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 MARCH 31,JUNE 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)
Delaware74-1621248
(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 AprilJuly 29, 2022, 11,958,60911,966,177 shares of common stock, $.10 par value, of the registrant were outstanding.


1

Alamo Group Inc. and Subsidiaries
 
INDEX
 
                                                                                                                                                                              
PART I.FINANCIAL INFORMATIONPAGE
Item 1.Interim Condensed Consolidated Financial Statements  (Unaudited)
3
March 31,June 30, 2022 and December 31, 2021
Interim Condensed Consolidated Statements of Income
4
Three and Six Months Ended March 31,June 30, 2022 and March 31,June 30, 2021
Interim Condensed Consolidated Statements of Comprehensive Income
5
Three and Six Months Ended March 31,June 30, 2022 and March 31,June 30, 2021
6
Three and Six Months Ended March 31,June 30, 2022 and March 31,June 30, 2021
Interim Condensed Consolidated Statements of Cash Flows
7
ThreeSix Months Ended March 31,June 30, 2022 and March 31,June 30, 2021
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
1516
Item 3.
1921
Item 4.
2122
PART II.
2122
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
2325

2

Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(Unaudited) 
(in thousands, except share amounts)
(in thousands, except share amounts)
March 31, 2022December 31, 2021
(in thousands, except share amounts)
June 30, 2022December 31, 2021
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$84,277 $42,115 Cash and cash equivalents$75,894 $42,115 
Accounts receivable, netAccounts receivable, net296,857 237,970 Accounts receivable, net306,967 237,970 
Inventories, netInventories, net355,389 320,917 Inventories, net352,915 320,917 
Prepaid expenses and other current assetsPrepaid expenses and other current assets12,531 9,500 Prepaid expenses and other current assets11,095 9,500 
Income tax receivableIncome tax receivable209 1,666 Income tax receivable1,432 1,666 
Total current assetsTotal current assets749,263 612,168 Total current assets748,303 612,168 
Rental equipment, netRental equipment, net31,850 32,514 Rental equipment, net31,168 32,514 
Property, plant and equipmentProperty, plant and equipment324,236 321,863 Property, plant and equipment325,911 321,863 
Less: Accumulated depreciationLess: Accumulated depreciation(172,552)(169,372)Less: Accumulated depreciation(172,004)(169,372)
Total property, plant and equipment, netTotal property, plant and equipment, net151,684 152,491 Total property, plant and equipment, net153,907 152,491 
GoodwillGoodwill198,726 202,406 Goodwill196,068 202,406 
Intangible assets, netIntangible assets, net182,305 183,466 Intangible assets, net178,781 183,466 
Deferred income taxesDeferred income taxes1,054 1,110 Deferred income taxes1,006 1,110 
Other non-current assetsOther non-current assets23,133 21,587 Other non-current assets23,143 21,587 
Total assetsTotal assets$1,338,015 $1,205,742 Total assets$1,332,376 $1,205,742 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Trade accounts payableTrade accounts payable$114,312 $101,396 Trade accounts payable$107,003 $101,396 
Income taxes payableIncome taxes payable867 2,613 Income taxes payable1,498 2,613 
Accrued liabilitiesAccrued liabilities68,315 73,523 Accrued liabilities66,100 73,523 
Current maturities of long-term debt and finance lease obligationsCurrent maturities of long-term debt and finance lease obligations15,022 15,032 Current maturities of long-term debt and finance lease obligations15,015 15,032 
Total current liabilitiesTotal current liabilities198,516 192,564 Total current liabilities189,616 192,564 
Long-term debt and finance lease obligations, net of current maturitiesLong-term debt and finance lease obligations, net of current maturities357,834 254,522 Long-term debt and finance lease obligations, net of current maturities356,149 254,522 
Long-term tax liabilityLong-term tax liability4,416 4,416 Long-term tax liability2,444 4,416 
Other long-term liabilitiesOther long-term liabilities25,908 27,119 Other long-term liabilities24,642 27,119 
Deferred income taxesDeferred income taxes24,161 21,458 Deferred income taxes23,083 21,458 
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,894,188 and 11,874,178 outstanding at March 31, 2022 and December 31, 2021, respectively1,189 1,187 
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,909,064 and 11,874,178 outstanding at June 30, 2022 and December 31, 2021, respectivelyCommon stock, $0.10 par value, 20,000,000 shares authorized; 11,909,064 and 11,874,178 outstanding at June 30, 2022 and December 31, 2021, respectively1,191 1,187 
Additional paid-in-capitalAdditional paid-in-capital125,681 124,228 Additional paid-in-capital127,180 124,228 
Treasury stock, at cost; 82,600 shares at March 31, 2022 and December 31, 2021, respectively(4,566)(4,566)
Treasury stock, at cost; 82,600 shares at June 30, 2022 and December 31, 2021, respectivelyTreasury stock, at cost; 82,600 shares at June 30, 2022 and December 31, 2021, respectively(4,566)(4,566)
Retained earningsRetained earnings650,141 633,804 Retained earnings676,474 633,804 
Accumulated other comprehensive lossAccumulated other comprehensive loss(45,265)(48,990)Accumulated other comprehensive loss(63,837)(48,990)
Total stockholders’ equityTotal stockholders’ equity727,180 705,663 Total stockholders’ equity736,442 705,663 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,338,015 $1,205,742 Total liabilities and stockholders’ equity$1,332,376 $1,205,742 

