies that:

·the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

·the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/James L. Janik
		James L. Janik
		President and Chief Executive Officer
Dated: May 7, 2013
	By:	/s/ Robert McCormick
		Robert McCormick
		Executive Vice President and Chief Financial Officer
Dated: May 7, 2013

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Impairment of Assets Held For Sale (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Impairment of Assets Held For Sale
Loss recognized on impairment of assets held for sale	$ 647

XML

Accrued Expenses and Other Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Accrued Expenses and Other Liabilities
Payroll and related costs	$ 2,776	$ 1,429
Employee benefits	1,217	2,731
Accrued warranty	2,859	3,628	3,506	4,188
Other	1,834	2,541
Accrued expenses and other liabilities	$ 8,686	$ 10,329

XML

Employee Retirement Plans (Tables)

3 Months Ended

Mar. 31, 2013

Pension cost

Employee retirement plans

Schedule of components of net periodic other postretirement benefit cost

	Three months ended
	March 31, 2013			March 31, 2012
Component of net periodic pension cost:
Service cost	$	62		$	67
Interest cost	362			370
Expected return on plan assets	(352		)	(318		)
Amortization of net loss	301			192
Net periodic pension cost	$	373		$	311

Other postretirement benefit cost

Employee retirement plans

Schedule of components of net periodic other postretirement benefit cost

	Three months ended
	March 31, 2013			March 31, 2012
Components of net periodic other postretirement benefit cost
Service cost	$	63		$	70
Interest cost	61			90
Amortization of net gain	(43		)	(4		)
Net periodic other postretirement benefit cost	$	81		$	156

XML

Employee Stock Plans (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
A&R 2004 Plan
Stock-based compensation
Number of shares of common stock reserved for issuance	37,240
Expiration period	10 years
Recognized and unrecognized compensation expense with weighted average recognition period
Number of awards permitted to be issued (in shares)	0
2010 Plan
Stock-based compensation
Maximum number of shares of common stock that may be issued	2,130,000
Stock Options | A&R 2004 Plan
Options
Balance at the end of the period (in per share)	37,240	37,240
Restricted Stock Share Awards
Shares
Unvested at the beginning of the period (in shares)	208,823
Granted (in shares)	44,022
Vested (in shares)	(41,325)
Unvested at the end of the period (in shares)	211,520	208,823
Expected to vest in the future, at the end of the period (in shares)	203,905
Weighted Average Grant Date Fair Value
Unvested at the beginning of the period (in dollars per share)	$ 12.63
Granted (in dollars per share)	$ 14.78
Vested (in dollars per share)	$ 14.64
Unvested at the end of the period (in dollars per share)	$ 12.68	$ 12.63
Expected to vest in the future, at the end of the period (in dollars per share)	$ 12.68
Weighted Average Remaining Contractual Term
Unvested at the beginning of the period	2 years 29 days	1 year 11 months 8 days
Granted	2 years 9 months
Unvested at the end of the period	2 years 29 days	1 year 11 months 8 days
Expected to vest in future, at the end of the period	2 years 29 days
Recognized and unrecognized compensation expense with weighted average recognition period
Compensation expenses recognized	$ 286
Unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares expected to vest	2,012
Weighted average period over which unrecognized compensation expense is expected to be recognized	2 years 29 days
Performance Share Unit Awards
Weighted Average Grant Date Fair Value
Granted (in dollars per share)	$ 14.40
Recognized and unrecognized compensation expense with weighted average recognition period
Vesting period of awards	2 years
Compensation expenses recognized	16
Unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares expected to vest	898
Restricted Stock Unit Awards
Shares
Unvested at the beginning of the period (in shares)	26,046
Granted (in shares)	69,736
Vested (in shares)	(53,022)
Unvested at the end of the period (in shares)	42,760	26,046
Expected to vest in the future, at the end of the period (in shares)	41,721
Weighted Average Grant Date Fair Value
Unvested at the beginning of the period (in dollars per share)	$ 14.73
Granted (in dollars per share)	$ 14.52
Vested (in dollars per share)	$ 14.68
Unvested at the end of the period (in dollars per share)	$ 14.46	$ 14.73
Expected to vest in the future, at the end of the period (in dollars per share)	$ 14.46
Weighted Average Remaining Contractual Term
Unvested at the beginning of the period	2 years 5 months 8 days	8 months 19 days
Granted	1 year 11 months 26 days
Unvested at the end of the period	2 years 5 months 8 days	8 months 19 days
Expected to vest in future, at the end of the period	2 years 5 months 8 days
Recognized and unrecognized compensation expense with weighted average recognition period
Compensation expenses recognized	639
Unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares expected to vest	561
Accelerated stock based compensation expense	$ 261
Maximum period following a termination of service in which the share-based award will be settled	2 months 15 days
Restricted Stock Unit Awards | Non-employee director
Recognized and unrecognized compensation expense with weighted average recognition period
Number of shares issued upon exercise of units other than options	1
Restricted Stock Unit Awards | Management
Recognized and unrecognized compensation expense with weighted average recognition period
Minimum age of employee, attaining which awards are continued to be vested upon retirement	65
Minimum service period, upon serving which awards are continued to be vested upon retirement	10 years
Minimum age of employee along with service period condition, attaining which awards are continued to be vested upon retirement	55
Number of shares issued upon exercise of units other than options	1

