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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, 2021
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
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ALAMO GROUP INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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74-1621248
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(State or other jurisdiction of incorporation or
organization) |
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(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)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value
$.10 per share
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ALG |
New York Stock Exchange |
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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.
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Large accelerated filer
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☒ |
Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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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 29, 2021, 11,923,746 shares of common stock, $.10
par value, of the registrant were outstanding.
Alamo Group Inc. and Subsidiaries
INDEX
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PART I.
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FINANCIAL INFORMATION
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PAGE
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Item 1.
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Interim Condensed Consolidated Financial Statements
(Unaudited)
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September 30, 2021 and December 31, 2020 |
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Three and Nine Months Ended September 30, 2021 and September 30,
2020 |
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Three and Nine Months Ended September 30, 2021 and September 30,
2020 |
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Three and Nine Months Ended September 30, 2021 and September 30,
2020 |
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Nine Months Ended September 30, 2021 and September 30,
2020 |
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Item 2.
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Item 3.
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Item 4.
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PART II.
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors |
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds |
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Item 3.
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Defaults Upon Senior Securities |
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Item 4.
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Mine Safety Disclosures |
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Item 5.
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Other Information
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Item 6.
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Exhibits
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Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(Unaudited)
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(in thousands, except share amounts)
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September 30, 2021 |
December 31, 2020 |
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As Adjusted |
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ASSETS |
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Current assets:
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Cash and cash equivalents
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$ |
89,189 |
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$ |
50,195 |
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Accounts receivable, net
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245,517 |
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209,276 |
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Inventories, net
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294,270 |
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242,501 |
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Prepaid expenses and other current assets
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6,741 |
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7,382 |
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Income tax receivable
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66 |
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6,186 |
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Total current assets
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635,783 |
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515,540 |
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Rental equipment, net
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36,244 |
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42,266 |
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Property, plant and equipment
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316,347 |
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312,362 |
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Less: Accumulated depreciation
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(168,557) |
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(156,928) |
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Total property, plant and equipment, net
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147,790 |
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155,434 |
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Goodwill
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193,572 |
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195,132 |
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Intangible assets, net
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181,516 |
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193,172 |
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Deferred income taxes
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2,004 |
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1,203 |
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Other non-current assets
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20,869 |
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19,112 |
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Total assets
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$ |
1,217,778 |
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$ |
1,121,859 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities:
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Trade accounts payable
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$ |
107,059 |
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$ |
75,317 |
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Income taxes payable
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6,425 |
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2,278 |
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Accrued liabilities
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67,183 |
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64,634 |
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Current maturities of long-term debt and finance lease
obligations
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15,059 |
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15,066 |
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Total current liabilities
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195,726 |
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157,295 |
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Long-term debt and finance lease obligations, net of current
maturities
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279,215 |
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270,320 |
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Long-term tax liability
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4,408 |
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3,954 |
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Deferred pension liability
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963 |
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1,731 |
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Other long-term liabilities
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28,095 |
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30,744 |
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Deferred income taxes
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17,709 |
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22,812 |
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Stockholders’ equity:
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Common stock, $0.10 par value, 20,000,000 shares authorized;
11,870,513 and 11,809,926 outstanding at September 30, 2021
and December 31, 2020, respectively
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1,187 |
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1,181 |
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Additional paid-in-capital
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123,446 |
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118,528 |
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|
|
Treasury stock, at cost; 82,600 shares at September 30, 2021
and December 31, 2020, respectively
|
|
(4,566) |
|
|
|
(4,566) |
|
|
|
Retained earnings
|
|
616,235 |
|
|
|
560,186 |
|
|
|
Accumulated other comprehensive loss
|
|
(44,640) |
|
|
|
(40,326) |
|
|
|
Total stockholders’ equity
|
|
691,662 |
|
|
|
635,003 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$ |
1,217,778 |
|
|
|
$ |
1,121,859 |
|
|
See accompanying notes.
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) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
Industrial
|
$ |
218,988 |
|
|
$ |
196,241 |
|
|
$ |
662,106 |
|
|
$ |
608,473 |
|
|
Agricultural
|
119,323 |
|
|
95,518 |
|
|
334,944 |
|
|
266,369 |
|
|
|
|
|
|
|
|
|
|
Total net sales |
338,311 |
|
|
291,759 |
|
|
997,050 |
|
|
874,842 |
|
|
Cost of sales |
252,015 |
|
|
213,123 |
|
|
746,188 |
|
|
649,441 |
|
|
Gross profit |
86,296 |
|
|
78,636 |
|
|
250,862 |
|
|
225,401 |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
52,586 |
|
|
44,069 |
|
|
150,803 |
|
|
136,868 |
|
|
Amortization expense |
3,667 |
|
|
3,644 |
|
|
10,988 |
|
|
11,093 |
|
|
Income from operations
|
30,043 |
|
|
30,923 |
|
|
89,071 |
|
|
77,440 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
(2,660) |
|
|
(3,461) |
|
|
(8,127) |
|
|
(12,921) |
|
|
Interest income |
296 |
|
|
306 |
|
|
877 |
|
|
968 |
|
|
Other income (expense), net |
36 |
|
|
(333) |
|
|
2,659 |
|
|
720 |
|
|
Income before income taxes
|
27,715 |
|
|
27,435 |
|
|
84,480 |
|
|
66,207 |
|
|
Provision for income taxes |
10,196 |
|
|
7,402 |
|
|
23,462 |
|
|
17,657 |
|
|
Net Income
|
$ |
17,519 |
|
|
$ |
20,033 |
|
|
$ |
61,018 |
|
|
$ |
48,550 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic
|
$ |
1.48 |
|
|
$ |
1.70 |
|
|
$ |
5.16 |
|
|
$ |
4.12 |
|
|
Diluted
|
$ |
1.47 |
|
|
$ |
1.69 |
|
|
$ |
5.13 |
|
|
$ |
4.10 |
|
|
Average common shares: |
|
|
|
|
|
|
|
|
Basic
|
11,842 |
|
|
11,788 |
|
|
11,835 |
|
|
11,776 |
|
|
Diluted
|
11,900 |
|
|
11,851 |
|
|
11,895 |
|
|
11,840 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
$ |
0.14 |
|
|
$ |
0.13 |
|
|
$ |
0.42 |
|
|
$ |
0.39 |
|
See accompanying notes.