See accompanying notes.
3

Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands, except per share amounts)(in thousands, except per share amounts)20222021(in thousands, except per share amounts)2022202120222021
Net sales:Net sales:Net sales:
Vegetation ManagementVegetation Management$221,006 $183,884 Vegetation Management$255,003 $214,665 $476,009 $398,549 
Industrial EquipmentIndustrial Equipment140,999 127,305 Industrial Equipment141,211 132,885 282,210 260,190 
Total net salesTotal net sales362,005 311,189 Total net sales396,214 347,550 758,219 658,739 
Cost of salesCost of sales275,364 234,763 Cost of sales296,497 259,410 571,861 494,173 
Gross profitGross profit86,641 76,426 Gross profit99,717 88,140 186,358 164,566 
Selling, general and administrative expensesSelling, general and administrative expenses53,635 47,330 Selling, general and administrative expenses55,009 50,887 108,644 98,217 
Amortization expenseAmortization expense3,887 3,658 Amortization expense3,792 3,663 7,679 7,321 
Income from operationsIncome from operations29,119 25,438 Income from operations40,916 33,590 70,035 59,028 
Interest expenseInterest expense(2,647)(2,613)Interest expense(3,189)(2,854)(5,836)(5,467)
Interest incomeInterest income72 288 Interest income57 293 129 581 
Other income (expense), netOther income (expense), net(1,752)(630)Other income (expense), net(134)3,253 (1,886)2,623 
Income before income taxesIncome before income taxes24,792 22,483 Income before income taxes37,650 34,282 62,442 56,765 
Provision for income taxesProvision for income taxes6,322 5,021 Provision for income taxes9,178 8,245 15,500 13,266 
Net IncomeNet Income$18,470 $17,462 Net Income$28,472 $26,037 $46,942 $43,499 
Net income per common share:Net income per common share:Net income per common share:
BasicBasic$1.56 $1.48 Basic$2.39 $2.20 $3.95 $3.68 
DilutedDiluted$1.55 $1.47 Diluted$2.39 $2.19 $3.94 $3.66 
Average common shares:Average common shares:Average common shares:
BasicBasic11,860 11,820 Basic11,880 11,842 11,870 11,831 
DilutedDiluted11,916 11,882 Diluted11,938 11,902 11,927 11,892 
Dividends declaredDividends declared$0.18 $0.14 Dividends declared$0.18 $0.14 $0.36 $0.28 
 
 See accompanying notes.
 
4

Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
(in thousands)20222021
Net income$18,470 $17,462 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense of $(250) and $(115), respectively1,667 (4,010)
Recognition of deferred pension and other post-retirement benefits, net of tax benefit of $255 and expense of $(67), respectively206 251 
Unrealized income on derivative instruments, net of tax expense of $(367) and $(578), respectively1,852 2,173 
Other comprehensive income (loss), net of tax3,725 (1,586)
Comprehensive income$22,195 $15,876 
Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)2022202120222021
Net income$28,472 $26,037 $46,942 $43,499 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax expense of $(654) and zero, and $(904) and $(115), respectively(19,822)4,566 (18,155)556 
Recognition of deferred pension and other post-retirement benefits, net of tax benefit and (expense) of $59 and $(67), and $314 and $(134), respectively205 252 411 503 
Unrealized income on derivative instruments, net of tax expense of $(371) and $(23), and $(738) and $(601), respectively1,045 88 2,897 2,261 
Other comprehensive (loss) income, net of tax(18,572)4,906 (14,847)3,320 
Comprehensive income$9,900 $30,943 $32,095 $46,819 

See accompanying notes.


5


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

For three months ended March 31, 2022
For six months ended June 30, 2022For six months ended June 30, 2022
Common Stock
Additional
Paid-in Capital
Treasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
Common Stock
Additional
Paid-in Capital
Treasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
(in thousands)(in thousands)SharesAmount(in thousands)SharesAmount
Balance at December 31, 2021Balance at December 31, 202111,791 $1,187 $124,228 $(4,566)$633,804 $(48,990)$705,663 Balance at December 31, 202111,791 $1,187 $124,228 $(4,566)$633,804 $(48,990)$705,663 
Other comprehensive incomeOther comprehensive income— — — — 18,470 3,725 22,195 Other comprehensive income— — — — 18,470 3,725 22,195 
Stock-based compensation expenseStock-based compensation expense— — 1,371 — — — 1,371 Stock-based compensation expense— — 1,371 — — — 1,371 
Stock-based compensation transactionsStock-based compensation transactions20 2 82 — — — 84 Stock-based compensation transactions20 2 82 — — — 84 
Dividends paid ($0.18 per share)Dividends paid ($0.18 per share)— — — — (2,133)— (2,133)Dividends paid ($0.18 per share)— — — — (2,133)— (2,133)
Balance at March 31, 2022Balance at March 31, 202211,811 $1,189 $125,681 $(4,566)$650,141 $(45,265)$727,180 Balance at March 31, 202211,811 $1,189 $125,681 $(4,566)$650,141 $(45,265)$727,180 
Other comprehensive incomeOther comprehensive income— — — — 28,472 (18,572)9,900 
Stock-based compensation expenseStock-based compensation expense— — 1,750 — — — 1,750 
Stock-based compensation transactionsStock-based compensation transactions15 2 (251)— — — (249)
Dividends paid ($0.18 per share)Dividends paid ($0.18 per share)— — — — (2,139)— (2,139)
Balance at June 30, 2022Balance at June 30, 202211,826 $1,191 $127,180 $(4,566)$676,474 $(63,837)$736,442 