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Property, plant and equipment

3 Months Ended

Mar. 31, 2013

Property, plant and equipment

Property, plant and equipment

4. Property, plant and equipment

Property, plant and equipment are summarized as follows:

	March 31, 2013			December 31, 2012
Land	$	960		$	960
Land improvements	1,777			1,768
Buildings	12,852			12,852
Machinery and equipment	24,314			24,286
Furniture and fixtures	7,492			7,465
Mobile equipment and other	1,201			1,138
Construction-in-process	1,004			351
Total property, plant and equipment	49,600			48,820
Less accumulated depreciation	(29,587		)	(28,933		)
Net property, plant and equipment	$	20,013		$	19,887

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Fair Value (Details) (Recurring, Level 2, USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Recurring | Level 2
Assets:
Other long-term assets	$ 1,035	$ 491
Total Assets	1,035	491
Liabilities:
Long term debt	110,326	110,566
Other long-term liabilities-
Interest rate swaps	481	544
Total Liabilities	$ 110,807	$ 111,110

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Basis of presentation (Details) (Interest rate swap, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Interest rate swap
Interim Consolidated Financial Information
Fixed interest rate (as a percent)	6.335%
Variable rate basis	LIBOR
Interest rate added to variable rate (as a percent)	4.25%
LIBOR floor (as a percent)	1.50%
Negative fair value included in accumulated other comprehensive loss, net of tax	$ (305)
Notional amount	$ 50,000

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Inventories
Finished goods and work-in-process	$ 43,985	$ 29,119
Raw material and supplies	1,114	1,173
Inventories	$ 45,099	$ 30,292

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Property, plant and equipment (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Property, plant and equipment
Total property, plant and equipment	$ 49,600	$ 48,820
Less accumulated depreciation	(29,587)	(28,933)
Net property, plant and equipment	20,013	19,887
Land
Property, plant and equipment
Total property, plant and equipment	960	960
Land improvements
Property, plant and equipment
Total property, plant and equipment	1,777	1,768
Buildings
Property, plant and equipment
Total property, plant and equipment	12,852	12,852
Machinery and equipment
Property, plant and equipment
Total property, plant and equipment	24,314	24,286
Furniture and fixtures
Property, plant and equipment
Total property, plant and equipment	7,492	7,465
Mobile equipment and other
Property, plant and equipment
Total property, plant and equipment	1,201	1,138
Construction-in-process
Property, plant and equipment
Total property, plant and equipment	$ 1,004	$ 351

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Inventories

3 Months Ended

Mar. 31, 2013

Inventories

Inventories

3. Inventories

Inventories consist of the following:

	March 31, 2013		December 31, 2012
Finished goods and work-in-process	$	43,985	$	29,119
Raw material and supplies	1,114		1,173
	$	45,099	$	30,292

