Alamo Group Inc.

Alamo Group Inc. details

Alamo Group is a leader in the design, manufacture, distribution and service of high quality equipment for infrastructure maintenance, agriculture and other applications. Its products include truck and tractor mounted mowing and other vegetation maintenance equipment, street sweepers, snow removal equipment, excavators, vacuum trucks, other industrial equipment, agricultural implements, forestry equipment and related after-market parts and services. The Company, founded in 1969, has approximately 3,950 employees and operates 27 plants in North America, Europe, Australia and Brazil as of September 30, 2020. The corporate offices of Alamo Group Inc. are located in Seguin, Texas.

Ticker:ALG
Employees: 4200

Filing

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER
30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ Commission file number 0-21220 ALAMO GROUP INC. (Exact name of registrant as specified in its charter) Delaware 74-1621248 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 1627 East Walnut , Seguin , Texas 78155 (Address of principal executive offices, including zip code ) 830 - 379-1480 ( Registrant’s telephone number, including area code ) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, par value $.10 per share ALG New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer ☐ ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ At
October
2
8
, 2022, 11,966,
223
shares of common stock, $.10 par value, of the registrant were outstanding. 1 Alamo Group Inc. and Subsidiaries INDEX PART I. FINANCIAL INFORMATION PAGE
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Interim Condensed Consolidated Balance Sheets 3
September
30, 2022 and December 31, 2021
Interim Condensed Consolidated Statements of Income 4
Three and
Nine
Months Ended
September
30, 2022 and
September
30, 2021 Interim Condensed Consolidated Statements of Comprehensive Income 5
Three and
Nine
Months Ended
September
30, 2022 and
September
30, 2021 Interim Condensed Consolidated Statements of Stockholders' Equity 6
Three and
Nine
Months Ended
September
30, 2022 and
September
30, 2021 Interim Condensed Consolidated Statements of Cash Flows
8
Nine
Months Ended
September
30, 2022 and
September
30, 2021 Notes to Interim Condensed Consolidated Financial Statements
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks 2
2
Item 4. Controls and Procedures 2
3
PART II. OTHER INFORMATION 2
3
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
SIGNATURES 25
2 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share amounts)
September
30, 2022 December 31, 2021 ASSETS
Current assets:
Cash and cash equivalents
$ 75,
308
$ 42,115 Accounts receivable, net
30
1
,9
19
237,970 Inventories, net
362,713
320,917 Prepaid expenses and other current assets
7,443
9,500 Income tax receivable
3,24
2 1,666 Total current assets
750,625
612,168 Rental equipment, net
33,156
32,514 Property, plant and equipment
325,
283
321,863 Less: Accumulated depreciation
( 172,
221
) ( 169,372 ) Total property, plant and equipment, net
153,
062
152,491 Goodwill
192,946
202,406 Intangible assets, net
173,508
183,466 Deferred income taxes
1,0
43
1,110 Other non-current assets
23,451
21,587 Total assets
$ 1,3
27,791
$ 1,205,742 LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable
$ 10
0,886
$ 101,396 Income taxes payable
5,21
8 2,613 Accrued liabilities
71,82
0 73,523 Current maturities of long-term debt and finance lease obligations
15,01
0
15,032 Total current liabilities
192,934
192,564 Long-term debt and finance lease obligations, net of current maturities
348,463
254,522 Long-term tax liability
3,781
4,416 Other long-term liabilities
24,821
27,119 Deferred income taxes
20,761
21,458 Stockholders’ equity:
Common stock, $ 0.10 par value, 20,000,000 shares authorized; 11,909,
94
4 and 11,874,178 outstanding at
September
30, 2022 and December 31, 2021, respectively
1,191 1,187 Additional paid-in-capital
128,7
80 124,228 Treasury stock, at cost; 82,600 shares at
September
30, 2022 and December 31, 2021, respectively
( 4,566 ) ( 4,566 ) Retained earnings
700,156
633,804 Accumulated other comprehensive loss
( 88,530
) ( 48,990 ) Total stockholders’ equity
737,031
705,663 Total liabilities and stockholders’ equity
$ 1,3
27,791
$ 1,205,742 See accompanying notes. 3 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Income (Unaudited) Three Months Ended
Nine
Months Ended
September
30,
September 30,
(in thousands, except per share amounts) 2022 2021
2022 2021 Net sales:
Vegetation Management $ 2
28,511
$ 2
09,796
$
704,520
$
608,345
Industrial Equipment 14
0
,2
82
1
28,51
5
422,492
388,705
Total net sales 3
68,793
3
38,311
1,127,012 997,050
Cost of sales 2
7
6,4
28
25
2,015
848,289
746,188
Gross profit 9
2,365
8
6,296
278,723
250,862
Selling, general and administrative expenses 5
2,723
5
2,586
1
61,367
150,803
Amortization expense 3,
802
3,66
7
11,481
10,988
Income from operations
35,840
3
0,043
105,87
5
8
9,0
71
Interest expense ( 3,
734
)
( 2,
660
) (
9,570
) (
8,12
7 ) Interest income
93
29
6
222
877
Other income (expense), net
1,413
3
6
(
473 )
2,6
59
Income before income taxes 3
3
,6
12
27,715
96,054
84,480
Provision for income taxes
7,791
10,196
23,291
2
3,
462
Net Income $ 2
5,821
$
17,519
$
72,763
$
61,018
Net income per common share:
Basic $ 2.
18
$
1.48
$
6.13
$
5.16
Diluted $ 2.
16
$
1.47
$
6.10
$
5.13
Average common shares:
Basic 11,88
3
11,842 11,87
5
11,83
5
Diluted 11,9
41
11,90
0
11,9
3
2 11,89
5
Dividends declared $ 0.18
$ 0.14 $ 0.
54
$ 0.