For three months ended March 31, 2021
For six months ended June 30, 2021For six months ended June 30, 2021
Common StockAdditional Paid-in CapitalTreasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
Common StockAdditional Paid-in CapitalTreasury StockRetained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
(in thousands)(in thousands)SharesAmount(in thousands)SharesAmount
Balance at December 31, 2020Balance at December 31, 202011,727 $1,181 $118,528 $(4,566)$560,186 $(40,326)$635,003 Balance at December 31, 202011,727 $1,181 $118,528 $(4,566)$560,186 $(40,326)$635,003 
Other comprehensive incomeOther comprehensive income— — — — 17,462 (1,586)15,876 Other comprehensive income— — — — 17,462 (1,586)15,876 
Stock-based compensation expenseStock-based compensation expense— — 1,240 — — — 1,240 Stock-based compensation expense— — 1,240 — — — 1,240 
Stock-based compensation transactionsStock-based compensation transactions29 3 773 — — — 776 Stock-based compensation transactions29 3 773 — — — 776 
Dividends paid ($0.14 per share) Dividends paid ($0.14 per share)— — — — (1,654)— (1,654) Dividends paid ($0.14 per share)— — — — (1,654)— (1,654)
Balance at March 31, 2021Balance at March 31, 202111,756 $1,184 $120,541 $(4,566)$575,994 $(41,912)$651,241 Balance at March 31, 202111,756 $1,184 $120,541 $(4,566)$575,994 $(41,912)$651,241 
Other comprehensive incomeOther comprehensive income— — — — 26,037 4,906 30,943 
Stock-based compensation expenseStock-based compensation expense— — 1,316 — — — 1,316 
Stock-based compensation transactionsStock-based compensation transactions23 2 (604)— — — (602)
Dividends paid ($0.14 per share)Dividends paid ($0.14 per share)— — — — (1,657)— (1,657)
Balance at June 30, 2021Balance at June 30, 202111,779 $1,186 $121,253 $(4,566)$600,374 $(37,006)$681,241 


See accompanying notes.

6

Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)20222021
Operating ActivitiesOperating ActivitiesOperating Activities
Net incomeNet income$18,470 $17,462 Net income$46,942 $43,499 
Adjustment to reconcile net income to net cash used in operating activities:
Adjustment to reconcile net income to net cash (used in) provided by operating activities:Adjustment to reconcile net income to net cash (used in) provided by operating activities:
Provision for doubtful accountsProvision for doubtful accounts339 (113)Provision for doubtful accounts315 115 
Depreciation - Property, plant and equipmentDepreciation - Property, plant and equipment5,236 5,247 Depreciation - Property, plant and equipment10,648 10,546 
Depreciation - Rental equipmentDepreciation - Rental equipment1,890 2,207 Depreciation - Rental equipment3,765 4,418 
Amortization of intangiblesAmortization of intangibles3,887 3,658 Amortization of intangibles7,679 7,321 
Amortization of debt issuanceAmortization of debt issuance167 167 Amortization of debt issuance334 334 
Stock-based compensation expenseStock-based compensation expense1,371 1,240 Stock-based compensation expense3,121 2,556 
Provision for deferred income tax (benefit)Provision for deferred income tax (benefit)2,797 (502)Provision for deferred income tax (benefit)349 500 
Gain on sale of property, plant and equipmentGain on sale of property, plant and equipment(22)(615)Gain on sale of property, plant and equipment(69)(4,160)
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(58,231)(34,239)Accounts receivable(74,024)(43,235)
InventoriesInventories(34,139)(21,552)Inventories(37,185)(34,621)
Rental equipmentRental equipment(1,227)365 Rental equipment(2,501)(772)
Prepaid expenses and other assetsPrepaid expenses and other assets(3,989)(712)Prepaid expenses and other assets(2,992)(13)
Trade accounts payable and accrued liabilitiesTrade accounts payable and accrued liabilities7,979 16,021 Trade accounts payable and accrued liabilities2,263 27,283 
Income taxes payableIncome taxes payable(382)2,629 Income taxes payable(1,028)(3,414)
Long-term tax payableLong-term tax payable— 454 Long-term tax payable(1,972)454 
Other assets and long-term liabilities, netOther assets and long-term liabilities, net869 (318)Other assets and long-term liabilities, net966 (1,415)
Net cash used in operating activities(54,985)(8,601)
Net cash (used in) provided by operating activitiesNet cash (used in) provided by operating activities(43,389)9,396 
Investing ActivitiesInvesting ActivitiesInvesting Activities
Acquisitions, net of cash acquiredAcquisitions, net of cash acquired(2,000)— 
Purchase of property, plant and equipmentPurchase of property, plant and equipment(4,358)(3,477)Purchase of property, plant and equipment(14,965)(9,357)
Proceeds from sale of property, plant and equipmentProceeds from sale of property, plant and equipment33 681 Proceeds from sale of property, plant and equipment181 9,312 
Net cash used in investing activitiesNet cash used in investing activities(4,325)(2,796)Net cash used in investing activities(16,784)(45)
Financing ActivitiesFinancing ActivitiesFinancing Activities
Borrowings on bank revolving credit facilityBorrowings on bank revolving credit facility128,000 86,000 Borrowings on bank revolving credit facility162,000 103,000 
Repayments on bank revolving credit facilityRepayments on bank revolving credit facility(21,000)(14,000)Repayments on bank revolving credit facility(53,000)(66,000)
Principal payments on long-term debt and finance leasesPrincipal payments on long-term debt and finance leases(3,763)(3,766)Principal payments on long-term debt and finance leases(7,521)(7,537)
Dividends paidDividends paid(2,133)(1,654)Dividends paid(4,272)(3,311)
Proceeds from exercise of stock optionsProceeds from exercise of stock options474 1,072 Proceeds from exercise of stock options547 1,403 
Common stock repurchasedCommon stock repurchased(390)(296)Common stock repurchased(712)(1,229)
Net cash provided by financing activitiesNet cash provided by financing activities101,188 67,356 Net cash provided by financing activities97,042 26,326 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents284 (889)Effect of exchange rate changes on cash and cash equivalents(3,090)(242)
Net change in cash and cash equivalentsNet change in cash and cash equivalents42,162 55,070 Net change in cash and cash equivalents33,779 35,435 
Cash and cash equivalents at beginning of the yearCash and cash equivalents at beginning of the year42,115 50,195 Cash and cash equivalents at beginning of the year42,115 50,195 
Cash and cash equivalents at end of the periodCash and cash equivalents at end of the period$84,277 $105,265 Cash and cash equivalents at end of the period$75,894 $85,630 
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
InterestInterest$2,619 $2,557 Interest$5,998 $5,207 
Income taxesIncome taxes3,574 2,758 Income taxes17,615 15,647 
See accompanying notes.
7

Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
March 31,June 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.