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Long-Term Debt (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Jun. 30, 2011
Long-term debt
Less current maturities	$ 971,000	$ 971,000
Long-term debt, less current maturities	110,752,000	110,995,000
Interest rate swap
Long-term debt, additional disclosure
Notional amount	50,000,000
Fixed interest rate on derivative (as a percent)	6.335%
Variable rate basis	LIBOR
Interest rate added to variable rate (as a percent)	4.25%
LIBOR floor (as a percent)	1.50%
Senior credit facilities | Term Loan
Long-term debt
Total long-term debt	111,723,000	111,966,000
Less current maturities	971,000	971,000
Long-term debt, less current maturities	110,752,000	110,995,000
Unamortized discount on issuance of debt	901,000		946,000	1,250,000
Long-term debt, additional disclosure
Borrowings under senior credit facility	125,000,000
Percentage of net cash proceeds of certain asset sales, certain insurance or condemnation events, requirement for additional principal prepayments	100.00%
Period before end of the fiscal year, for additional principal prepayments of debt, from excess cash flow	150 days
Percentage of excess cash flow paid as additional principal prepayments	50.00%
Reduced percentage of excess cash flow paid as additional principal prepayments upon achievement of certain leverage ratio thresholds, one	25.00%
Reduced percentage of excess cash flow paid as additional principal prepayments upon achievement of certain leverage ratio thresholds, two	0.00%
Senior credit facilities | Term Loan | Interest rate swap
Long-term debt, additional disclosure
Length of time after closing date for entering into a hedge	90 days
Notional amount	50,000,000
Negative fair value included in other long-term liabilities	481,000
Number of financial institutions for which the entity is exposed to counterparty credit risk	1
Fixed interest rate on derivative (as a percent)	6.335%
Variable rate basis	LIBOR
Interest rate added to variable rate (as a percent)	4.25%
LIBOR floor (as a percent)	1.50%
Senior credit facilities | Term Loan | Minimum | Interest rate swap
Long-term debt, additional disclosure
Percentage of aggregate outstanding principal amount of debt hedged	25.00%
Senior credit facilities | Term Loan | First option
Long-term debt, additional disclosure
Additional fixed interest rate spread (as a percent)	3.25%
Senior credit facilities | Term Loan | First option | Prime
Long-term debt, additional disclosure
Variable rate basis	Prime Rate
Senior credit facilities | Term Loan | First option | Federal funds
Long-term debt, additional disclosure
Variable rate basis	Federal funds
Interest rate added to variable rate (as a percent)	0.50%
Senior credit facilities | Term Loan | First option | One month London Interbank Offered Rate
Long-term debt, additional disclosure
Variable rate basis	London Interbank Offered Rate for a one month interest period
Senior credit facilities | Term Loan | First option | Fixed rate
Long-term debt, additional disclosure
Additional interest margin added to fixed and variable rates (as a percent)	1.00%
Fixed interest rate base (as a percent)	1.50%
Senior credit facilities | Term Loan | Second option
Long-term debt, additional disclosure
Additional fixed interest rate spread (as a percent)	4.25%
Senior credit facilities | Term Loan | Second option | Fixed rate
Long-term debt, additional disclosure
Additional interest margin added to fixed and variable rates (as a percent)	1.50%
Senior credit facilities | Revolving credit facility
Long-term debt, additional disclosure
Borrowings under senior credit facility	80,000,000
Remaining borrowing availability	38,267,000
Fixed charge coverage ratio to be maintained if certain minimum availability under the credit facility is not maintained.	1.0
Amount outstanding	0
Senior credit facilities | Revolving credit facility | Maximum
Long-term debt, additional disclosure
Annual acquisitions allowed	$ 10,000,000
Senior credit facilities | Revolving credit facility | First option
Long-term debt, additional disclosure
Additional fixed interest rate spread (as a percent)	1.75%
Senior credit facilities | Revolving credit facility | First option | One month London Interbank Offered Rate
Long-term debt, additional disclosure
Variable rate basis	Prime Rate
Senior credit facilities | Revolving credit facility | First option | London Interbank Offered Rate
Long-term debt, additional disclosure
Variable rate basis	London Interbank Offered Rate
Senior credit facilities | Revolving credit facility | Second option
Long-term debt, additional disclosure
Additional fixed interest rate spread (as a percent)	1.25%
Senior credit facilities | Revolving credit facility | Second option | Prime
Long-term debt, additional disclosure
Variable rate basis	Federal funds
Senior credit facilities | Revolving credit facility | Second option | Federal funds
Long-term debt, additional disclosure
Variable rate basis	London Interbank Offered Rate for a one month interest period
Interest rate added to variable rate (as a percent)	0.50%
Senior credit facilities | Revolving credit facility | Second option | One month London Interbank Offered Rate
Long-term debt, additional disclosure
Variable rate basis	London Interbank Offered Rate
Interest rate added to variable rate (as a percent)	1.00%