4
2 See accompanying notes. 4 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended
Nine
Months Ended
September
30,
September 30,
(in thousands) 2022 2021
2022 2021 Net income $ 2
5,821
$
17,519
$
72,763 $ 61,018
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax expense of $(
781
) and
$( 321 )
, and $(
1,685
) and $(
436
), respectively
( 24,921
)
( 9,216 )
(
43,076
)
( 8,660 )
Recognition of deferred pension and other post-retirement benefits, net of tax benefit and (expense) of $
61
and $( 67 ), and $ 3
75
and $(
201
), respectively 20
6
25
1
617
754
Unrealized income on derivative instruments, net of tax expense of $(
7
) and $( 3
54
), and $( 7
45
) and $(
955
), respectively
22
1,331
2,919
3,592
Other comprehensive loss, net of tax
( 24,693
)
( 7,634 )
(
39,540
)
( 4,314 )
Comprehensive income $
1,128
$
9,885
$ 3
3,223
$
5
6,
704
See accompanying notes. 5 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) For
nine
months ended
September
30, 2022 Accumulated Additional Other Total Stock- Common Stock Paid-in Capital Treasury Stock Retained Earnings Comprehensive Loss holders’ Equity (in thousands)
Shares Amount Balance at December 31, 2021 11,791 $ 1,187 $ 124,228 $ ( 4,566 ) $ 633,804 $ ( 48,990 ) $ 705,663 Other comprehensive income — — — — 18,470 3,725 22,195 Stock-based compensation expense — — 1,371 — — — 1,371 Stock-based compensation transactions 20 2 82 — — — 84 Dividends paid ($ 0.18 per share) — — — — ( 2,133 ) — ( 2,133 ) Balance at March 31, 2022 11,811 $ 1,189 $ 125,681 $ ( 4,566 ) $ 650,141 $ ( 45,265 ) $ 727,180 Other comprehensive income — — — — 28,472 ( 18,572 ) 9,900 Stock-based compensation expense — — 1,750 — — — 1,750 Stock-based compensation transactions 15 2 ( 251 ) — — — ( 249 ) Dividends paid ($ 0.18 per share) — — — — ( 2,139 ) — ( 2,139 ) Balance at June 30, 2022 11,826 $ 1,191 $ 127,180 $ ( 4,566 ) $ 676,474 $ ( 63,837 ) $ 736,442 Other comprehensive income — — — — 25,821 ( 24,693 ) 1,128 Stock-based compensation expense — — 1,508 — — — 1,508 Stock-based compensation transactions 1 — 92 — — — 92 Dividends paid ($ 0.18 per share) — — — — ( 2,139 ) — ( 2,139 ) Balance at September 30, 2022 11,827 $ 1,191 $ 128,780 $ ( 4,566 ) $ 700,156 $ ( 88,530 ) $ 737,031 See accompanying notes. 6 For nine months ended September 30, 2021 Accumulated Other Total Stock- Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Comprehensive Loss holders’ Equity (in thousands) Shares Amount Balance at December 31, 2020 11,727 $ 1,181 $ 118,528 $ ( 4,566 ) $ 560,186 $ ( 40,326 ) $ 635,003 Other comprehensive income — — — — 17,462 ( 1,586 ) 15,876 Stock-based compensation expense — — 1,240 — — — 1,240 Stock-based compensation transactions 29 3 773 — — — 776 Dividends paid ($ 0.14 per share) — — — — ( 1,654 ) — ( 1,654 ) Balance at March 31, 2021 11,756 $ 1,184 $ 120,541 $ ( 4,566 ) $ 575,994 $ ( 41,912 ) $ 651,241 Other comprehensive income — — — — 26,037 4,906 30,943 Stock-based compensation expense — — 1,316 — — — 1,316 Stock-based compensation transactions 23 2 ( 604 ) — — — ( 602 ) Dividends paid ($ 0.14 per share) — — — — ( 1,657 ) — ( 1,657 ) Balance at June 30, 2021 11,779 $ 1,186 $ 121,253 $ ( 4,566 ) $ 600,374 $ ( 37,006 ) $ 681,241 Other comprehensive income — — — — 17,519 ( 7,634 ) 9,885 Stock-based compensation expense — — 2,840 — — — 2,840 Stock-based compensation transactions 9 1 ( 647 ) — — — ( 646 ) Dividends paid ($ 0.14 per share) — — — — ( 1,658 ) — ( 1,658 ) Balance at September 30, 2021 11,788 $ 1,187 $ 123,446 $ ( 4,566 ) $ 616,235 $ ( 44,640 ) $ 691,662
See accompanying notes.
7
Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, (in thousands) 2022 2021 Operating Activities Net income $ 72,763 $ 61,018 Adjustment to reconcile net income to net cash (used in) provided by operating activities: Provision for doubtful accounts 319 133 Depreciation - Property, plant and equipment 16,307 15,798 Depreciation - Rental equipment 5,665 6,562 Amortization of intangibles 11,481 10,988 Amortization of debt issuance 500 500 Stock-based compensation expense 4,629 5,396 Provision for deferred income tax (benefit) ( 4,029 ) ( 6,705 ) Gain on sale of property, plant and equipment ( 156 ) ( 4,162 ) Changes in operating assets and liabilities: Accounts receivable ( 74,884 ) ( 38,106 ) Inventories ( 54,122 ) ( 54,408 ) Rental equipment ( 6,416 ) ( 540 ) Prepaid expenses and other assets ( 802 ) ( 1,668 ) Trade accounts payable and accrued liabilities 5,696 36,331 Income taxes payable 910 10,266 Long-term tax payable ( 635 ) 454 Other assets and long-term liabilities, net 1,595 1,530 Net cash (used in) provided by operating activities ( 21,179 ) 43,387 Investing Activities Acquisitions, net of cash acquired ( 2,000 ) — Purchase of property, plant and equipment ( 23,499 ) ( 14,584 ) Proceeds from sale of property, plant and equipment 527 9,287 Purchase of patents — ( 44 ) Net cash used in investing activities ( 24,972 ) ( 5,341 ) Financing Activities Borrowings on bank revolving credit facility 190,000 128,000 Repayments on bank revolving credit facility ( 85,000 ) ( 108,000 ) Principal payments on long-term debt and finance leases ( 11,277 ) ( 11,308 ) Dividends paid ( 6,411 ) ( 4,969 ) Proceeds from exercise of stock options 639 1,485 Common stock repurchased ( 712 ) ( 1,957 ) Net cash provided by financing activities 87,239 3,251 Effect of exchange rate changes on cash and cash equivalents ( 7,895 ) ( 2,303 ) Net change in cash and cash equivalents 33,193 38,994 Cash and cash equivalents at beginning of the year 42,115 50,195 Cash and cash equivalents at end of the period $ 75,308 $ 89,189 Cash paid during the period for: Interest $ 9,742 $ 7,839 Income taxes 27,162 20,151
See accompanying notes.