0
3. Accounts Receivable

Accounts receivable is shown net of sales discounts and the allowance for credit losses.

At March 31,June 30, 2022 the Company had $17.1$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.
 
8

4.  Inventories
 
Inventories are stated at the lower of cost or net realizable value. Net inventories consist of the following:
(in thousands)(in thousands)March 31, 2022December 31, 2021(in thousands)June 30, 2022December 31, 2021
Finished goodsFinished goods$311,492 $277,760 Finished goods$310,497 $277,760 
Work in processWork in process30,527 24,895 Work in process29,072 24,895 
Raw materialsRaw materials13,370 18,262 Raw materials13,346 18,262 
Inventories, netInventories, net$355,389 $320,917 Inventories, net$352,915 $320,917 
 
Inventory obsolescence reserves were $14.0$11.7 million at March 31,June 30, 2022 and $12.9 million at December 31, 2021.

5. Rental Equipment

Rental equipment is shown net of accumulated depreciation of $19.8$20.5 million and $20.1 million at March 31,June 30, 2022 and December 31, 2021, respectively. The Company recognized depreciation expense of $1.9 million and $2.2 million for the three months ended March 31,June 30, 2022 and 2021.2021, respectively and $3.8 million and $4.4 million for the six months ended June 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 March 31,June 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 threesix months ended March 31,June 30, 2022:
Vegetation ManagementIndustrial EquipmentConsolidated
(in thousands)(in thousands)(in thousands)Vegetation ManagementIndustrial EquipmentConsolidated
Balance at December 31, 2021Balance at December 31, 2021$132,963 $69,443 $202,406 Balance at December 31, 2021$132,963 $69,443 $202,406 
Translation adjustmentTranslation adjustment167 (190)(23)Translation adjustment(1,876)(943)(2,819)
Goodwill adjustmentGoodwill adjustment(3,657)— (3,657)Goodwill adjustment(3,519)— (3,519)
Balance at March 31, 2022$129,473 $69,253 $198,726 
Balance at June 30, 2022Balance at June 30, 2022$127,568 $68,500 $196,068 

9

The following is a summary of the Company's definite and indefinite-lived intangible assets net of the accumulated amortization:
(in thousands)(in thousands)Estimated Useful LivesMarch 31, 2022December 31, 2021(in thousands)Estimated Useful LivesJune 30, 2022December 31, 2021
Definite:Definite:Definite:
Trade names and trademarksTrade names and trademarks15-25 years$69,242 $68,321 Trade names and trademarks15-25 years$68,719 $68,321 
Customer and dealer relationshipsCustomer and dealer relationships8-15 years128,843 126,104 Customer and dealer relationships8-15 years129,539 126,104 
Patents and drawingsPatents and drawings3-12 years28,429 29,338 Patents and drawings3-12 years28,223 29,338 
Favorable leasehold interestsFavorable leasehold interests7 years4,200 4,200 Favorable leasehold interests7 years4,200 4,200 
Total at costTotal at cost230,714 227,963 Total at cost230,681 227,963 
Less accumulated amortizationLess accumulated amortization(53,909)(49,997)Less accumulated amortization(57,400)(49,997)
Total netTotal net176,805 177,966 Total net173,281 177,966 
Indefinite:Indefinite:Indefinite:
Trade names and trademarksTrade names and trademarks5,500 5,500 Trade names and trademarks5,500 5,500 
Total Intangible AssetsTotal Intangible Assets$182,305 $183,466 Total Intangible Assets$178,781 $183,466 

The Company recognized amortization expense of $3.9$3.8 million and $3.7 million for the three months ended March 31,June 30, 2022 and 2021.2021, respectively, and $7.7 million and $7.3 million for the six months ended June 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 CostComponents of Lease CostComponents of Lease Cost
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)2022202120222021
Finance lease cost:Finance lease cost:Finance lease cost:
Amortization of right-of-use assets Amortization of right-of-use assets$13 $17  Amortization of right-of-use assets$6 $17 $19 $34 
Interest on lease liabilities Interest on lease liabilities1 1  Interest on lease liabilities— 1 1 2 
Operating lease costOperating lease cost1,497 1,233 Operating lease cost1,434 1,288 2,931 2,521 
Short-term lease costShort-term lease cost299 214 Short-term lease cost334 243 633 457 
Variable lease costVariable lease cost109 116 Variable lease cost103 97 212 213 
Total lease costTotal lease cost$1,919 $1,581 Total lease cost$1,877 $1,646 $3,796 $3,227 

Rent expense for the three and six months ended March 31,June 30, 2022 and 2021 was immaterial.

10

Maturities of operating lease liabilities were as follows:
Future Minimum Lease PaymentsFuture Minimum Lease PaymentsFuture Minimum Lease Payments
(in thousands)(in thousands)March 31, 2022December 31, 2021(in thousands)June 30, 2022December 31, 2021
20222022$4,077 *$4,949 2022$2,524 *$4,949 
202320234,245 3,793 20234,175 3,793 
202420243,154 2,683 20243,117 2,683 
202520252,531 2,036 20252,451 2,036 
202620262,110 1,652 20262,072 1,652 
ThereafterThereafter3,089 3,090 Thereafter3,127 3,090 
Total minimum lease paymentsTotal minimum lease payments$19,206 $18,203 Total minimum lease payments$17,466 $18,203 
Less imputed interestLess imputed interest(1,303)(1,311)Less imputed interest(1,251)(1,311)
Total operating lease liabilitiesTotal operating lease liabilities$17,903 $16,892 Total operating lease liabilities$16,215 $16,892 
*Period ended March 31, 2022 represents the remaining nine months of 2022.
*Period ended June 30, 2022 represents the remaining six months of 2022.*Period ended June 30, 2022 represents the remaining six months of 2022.
Future Lease Commencements

As of March 31,June 30, 2022, there are additional operating leases, primarily for officebuildings, equipment, autos and forklifts, that have not yet commenced in the amount of $0.7$1.1 million. These operating leases will commence in fiscal year 2022 with lease terms of 12 to 5 years.