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 11,073	$ 24,136
Accounts receivable, net	11,299	25,425
Inventories	45,099	30,292
Refundable income taxes paid	8,220	4,870
Deferred income taxes	3,686	3,710
Prepaid and other current assets	1,382	1,149
Total current assets	80,759	89,582
Property, plant, and equipment, net	20,013	19,887
Assets held for sale	1,085	1,732
Goodwill	107,222	107,222
Other intangible assets, net	115,250	116,548
Deferred financing costs, net	2,650	2,794
Other long-term assets	1,151	606
Total assets	328,130	338,371
Current liabilities:
Accounts payable	2,521	5,370
Accrued expenses and other current liabilities	8,686	10,329
Current portion of long-term debt	971	971
Total current liabilities	12,178	16,670
Retiree health benefit obligation	6,421	6,541
Pension obligation	14,678	14,401
Deferred income taxes	35,003	33,805
Deferred compensation	658	756
Long-term debt, less current portion	110,752	110,995
Other long-term liabilities	1,922	1,471
Stockholders' equity:
Common Stock, par value $0.01, 200,000,000 shares authorized, 22,225,050 and 22,130,996 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively	222	221
Additional paid-in capital	133,869	133,072
Retained earnings	19,472	27,523
Accumulated other comprehensive loss, net of tax	(7,045)	(7,084)
Total stockholders' equity	146,518	153,732
Total liabilities and stockholders' equity	$ 328,130	$ 338,371

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Basis of presentation

3 Months Ended

Mar. 31, 2013

Basis of presentation

Basis of presentation

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 2012 Form 10-K (Commission File No. 1-34728) filed with the Securities and Exchange Commission.

We operate as a single business unit.

Interim Consolidated Financial Information

The accompanying consolidated balance sheet as of March 31, 2013 and the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2013 and 2012 and cash flows for the three months ended March 31, 2013 and 2012 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. Under the interest rate swap agreement, effective as of July 18, 2011 the Company either receives or makes payments on a monthly basis based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%).  The negative fair value of the interest rate swap, net of tax, of ($305) at March 31, 2013 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. The interest rate swap contract on $50,000 notional amount of the term loan expires in December 2014. The Company does not expect to record any unrecognized loss into earnings in the next twelve months. Additionally, other comprehensive income (loss) includes the net income (loss) 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.   The Company did not have any items classified out of other comprehensive income (loss) in the three months ended March 31, 2013.     Additionally, the decrease in accumulated other comprehensive income (loss) only relates to adjustments to the fair value of the Company’s interest rate swap as discussed below in Note 5 to the 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 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.

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Employee Retirement Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Pension cost
Components of net periodic cost:
Service cost	$ 62	$ 67
Interest cost	362	370
Expected return on plan assets	(352)	(318)
Amortization of net (gain) loss	301	192
Net periodic cost	373	311
Cash contributions	95	347
Pension cost | Minimum | Annual estimate
Components of net periodic cost:
Estimated total required contributions	827
Other postretirement benefit cost
Components of net periodic cost:
Service cost	63	70
Interest cost	61	90
Amortization of net (gain) loss	(43)	(4)
Net periodic cost	$ 81	$ 156

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2013

Long-Term Debt

Summary of long-term debt

	March 31, 2013		December 31, 2012
Term Loan, net of debt discount of $901 and $946 at March 31, 2013 and December 31, 2012, respectively	$	111,723	$	111,966
Less current maturities	971		971
	$	110,752	$	110,995

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings per Share
Anti-dilutive shares excluded from computation of diluted earnings per share	54,866	89,270
Basic loss per common share
Net loss	$ (3,404)	$ (4,268)
Less loss allocated to participating securities	(43)	(54)
Net loss attributable to common shareholders	(3,361)	(4,214)
Weighted average common shares outstanding	21,971,055	21,826,701
Basic loss per common share (in dollars per share)	$ (0.15)	$ (0.19)
Loss per common share assuming dilution
Net loss	(3,404)	(4,268)
Less loss allocated to participating securities	(43)	(54)
Net loss attributable to common shareholders	$ (3,361)	$ (4,214)
Weighted average common shares outstanding	21,971,055	21,826,701
Weighted average common shares assuming dilution	21,971,055	21,826,701
Earnings per common share assuming dilution (in dollars per share)	$ (0.15)	$ (0.19)

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Warranty Liability (Tables)

3 Months Ended

Mar. 31, 2013

Warranty Liability

Schedule of rollforward of Company's warranty liability

	Three months ended
	March 31, 2013			March 31, 2012
Balance at the beginning of the period	$	3,628		$	4,188
Warranty provision	125			130
Claims paid/settlements	(894		)	(812		)
Balance at the end of the period	$	2,859		$	3,506

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Fair Value

3 Months Ended

Mar. 31, 2013

Fair Value

Fair Value

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:

	Fair Value at 3/31/2013		Fair Value at 12/31/2012
Assets:
Other long-term assets (a)	$	1,035	$	491
Total Assets	$	1,035	$	491
Liabilities:
Long term debt (b)	$	110,326	$	110,566
Other long-term liabilities- Interest rate swaps(c)	481		544
Total Liabilities	$	110,807	$	111,110

(a) Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amounts of these 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 face of the balance sheet.

(c) 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.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheets
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares issued	22,225,050	22,130,996
Common Stock, shares outstanding	22,225,050	22,130,996

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Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes

Income Taxes

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 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.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 07, 2013
Document and Entity Information
Entity Registrant Name	DOUGLAS DYNAMICS, INC
Entity Central Index Key	0001287213
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,225,050
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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Impairment of Assets Held For Sale

3 Months Ended

Mar. 31, 2013

Impairment of Assets Held For Sale

Impairment of Assets Held For Sale

13. Impairment of Assets Held For Sale

During the first quarter of 2013, the Company lowered the asking price for its assets held for sale.    The Company recorded assets held for sale on its balance sheet in conjunction with the closure of the Johnson City, Tennessee location in 2010.    The land and building have been held for sale since the closure.   In an effort to stimulate sales activity, the Company lowered the listed sale price which caused the Company to reassess the fair value of the assets held for sale.  The Company valued the fair value of the assets held for sale based upon Level 2 market price inputs for similar assets.   The Company used comparable properties sold and held for sale in the Johnson City, TN industrial real estate market to determine an appropriate fair value.  Consequently, the Company incurred a $647 loss recognized on the impairment of assets held for sale and is included in “Impairment of assets held for sale” on the Consolidated Statements of Operations and Comprehensive Income (Loss).

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Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Operations and Comprehensive Income (Loss)
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)
Less net loss attributable to participating securities	(43)	(54)
Net loss attributable to common shareholders	(3,361)	(4,214)
Weighted average number of common shares outstanding:
Basic (in shares)	21,971,055	21,826,701
Diluted (in shares)	21,971,055	21,826,701
Loss per share:
Basic (in dollars per share)	$ (0.15)	$ (0.19)
Diluted (in dollars per share)	$ (0.15)	$ (0.19)
Cash dividends declared per share (in dollars per share)	$ 0.21	$ 0.21
Cash dividends paid per share (in dollars per share)	$ 0.21	$ 0.21
Comprehensive loss	$ (3,365)	$ (4,279)

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Warranty Liability

3 Months Ended

Mar. 31, 2013

Warranty Liability

Warranty Liability

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:

	Three months ended
	March 31, 2013			March 31, 2012
Balance at the beginning of the period	$	3,628		$	4,188
Warranty provision	125			130
Claims paid/settlements	(894		)	(812		)
Balance at the end of the period	$	2,859		$	3,506

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Accrued Expenses and Other Liabilities

3 Months Ended

Mar. 31, 2013

Accrued Expenses and Other Liabilities

Accrued Expenses and Other Liabilities

6. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities are summarized as follows:

	March 31, 2013		December 31, 2012
Payroll and related costs	$	2,776	$	1,429
Employee benefits	1,217		2,731
Accrued warranty	2,859		3,628
Other	1,834		2,541
	$	8,686	$	10,329

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Accrued Expenses and Other Liabilities (Tables)

3 Months Ended

Mar. 31, 2013

Accrued Expenses and Other Liabilities

Summary of accrued expenses and other liabilities

	March 31, 2013		December 31, 2012
Payroll and related costs	$	2,776	$	1,429
Employee benefits	1,217		2,731
Accrued warranty	2,859		3,628
Other	1,834		2,541
	$	8,686	$	10,329

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value

Schedule of financial assets and liabilities measured at fair value on a recurring basis and disclosure of the fair value of long-term debt

	Fair Value at 3/31/2013		Fair Value at 12/31/2012
Assets:
Other long-term assets (a)	$	1,035	$	491
Total Assets	$	1,035	$	491
Liabilities:
Long term debt (b)	$	110,326	$	110,566
Other long-term liabilities- Interest rate swaps(c)	481		544
Total Liabilities	$	110,807	$	111,110

(a) Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amounts of these 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 face of the balance sheet.