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) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net income |
$ |
17,519 |
|
|
$ |
20,033 |
|
|
$ |
61,018 |
|
|
$ |
48,550 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense of
$(321) and zero, and $(436) and zero, respectively
|
(9,216) |
|
|
8,606 |
|
|
(8,660) |
|
|
(6,244) |
|
|
Recognition of deferred pension and other post-retirement benefits,
net of tax expense of $(67) and $(51), and $(201) and $(155),
respectively
|
251 |
|
|
194 |
|
|
754 |
|
|
582 |
|
|
Unrealized income (loss) on derivative instruments, net of tax
(expense) benefit of $(354) and $205, and $(955) and $1,586,
respectively
|
1,331 |
|
|
(986) |
|
|
3,592 |
|
|
(6,520) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
(7,634) |
|
|
7,814 |
|
|
(4,314) |
|
|
(12,182) |
|
|
Comprehensive income |
$ |
9,885 |
|
|
$ |
27,847 |
|
|
$ |
56,704 |
|
|
$ |
36,368 |
|
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Stockholders’
Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
Common Stock |
Additional
Paid-in Capital
|
Treasury Stock |
Retained Earnings |
Accumulated
Other
Comprehensive Loss
|
Total Stock-
holders’ Equity
|
|
(in thousands)
|
Shares |
Amount |
|
Balance at December 31, 2020 |
11,727 |
|
$ |
1,181 |
|
$ |
118,528 |
|
$ |
(4,566) |
|
$ |
560,186 |
|
$ |
(40,326) |
|
$ |
635,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
— |
|
— |
|
— |
|
— |
|
17,462 |
|
(1,586) |
|
15,876 |
|
|
Stock-based compensation expense
|
— |
|
— |
|
1,240 |
|
— |
|
— |
|
— |
|
1,240 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
29 |
|
3 |
|
773 |
|
— |
|
— |
|
— |
|
776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.14 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,654) |
|
— |
|
(1,654) |
|
|
Balance at March 31, 2021 |
11,756 |
|
$ |
1,184 |
|
$ |
120,541 |
|
$ |
(4,566) |
|
$ |
575,994 |
|
$ |
(41,912) |
|
$ |
651,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
26,037 |
|
4,906 |
|
30,943 |
|
|
Stock-based compensation expense
|
— |
|
— |
|
1,316 |
|
— |
|
— |
|
— |
|
1,316 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
23 |
|
2 |
|
(604) |
|
— |
|
— |
|
— |
|
(602) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.14 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,657) |
|
— |
|
(1,657) |
|
|
Balance at June 30, 2021 |
11,779 |
|
$ |
1,186 |
|
$ |
121,253 |
|
$ |
(4,566) |
|
$ |
600,374 |
|
$ |
(37,006) |
|
$ |
681,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
17,519 |
|
(7,634) |
|
9,885 |
|
|
Stock-based compensation expense
|
— |
|
— |
|
2,840 |
|
— |
|
— |
|
— |
|
2,840 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
9 |
|
1 |
|
(647) |
|
— |
|
— |
|
— |
|
(646) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.14 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,658) |
|
— |
|
(1,658) |
|
|
Balance at September 30, 2021 |
11,788 |
|
$ |
1,187 |
|
$ |
123,446 |
|
$ |
(4,566) |
|
$ |
616,235 |
|
$ |
(44,640) |
|
$ |
691,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For nine months ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Common Stock |
Additional Paid-in Capital
|
Treasury Stock |
Retained Earnings |
Accumulated
Other
Comprehensive Loss
|
Total Stock-
holders’ Equity
|
|
(in thousands) |
Shares |
Amount |
|
Balance at December 31, 2019 |
11,670 |
|
$ |
1,175 |
|
$ |
113,666 |
|
$ |
(4,566) |
|
$ |
500,320 |
|
$ |
(40,838) |
|
$ |
569,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
— |
|
— |
|
— |
|
— |
|
15,528 |
|
(24,650) |
|
(9,122) |
|
|
Stock-based compensation expense
|
— |
|
— |
|
933 |
|
— |
|
— |
|
— |
|
933 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
9 |
|
1 |
|
368 |
|
— |
|
— |
|
— |
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.13 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,528) |
|
— |
|
(1,528) |
|
|
Balance at March 31, 2020 |
11,679 |
|
$ |
1,176 |
|
$ |
114,967 |
|
$ |
(4,566) |
|
$ |
514,320 |
|
$ |
(65,488) |
|
$ |
560,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
12,989 |
|
4,654 |
|
17,643 |
|
|
Stock-based compensation expense
|
— |
|
— |
|
1,103 |
|
— |
|
— |
|
— |
|
1,103 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
25 |
|
3 |
|
(476) |
|
— |
|
— |
|
— |
|
(473) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.13 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,531) |
|
— |
|
(1,531) |
|
|
Balance at June 30, 2020 |
11,704 |
|
$ |
1,179 |
|
$ |
115,594 |
|
$ |
(4,566) |
|
$ |
525,778 |
|
$ |
(60,834) |
|
$ |
577,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
20,033 |
|
7,814 |
|
27,847 |
|
|
Stock-based compensation expense
|
— |
|
— |
|
1,079 |
|
— |
|
— |
|
— |
|
1,079 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation transactions
|
16 |
|
1 |
|
666 |
|
— |
|
— |
|
— |
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.13 per share)
|
— |
|
— |
|
— |
|
— |
|
(1,531) |
|
— |
|
(1,531) |
|
|
Balance at September 30, 2020 |
11,720 |
|
$ |
1,180 |
|
$ |
117,339 |
|
$ |
(4,566) |
|
$ |
544,280 |
|
$ |
(53,020) |
|
$ |
605,213 |
|
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
(in thousands) |
2021 |
|
2020 |
|
