# Dear Fellow shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_PLOW_2017/NYSE_PLOW_2017.mmd` · pages 1-7_

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Dear Fellow shareholders,

Comparing our company today to our position just a few years ago, it is clear we have significantly expanded the size and scope of our business. Our positive performance in 2017 is a testament to the nearly 1,700 dedicated individuals at Douglas Dynamics who strive every day to provide the highest quality products and service to our customers and help maintain and expand our market position. I am honored to lead such an amazing company as we continue to grow and evolve. As I look back on the past year, I firmly believe we have the right strategy in place and have made great progress in executing our plans.

Overall, it is clear that 2017 was a positive year for both the attachments segment and the solutions segment. With a full-year of results from our solutions segment, the ongoing stability in the economy and positive dealer settlement, plus strong backlog, and demand trends we produced record full year consolidated net sales. We are pleased with our operating performance, especially given the chassis availability headwinds we faced and slow start to winter weather across most of the country. In addition, select North American pickup truck sales increased 4% in 2017 compared to the previous year. We also continue to see improving dealer optimism and dealer field inventory levels remain positive. The teams at WESTERN \( ^{®} \) , FISHER \( ^{®} \)  and SnowEx \( ^{®} \)  have done a terrific job and we are already looking forward to preseason.

As we explained during the year, our Henderson \( ^{®} \)  team experienced chassis availability delays, but we are now seeing sequential improvements and are receiving more chassis today. The Henderson \( ^{®} \)  team continues to work hard to adjust operations and the positive underlying trend is that demand and order trends remain strong in the medium to long-term and our business continues to strengthen.
In our Work Truck Solutions segment, the important strategic investments made in 2017 will enable us to take advantage of the many growth opportunities in the years ahead. During the year, we opened four new facilities, in Pennsylvania, New York, and Missouri. In the first half of the year, we opened a new greenfield facility in Chalfont, Pennsylvania, and acquired two facilities near Albany, New York as part of the acquisition of Arrowhead Equipment. These new facilities will help us better serve our OEM partners that are expanding their operations in those areas. Towards the end of the year, we completed the development of our new Kansas City facility and have begun accepting ship-thru vehicles at that location. This facility will be focused on assisting an important OEM partner with the uplift of medium and large size vans, which are produced nearby. We expect revenue from the new ship-thru vehicles to ramp up in the coming years. Our sales team is now actively quoting new business and the long-term opportunities are exciting.

Full year net sales were a record \(475 million, increasing 14% over prior year. Revenue increased due to the incremental sales from our Dejana \( ^{®} \)  and Arrowhead acquisitions, both in our Work Truck Solutions segment. This increase was partially offset by lower volumes in Work Truck Attachments, which were impacted by the significantly below average snowfall of the last two seasons and chassis availability issues impacting our municipal operations.

Full year net income of \(55.3 million, or \)2.40 per diluted share increased from \(39.0 million, or \)1.70 per diluted share a year ago. The results include a one-time benefit of \(22.5 million, or \)0.97 per diluted share associated with U.S. Tax Reform. Full year adjusted net income of \(33.5 million, or \)1.45 adjusted earnings per share, compared to $36.4 million, or $1.58 in 2016.

Our performance across both the attachments and solutions segments during 2017 produced record cash flow, which has always been a hallmark of Douglas Dynamics. During 2017, we used excess cash to pay

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quarterly cash dividends of \(0.24 per diluted share. For 2018, the Board of Directors and management decided it is appropriate to increase the dividend, declaring a quarterly cash dividend of \)0.265 per share for the first quarter. This increase is larger than previous years and equates to a projected full year annual increase of 10%, or \(0.10 per diluted share. We felt the larger increase was appropriate given our financial performance and the projected favorable impact to our tax rate due to the 2017 tax reform.

Aside from the dividend, we remain committed to using our excess capital to reduce our debt. For M&A, we are continually tracking companies that would be a good strategic fit with our offering and we will pursue logical deals while maintaining our disciplined approach. For now, we are focused on integrating and pursuing DDMS projects in our Work Iruck Solutions segment. While we will continue to explore potential opportunities, there are no major deals on the horizon at this time.

As 2018 starts to unfold, we are focused on executing our plans effectively. I just returned from the National Truck Equipment Association (NTEA) Work Truck Show in Indianapolis. This year, both our FISHER \( ^{\circledR} \)  and WESTERN \( ^{\circledR} \)  brands introduced revolutionary heavy weight plows more focused on class 3-6 trucks. We also introduced two new versions of our productivity-enhancing expandable plows that extend from 8 to 11 feet. The new products were received enthusiastically by dealers and end users alike, which bodes well for the upcoming pre-season sales period. Henderson \( ^{\circledR} \)  also displayed a new all-season class 8 body that utilizes a belt system to eject material rather than traditional aerial hoist mechanisms, which increases productivity and safety, and garnered significant interest from both end users and dealers. In addition, our Dejana \( ^{\circledR} \)  team also displayed at the show for the first time, highlighting their innovative and patented Katerack and DuraRac storage systems.

Overall, we feel confident about our long-term business prospects for both segments and are focused on managing our business effectively and growing efficiently. As such, we expect to produce a strong performance with net sales for the full year 2018 to come in between \(475 million and \)535 million. This should produce adjusted EBITDA in the range of \(85 million to \)115 million, which would translate into adjusted earnings per share between \(1.60 and \)2.20 per share.