(c) 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.

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Employee Stock Plans

3 Months Ended

Mar. 31, 2013

Employee Stock Plans

Employee Stock Plans

10. Employee Stock Plans

Amended and Restated 2004 Stock Incentive Plan

As of March 31, 2013, 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.

Stock Options

The following table summarizes information with respect to the Company’s stock option activity under the A&R 2004 Plan for the three months ended March 31, 2013.

	Three months ended
	March 31, 2013
Stock options - beginning of period	37,240
Options exercised	—
Stock options — end of period	37,240

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 2010 Plan provides for the issuance of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and restricted stock units, any of which may be performance-based, and for incentive bonuses, which 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 Share Awards

A summary of restricted stock activity for the three months ended March 31, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	208,823		$	12.63	1.94 years
Granted	44,022		$	14.78	2.75 years
Vested	(41,325	)	$	14.64
Cancelled and forfeited	—		—
Unvested at March 31, 2013	211,520		$	12.68	2.08 years
Expected to vest in the future at March 31, 2013	203,905		$	12.68	2.08 years

The fair value of the Company’s restricted stock awards is the closing stock price on the date of grant. The Company recognized $286 of compensation expense related to restricted stock awards granted for the three months ended March 31, 2013.  The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of March 31, 2013 was approximately $2,012 and is expected to be recognized over a weighted average period of 2.08 years.

Performance Share Unit Awards

The Company granted performance share units as performance based awards under the 2010 Plan in the first quarter of 2013 that are subject to performance conditions.  Upon meeting the prescribed performance conditions, in the first quarter of the year subsequent to grant, employees will be issued restricted stock units (“RSUs”) that 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 $14.40. The Company recognized $16 of compensation expense related to the awards in the three months ended March 31, 2013. The unrecognized compensation expense calculated under the fair value method for shares that were, as of March 31, 2013, expected to be earned through the requisite service period was approximately $898 and is expected to be recognized through 2016.

Restricted Stock Unit Awards

RSU’s are granted to both the non-employee directors and management.    Prior to 2013, RSUs were only issued to directors, however, in 2013, the Company changed the timing and form of management’s annual stock grants.   For both management and non-employee directors, 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 are 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.

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

A summary of RSU activity for the three months ended March 31, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	26,046		$	14.73	0.72 years
Granted	69,736		$	14.52	1.99 years
Vested	(53,022	)	$	14.68
Cancelled and forfeited	—		—
Unvested at March 31, 2013	42,760		$	14.46	2.44 years
Expected to vest in the future at March 31, 2013	41,721		$	14.46	2.44 years

The Company recognized $639 of compensation expense related to the RSU awards in the three months ended March 31, 2013. The unrecognized compensation expense, net of expected forfeitures, calculated under the fair value method for shares that were, as of March 31, 2013, expected to be earned through the requisite service period was approximately $561 and is expected to be recognized through 2016.

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.  Meanwhile, 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.

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Employee Retirement Plans

3 Months Ended

Mar. 31, 2013

Employee Retirement Plans

Employee Retirement Plans

8.             Employee Retirement Plans

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

	Three months ended
	March 31, 2013			March 31, 2012
Component of net periodic pension cost:
Service cost	$	62		$	67
Interest cost	362			370
Expected return on plan assets	(352		)	(318		)
Amortization of net loss	301			192
Net periodic pension cost	$	373		$	311

The Company estimates its total required minimum contributions to its pension plans in 2013 will be $827.  Through March 31, 2013, the Company has made $95 of cash contributions to the pension plans in 2013 versus $347 through the same period in 2012.

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

	Three months ended
	March 31, 2013			March 31, 2012
Components of net periodic other postretirement benefit cost
Service cost	$	63		$	70
Interest cost	61			90
Amortization of net gain	(43		)	(4		)
Net periodic other postretirement benefit cost	$	81		$	156

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Earnings per Share

3 Months Ended

Mar. 31, 2013

Earnings per Share

Earnings per Share

9.     Earnings per Share

Basic earnings per share of common stock is computed by dividing net income (loss) 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 (loss) 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. There were 54,866 and 89,270 shares excluded from diluted earnings per share for the three months ended March 31, 2013 and 2012, respectively, as the shares would be anti-dilutive for those periods as the Company incurred a net loss.

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 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.

	Three months ended
	March 31, 2013			March 31, 2012
Basic loss per common share
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)
Loss per common share assuming dilution
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
Incremental shares applicable to stock based compensation	—			—
Weighted average common shares assuming dilution	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies

Commitments and Contingencies

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.

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Warranty Liability (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Warranty liability
Period of warranty history used in estimating warranty costs	5 years
Company's warranty liability:
Balance at the beginning of the period	$ 3,628	$ 4,188
Warranty provision	125	130
Claims paid/settlements	(894)	(812)
Balance at the end of the period	$ 2,859	$ 3,506
Snow and ice control equipment
Warranty liability
Warranty period	2 years
Parts and accessories
Warranty liability
Warranty period	1 year
Certain snowplows
Warranty liability
Warranty period	1 year

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Property, plant and equipment (Tables)

3 Months Ended

Mar. 31, 2013

Property, plant and equipment

Summary of property, plant and equipment

	March 31, 2013			December 31, 2012
Land	$	960		$	960
Land improvements	1,777			1,768
Buildings	12,852			12,852
Machinery and equipment	24,314			24,286
Furniture and fixtures	7,492			7,465
Mobile equipment and other	1,201			1,138
Construction-in-process	1,004			351
Total property, plant and equipment	49,600			48,820
Less accumulated depreciation	(29,587		)	(28,933		)
Net property, plant and equipment	$	20,013		$	19,887

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings per Share

Schedule of computation of basic and diluted earnings per share

	Three months ended
	March 31, 2013			March 31, 2012
Basic loss per common share
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)
Loss per common share assuming dilution
Net loss	$	(3,404	)	$	(4,268	)
Less loss allocated to participating securities	(43		)	(54		)
Net loss allocated to common shareholders	$	(3,361	)	$	(4,214	)
Weighted average common shares outstanding	21,971,055			21,826,701
Incremental shares applicable to stock based compensation	—			—
Weighted average common shares assuming dilution	21,971,055			21,826,701
	$	(0.15	)	$	(0.19	)

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating activities
Net loss	$ (3,404)	$ (4,268)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,015	2,001
Amortization of deferred financing costs and debt discount	189	204
Loss recognized on impairment of assets held for sale	647
Stock-based compensation	935	365
Provision for losses on accounts receivable	113	113
Deferred income taxes	1,222	1,444
Changes in operating assets and liabilities:
Accounts receivable	14,013	26,290
Inventories	(14,807)	(22,736)
Prepaid and other assets and prepaid income taxes	(4,128)	(4,312)
Accounts payable	(2,849)	(1,649)
Accrued expenses and other current liabilities	(1,584)	(7,856)
Deferred compensation	(157)	(157)
Benefit obligations and other long-term liabilities	647	532
Net cash used in operating activities	(7,148)	(10,029)
Investing activities
Capital expenditures	(843)	(437)
Proceeds from sale of equipment		77
Net cash used in investing activities	(843)	(360)
Financing activities
Shares withheld on restricted stock vesting paid for employees' taxes	(137)
Dividends paid	(4,647)	(4,543)
Repayment of long-term debt	(288)	(10,288)
Net cash used in financing activities	(5,072)	(14,831)
Change in cash and cash equivalents	(13,063)	(25,220)
Cash and cash equivalents at beginning of period	24,136	39,432
Cash and cash equivalents at end of period	$ 11,073	$ 14,212

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Long-Term Debt

3 Months Ended

Mar. 31, 2013

Long-Term Debt

Long-Term Debt

5. Long-Term Debt

Long-term debt is summarized below:

	March 31, 2013		December 31, 2012
Term Loan, net of debt discount of $901 and $946 at March 31, 2013 and December 31, 2012, respectively	$	111,723	$	111,966
Less current maturities	971		971
	$	110,752	$	110,995

The Company’s senior credit facilities consist of a $125,000 term loan facility and an $80,000 revolving credit facility with a group of banks. 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 $125,000 and generally bears interest at (at the Company’s election) 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 London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement) and (2) 1.50% or (ii) 4.25% per annum plus the greater of (a) the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate and (b) 1.50%.  The revolving credit facility provides that the Company has the option to select whether borrowings will bear interest at either (i) 1.75% per annum plus the London Interbank Offered Rate for the applicable interest period multiplied by the Statutory Reserve Rate or (ii) 1.25% per annum plus the greatest of (a) the Prime Rate in effect on such day, (b) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers plus 0.50% and (c) the London Interbank Offered Rate for a one month interest period multiplied by the Statutory Reserve Rate plus 1%. The maturity date for the Company’s revolving credit facility is April 17, 2017, and the Company’s term loan amortizes in nominal amounts quarterly with the balance payable on April 18, 2018.