Supplemental balance sheet information related to leases was as follows:
Operating LeasesOperating LeasesOperating Leases
(in thousands)(in thousands)March 31, 2022December 31, 2021(in thousands)June 30, 2022December 31, 2021
Other non-current assets
Other non-current assets
$17,797 $16,744 
Other non-current assets
$16,075 $16,744 
Accrued liabilitiesAccrued liabilities4,762 4,655 Accrued liabilities4,287 4,655 
Other long-term liabilitiesOther long-term liabilities13,141 12,237 Other long-term liabilities11,928 12,237 
Total operating lease liabilities Total operating lease liabilities$17,903 $16,892  Total operating lease liabilities$16,215 $16,892 
Weighted Average Remaining Lease TermWeighted Average Remaining Lease Term5.05 years5.14 yearsWeighted Average Remaining Lease Term4.97 years5.14 years
Weighted Average Discount RateWeighted Average Discount Rate2.88 %2.83 %Weighted Average Discount Rate2.97 %2.83 %

Supplemental Cash Flow information related to leases was as follows:
Three Months Ended
March 31,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)20222021
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases Operating cash flows from operating leases$1,355 $1,121  Operating cash flows from operating leases$2,651 $2,287 

11

9. Debt

The components of long-term debt are as follows:

(in thousands)
(in thousands)		March 31, 2022December 31, 2021
(in thousands)		June 30, 2022December 31, 2021
Current Maturities:Current Maturities:Current Maturities:
Finance lease obligations Finance lease obligations$22 $32  Finance lease obligations$15 $32 
Term debt Term debt15,000 15,000  Term debt15,000 15,000 
15,022 15,032 15,015 15,032 
Long-term debt:Long-term debt:Long-term debt:
Finance lease obligations Finance lease obligations20 24  Finance lease obligations18 24 
Term debt, netTerm debt, net246,814 250,498 Term debt, net243,131 250,498 
Bank revolving credit facility Bank revolving credit facility111,000 4,000  Bank revolving credit facility113,000 4,000 
Total Long-term debt Total Long-term debt357,834 254,522  Total Long-term debt356,149 254,522 
Total debtTotal debt$372,856 $269,554 Total debt$371,164 $269,554 

As of March 31,June 30, 2022, $2.4$2.1 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 $160.9$185.7 million in available borrowings.

10.  Common Stock and Dividends
 
Dividends declared and paid on a per share basis were as follows:
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
202220212022202120222021
Dividends declaredDividends declared$0.18 $0.14 Dividends declared$0.18 $0.14 $0.36 $0.28 
Dividends paidDividends paid$0.18 $0.14 Dividends paid$0.18 $0.14 $0.36 $0.28 

On April 4,July 1, 2022, the Company announced that its Board of Directors had declared a quarterly cash dividend of $0.18 per share, which was paid on May 2,August 1, 2022, to shareholders of record at the close of business on AprilJuly 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
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands, except per share)(In thousands, except per share)20222021(In thousands, except per share)2022202120222021
Net IncomeNet Income$18,470 $17,462 Net Income$28,472 $26,037 $46,942 $43,499 
Average Common Shares:Average Common Shares:Average Common Shares:
Basic (weighted-average outstanding shares)Basic (weighted-average outstanding shares)11,860 11,820 Basic (weighted-average outstanding shares)11,880 11,842 11,870 11,831 
Dilutive potential common shares from stock optionsDilutive potential common shares from stock options56 62 Dilutive potential common shares from stock options58 60 57 61 
Diluted (weighted-average outstanding shares)Diluted (weighted-average outstanding shares)11,916 11,882 Diluted (weighted-average outstanding shares)11,938 11,902 11,927 11,892 
Basic earnings per shareBasic earnings per share$1.56 $1.48 Basic earnings per share$2.39 $2.20 $3.95 $3.68 
Diluted earnings per shareDiluted earnings per share$1.55 $1.47 Diluted earnings per share$2.39 $2.19 $3.94 $3.66 

12

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 TypeRevenue by Product TypeRevenue by Product Type
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)2022202120222021
Net SalesNet SalesNet Sales
WholegoodsWholegoods$280,943 $239,297 Wholegoods$313,884 $270,665 $594,827 $509,963 
PartsParts67,972 63,538 Parts70,825 67,067 138,797 127,592 
OtherOther13,090 8,354 Other11,505 9,818 24,595 21,184 
ConsolidatedConsolidated$362,005 $311,189 Consolidated$396,214 $347,550 $758,219 $658,739 

Other includes rental sales, extended warranty sales and service sales as it is considered immaterial.
Revenue by Geographical LocationRevenue by Geographical LocationRevenue by Geographical Location
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)2022202120222021
Net SalesNet SalesNet Sales
United StatesUnited States$255,187 $219,429 United States$283,102 $242,361 $538,289 $461,790 
FranceFrance23,046 24,952 France23,671 23,064 46,717 48,016 
CanadaCanada20,453 19,209 Canada23,276 25,675 43,729 44,884 
United KingdomUnited Kingdom17,674 12,499 United Kingdom17,395 15,817 35,069 28,316 
NetherlandsNetherlands3,480 7,485 Netherlands3,862 8,680 7,342 16,165 
BrazilBrazil13,094 5,881 Brazil14,109 8,303 27,203 14,184 
AustraliaAustralia7,156 4,793 Australia5,785 4,796 12,941 9,589 
GermanyGermany— 1,939 Germany1,427 1,893 1,758 3,832 
OtherOther21,915 15,002 Other23,587 16,961 45,171 31,963 
ConsolidatedConsolidated$362,005 $311,189 Consolidated$396,214 $347,550 $758,219 $658,739 

Net sales are attributed to countries based on the location of the customer.