8
Alamo Group Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September
30, 2022 1. Basis of Financial Statement Presentation General The accompanying unaudited interim condensed consolidated financial statements of Alamo Group Inc. and its subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 (the "2021 10-K"). Effective July 1, 2021, the Company changed its method of accounting for its U.S. inventories from last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. The Company applied this change retrospectively for all prior periods presented. Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This Topic provides accounting relief for the transition away from LIBOR and certain other reference rates. The amendments for this update are effective through December 31, 2022. The Company is evaluating the impact the adoption of this standard will have on our financial statements. 2. Business Combinations On October 26, 2021, the Company acquired 100 % of the issued and outstanding equity interests of Timberwolf Limited (“ Timberwolf ”). Timberwolf manufactures a broad range of commercial wood chippers, primarily serving markets in the U.K. and the European Union. The primary reason for the Timberwolf acquisition was to enhance the Company's forestry and tree care platform for growth by increasing both the Company's product portfolio and capabilities in the European market. The acquisition price was approximately $ 25.0 million. The Company completed its review of the valuation of the purchase price allocation for Timberwolf during the second quarter of 2022. The Company has included the operating results of Timberwolf in its consolidated financial statements since the date of acquisition, these results are considered immaterial. 3. Accounts Receivable Accounts receivable is shown net of sales discounts and the allowance for credit losses. At
September 30, 2022 the Company had $17.2 million in reserves for sales discounts compared to $12.6 million at December 31, 2021 related to products shipped to our customers under various promotional programs. 9 4. Inventories Inventories are stated at the lower of cost or net realizable value. Net inventories consist of the following: (in thousands) September 30, 2022 December 31, 2021 Finished goods $ 320,384 $ 277,760 Work in process 28,410 24,895 Raw materials 13,919 18,262 Inventories, net $ 362,713 $ 320,917 Inventory obsolescence reserves were $ 11.5 million at September 30, 2022 and $ 12.9 million at December 31, 2021. 5. Rental Equipment Rental equipment is shown net of accumulated depreciation of $22.0 million and $20.1 million at September 30, 2022 and December 31, 2021, respectively. The Company recognized depreciation expense of $1.9 million and $2.1 million for the three months ended September 30, 2022 and 2021, respectively and $5.7 million and $6.6 million for the nine months ended September 30, 2022 and 2021, respectively. 6. Fair Value Measurements The carrying values of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate their fair value because of the short-term nature of these items. The carrying value of our debt approximates the fair value as of September 30, 2022 and December 31, 2021, as the floating rates on our outstanding balances approximate current market rates. This conclusion was made based on Level 2 inputs. 7. Goodwill and Intangible Assets The following is the summary of changes to the Company's Goodwill for the nine months ended September 30, 2022: (in thousands) Vegetation Management Industrial Equipment Consolidated Balance at December 31, 2021 $ 132,963 $ 69,443 $ 202,406 Translation adjustment ( 3,836 ) ( 2,105 ) ( 5,941 ) Goodwill adjustment ( 3,519 ) — ( 3,519 ) Balance at September 30, 2022 $ 125,608 $ 67,338 $ 192,946
10
The following is a summary of the Company's definite and indefinite-lived intangible assets net of the accumulated amortization: (in thousands) Estimated Useful Lives
September 30, 2022 December 31, 2021 Definite: Trade names and trademarks 15 - 25 years $ 67,949 $ 68,321 Customer and dealer relationships 8 - 15 years 128,644 126,104 Patents and drawings 3 - 12 years 27,967 29,338 Favorable leasehold interests 7 years 4,200 4,200 Total at cost 228,760 227,963 Less accumulated amortization ( 60,752 ) ( 49,997 ) Total net 168,008 177,966 Indefinite: Trade names and trademarks 5,500 5,500 Total Intangible Assets $ 173,508 $ 183,466 The Company recognized amortization expense of $3.8 million and $3.7 million for the three months ended September 30, 2022 and 2021, respectively, and $11.5 million and $11.0 million for the nine months ended September 30, 2022 and 2021, respectively. 8. Leases The Company leases office space and equipment under various operating and finance leases, which generally are expected to be renewed or replaced by other leases. The finance leases currently held are considered immaterial. The components of lease cost were as follows: Components of Lease Cost Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 2022 2021 Finance lease cost: Amortization of right-of-use assets $ 6 $ 17 $ 25 $ 51 Interest on lease liabilities — 1 1 3 Operating lease cost 1,414 1,464 4,345 3,985 Short-term lease cost 320 365 953 822 Variable lease cost 56 87 268 300 Total lease cost $ 1,796 $ 1,934 $ 5,592 $ 5,161 Rent expense for the three and nine months ended September 30, 2022 and 2021 was immaterial. 11 Maturities of operating lease liabilities were as follows: Future Minimum Lease Payments (in thousands) September 30, 2022 December 31, 2021 2022 $ 1,399 * $ 4,949 2023 4,629 3,793 2024 3,568 2,683 2025 2,779 2,036 2026 2,261 1,652 Thereafter 3,150 3,090 Total minimum lease payments $ 17,786 $ 18,203 Less imputed interest ( 1,176 ) ( 1,311 ) Total operating lease liabilities $ 16,610 $ 16,892 *Period ended September 30, 2022 represents the remaining three months of 2022. Future Lease Commencements As of September 30, 2022, there are additional operating leases, primarily for autos and forklifts, that have not yet commenced in the amount of $ 0.5 million. These operating leases will commence in fiscal year 2022 with lease terms of 3 to 5 years. Supplemental balance sheet information related to leases was as follows: Operating Leases (in thousands) September 30, 2022 December 31, 2021 Other non-current assets $ 16,498 $ 16,744 Accrued liabilities 4,495 4,655 Other long-term liabilities 12,115 12,237 Total operating lease liabilities $ 16,610 $ 16,892 Weighted Average Remaining Lease Term 4.78 years 5.14 years Weighted Average Discount Rate 3.13 % 2.83 % Supplemental Cash Flow information related to leases was as follows: Nine Months Ended September 30, (in thousands) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,971 $ 3,603