The term loan was issued at a $1,250 discount which is being amortized over the term of the term loan.

At March 31, 2013, the Company had no borrowings on the revolving credit facility and remaining borrowing availability of $38,267.

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 Company’s revolving credit facility specifically restrict subsidiaries from paying dividends if a minimum availability under the revolving credit 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 Company’s revolving credit facility includes a requirement that, subject to certain exceptions, capital expenditures may not exceed $10,000 in any calendar year and, if certain minimum availability under the revolving credit facility is not maintained, that the Company comply with a monthly minimum fixed charge coverage ratio test of 1.0:1.0. Compliance with the fixed charge coverage ratio test is subject to certain cure rights under the Company’s revolving credit facility. At March 31, 2013, 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 reduced to 25% or 0% upon the achievement of certain leverage ratio thresholds), for any fiscal year. Excess cash flow is defined in the senior credit facilities as consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) plus a working capital adjustment less the sum of repayments of debt and capital expenditures subject to certain adjustments, interest and taxes paid in cash, management fees and certain restricted payments (including dividends or distributions). Working capital adjustment is defined in the senior credit facilities as the change in working capital, defined as current assets excluding cash and cash equivalents less current liabilities excluding current portion of long term debt.  As of March 31, 2013, the Company was not required to make an excess cash flow payment.

Each of the senior secured facilities includes a hedge provision, which required the Company to enter into an interest rate hedge commencing 90 days after the closing date. The hedging provision requires the Company to hedge the interest rate on at least 25% of the aggregate outstanding principal amount of the term loans.  The purpose of the interest rate swap is to reduce the Company’s exposure to interest rate volatility.  Effective June 20, 2011, the Company entered into an interest rate swap agreement with a notional amount of $50,000. The interest rate swap negative fair value at March 31, 2013 of $481 is included in other long-term liabilities on the Consolidated Balance Sheet.  The Company has counterparty credit risk resulting from the interest rate swap, which it monitors on an on-going basis. This risk lies with one global financial institution. Under the interest rate swap agreement, effective as of July 18, 2011, the Company either receives or makes payments on a monthly basis based on the differential between 6.335% and LIBOR plus 4.25% (with a LIBOR floor of 1.5%).  The interest rate swap contract on the term loan expires in December 2014.

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Employee Stock Plans (Tables)

3 Months Ended

Mar. 31, 2013

Employee Stock Plans

Summary of stock option activity under the A&R 2004 Plan

	Three months ended
	March 31, 2013
Stock options - beginning of period	37,240
Options exercised	—
Stock options — end of period	37,240

Summary of restricted stock activity

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	208,823		$	12.63	1.94 years
Granted	44,022		$	14.78	2.75 years
Vested	(41,325	)	$	14.64
Cancelled and forfeited	—		—
Unvested at March 31, 2013	211,520		$	12.68	2.08 years
Expected to vest in the future at March 31, 2013	203,905		$	12.68	2.08 years

Summary of RSU activity

					Weighted
			Weighted		Average
			Average		Remaining
	Shares		Grant Date		Contractual
	(In thousands)		Fair value		Term
Unvested at December 31, 2012	26,046		$	14.73	0.72 years
Granted	69,736		$	14.52	1.99 years
Vested	(53,022	)	$	14.68
Cancelled and forfeited	—		—
Unvested at March 31, 2013	42,760		$	14.46	2.44 years
Expected to vest in the future at March 31, 2013	41,721		$	14.46	2.44 years

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Income Taxes (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Effective income tax
Effective tax rate (as a percent)	38.60%	31.50%
Annual estimate
Effective income tax
Effective tax rate (as a percent)	37.00%

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Inventories (Tables)

3 Months Ended

Mar. 31, 2013

Inventories

Schedule of inventories

	March 31, 2013		December 31, 2012
Finished goods and work-in-process	$	43,985	$	29,119
Raw material and supplies	1,114		1,173
	$	45,099	$	30,292