Operating Activities |
|
|
|
|
Net income |
$ |
61,018 |
|
|
$ |
48,550 |
|
|
Adjustment to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Provision for doubtful accounts
|
133 |
|
|
541 |
|
|
Depreciation - Property, plant and equipment
|
15,798 |
|
|
14,237 |
|
|
Depreciation - Rental equipment
|
6,562 |
|
|
7,504 |
|
|
Amortization of intangibles
|
10,988 |
|
|
11,093 |
|
|
Amortization of debt issuance
|
500 |
|
|
500 |
|
|
Stock-based compensation expense
|
5,396 |
|
|
3,115 |
|
|
Provision for deferred income tax (benefit) |
(6,705) |
|
|
(4,548) |
|
|
Gain on sale of property, plant and equipment
|
(4,162) |
|
|
(1,037) |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable
|
(38,106) |
|
|
17,612 |
|
|
Inventories
|
(54,408) |
|
|
22,893 |
|
|
Rental equipment
|
(540) |
|
|
4,189 |
|
|
Prepaid expenses and other assets
|
(1,668) |
|
|
5,765 |
|
|
Trade accounts payable and accrued liabilities
|
36,331 |
|
|
(2,422) |
|
|
Income taxes payable
|
10,266 |
|
|
8,432 |
|
|
Long-term tax payable |
454 |
|
|
(654) |
|
|
Other assets and long-term liabilities, net
|
1,530 |
|
|
205 |
|
|
Net cash provided by operating activities
|
43,387 |
|
|
135,975 |
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
(14,584) |
|
|
(14,962) |
|
|
Proceeds from sale of property, plant and equipment |
9,287 |
|
|
3,433 |
|
|
Purchase of patents |
(44) |
|
|
— |
|
|
Net cash used in investing activities |
(5,341) |
|
|
(11,529) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
Borrowings on bank revolving credit facility |
128,000 |
|
|
98,000 |
|
|
Repayments on bank revolving credit facility |
(108,000) |
|
|
(153,000) |
|
|
Principal payments on long-term debt and finance leases |
(11,308) |
|
|
(15,094) |
|
|
|
|
|
|
|
|
|
|
Dividends paid |
(4,969) |
|
|
(4,590) |
|
|
Proceeds from exercise of stock options |
1,485 |
|
|
1,272 |
|
|
|
|
|
|
Common stock repurchased |
(1,957) |
|
|
(710) |
|
|
Net cash provided (used) by financing activities |
3,251 |
|
|
(74,122) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
(2,303) |
|
|
880 |
|
|
Net change in cash and cash equivalents |
38,994 |
|
|
51,204 |
|
|
Cash and cash equivalents at beginning of the year |
50,195 |
|
|
42,311 |
|
|
Cash and cash equivalents at end of the period |
$ |
89,189 |
|
|
$ |
93,515 |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest
|
$ |
7,839 |
|
|
$ |
14,149 |
|
|
Income taxes
|
20,151 |
|
|
13,309 |
|
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements -
(Unaudited)
September 30, 2021
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, 2021. The balance sheet at
December 31, 2020 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, 2020 (the "2020 10-K").
Effective July 1, 2021, the Company changed its method of
accounting for its U.S. inventories currently accounted for under
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 and is discussed in further detail
in Note 2.
Accounting Pronouncements Adopted on January 1, 2021
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes”
to simplify the accounting for income taxes. The amendments in this
update simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other
areas of Topic 740 by clarifying and amending existing guidance.
This guidance became effective for us on January 1, 2021. The
adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.
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. Accounting Policies
Inventory Valuation
Inventories are stated at the lower of cost or net realizable
value. Effective July 1, 2021, the Company changed its method of
accounting for its U.S. inventories currently accounted for under
the LIFO method to the FIFO method. Total U.S. inventories that
utilized the LIFO cost method represented 41% of the Company's
total inventory as of December 31, 2020 prior to this change in
method. The Company believes the FIFO method is preferable because
it: (i) more accurately matches cost of sales with the related
revenues as the FIFO method more accurately resembles the physical
flow of inventory and; (ii) conforms all of the Company’s
consolidated inventory to a single method of accounting. The
Company also notes that the revised policy improves comparability
with many of the Company's peers.
The Company applied this change retrospectively to all periods
presented. There was an immaterial impact to the Company’s
Consolidated Income Statement and Consolidated Statement of Cash
Flows for the three and nine
months ended September 30, 2020 and 2021. The following financial
statement line items in the Company's Consolidated Balance Sheet as
of December 31, 2020 was adjusted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets |
|
|
|
|
(in thousands)
|
December 31, 2020 |
|
As Originally Reported |
Effect of Change |
As Adjusted |
|
|
|
|
|
Inventories, net
|
$ |
229,971 |
|
$ |
12,530 |
|
$ |
242,501 |
|
|
Deferred income taxes (liability)
|
19,642 |
|
3,170 |
|
22,812 |
|
|
Retained earnings |
550,826 |
|
9,360 |
|
560,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Accounts Receivable
Accounts receivable is shown net of sales discounts and the
allowance for credit losses.