13

Segment Information

The following includes a summary of the unaudited financial information by reporting segment at March 31,June 30, 2022:  
Three Months Ended
March 31,		Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)(in thousands)20222021(in thousands)2022202120222021
Net SalesNet SalesNet Sales
Vegetation ManagementVegetation Management$221,006 $183,884 Vegetation Management$255,003 $214,665 $476,009 $398,549 
Industrial EquipmentIndustrial Equipment140,999 127,305 Industrial Equipment141,211 132,885 282,210 260,190 
ConsolidatedConsolidated$362,005 $311,189 Consolidated$396,214 $347,550 $758,219 $658,739 
Income from OperationsIncome from OperationsIncome from Operations
Vegetation ManagementVegetation Management$18,334 $16,750 Vegetation Management$32,796 $22,664 $51,130 $39,414 
Industrial EquipmentIndustrial Equipment10,785 8,688 Industrial Equipment8,120 10,926 18,905 19,614 
ConsolidatedConsolidated$29,119 $25,438 Consolidated$40,916 $33,590 $70,035 $59,028 
(in thousands)(in thousands)March 31, 2022December 31, 2021(in thousands)June 30, 2022December 31, 2021
GoodwillGoodwillGoodwill
Vegetation ManagementVegetation Management$129,473 $132,963 Vegetation Management$127,568 $132,963 
Industrial EquipmentIndustrial Equipment69,253 69,443 Industrial Equipment68,500 69,443 
ConsolidatedConsolidated$198,726 $202,406 Consolidated$196,068 $202,406 
Total Identifiable AssetsTotal Identifiable AssetsTotal Identifiable Assets
Vegetation ManagementVegetation Management$892,028 $789,838 Vegetation Management$889,067 $789,838 
Industrial EquipmentIndustrial Equipment445,987 415,904 Industrial Equipment443,309 415,904 
ConsolidatedConsolidated$1,338,015 $1,205,742 Consolidated$1,332,376 $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 March 31,Three Months Ended June 30,
2022202120222021
(in thousands)(in thousands)Foreign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotalForeign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotal(in thousands)Foreign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotalForeign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotal
Balance as of beginning of periodBalance as of beginning of period$(42,397)$(5,017)$(1,576)$(48,990)$(26,597)$(6,855)$(6,874)$(40,326)Balance as of beginning of period$(40,730)$(4,811)$276 $(45,265)$(30,607)$(6,604)$(4,701)$(41,912)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications1,667 — 2,496 4,163 (4,010)— 2,823 (1,187)Other comprehensive income (loss) before reclassifications(19,822)— 1,380 (18,442)4,566 — 757 5,323 
Amounts reclassified from accumulated other comprehensive lossAmounts reclassified from accumulated other comprehensive loss— 206 (644)(438)— 251 (650)(399)Amounts reclassified from accumulated other comprehensive loss— 205 (335)(130)— 252 (669)(417)
Other comprehensive income (loss)Other comprehensive income (loss)1,667 206 1,852 3,725 (4,010)251 2,173 (1,586)Other comprehensive income (loss)(19,822)205 1,045 (18,572)4,566 252 88 4,906 
Balance as of end of periodBalance as of end of period$(40,730)$(4,811)$276 $(45,265)$(30,607)$(6,604)$(4,701)$(41,912)Balance as of end of period$(60,552)$(4,606)$1,321 $(63,837)$(26,041)$(6,352)$(4,613)$(37,006)


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Six Months Ended June 30,
20222021
(in thousands)Foreign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotalForeign Currency Translation AdjustmentDefined Benefit Plans ItemsGaines (Losses) on Cash Flow HedgesTotal
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(18,155)— 3,876 (14,279)556 — 3,580 4,136 
Amounts reclassified from accumulated other comprehensive loss— 411 (979)(568)— 503 (1,319)(816)
Other comprehensive income (loss)(18,155)411 2,897 (14,847)556 503 2,261 3,320 
Balance as of end of period$(60,552)$(4,606)$1,321 $(63,837)$(26,041)$(6,352)$(4,613)$(37,006)

15

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:
 
Three Months Ended
March 31,
As a
Percent of Net Sales
As a
Percent of Net Sales
20222021
As a
Percent of Net Sales
Three Months Ended
June 30,		Six Months Ended
June 30,
As a
Percent of Net Sales
As a
Percent of Net Sales
2022202120222021
Vegetation Management61.1 %59.1 %64.4 %61.8 %62.8 %60.5 %
Industrial EquipmentIndustrial Equipment38.9 %40.9 %Industrial Equipment35.6 %38.2 %37.2 %39.5 %
Total sales, netTotal sales, net100.0 %100.0 %Total sales, net100.0 %100.0 %100.0 %100.0 %
Three Months Ended
March 31,
Cost Trends and Profit Margin, as
Percentages of Net Sales
Cost Trends and Profit Margin, as
Percentages of Net Sales
20222021
Cost Trends and Profit Margin, as
Percentages of Net Sales
Three Months Ended
June 30,		Six Months Ended
June 30,
Cost Trends and Profit Margin, as
Percentages of Net Sales
Cost Trends and Profit Margin, as
Percentages of Net Sales
2022202120222021
Gross profit23.9 %24.6 %25.2 %25.4 %24.6 %25.0 %
Income from operationsIncome from operations8.0 %8.2 %Income from operations10.3 %9.7 %9.2 %9.0 %
Income before income taxesIncome before income taxes6.8 %7.2 %Income before income taxes9.5 %9.9 %8.2 %8.6 %
Net incomeNet income5.1 %5.6 %Net income7.2 %7.5 %6.2 %6.6 %
 
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 quartersix months of 2022. In January, COVID-19 variant cases created operational disruptions at several of2022 as was reflected in our North American and European facilities but the number of cases has diminished. Our top line performance was stronggrowth. Margins improved due to the increase in the first quarter but margins have continuedshipments 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, as well as ongoing supply chain disruptions which have had a negative effect on our manufacturing efficiencies. While we have taken action to mitigate supply chain disruptions, we expect these challenges to continue for the remainder of 2022.and skilled labor shortages.