1
2
9. Debt The components of long-term debt are as follows:
(in thousands) September 30, 2022 December 31, 2021 Current Maturities: Finance lease obligations $ 10 $ 32 Term debt 15,000 15,000 15,010 15,032 Long-term debt: Finance lease obligations 16 24 Term debt, net 239,447 250,498 Bank revolving credit facility 109,000 4,000 Total Long-term debt 348,463 254,522 Total debt $ 363,473 $ 269,554 As of September 30, 2022, $2.4 million of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors' contracts, resulting in $216.7 million in available borrowings. 10. Common Stock and Dividends Dividends declared and paid on a per share basis were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Dividends declared $ 0.18 $ 0.14 $ 0.54 $ 0.42 Dividends paid $ 0.18 $ 0.14 $ 0.54 $ 0.42 On October 3, 2022, the Company announced that its Board of Directors had declared a quarterly cash dividend of $ 0.18 per share, which was paid on November 1, 2022, to shareholders of record at the close of business on October 18, 2022. 11. Earnings Per Share The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net income per common share. Net income for basic and diluted calculations do not differ. Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share) 2022 2021 2022 2021 Net Income $ 25,821 $ 17,519 $ 72,763 $ 61,018 Average Common Shares: Basic (weighted-average outstanding shares) 11,883 11,842 11,875 11,835 Dilutive potential common shares from stock options 58 58 57 60 Diluted (weighted-average outstanding shares) 11,941 11,900 11,932 11,895 Basic earnings per share $ 2.18 $ 1.48 $ 6.13 $ 5.16 Diluted earnings per share $ 2.16 $ 1.47 $ 6.10 $ 5.13 13 12. Revenue and Segment Information Revenues from Contracts with Customers Disaggregation of revenue is presented in the tables below by product type and by geographical location. Management has determined that this level of disaggregation would be beneficial to users of the financial statements. Revenue by Product Type Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 2022 2021 Net Sales Wholegoods $ 282,619 $ 251,712 $ 877,446 $ 761,674 Parts 76,047 74,009 214,844 201,601 Other 10,127 12,590 34,722 33,775 Consolidated $ 368,793 $ 338,311 $ 1,127,012 $ 997,050 Other includes rental sales, extended warranty sales and service sales as it is considered immaterial. Revenue by Geographical Location Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 2022 2021 Net Sales United States $ 264,915 $ 249,024 $ 803,204 $ 710,814 France 18,369 21,236 65,086 69,252 Canada 24,753 15,499 68,482 60,383 United Kingdom 17,613 15,524 52,682 43,840 Netherlands 8,570 6,624 15,912 22,789 Brazil 9,688 9,212 36,891 23,396 Australia 7,513 4,999 20,454 14,588 Germany 2,757 2,665 4,515 6,497 Other 14,615 13,528 59,786 45,491 Consolidated $ 368,793 $ 338,311 $ 1,127,012 $ 997,050
Net sales are attributed to countries based on the location of the customer. 1
4
Segment Information The following includes a summary of the unaudited financial information by reporting segment at
September 30, 2022: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 2022 2021 Net Sales Vegetation Management $ 228,511 $ 209,796 $ 704,520 $ 608,345 Industrial Equipment 140,282 128,515 422,492 388,705 Consolidated $ 368,793 $ 338,311 $ 1,127,012 $ 997,050 Income from Operations Vegetation Management $ 27,130 $ 21,375 $ 78,261 $ 60,789 Industrial Equipment 8,710 8,668 27,614 28,282 Consolidated $ 35,840 $ 30,043 $ 105,875 $ 89,071 (in thousands) September 30, 2022 December 31, 2021 Goodwill Vegetation Management $ 125,608 $ 132,963 Industrial Equipment 67,338 69,443 Consolidated $ 192,946 $ 202,406 Total Identifiable Assets Vegetation Management $ 873,055 $ 789,838 Industrial Equipment 454,736 415,904 Consolidated $ 1,327,791 $ 1,205,742 13. Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss by component, net of tax, were as follows: Three Months Ended September 30, 2022 2021 (in thousands) Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Balance as of beginning of period $ ( 60,552 ) $ ( 4,606 ) $ 1,321 $ ( 63,837 ) $ ( 26,041 ) $ ( 6,352 ) $ ( 4,613 ) $ ( 37,006 ) Other comprehensive income (loss) before reclassifications ( 24,921 ) — ( 373 ) ( 25,294 ) ( 9,216 ) — 2,013 ( 7,203 ) Amounts reclassified from accumulated other comprehensive loss — 206 395 601 — 251 ( 682 ) ( 431 ) Other comprehensive income (loss) ( 24,921 ) 206 22 ( 24,693 ) ( 9,216 ) 251 1,331 ( 7,634 ) Balance as of end of period $ ( 85,473 ) $ ( 4,400 ) $ 1,343 $ ( 88,530 ) $ ( 35,257 ) $ ( 6,101 ) $ ( 3,282 ) $ ( 44,640 ) 15 Nine Months Ended September 30, 2022 2021 (in thousands) Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Balance as of beginning of period $ ( 42,397 ) $ ( 5,017 ) $ ( 1,576 ) $ ( 48,990 ) $ ( 26,597 ) $ ( 6,855 ) $ ( 6,874 ) $ ( 40,326 ) Other comprehensive income (loss) before reclassifications ( 43,076 ) — 3,503 ( 39,573 ) ( 8,660 ) — 5,593 ( 3,067 ) Amounts reclassified from accumulated other comprehensive loss — 617 ( 584 ) 33 — 754 ( 2,001 ) ( 1,247 ) Other comprehensive income (loss) ( 43,076 ) 617 2,919 ( 39,540 ) ( 8,660 ) 754 3,592 ( 4,314 ) Balance as of end of period $ ( 85,473 ) $ ( 4,400 ) $ 1,343 $ ( 88,530 ) $ ( 35,257 ) $ ( 6,101 ) $ ( 3,282 ) $ ( 44,640 )
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following tables set forth, for the periods indicated, certain financial data: As a Three Months Ended
Nine Months Ended Percent of Net Sales September 30, September 30, 2022 2021 2022 2021 Vegetation Management 62.0 % 62.0 % 62.5 % 61.0 % Industrial Equipment 38.0 % 38.0 % 37.5 % 39.0 % Total sales, net 100.0 % 100.0 % 100.0 % 100.0 % Cost Trends and Profit Margin, as Three Months Ended Nine Months Ended Percentages of Net Sales September 30, September 30, 2022 2021 2022 2021 Gross profit 25.0 % 25.5 % 24.7 % 25.2 % Income from operations 9.7 % 8.9 % 9.4 % 8.9 % Income before income taxes 9.1 % 8.2 % 8.5 % 8.5 % Net income 7.0 % 5.2 % 6.5 % 6.1 % Overview This report contains forward-looking statements that are based on Alamo Group’s current expectations. Actual results in future periods may differ materially from those expressed or implied because of a number of risks and uncertainties which are discussed below and in the Forward-Looking Information section. Unless the context otherwise requires, the terms the "Company", "we", "our" and "us" means Alamo Group Inc. We experienced continued strong demand for our products during the first nine months of 2022 as was reflected in our top line growth. Margins improved due to the increase in shipments along with pricing actions we began in 2021 which helped mitigate inflation cost pressures. However, we continue to be constrained by higher material and inbound freight costs, ongoing supply chain disruptions and skilled labor shortages. For the first nine months of 2022, the Company's net sales increased by 13%, and net income increased by 19% compared to the same period in 2021. The increase in both net sales and net income was primarily due to continued strong customer demand for our products compared to the prior year, positive pricing actions, and ongoing cost and expense discipline. The year-over-year improvement in both net sales and net income was constrained by disruptions in our supply chain, significant input cost inflation (including increased inbound freight and material costs), and tightness in the availability of skilled labor. 16 The Company's Vegetation Management Division experienced a 16% increase in sales for the first nine months of 2022 compared to the first nine months of 2021 primarily as a result of increased customer demand as well as pricing actions. The Division's backlog improved in all product lines with the exception of Brazilian Herder products. The Division's income from operations for the first nine months of 2022 was up 29% versus the same period in 2021, due to increased demand but offset by higher material and inbound freight costs and supply chain disruptions. The Company's Industrial Equipment Division sales increased in the first nine months of 2022 by 9% as compared to the first nine months of 2021. Industrial Equipment sales were strong in the excavator and vacuum truck product lines and were also supported by moderate sales increases in our street sweeper, debris collector and snow removal equipment lines. Negatively impacting this Division were higher input costs and supply chain disruptions including a shortage of truck chassis. These challenges had a negative effect on the Division's income from operations which led to a 2% decline for the first nine months of 2022 compared to the first nine months of 2021. Consolidated income from operations was $105.9 million in the first nine months of 2022 compared to $89.1 million in the first nine months of 2021, an increase of 19%. The Company's backlog increased 41% to $908.9 million at the end of the third quarter of 2022 versus a backlog of $645.1 million at the end of the third quarter of 2021. The increase in the Company's backlog was primarily attributable to strong customer demand for our products in both Divisions as outlined above. The effects of the COVID-19 pandemic continue to impact our business and operations. There has been a general decline in the number of COVID-19 cases in our facilities despite occasional localized outbreaks. However, new strains of the disease and/or a significant resurgence of cases could negatively impact us in the future by, among other things, reducing overall customer demand for our products or creating significant operational disruptions in our manufacturing facilities that could lead to delayed deliveries and/or production inefficiencies and higher costs. The indirect effects of the pandemic, including supply chain and logistics challenges, the unavailability of certain raw materials and key product components, input cost inflation and labor shortages, continue to negatively impact us and seem likely to persist in the near-term. While the direct and indirect consequences of the COVID-19 pandemic continue to pose significant challenges, the Company may also be negatively affected by several other factors such as increases in interest rates, changes in tariff regulations and the imposition of new tariffs, ongoing trade disputes, further supply chain issues, changes in U.S. fiscal policy such as changes in the federal tax rate, weakness in the overall world-wide economy, significant changes in currency exchange rates, negative economic impacts resulting from geopolitical events such as the war in Ukraine, changes in trade policy, increased levels of government regulations, weakness in the agricultural sector, acquisition integration issues, budget constraints or revenue shortfalls in governmental entities, and other risks and uncertainties as described in “Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). Results of Operations Three Months Ended September 30, 2022 vs. Three Months Ended September 30, 2021 Net sales for the third quarter of 2022 were $368.8 million, an increase of $30.5 million or 9% compared to $338.3 million for the third quarter of 2021. Net sales during the third quarter of 2022 improved due to strong customer demand for our products versus the third quarter of 2021, as well as positive pricing actions. Negatively affecting the third quarter of 2022 were higher costs for materials and inbound freight, supply chain disruptions, which caused component shortages, and related operational disruptions and continuing labor constraints. Net Vegetation Management sales increased by $18.7 million or 9% to $228.5 million for the third quarter of 2022 compared to $209.8 million during the same period in 2021. The increase was due to strong performance in all product lines particularly agricultural, forestry and tree care and governmental mowing equipment in both North America and Europe. Supply chain disruptions and labor shortages had an overall negative impact during the third quarter of 2022. Currency translation effects also negatively impacted net sales in this division during the third quarter. Net Industrial Equipment sales were $140.3 million in the third quarter of 2022 compared to $128.5 million for the same period in 2021, an increase of $11.8 million or 9%. The increase was mainly due to 17 continued solid results in our excavator and vacuum truck product lines with modest support from other product lines. This Division was also negatively impacted by ongoing supply chain disruptions and logistics issues in the third quarter of 2022, including delays in receiving truck chassis and component parts from supply chain partners. Gross profit for the third quarter of 2022 was $92.4 million (25% of net sales) compared to $86.3 million (26% of net sales) during the same period in 2021, an increase of $6.1 million. The increase in gross profit during the third quarter of 2022 compared to the third quarter of 2021 was primarily attributable to higher sales volume and positive pricing actions. Profitability in the quarter was negatively impacted by supply chain disruptions, shortages of component parts, along with higher costs of materials and inbound freight. These factors had a negative effect on the Company's gross margin percentage during the third quarter of 2022. Selling, general and administrative expenses (“SG&A”) were $52.7 million (14% of net sales) during the third quarter of 2022 compared to $52.6 million (16% of net sales) during the same period of 2021, an increase of $0.1 million. The increase in SG&A expense in the third quarter of 2022 compared to the third quarter of 2021 was attributable to higher administrative, marketing and engineering expenses as the Company returned to pre-pandemic expense levels. Included in the 2021 SG&A expenses, are additional stock based compensation in the amount of $1.1 million related to the acceleration of restricted stock awards of our former CEO. Amortization expense in the third quarter of 2022 was $3.8 million compared to $3.7 million in the same period in 2021, an increase of $0.1 million. Interest expense was $3.7 million for the third quarter of 2022 compared to $2.7 million during the same period in 2021. Other income (expense), net was $1.4 million of income for the third quarter of 2022 compared to $36.0 thousand of income during the same period in 2021. Both the income in 2021 and the expense in 2022 was primarily the result of changes in currency exchange rates. Provision for income taxes was $7.8 million (23% of income before income tax) in the third quarter of 2022 compared to $10.2 million (37% of income before income tax) during the same period in 2021. The Company’s net income after tax was $25.8 million or $2.16 per share on a diluted basis for the third quarter of 2022 compared to $17.5 million or $1.47 per share on a diluted basis for the third quarter of 2021. The increase of $8.3 million resulted from the factors described above. Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021 Net sales for the first nine months of 2022 were $1,127.0 million, an increase of $129.9 million or 13% compared to $997.1 million for the first nine months of 2021. The increase in net sales was attributable to continued strong customer demand for our products in both the Vegetation Management and Industrial Equipment Divisions and improved pricing. Negatively impacting net sales were higher costs for materials and inbound freight, supply chain disruptions and a shortage of skilled labor. Net Vegetation Management sales increased during the first nine months by $96.2 million or 16% to $704.5 million for 2022 compared to $608.3 million during the same period in 2021. The increase was due to a strong performance in all product lines, particularly forestry and tree care and agricultural and governmental mowing equipment in both North America and Europe. Supply chain disruptions, labor constraints and unfavorable input cost changes constrained this Division during the first nine months of 2022. Net Industrial Equipment sales were $422.5 million during the first nine months of 2022 compared to $388.7 million for the same period in 2021, an increase of $33.8 million or 9%. The increase in sales for the first nine months of 2022 compared to the first nine months of 2021 was mainly due to the continued solid results in excavator and vacuum truck product lines, with modest support from other product lines. Net sales in the first nine months of 2022 were negatively affected by supply chain disruptions and higher input costs in both material and inbound freight costs. 18 Gross profit for the first nine months of 2022 was $278.7 million (25% of net sales) compared to $250.9 million (25% of net sales) during the same period in 2021, an increase of $27.8 million. The increase in gross profit was mainly attributable to higher sales volume during the first nine months of 2022 compared to the first nine months of 2021 as well as improved pricing. Shortages of component parts along with higher costs of materials and inbound freight negatively impacted the first nine months of 2022. SG&A expenses were $161.4 million (14% of net sales) during the first nine months of 2022 compared to $150.8 million (15% of net sales) during the same period of 2021, an increase of $10.6 million. The increase in SG&A expense in the first nine months of 2022 compared to the first nine months of 2021 was attributable to higher administrative, marketing and engineering expenses as the Company returned to pre-pandemic expense levels. Amortization expense in the first nine months of 2022 was $11.5 million compared to $11.0 million in the same period in 2021, an increase of $0.5 million. Interest expense was $9.6 million for the first nine months of 2022 compared to $8.1 million during the same period in 2021, an increase of $1.5 million. Other income (expense), net was $0.5 million of expense during the first nine months of 2022 compared to $2.7 million of income in the first nine months of 2021. The expense in 2022 is primarily from an excise tax audit and to a lesser extent, changes in exchange rates. The income in 2021 is primarily from changes in exchange rates and the sale of a facility in the Netherlands for $3.4 million. Provision for income taxes was $23.3 million (24% of income before income taxes) in the first nine months of 2022 compared to $23.5 million (28% of income before income taxes) during the same period in 2021. The Company's net income after tax was $72.8 million or $6.10 per share on a diluted basis for the first nine months of 2022 compared to $61.0 million or $5.13 per share on a diluted basis for the first nine months of 2021. The increase of $11.8 million resulted from the factors described above. Liquidity and Capital Resources In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to operate the business, including inventory purchases and capital expenditures. The Company’s accounts receivable, inventory and accounts payable levels, particularly in its Vegetation Management Division, build in the first quarter and early spring and, to a lesser extent, in the fourth quarter in anticipation of the spring and fall selling seasons. Accounts receivable historically build in the first and fourth quarters of each year as a result of pre-season sales and year-round sales programs. These sales, primarily in the Vegetation Management Division, help balance the Company’s production during the first and fourth quarters. As of September 30, 2022, the Company had working capital of $557.7 million which represents an increase of $138.1 million from working capital of $419.6 million at December 31, 2021. The increase in working capital was primarily a result of volume-driven and inflation-driven increases in accounts receivable as well as an increase in inventory to support the Company's higher backlog levels. Capital expenditures were $23.5 million for the first nine months of 2022, compared to $14.6 million during the first nine months of 2021. The Company expects to approve a normalized capital expenditure level of approximately $30.0 million for the full year of 2022. The Company will fund any future expenditures from operating cash flows or through our revolving credit facility, described below. Ne t cash used for investing activities was $25.0 million during the first nine months of 2022 compared to $5.3 million during the first nine months of 2021. Net cash provided by financing activities was $87.2 million and $3.3 million during the nine month periods ended September 30, 2022 and September 30, 2021, respectively. Higher net cash provided by financing activities for the first nine months of 2022 relates to increased borrowings on the Company's revolving credit facility used for increased working capital needs in support of elevated backlog levels. The Company had $73.9 million in cash and cash equivalents held by its foreign subsidiaries as of September 30, 2022. The majority of these funds are at our European and Canadian facilities. The Company will continue to repatriate European and Canadian cash and cash equivalents in excess of amounts needed to fund operating and investing activities in these locations, and will monitor exchange rates to determine the appropriate timing of such repatriation given the current relative value of the U.S. dollar. Repatriated funds will initially be used 19 to reduce funded debt levels under the Company's current credit facility and subsequently used to fund working capital, capital investments and acquisitions company-wide. As of September 30, 2022, $364.0 million was outstanding under the Credit Agreement, $255.0 million on the Term Facility and $109.0 million on the Revolver Facility. On September 30, 2022, $2.4 million of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors' contracts resulting in $216.7 million in available borrowings. The Company is in compliance with the covenants under the Agreement as of September 30, 2022. On October 28, 2022, the Company, as Borrower, and each of its domestic subsidiaries as guarantors, entered into a Third Amended and Restated Credit Agreement (the “ 2022 Credit Agreement ”) with Bank of America, N.A., as Administrative Agent. The 2022 Credit Agreement provides Borrower with the ability to request loans and other financial obligations in an aggregate amount of up to $655,000,000. Under the 2022 Credit Agreement, the Company has borrowed $255,000,000 pursuant to a Term Facility, while up to $400,000,000 is available to the Company pursuant to a Revolver Facility which terminates in five years. The Term Facility requires the Company to make equal quarterly principal payments of $3,750,000 over the term of the loan, with the final payment of any outstanding principal amount, plus interest, due at the end of the five year term. Borrowings under the 2022 Credit Agreement bear interest, at the Company’s option, at a Term Secured Overnight Financing Rate (“SOFR”) or a Base Rate (each as defined in the 2022 Credit Agreement), plus, in each case, an applicable margin. The applicable margin ranges from 1.25% to 2.50% for Term SOFR borrowings and from .25% to 1.50% for Base Rate borrowings with the margin percentage based upon the Company's consolidated leverage ratio. The Company must also pay a commitment fee to the lenders ranging between 0.15% to 0.30% on any unused portion of the $400,000,000 Revolver Facility. The 2022 Credit Agreement requires the Company to maintain two financial covenants, namely, a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. The Agreement also contains various covenants relating to limitations on indebtedness, limitations on investments and acquisitions, limitations on the sale of properties and limitations on liens and capital expenditures. The Agreement also contains other customary covenants, representations and events of defaults. The expiration date of the 2022 Credit Agreement, including the Term Facility and the Revolver Facility, is October 28, 2027. Management believes the 2022 Credit Agreement along with the Company’s ability to internally generate funds from operations should be sufficient to allow the Company to meet its cash requirements for the foreseeable future. However, future
challenges affecting the banking industry and credit markets in general could potentially cause changes to credit availability, which creates a level of uncertainty. Critical Accounting Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, particularly given the uncertainty created by the COVID-19 pandemic. Critical Accounting Policies An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes that of the Company's significant accounting policies, which are set forth in Note 1 of the Notes to Consolidated Financial Statements in the 2021 Form 10-K, the policies relating to the business combinations involve a higher degree of judgment and complexity. There have been no material changes to the nature of estimates, assumptions and levels of subjectivity and judgment related to critical accounting estimates disclosed in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2021 Form 10-K.
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Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are likely to have a current or future material effect on our financial condition. Forward-Looking Information Part I of this Quarterly Report on Form 10-Q and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, forward-looking statements may be made orally or in press releases, conferences, reports or otherwise, in the future by or on behalf of the Company. Statements that are not historical are forward-looking. When used by or on behalf of the Company, the words “estimate,” "anticipate," "expect," “believe,” “intend”, "will", "would", "should", "could" and similar expressions generally identify forward-looking statements made by or on behalf of the Company. Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses operating in a global market, as well as matters specific to the Company and the markets it serves. Particular risks and uncertainties facing the Company include changes in market conditions; the ongoing direct and indirect impacts of the COVID-19 pandemic; changes in tariff regulations and the imposition of new tariffs; a strong U.S. dollar; increased competition; negative economic impacts resulting from geopolitical events such as the war in Ukraine or trade wars; decreases in the prices of agricultural commodities, which could affect our customers' income levels; increase in input costs; our inability to increase profit margins through continuing production efficiencies and cost reductions; repercussions from the exit by the U.K. from the European Union (EU); acquisition integration issues; budget constraints or income shortfalls which could affect the purchases of our type of equipment by governmental customers; credit availability for both the Company and its customers, adverse weather conditions such as droughts, floods, snowstorms, etc. which can affect buying patterns of the Company’s customers and related contractors; the price and availability of raw materials and product components; energy cost; increased cost of governmental regulations which effect corporations including related fines and penalties (such as the European General Data Protection Regulation and the California Consumer Privacy Act); the potential effects on the buying habits of our customers due to animal disease outbreaks and other epidemics; the Company’s ability to develop and
manufacture new and existing products profitably; market acceptance of new and existing products; the Company’s ability to maintain good relations with its employees; the Company's ability to successfully complete acquisitions and operate acquired businesses or assets; the ability to hire and retain quality skilled employees; cyber security risks affecting information technology or data security breaches; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, on the Company or its customers, suppliers and the economy in general. The Company continues to experience the impacts of COVID-19 on its markets and operations including, most notably, supply chain disruptions, input cost inflation and skilled labor shortages. The full extent to which COVID-19 will continue to adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable. In addition, the Company is subject to risks and uncertainties facing the industry in general, including changes in business and political conditions and the economy in general in both domestic and international markets; weather conditions affecting demand; slower growth in the Company’s markets; financial market changes including increases in interest rates and fluctuations in foreign exchange rates; actions of competitors; the inability of the Company’s suppliers, customers, creditors, public utility providers and financial service organizations to deliver or provide their products or services to the Company; seasonal factors in the Company’s industry; litigation; government actions including budget levels, regulations and legislation, primarily relating to the environment, commerce, infrastructure spending, health and safety; and availability of materials. The Company wishes to caution readers not to place undue reliance on any forward-looking statements and to recognize that the statements are not predictions of actual future results. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning the Company and its businesses, including factors that could potentially materially affect the
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Company’s financial results, may emerge from time to time. It is not possible for management to predict all risk factors or to assess the impact of such risk factors on the Company’s businesses. Item 3. Quantitative and Qualitative Disclosures About Market Risks The Company is exposed to various market risks. Market risks are the potential losses arising from adverse changes in market prices and rates. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Foreign Currency Risk International Sales A portion of the Company’s operations consists of manufacturing and sales activities in international jurisdictions. The Company primarily manufactures its products in the U.S., U.K., France, Canada, Brazil, Australia and the Netherlands. The Company sells its products primarily in the functional currency within the markets where the products are produced, but certain sales from the Company's U.K. and Canadian operations are denominated in other foreign currencies. As a result, the Company’s financials, specifically the value of its foreign assets, could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the other markets in which the subsidiaries of the Company distribute their products. Foreign exchange rates and economic conditions in these foreign markets may be further impacted by the effects of the COVID-19 pandemic. Exposure to Exchange Rates The Company translates the assets and liabilities of foreign-owned subsidiaries at rates in effect at the balance sheet date. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in accumulated other comprehensive income within the statement of stockholders’ equity. The total foreign currency translation adjustment for the current quarter decreased stockholders’ equity by $
24.9 million. The Company’s earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately in Europe and Canada, as a result of the sales of its products in international markets. Forward currency contracts are used to hedge against the earnings effects of such fluctuations. The result of a uniform 10% strengthening or 10% decrease in the value of the dollar relative to the currencies in which the Company’s sales are denominated would result in a change in gross profit of $8.1 million for the nine month period ended September 30, 2022. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which include a changed dollar value of the resulting sales, changes in exchange rates may also affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. The Company’s sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. Interest Rate Risk The Company’s long-term debt bears interest at variable rates. Accordingly, the Company’s net income is affected by changes in interest rates. Assuming the current level of borrowings at variable rates and a two percentage point change for the third quarter 2022 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately $1.8 million. In the event of an adverse change in interest rates, management could take actions to mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects this analysis assumes no such actions. Further this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. In January 2020, the Company entered into an interest rate swap agreement with three of its total lenders that hedge future cash flows related to its outstanding debt obligations. As of September 30, 2022, the Company had $364.0 million outstanding under the Credit Agreement of which $200.0 million was hedged in a three year interest rate swap contract with a fixed LIBOR base rate of 1.43%. 22
Item 4. Controls and Procedures Disclosure Controls and Procedures An evaluation was carried out under the supervision and with the participation of Alamo’s management, including our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer (Principal Financial Officer) and Vice President, Controller and Treasurer, (Principal Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon the evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer (Principal Financial Officer) and Vice President, Controller and Treasurer, (Principal Accounting Officer) concluded that the Company’s design and operation of these disclosure controls and procedures were effective at the end of the period covered by this report. Changes in internal control over financial reporting There has been no change in our internal control over financial reporting that occurred during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings For a description of legal proceedings, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 (the "2021 10-K"). Item 1A. Risk Factors There have not been any material changes from the risk factors previously disclosed in the 2021 Form 10-K for the year ended December 31, 2021. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table provides a summary of the Company's repurchase activity for its common stock during the three months ended
September
30, 2022: Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly announced Plans or Programs Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a)
July 1-31, 2022 — — — $25,861,222 August 1-31, 2022 — — — $25,861,222 September 1-30, 2022
— — — $25,861,222 (a) On December 13, 2018, the Board authorized a stock repurchase program of up to $30.0 million of the Company's common stock. The program has a term of five (5) years, terminating on December 12, 2023. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not Applicable Item 5. Other Information (a) Reports on Form 8-K
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None. (b) Other Information None. Item 6. Exhibits (a) Exhibits Exhibits Exhibit Title Incorporated by Reference From the Following Documents 31.1 — Certification by Jeffery A. Leonard under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith 31.2 — Certification by Richard J. Wehrle under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith 32.1 — Certification by Jeffery A. Leonard under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith 32.2 — Certification by Richard J. Wehrle under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith 101.INS — XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document Filed Herewith 101.SCH — XBRL Taxonomy Extension Schema Document Filed Herewith 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith 101.DEF — XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith 101.LAB — XBRL Taxonomy Extension Label Linkbase Document Filed Herewith 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith 104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed Herewith 24 Alamo Group Inc. 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.
November
3, 2022 Alamo Group Inc. (Registrant) /s/ Jeffery A. Leonard Jeffery A. Leonard President & Chief Executive Officer /s/ Richard J. Wehrle Richard J. Wehrle Executive Vice President & Chief Financial Officer (Principal Financial Officer) 25