At September 30, 2021 the Company had $10.5 million in
reserves for sales discounts compared to $13.5 million at
December 31, 2020 related to products shipped to our customers
under various promotional programs.
4. Inventories
Net inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2021 |
December 31, 2020 |
|
|
|
|
As Adjusted |
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
253,430 |
|
|
|
$ |
208,656 |
|
|
|
Work in process
|
|
23,876 |
|
|
|
21,225 |
|
|
|
Raw materials
|
|
16,964 |
|
|
|
12,620 |
|
|
|
Inventories, net |
|
$ |
294,270 |
|
|
|
$ |
242,501 |
|
|
Inventory obsolescence reserves were $10.7 million at
September 30, 2021 and $12.0 million at December 31,
2020.
5. Rental Equipment
Rental equipment is shown net of accumulated depreciation of $20.8
million and $18.0 million at September 30, 2021 and
December 31, 2020, respectively. The Company recognized
depreciation expense of $2.1 million and $2.3 million for the three
months ended September 30, 2021 and 2020, respectively and
$6.6 million and $7.5 million for the nine months ended September
30, 2021 and 2020, 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, 2021 and
December 31, 2020, 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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial |
|
Agricultural |
|
|
|
Consolidated |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
$ |
181,338 |
|
|
|
$ |
13,794 |
|
|
|
|
|
|
$ |
195,132 |
|
|
Translation adjustment |
|
(1,244) |
|
|
|
(316) |
|
|
|
|
|
|
(1,560) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
|
$ |
180,094 |
|
|
|
$ |
13,478 |
|
|
|
|
|
|
$ |
193,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021 |
December 31, 2020 |
|
Definite:
|
|
|
|
|
|
|
|
Trade names and trademarks |
15-25 years
|
|
$ |
67,264 |
|
|
|
$ |
67,770 |
|
|
Customer and dealer relationships |
8-15 years
|
|
122,350 |
|
|
|
122,470 |
|
|
Patents and drawings |
3-12 years
|
|
28,593 |
|
|
|
28,764 |
|
|
Favorable leasehold interests |
7 years
|
|
4,200 |
|
|
|
4,200 |
|
|
Total at cost |
|
|
222,407 |
|
|
|
223,204 |
|
|
Less accumulated amortization |
|
|
(46,391) |
|
|
|
(35,532) |
|
|
Total net |
|
|
176,016 |
|
|
|
187,672 |
|
|
Indefinite: |
|
|
|
|
|
|
|
Trade names and trademarks |
|
|
5,500 |
|
|
|
5,500 |
|
|
Total Intangible Assets |
|
|
$ |
181,516 |
|
|
|
$ |
193,172 |
|
The Company recognized amortization expense of $3.7 million and
$3.6 million for the three months ended September 30, 2021 and
2020, respectively, and $11.0 million and $11.1 million for the
nine months ended September 30, 2021 and 2020,
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) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use
assets |
|
$ |
17 |
|
|
$ |
22 |
|
|
$ |
51 |
|
|
$ |
70 |
|
|
Interest on lease
liabilities |
|
1 |
|
|
1 |
|
|
3 |
|
|
5 |
|
|
Operating lease cost |
|
1,464 |
|
|
1,216 |
|
|
3,985 |
|
|
3,624 |
|
|
Short-term lease cost |
|
365 |
|
|
150 |
|
|
822 |
|
|
608 |
|
|
Variable lease cost |
|
87 |
|
|
120 |
|
|
300 |
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
1,934 |
|
|
$ |
1,509 |
|
|
$ |
5,161 |
|
|
$ |
4,671 |
|
Rent expense for the three and nine months ended September 30,
2021 and 2020 was immaterial.
Maturities of operating lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Minimum Lease Payments |
|
(in thousands) |
|
September 30, 2021 |
|
December 31, 2020 |
|
2021 |
|
$ |
1,391 |
|
|
|
* |
$ |
4,072 |
|
|
|
|
2022 |
|
4,797 |
|
|
|
|
3,063 |
|
|
|
|
2023 |
|
3,440 |
|
|
|
|
2,089 |
|
|
|
|
2024 |
|
2,329 |
|
|
|
|
1,465 |
|
|
|
|
2025 |
|
1,704 |
|
|
|
|
1,244 |
|
|
|
|
Thereafter |
|
4,182 |
|
|
|
|
3,622 |
|
|
|
|
Total minimum lease payments |
|
$ |
17,843 |
|
|
|
|
$ |
15,555 |
|
|
|
|
Less imputed interest |
|
(1,278) |
|
|
|
|
(1,310) |
|
|
|
|
Total operating lease liabilities |
|
$ |
16,565 |
|
|
|
|
$ |
14,245 |
|
|
|
|
*Period ended September 30, 2021 represents the remaining
three months of 2021.
|
|
|
|
|
|
|
|
|
Future Lease Commencements
As of September 30, 2021, there are additional operating
leases, primarily for buildings, that have not yet commenced in the
amount of $1.2 million. These operating leases will commence in
fiscal year 2021 with lease terms of 2 to 5 years.
Supplemental balance sheet information related to leases was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
(in thousands) |
|
September 30, 2021 |
|
December 31, 2020 |
|
Other non-current assets
|
|
$ |
16,400 |
|
|
$ |
14,144 |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
4,742 |
|
|
3,680 |
|
|
Other long-term liabilities |
|
11,823 |
|
|
10,565 |
|
|
Total operating lease
liabilities |
|
$ |
16,565 |
|
|
$ |
14,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term |
|
5.14 years |
|
5.83 years |
|
|
|
|
|
|
Weighted Average Discount Rate |
|
2.85 |
% |
|
3.04 |
% |
|
|
|
|
|
Supplemental Cash Flow information related to leases was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
(in thousands) |
|
2021 |
|
2020 |
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating
leases |
|
$ |
3,603 |
|
|
$ |
3,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Debt
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
September 30, 2021 |
December 31, 2020 |
|
Current Maturities: |
|
|
|
|
|
|
Finance lease obligations |
|
$ |
59 |
|
|
|
$ |
66 |
|
|
Term debt |
|
15,000 |
|
|
|
15,000 |
|
|
|
|
15,059 |
|
|
|
15,066 |
|
|
Long-term debt: |
|
|
|
|
|
|
Finance lease
obligations
|
|
33 |
|
|
|
87 |
|
|
Term debt, net |
|
254,182 |
|
|
|
265,233 |
|
|
Bank revolving credit
facility |
|
25,000 |
|
|
|
5,000 |
|
|
Total
Long-term debt |
|
279,215 |
|
|
|
270,320 |
|
|
Total debt |
|
$ |
294,274 |
|
|
|
$ |
285,386 |
|
As of September 30, 2021, $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 $191.6 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, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
$ |
0.14 |
|
|
$ |
0.13 |
|
|
$ |
0.42 |
|
|
$ |
0.39 |
|
|
Dividends paid
|
$ |
0.14 |
|
|
$ |
0.13 |
|
|
$ |
0.42 |
|
|
$ |
0.39 |
|
On October 1, 2021, the Company announced that its Board of
Directors had declared a quarterly cash dividend of $0.14 per
share, which was paid on October 28, 2021, to shareholders of
record at the close of business on October 15,
2021.
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)
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net Income
|
$ |
17,519 |
|
|
$ |
20,033 |
|
|
$ |
61,018 |
|
|
$ |
48,550 |
|
|
Average Common Shares:
|
|
|
|
|
|
|
|
|
Basic (weighted-average outstanding shares)
|
11,842 |
|
|
11,788 |
|
|
11,835 |
|
|
11,776 |
|
|
Dilutive potential common shares from stock options
|
58 |
|
|
63 |
|
|
60 |
|
|
64 |
|
|
Diluted (weighted-average outstanding shares)
|
11,900 |
|
|
11,851 |
|
|
11,895 |
|
|
11,840 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$ |
1.48 |
|
|
$ |
1.70 |
|
|
$ |
5.16 |
|
|
$ |
4.12 |
|
|
Diluted earnings per share
|
$ |
1.47 |
|
|
$ |
1.69 |
|
|
$ |
5.13 |
|
|
$ |
4.10 |
|
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) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net Sales |
|
|
|
|
|
|
|
|
Wholegoods
|
$ |
251,712 |
|
|
$ |
212,918 |
|
|
$ |
761,674 |
|
|
$ |
663,306 |
|
|
Parts
|
74,009 |
|
|
71,419 |
|
|
201,601 |
|
|
188,712 |
|
|
Other
|
12,590 |
|
|
7,422 |
|
|
33,775 |
|
|
22,824 |
|
|
Consolidated |
$ |
338,311 |
|
|
$ |
291,759 |
|
|
$ |
997,050 |
|
|
$ |
874,842 |
|
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) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
United States
|
$ |
249,024 |
|
|
$ |
216,550 |
|
|
$ |
710,814 |
|
|
$ |
651,226 |
|
|
France
|
21,236 |
|
|
20,075 |
|
|
69,252 |
|
|
58,686 |
|
|
Canada
|
15,499 |
|
|
16,392 |
|
|
60,383 |
|
|
44,789 |
|
|
United Kingdom
|
15,524 |
|
|
14,127 |
|
|
43,840 |
|
|
38,135 |
|
|
Netherlands |
6,624 |
|
|
5,547 |
|
|
22,789 |
|
|
19,433 |
|
|
Brazil
|
9,212 |
|
|
3,937 |
|
|
23,396 |
|
|
12,200 |
|
|
Australia
|
4,999 |
|
|
2,587 |
|
|
14,588 |
|
|
7,777 |
|
|
Germany |
2,665 |
|
|
2,233 |
|
|
6,497 |
|
|
7,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
13,528 |
|
|
10,311 |
|
|
45,491 |
|
|
35,515 |
|
|
Consolidated |
$ |
338,311 |
|
|
$ |
291,759 |
|
|
$ |
997,050 |
|
|
$ |
874,842 |
|
Net sales are attributed to countries based on the location of the
customer.
Segment Information
The following includes a summary of the unaudited financial
information by reporting segment at September 30,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
(in thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net Sales |
|
|
|
|
|
|
|
|
Industrial
|
$ |
218,988 |
|
|
$ |
196,241 |
|
|
$ |
662,106 |
|
|
$ |
608,473 |
|
|
Agricultural
|
119,323 |
|
|
95,518 |
|
|
334,944 |
|
|
266,369 |
|
|
|
|
|
|
|
|
|
|
Consolidated |
$ |
338,311 |
|
|
$ |
291,759 |
|
|
$ |
997,050 |
|
|
$ |
874,842 |
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
|
|
|
|
|
|
Industrial
|
$ |
15,951 |
|
|
$ |
19,238 |
|
|
$ |
52,004 |
|
|
$ |
51,453 |
|
|
Agricultural
|
14,092 |
|
|
11,685 |
|
|
37,067 |
|
|
25,987 |
|
|
|
|
|
|
|
|
|
|
Consolidated |
$ |
30,043 |
|
|
$ |
30,923 |
|
|
$ |
89,071 |
|
|
$ |
77,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2021 |
|
December 31, 2020 |
|
Goodwill |
|
|
|
|
Industrial
|
$ |
180,094 |
|
|
$ |
181,338 |
|
|
Agricultural
|
13,478 |
|
|
13,794 |
|
|
|
|
|
|
Consolidated |
$ |
193,572 |
|
|
$ |
195,132 |
|
|
|
|
|
|
|
Total Identifiable Assets |
|
|
|
|
Industrial
|
$ |
920,525 |
|
|
$ |
875,081 |
|
|
Agricultural
|
297,253 |
|
|
246,778 |
|
|
|
|
|
|
Consolidated |
$ |
1,217,778 |
|
|
$ |
1,121,859 |
|
13. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net
of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2021 |
|
2020 |
|
(in thousands) |
Foreign Currency Translation Adjustment |
Defined Benefit Plans Items |
Gaines (Losses) on Cash Flow Hedges |
Total |
|
Foreign Currency Translation Adjustment |
Defined Benefit Plans Items |
Gaines (Losses) on Cash Flow Hedges |
Total |
|
Balance as of beginning of period |
$ |
(26,041) |
|
$ |
(6,352) |
|
$ |
(4,613) |
|
$ |
(37,006) |
|
|
$ |
(50,309) |
|
$ |
(5,601) |
|
$ |
(4,924) |
|
$ |
(60,834) |
|
|
Other comprehensive income (loss) before
reclassifications |
(9,216) |
|
— |
|
2,013 |
|
(7,203) |
|
|
8,606 |
|
— |
|
(341) |
|
8,265 |
|
|
Amounts reclassified from accumulated other comprehensive
loss |
— |
|
251 |
|
(682) |
|
(431) |
|
|
— |
|
194 |
|
(645) |
|
(451) |
|
|
Other comprehensive income (loss) |
(9,216) |
|
251 |
|
1,331 |
|
(7,634) |
|
|
8,606 |
|
194 |
|
(986) |
|
7,814 |
|
|
Balance as of end of period |
$ |
(35,257) |
|
$ |
(6,101) |
|
$ |
(3,282) |
|
$ |
(44,640) |
|
|
$ |
(41,703) |
|
$ |
(5,407) |
|
$ |
(5,910) |
|
$ |
(53,020) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2021 |
|
2020 |
|
(in thousands) |
Foreign Currency Translation Adjustment |
Defined Benefit Plans Items |
Gaines (Losses) on Cash Flow Hedges |
Total |
|
Foreign Currency Translation Adjustment |
Defined Benefit Plans Items |
Gaines (Losses) on Cash Flow Hedges |
Total |
|
Balance as of beginning of period |
$ |
(26,597) |
|
$ |
(6,855) |
|
$ |
(6,874) |
|
$ |
(40,326) |
|
|
$ |
(35,459) |
|
$ |
(5,989) |
|
$ |
610 |
|
$ |
(40,838) |
|
|
Other comprehensive income (loss) before
reclassifications |
(8,660) |
|
— |
|
5,593 |
|
(3,067) |
|
|
(6,244) |
|
— |
|
(5,479) |
|
(11,723) |
|
|
Amounts reclassified from accumulated other comprehensive
loss |
— |
|
754 |
|
(2,001) |
|
(1,247) |
|
|
— |
|
582 |
|
(1,041) |
|
(459) |
|
|
Other comprehensive income (loss) |
(8,660) |
|
754 |
|
3,592 |
|
(4,314) |
|
|
(6,244) |
|
582 |
|
(6,520) |
|
(12,182) |
|
|
Balance as of end of period |
$ |
(35,257) |
|
$ |
(6,101) |
|
$ |
(3,282) |
|
$ |
(44,640) |
|
|
$ |
(41,703) |
|
$ |
(5,407) |
|
$ |
(5,910) |
|
$ |
(53,020) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Subsequent Events
On October 26, 2021, the Company announced that it acquired 100% of
the outstanding capital shares of Timberwolf Limited (“Timberwolf”)
in the U.K for approximately $18.0 million. Timberwolf
manufactures a broad range of commercial wood chippers, primarily
serving markets in the U.K. and the European Union.
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
September 30, |
|
Nine Months Ended
September 30, |
|
As a
Percent of Net Sales
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
Industrial |
64.7 |
% |
|
67.3 |
% |
|
66.4 |
% |
|
69.6 |
% |
|
Agricultural |
35.3 |
% |
|
32.7 |
% |
|
33.6 |
% |
|
30.4 |
% |
|
|
|
|
|
|
|
|
|
Total sales, net
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
Cost Trends and Profit Margin, as
Percentages of Net Sales
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
25.5 |
% |
|
27.0 |
% |
|
25.2 |
% |
|
25.8 |
% |
|
Income from operations |
8.9 |
% |
|
10.6 |
% |
|
8.9 |
% |
|
8.9 |
% |
|
Income before income taxes |
8.2 |
% |
|
9.4 |
% |
|
8.5 |
% |
|
7.6 |
% |
|
Net income |
5.2 |
% |
|
6.9 |
% |
|
6.1 |
% |
|
5.5 |
% |
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
third quarter of 2021. COVID-19 variant cases have generally fallen
since the summer peak levels and we have experienced less
disruption in our business as a direct result of COVID-19 illness.
However, we continue to struggle with the indirect consequences of
the pandemic and we expect that these issues will persist, at least
in the near-term. Our top line performance was constrained by
supply chain disruptions and labor shortages. While we have
elevated engagement with our key suppliers and taken other actions
to mitigate supply chain disruptions, we expect these challenges to
continue for at least the remainder of 2021. We also experienced a
shortage of skilled labor along with higher material and
transportation costs, all of which negatively impacted our
operations and financial results during the quarter.
For the first nine months of 2021, the Company's net sales
increased by 14%, and net income increased by 26% compared to the
same period in 2020. The increase in both net sales and net income
was primarily due to a strong recovery in customer demand for our
products compared to the prior year which was materially impacted
by the COVID-19 pandemic. Offsetting the increase were disruptions
in our supply chain, labor shortages, significant input cost
inflation, and logistics issues.
The Company's Industrial Division experienced a 9% increase in
sales for the first nine months of 2021 compared to the first nine
months of 2020 due to increased customer demand and to a lesser
extent pricing actions. The Division's new orders and backlog
improved in all product lines, though cases of COVID-19 in certain
facilities caused some operational delays during the first half of
2021. The Division's income from operations for the first nine
months of 2021 was up 1% versus the same period in 2020, due to
increased demand but offset by higher input costs and supply chain
disruptions which negatively affected manufacturing
efficiencies.
The Company's Agricultural Division sales increased in the first
nine months of 2021 by 26% compared to the first nine months of
2020. Agricultural sales continue to rebound due to improved
commodity prices, government subsidies, and increased customer
demand for our products aided by lower dealer inventory. Negatively
impacting this Division were higher input costs and supply chain
disruptions which affected manufacturing efficiencies.
Notwithstanding these challenges, the Division's income from
operations recorded a 43% improvement compared to the first nine
months of 2020.
Consolidated income from operations was $89.1 million in the first
nine months of 2021 compared to $77.4 million in the first nine
months of 2020. The results of the first nine months of 2021
included a $1.1 million expense related to an acceleration of stock
expense. The 2020 first nine months results included a $3.5 million
non-cash inventory step-up expense related to the
Morbark
acquisition which was completed in October of 2019. The Company's
backlog increased 154% to $645.1 million at the end of the third
quarter of 2021 versus a backlog of $254.5 million at the end of
the third quarter of 2020. The increase in the Company's backlog
was primarily attributable to improved market conditions and an
increase in customer demand for our products in both Divisions as
outlined above.
There remain many uncertainties regarding the COVID-19 pandemic,
including the anticipated duration and severity of the pandemic,
the spread of an increasing number of virus variants, the extent of
worldwide social, political and economic disruption it may continue
to cause and the distribution of vaccines and other treatment
options to address the virus. The broader implications of the
COVID-19 pandemic on our business, financial condition, results of
operations and cash flows cannot be determined at this time, and
ultimately will be affected by a number of evolving factors
including the length of time that the pandemic continues, the
impact of treatment options and of virus variants, the pandemic’s
effect on our markets, our supply chain, and our manufacturing
capacity, as well as the impact of governmental regulations imposed
in response to the pandemic. While we have generally seen a decline
of COVID-19 cases in our facilities and in the markets we serve, a
continuing resurgence of cases could negatively impact us in the
future by, among other things, reducing overall customer demand or
creating operational disruptions that could lead to delayed
deliveries or negative cost impacts. We also face several ongoing
challenges, including supply chain and logistics challenges, the
unavailability of certain raw materials and key product components,
and input cost inflation. We believe many of these issues are
likely to persist in the near-term. These issues may negatively
impact our business and financial results.
While the direct and indirect consequences of the COVID-19 pandemic
will certainly pose the greatest risk for the Company during the
remainder of 2021, the Company may also be negatively affected by
several other factors such as 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, 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, 2020 (the "2020 Form 10-K").
Results of Operations
Three Months Ended September 30, 2021 vs. Three Months Ended
September 30, 2020
Net sales for the third quarter of 2021 were $338.3 million, an
increase of $46.5 million or 16% compared to $291.8 million for the
third quarter of 2020. Net sales during the third quarter of 2021
improved due to increased customer demand for our products versus
the third quarter of 2020 which was negatively affected by the
COVID-19 pandemic.
Net Industrial sales increased by $22.8 million or 12% to $219.0
million for the third quarter of 2021 compared to $196.2 million
during the same period in 2020. The increase was due to strong
customer demand for the Company's Industrial products and to a
lesser extent pricing actions. Governmental sales were strong
during the third quarter of 2021 as both state and municipal
governmental budgets recovered at a faster pace than was expected,
but have not yet recovered to pre-pandemic levels. Non-governmental
sales were also up as forestry and tree care markets were stronger
as compared to the third quarter of 2020 where those markets were
materially impacted by the COVID-19 pandemic. Supply chain and
logistics disruptions, which affected our manufacturing
efficiencies, had an overall negative impact during the third
quarter of 2021.
Net Agricultural sales were $119.3 million in the third quarter of
2021 compared to $95.5 million for the same period in 2020, an
increase of $23.8 million or 25%. The increase was mainly due
to the continued strengthening of the agricultural market that
began in the second half of 2020 and recent price
increases.
This Division also experienced supply chain disruptions in the
third quarter of 2021 including delays in receiving component parts
from supply chain partners and logistics issues.
Gross profit for the third quarter of 2021 was $86.3 million (26%
of net sales) compared to $78.6 million (27% of net sales) during
the same period in 2020, an increase of $7.7 million. The
increase in gross profit during the third quarter of 2021 compared
to the third quarter of 2020 was due to higher sales volume. This
was offset by higher input costs, mainly from steel, along with
higher costs of component parts which also had a negative affect on
the gross margin percentage during the third quarter of 2021. The
third quarter of 2020 included $0.9 million of charges on sales of
inventory that had been previously stepped-up related to the
Morbark
acquisition.
Selling, general and administrative expenses (“SG&A”) were
$52.6 million (16% of net sales) during the third quarter of 2021
compared to $44.1 million (15% of net sales) during the same period
of 2020, an increase of $8.5 million. The increase in SG&A
expense in the third quarter of 2021 compared to the third quarter
of 2020 was attributable to higher administrative and marketing
expenses as the Company returned to pre-pandemic expense levels.
Included in the 2021 SG&A expenses, are additional stock based
compensation in the amount of $1.1 million related to the
acceleration of restricted stock awards of our former CEO.