We continue to focus on Douglas Dynamics Management System (DDMS) across all our operations and make strategic investments that position us for future growth. Over the past few years, we have broadened and diversified our product and service offering, providing increased stability and balance, and given the fantastic results we continue to achieve in our core business we are heavily focused on integrating this core competency into our newer municipal and solutions businesses.

In addition, we continue to strive for improvements with our core commercial snow and ice control brands. For example, in our Work Truck Attachments segment, we have made significant upgrades at our Madison Heights, Michigan operations shifting from an assembly focused facility adding significant manufacturing and fabrication capabilities using a combination of investments in technology upgrades and utilizing DDMS techniques. This process will allow us to anticipate potential opportunities and grow more effectively in the future to maintain our industry leadership from an operational perspective.

Our core commercial snow and ice control products are using DDMS to drive innovation of new products that provide solutions to a wider range of end users, essentially matching our product development with specific challenges end users face, getting more granular information and analysis, and providing a wider and deeper array of products to address those needs. For example, we are delivering more products focused on sidewalks and non-truck based applications, broadening the markets we serve. In addition, the light weight plows we introduced last year have been very well received and in 2018 we are introducing the second generation of expandable plows. As I've just illustrated, the ongoing focus of DDMS is to improve the quality and service we provide to customers and end users.

If there is one fact about our company that I am reminded of every day, it is strength and depth of our team. Over the years, our HR team, led by Vice President Linda Evans, has done an excellent job training, and developing our people and promoting from within wherever possible. We have also worked hard to complement our team's capabilities by recruiting high quality individuals to the company. When combined, these factors will continue to be critical components to our ongoing success, helping to build a stronger company.

As an example, our Milwaukee operations were once again awarded a 2017 Top Workplaces honor by The Milwaukee Journal Sentinel. We are one of only a handful of organizations to make the list every year since it was first published in 2010. I am also pleased to note that our SnowEx \( ^{®} \)  operations based in Madison Heights, Michigan, has been awarded a 2017 Top Workplaces honor by the Detroit Free Press. Both lists

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are based solely on the results of an employee feedback survey, and I am honored that our employees see the company as a rewarding place to work and build a fulfilling career. It is a testament to the company's values of accountability, excellence, innovation, leadership and fostering a collaborative environment. I am proud of the fact that Douglas Dynamics maintains one of the lowest turnover rates in the industry, an accomplishment the company attributes to employee empowerment and ongoing skill development initiatives.

In addition, Fisher Engineering was awarded the SIMA Philanthropic Leadership Award at the 20th Annual Snow & Ice Symposium in 2017, in recognition of their support for the Maine Breast Cancer Coalition, as well as the Susan G. Komen Fund for Breast Cancer Research. FISHER \( ^{®} \)  also supports Habitat for Humanity, local food pantries and homeless coalitions in Maine, and Trekkers, which is a mentorship organization that connects young people with caring adults. In order to further advance their support efforts, FISHER \( ^{®} \)  has a program that matches employee donations to the united Midcoast Charities (UMCC). This provides the opportunity for employees to make twice the impact and strengthens the bond between our employees and the organization.

As you may remember, another important change during the year was the implementation of a management transition as part of our corporate expansion plans and growth strategy. As such, Bob McCormick was promoted to Chief Operating Officer. He assumed day-to-day responsibility for both of the company's reporting segments, Work Truck Attachments and Work Truck Solutions, and his CFO responsibilities were transferred to Sarah Lauber, who joined the company at the end of August.

As we have grown significantly in recent years, both organically and via acquisition, we decided this year was the right time to expand our leadership team by creating a Chief Operating Officer position. Adding the COO position has already allowed us to be more effective as a management team by focusing our efforts and allowing us to tackle more projects simultaneously. Bob has been instrumental in orchestrating our growth and acquisition strategies in recent years and had been effectively operating as a part-time COO for some time. Throughout his 13-year tenure with Douglas, Bob has proven his excellent leadership skills and operational expertise, particularly following the acquisition of the Work Truck Solutions segment in mid-2016.
Thankfully, we quickly found a first-rate CFO in Sarah Lauber, who has been an excellent addition to the team. Her impeccable credentials include more than two years as a public company CFO at a diversified industrial company, and extensive acquisition integration experience. As we expected, she has proven to be an ideal fit for Douglas and quickly excelled in her new role. Suffice to say, we are making great progress and have the right strategy in place.

Overall, we are pleased with our 2017 results. We experienced various challenges, and we are proud of the way our teams have stepped up to the challenges. We continue to see tremendous opportunities in the years ahead and our teams are doing everything to deliver for our customers, strengthening relationships, and building our brand power. We firmly believe that we have the right team and strategy in place to deliver positive results and growth over the long-term, and stand today as a stronger company with a more diverse set of products and services.

As we look further into 2018, we feel positive about our business and our long-term prospects for the future. The additions that we made last year will continue to be a key focus as we expand the Work Truck Solutions segment and address multiple market opportunities. Our Work Truck Attachments business remains well positioned for continued success. We do not take our market leadership for granted. We will continue to strive to improve and fulfill our considerable potential. In the rapidly changing global economy, we are fully aware of the need to maintain our market position and stay ahead of the competition.

Thank you for your ongoing support of Douglas Dynamics. I am pleased we have been able to deliver on our commitments and look forward to continuing to execute effectively in 2018 and beyond.

Sincerely,

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JAMES L. JANIK
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER