10-Q 1 alg-20220930.htm 10-Q alg-20220930
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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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value
$.10 per share
ALGNew 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 28, 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)
September 30, 2022 and December 31, 2021
Three and Nine Months Ended September 30, 2022 and September 30, 2021
Three and Nine Months Ended September 30, 2022 and September 30, 2021
Three and Nine Months Ended September 30, 2022 and September 30, 2021
Nine Months Ended September 30, 2022 and September 30, 2021
Item 2.
Item 3.
Item 4.
PART II.
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

2


Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(Unaudited) 
 
(in thousands, except share amounts)
September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$75,308 $42,115 
Accounts receivable, net
301,919 237,970 
Inventories, net
362,713 320,917 
Prepaid expenses and other current assets
7,443 9,500 
Income tax receivable
3,242 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
1,043 1,110 
Other non-current assets
23,451 21,587 
Total assets
$1,327,791 $1,205,742 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable
$100,886 $101,396 
Income taxes payable
5,218 2,613 
Accrued liabilities
71,820 73,523 
Current maturities of long-term debt and finance lease obligations
15,010 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; 11,909,944 and 11,874,178 outstanding at September 30, 2022 and December 31, 2021, respectively
1,191 1,187 
Additional paid-in-capital
128,780 124,228 
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
$1,327,791 $1,205,742 

See accompanying notes.
3


Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts)2022202120222021
Net sales:
Vegetation Management
$228,511 $209,796 $704,520 $608,345 
Industrial Equipment
140,282 128,515 422,492 388,705 
Total net sales368,793 338,311 1,127,012 997,050 
Cost of sales276,428 252,015 848,289 746,188 
Gross profit92,365 86,296 278,723 250,862 
Selling, general and administrative expenses52,723 52,586 161,367 150,803 
Amortization expense3,802 3,667 11,481 10,988 
Income from operations
35,840 30,043 105,875 89,071 
Interest expense(3,734)(2,660)(9,570)(8,127)
Interest income93 296 222 877 
Other income (expense), net1,413 36 (473)2,659 
Income before income taxes
33,612 27,715 96,054 84,480 
Provision for income taxes7,791 10,196 23,291 23,462 
Net Income
$25,821 $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
11,883 11,842 11,875 11,835 
Diluted
11,941 11,900 11,932 11,895 
Dividends declared$0.18 $0.14 $0.54 $0.42 
 
 See accompanying notes.
 
4


Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Net income$25,821 $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 $375 and $(201), respectively
206 251 617 754 
Unrealized income on derivative instruments, net of tax expense of $(7) and $(354), and $(745) 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 $33,223 $56,704 

See accompanying notes.


5



Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Stockholders’ Equity
 (Unaudited)

For nine months ended September 30, 2022
Common Stock
Additional
Paid-in Capital
Treasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
(in thousands)
SharesAmount
Balance at December 31, 202111,791 $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, 202211,811 $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, 202211,826 $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, 202211,827 $1,191 $128,780 $(4,566)$700,156 $(88,530)$737,031 

See accompanying notes.

6


For nine months ended September 30, 2021
Common Stock
Additional Paid-in Capital
Treasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
(in thousands)SharesAmount
Balance at December 31, 202011,727 $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, 202111,756 $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, 202111,779 $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, 202111,788 $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)20222021
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 equipment527 9,287 
Purchase of patents (44)
Net cash used in investing activities(24,972)(5,341)
Financing Activities
Borrowings on bank revolving credit facility190,000 128,000 
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 options639 1,485 
Common stock repurchased(712)(1,957)
Net cash provided by financing activities87,239 3,251 
Effect of exchange rate changes on cash and cash equivalents(7,895)(2,303)
Net change in cash and cash equivalents33,193 38,994 
Cash and cash equivalents at beginning of the year42,115 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, 2022December 31, 2021
Finished goods$320,384 $277,760 
Work in process28,410 24,895 
Raw materials13,919 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 ManagementIndustrial EquipmentConsolidated
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, 2022December 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 cost228,760 227,963 
Less accumulated amortization(60,752)(49,997)
Total net168,008 177,966 
Indefinite:
Trade names and trademarks5,500 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
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Finance lease cost:
     Amortization of right-of-use assets$6 $17 $25 $51 
     Interest on lease liabilities 1 1 3 
Operating lease cost1,414 1,464 4,345 3,985 
Short-term lease cost320 365 953 822 
Variable lease cost56 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, 2022December 31, 2021
2022$1,399 *$4,949 
20234,629 3,793 
20243,568 2,683 
20252,779 2,036 
20262,261 1,652 
Thereafter3,150 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, 2022December 31, 2021
Other non-current assets
$16,498 $16,744 
Accrued liabilities4,495 4,655 
Other long-term liabilities12,115 12,237 
    Total operating lease liabilities$16,610 $16,892 
Weighted Average Remaining Lease Term4.78 years5.14 years
Weighted Average Discount Rate3.13 %2.83 %

Supplemental Cash Flow information related to leases was as follows:
Nine Months Ended
September 30,
(in thousands)20222021
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases$3,971 $3,603 

12


9. Debt

The components of long-term debt are as follows:
 
(in thousands)
September 30, 2022December 31, 2021
Current Maturities:
    Finance lease obligations$10 $32 
    Term debt15,000 15,000 
15,010 15,032 
Long-term debt:
     Finance lease obligations
16 24 
Term debt, net239,447 250,498 
     Bank revolving credit facility109,000 4,000 
         Total Long-term debt348,463 254,522 
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
September 30,
Nine Months Ended
September 30,
2022202120222021
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
September 30,
Nine Months Ended
September 30,
(In thousands, except per share)
2022202120222021
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
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
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
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
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 
Netherlands8,570 6,624 15,912 22,789 
Brazil
9,688 9,212 36,891 23,396 
Australia
7,513 4,999 20,454 14,588 
Germany2,757 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.

14


Segment Information

The following includes a summary of the unaudited financial information by reporting segment at September 30, 2022:  
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Net Sales
Vegetation Management
$228,511 $209,796 $704,520 $608,345 
Industrial Equipment
140,282