For the first threesix months of 2022, the Company's net sales increased by 16%15%, and net income increased by 6%8% 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 which was impacted by the COVID-19 pandemic.and solid cost and expense discipline. Offsetting the increase were disruptions in our supply chain, significant input cost inflation (including increased inbound freight and material costs), and logistics issues.

The Company's Vegetation Management Division experienced a 20%19% increase in sales for the first threesix months of 2022 compared to the first threesix months of 2021 primarily as a result of increased customer demand as well as pricing actions. The Division's new orders and backlog improved in all product lines. The Division's income from operations for the first threesix months of 2022 was up 9%30% versus the same period in 2021, due to increased demand but offset by higher material and inbound freight costs and supply chain disruptions which had a negative effect on manufacturing efficiencies.disruptions.

The Company's Industrial Equipment Division sales increased in the first threesix months of 2022 by 11%8% as compared to the first threesix months of 2021. Industrial Equipment sales were strong in the excavator and vacuum truck product lines and were supported by solid yet modest increases in our street sweeper, debris collector and snow removal equipment.equipment lines. Negatively impacting this Division in the quarter were higher input costs and supply chain disruptions which affected manufacturing efficiencies. Notwithstanding thesedisruptions. These challenges had a negative effect on the Division's income from operations recordedwhich led to a 24% improvement4% decline for the first threesix months of 2022 compared to the first threesix months of 2021.

15

Consolidated income from operations was $29.1$70.0 million in the first threesix months of 2022 compared to $25.4$59.0 million in the first threesix months of 2021, an increase of 14%19%. The Company's backlog increased 103%78% to $917.8$894.0 million at the end of the firstsecond quarter of 2022 versus a backlog of $452.5$503.6 million at the end of the firstsecond 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.

16

The effects of the COVID-19 pandemic continue to impact our business and operations. WhileIn general, we have seen a gradual decline in the number of COVID-19 cases in our facilities and in the markets we serve,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 areseem 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 March 31,June 30, 2022 vs. Three Months Ended March 31,June 30, 2021
 
Net sales for the firstsecond quarter of 2022 were $362.0$396.2 million, an increase of $50.8$48.6 million or 16%14% compared to $311.2$347.6 million for the firstsecond quarter of 2021. Net sales during the firstsecond quarter of 2022 improved due to strong customer demand for our products versus the firstsecond quarter of 2021. Negatively affecting the firstsecond quarter of 2022 were higher costs for materials and inbound freight, andas well as supply chain disruptions which caused component shortages of component parts.and related operational disruptions.
 
Net Vegetation Management sales increased by $37.1$40.3 million or 20%19% to $221.0$255.0 million for the firstsecond quarter of 2022 compared to $183.9$214.7 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 and logistics disruptions had an overall negative impact during the firstsecond quarter of 2022.
 
Net Industrial Equipment sales were $141.0$141.2 million in the firstsecond quarter of 2022 compared to $127.3$132.9 million for the same period in 2021, an increase of $13.7$8.3 million or 11%6%. The increase was mainly due to the continued solid results in our excavator and vacuum truck product lines with modest support from other product lines. This Division was also continued to experiencenegatively impacted by ongoing supply chain disruptions and logistics issues in the firstsecond quarter of 2022, including delays in receiving truck chassis and component parts from supply chain partners.

Gross profit for the firstsecond quarter of 2022 was $86.6$99.7 million (24%(25% of net sales) compared to $76.4$88.1 million (25% of net sales) during the same period in 2021, an increase of $10.2$11.6 million.  The increase in gross profit during the firstsecond quarter of 2022 compared to the firstsecond quarter of 2021 was the result ofprimarily attributable to higher sales volume.volume and positive pricing actions. Profitability in the quarter was negatively impacted by shortages of component parts which created manufacturing inefficiencies, along with higher costs of materials and inbound freight. These factors had a negative effect on the Company's gross margin percentage during the firstsecond quarter of 2022.

Selling, general and administrative expenses (“SG&A”) were $53.6$55.0 million (15%(14% of net sales) during the firstsecond quarter of 2022 compared to $47.3$50.9 million (15% of net sales) during the same period of 2021, an increase of $6.3$4.1 million. The increase in SG&A expense in the second quarter of 2022 compared to the second quarter of 2021 was attributable to higher administrative, marketing and engineering expenses as the Company returned to pre-pandemic expense levels. Amortization expense in the second 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 $3.2 million for the second quarter of 2022 compared to $2.9 million during the same period in 2021.
17

Other income (expense), net was $0.1 million of expense for the second quarter of 2022 compared to $3.3 million of income during the same period in 2021.  The income in 2021 was primarily from the sale of a facility in the Netherlands of $3.4 million.
Provision for income taxes was $9.2 million (24% of income before income tax) in the second quarter of 2022 compared to $8.2 million (24% of income before income tax) during the same period in 2021.

The Company’s net income after tax was $28.5 million or $2.39 per share on a diluted basis for the second quarter of 2022 compared to $26.0 million or $2.19 per share on a diluted basis for the second quarter of 2021.  The increase of $2.5 million resulted from the factors described above.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Net sales for the first six months of 2022 were $758.2 million, an increase of $99.5 million or 15% compared to $658.7 million for the first six 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, inbound freight and supply chain and logistical disruptions.

Net Vegetation Management sales increased during the first six months by $77.5 million or 19% to $476.0 million for 2022 compared to $398.5 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, logistics issues and unfavorable input cost changes constrained this Division during the first six months of 2022.

Net Industrial Equipment sales were $282.2 million during the first six months of 2022 compared to $260.2 million for the same period in 2021, an increase of $22.0 million or 8%. The increase in sales for the first six months of 2022 compared to the first six 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 six months of 2022 were also negatively affected by supply chain disruptions and higher input costs in both material and inbound freight costs.

Gross profit for the first six months of 2022 was $186.4 million (25% of net sales) compared to $164.6 million (25% of net sales) during the same period in 2021, an increase of $21.8 million. The increase in gross profit was mainly attributable to higher sales volume during the first six months of 2022 compared to the first six 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 six months of 2022.

SG&A expenses were $108.6 million (14% of net sales) during the first six months of 2022 compared to $98.2 million (15% of net sales) during the same period of 2021, an increase of $10.4 million. The increase in SG&A expense in the first quartersix months of 2022 compared to the first quartersix months of 2021 was
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attributable to higher administrative, marketing and engineering expenses as the Company returned to pre-pandemic expense levels. Amortization expense in the first quartersix months of 2022 was $3.9$7.7 million compared to $3.7$7.3 million in the same period in 2021, an increase of $0.2$0.4 million.

Interest expense was $2.6$5.8 million for the first quartersix months of 2022 compared to $5.5 million during the same period in 2021, an increase of $0.3 million.

Other income (expense), net was $1.9 million of expense during the first six months of 2022 compared to $2.6 million of income in the first six 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 $15.5 million (25% of income before income taxes) in the first six months of 2022 compared to $13.3 million (23% of income before income taxes) during the same period in 2021.
    
Other income (expense), net was $1.8 million of expense for the first quarter of 2022 compared to $0.6 million of expense during the same period in 2021. 
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Provision for income taxes was $6.3 million (26% of income before income tax) in the first quarter of 2022 compared to $5.0 million (22% of income before income tax) during the same period in 2021. The higher tax rate incurred in the first quarter of 2022 as compared to 2021, represents the annual rate the Company expects to incur.
The Company’sCompany's net income after tax was $18.5$46.9 million or $1.55$3.94 per share on a diluted basis for the first quartersix months of 2022 compared to $17.5$43.5 million or $1.47$3.66 per share on a diluted basis for the first quartersix months of 2021. The increase of $1.0$3.4 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 Company’s 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 March 31,June 30, 2022, the Company had working capital of $550.7$558.7 million which represents an increase of $131.1$139.1 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 $4.4$15.0 million for the first threesix months of 2022, compared to $3.5$9.4 million during the first threesix 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.
Net cash used for investing activities was $4.3$16.8 million during the first threesix months of 2022 compared to $2.8$— million during the first threesix months of 2021.
Net cash provided by financing activities was $101.2$97.0 million and $67.4$26.3 million during the threesix month periods ended March 31,June 30, 2022 and March 31,June 30, 2021, respectively. Higher net cash provided by financing activities for the first threesix 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 $80.6$70.9 million in cash and cash equivalents held by its foreign subsidiaries as of March 31,June 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 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.

On October 24, 2019, the Company, as Borrower, and each of its domestic subsidiaries as guarantors, entered into a Second Amended and Restated Credit Agreement (the Credit Agreement) with Bank of America, N.A., as Administrative Agent. The Credit Agreement provides the Company with the ability to request loans and other financial obligations in an aggregate amount of up to $650.0 million and, subject to certain conditions, the Company has the option to request an increase in aggregate commitments of up to an additional $200.0 million. Pursuant to the Credit Agreement, the Company borrowed $300.0 million pursuant to a Term Facility repayable at a percentage of the initial principal amount of the Term Facility equal to 5.0% per year along with interest payable quarterly. The
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remaining principal amount is due in 2024. Up to $350.0 million is available under the Credit Agreement pursuant to a Revolver Facility. The Agreement requires the Company to maintain two financial covenants, 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 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 Term Facility and the Revolver Facility is October 24, 2024. As of March 31,June 30, 2022, $373.5$371.8 million was outstanding under the Credit Agreement, $262.5$258.8 million on the Term Facility and $111.0$113.0 million on the Revolver Facility. On March 31,June 30, 2022, $2.4$2.1 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 $160.9$185.7 million in available borrowings. The Company is in compliance with the covenants under the Agreement as of March 31,June 30, 2022.

Management believes the Agreement and the Company’s ability to internally generate funds from operations should be sufficient to meet the Company’s cash requirements for the foreseeable future. However, future
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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.

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.

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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
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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 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.

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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 increaseddecreased stockholders’ equity by $1.7$19.8 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
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Company’s sales are denominated would result in a change in gross profit of $2.6$5.5 million for the threesix month period ended March 31,June 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. 

In March 2019, the Company entered into fixed-to-fixed cross-currency swaps and designated these swaps to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. These contracts involve the exchange of fixed U.S. dollars with fixed euro interest payments periodically over the life of the contracts and an exchange of the notional amounts at maturity. The fixed-to-fixed cross-currency swaps include €40 million ($45 million) that matured in December 2021.

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 firstsecond quarter 2022 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately $1.9 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 March 31,June 30, 2022, the Company had $373.5$371.8 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%.

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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.

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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 March 31,June 30, 2022:
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal 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)
JanuaryApril 1-30, 2022— — — $25,861,222
May 1-31, 2022— — — $25,861,222
February 1-28, 2022— — — $25,861,222
March 1-31,June 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 shall havehas 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

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(a) Reports on Form 8-K

None.
 
(b) Other Information
 
None.

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Item 6. - Exhibits

(a)   Exhibits
ExhibitsExhibit TitleIncorporated by Reference From the Following Documents
31.1—Filed Herewith
31.2—Filed Herewith
32.1—Filed Herewith
32.2—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 documentFiled Herewith
101.SCH—XBRL Taxonomy Extension Schema DocumentFiled Herewith
101.CAL—XBRL Taxonomy Extension Calculation Linkbase DocumentFiled Herewith
101.DEF—XBRL Taxonomy Extension Definition Linkbase DocumentFiled Herewith
101.LAB—XBRL Taxonomy Extension Label Linkbase DocumentFiled Herewith
101.PRE—XBRL Taxonomy Extension Presentation Linkbase DocumentFiled Herewith
104—Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)Filed Herewith

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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.
May 4,August 3, 2022Alamo 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)
 
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