Amortization expense in the third quarter of 2021 was $3.7 million
compared to $3.6 million in the same period in 2020, an increase of
$0.1 million.
Interest expense was $2.7 million for the third quarter of 2021
compared to $3.5 million during the same period in 2020, a decrease
of $0.8 million. The decrease in interest expense during the
third quarter of 2021 versus the third quarter of 2020 was
attributable to the Company's continued reduction of debt
levels.
Other income (expense), net was $36.0 thousand of income for the
third quarter of 2021 compared to $0.3 million of expense during
the same period in 2020. The income in 2021 was primarily the
result of changes in currency exchange rates and the expense in
2020 was primarily the result of changes in currency exchange
rates.
Provision for income taxes was $10.2 million (37% of income before
income tax) in the third quarter of 2021 compared to $7.4 million
(27% of income before income tax) during the same period in 2020.
The increase in the tax rate for 2021 was due to a provision made
for stock-based compensation in anticipation of a 28% full year
effective tax rate and a non-deductible acceleration of restricted
stock awards related to the retirement of our former
CEO.
The Company’s net income after tax was $17.5 million or $1.47 per
share on a diluted basis for the third quarter of 2021 compared to
$20.0 million or $1.69 per share on a diluted basis for the third
quarter of 2020. The decrease of $2.5 million resulted from
the factors described above.
Nine Months Ended September 30, 2021 vs. Nine Months Ended
September 30, 2020
Net sales for the first nine months of 2021 were $997.1 million, an
increase of $122.3 million or 14% compared to $874.8 million for
the first nine months of 2020. The increase was attributable to a
strong recovery in customer demand for our products in both the
Industrial and Agricultural Divisions and to a lesser extent
pricing actions. The Company's performance during the first nine
months of 2020 were materially impacted by the COVID-19
pandemic.
Net Industrial sales increased during the first nine months by
$53.6 million or 9% to $662.1 million for 2021 compared to $608.5
million during the same period in 2020. The increase came from
higher customer demand during the second and third quarter of 2021
which more than offset lower sales in the first quarter of 2021 due
to the negative effects from the COVID-19 pandemic which began at
the end of the first quarter of 2020. Supply chain disruptions,
logistics issues and unfavorable input cost changes constrained
this Division during the first nine months of 2021.
Net Agricultural sales were $334.9 million during the first nine
months of 2021 compared to $266.4 million for the same period in
2020, an increase of $68.5 million or 26%. The increase in sales
for the first nine months of 2021 compared to the first nine months
of 2020 was attributable to increased customer demand aided by low
dealer inventories. North American and European markets not only
continued to remain strong, but Brazil and Australian markets have
shown solid increases as our presence in those markets has steadily
improved since early last year. This Division was also negatively
affected by supply chain disruptions and higher input
costs.
Gross profit for the first nine months of 2021 was $250.9 million
(25% of net sales) compared to $225.4 million (26% of net sales)
during the same period in 2020, an increase of $25.5 million. The
increase in gross profit was due to higher sales volume during the
first nine months of 2021. This was offset by inflationary
pressures, mainly from steel, along with higher costs relating to
delivery of component parts, such as airfreighting charges to meet
customer deliveries. This also had a negative impact on gross
margin percent for the first nine months of 2021. Negatively
affecting the gross margin and gross margin percentage during the
first nine months of 2020 was $3.5 million of charges on sales of
inventory that had been previously stepped-up related to the
Morbark
acquisition.
SG&A expenses were $150.8 million (15% of net sales) during the
first nine months of 2021 compared to $136.9 million (16% of net
sales) during the same period of 2020, an increase of $13.9
million. The first nine months of 2021 included
higher administrative and marketing expenses as the Company
returned to pre-pandemic expense levels. Amortization expense in
the first nine months of 2021 was $11.0 million compared to $11.1
million in the same period in 2020, a decrease of $0.1
million.
Interest expense was $8.1 million for the first nine months of 2021
compared to $12.9 million during the same period in 2020, a
decrease of $4.8 million. The decrease during the first nine months
of 2021 compared to the first nine months of 2020 was attributable
to the Company's continued reduction of debt levels.
Other income (expense), net was $2.7 million of income during the
first nine months of 2021 compared to $0.7 million of income in the
first nine months of 2020. The income in 2021 is primarily from
changes in exchange rates and the sale of a facility in the
Netherlands for $3.4 million. The income in 2020 were primarily the
result of changes in exchange rates and to a lesser extent the gain
on the sale of two properties, one in the U.S. and one in
Canada.
Provision for income taxes was $23.5 million (28% of income before
income taxes) in the first nine months of 2021 compared to $17.7
million (27% of income before income taxes) during the same period
in 2020.
The Company's net income after tax was $61.0 million or $5.13 per
share on a diluted basis for the first nine months of 2021 compared
to $48.6 million or $4.10 per share on a diluted basis for the
first nine months of 2020. The increase of $12.4 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 inventory and accounts payable
levels typically build in the first half of the year and 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 fall preseason
sales programs and out of season sales, particularly in our
Agricultural Division. Preseason sales, primarily in the
Agricultural Division, help level the Company’s production during
the off season.
As of September 30, 2021, the Company had working capital of
$440.1 million which represents an increase of $81.9 million from
working capital of $358.2 million at December 31, 2020. The
increase in working capital was primarily a result of volume-driven
and inflation increases in accounts receivable and inventory
levels.
Capital expenditures were $14.6 million for the first nine months
of 2021, compared to $15.0 million during the first nine months of
2020. In response to the COVID-19 pandemic, we limited new capital
expenditures in projects in 2020, however, for the full year of
2021 we expect to approve a more normalized capital expenditure
level. 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 $5.3 million during the
first nine months of 2021 compared to $11.5 million during the
first nine months of 2020.
Net cash provided by financing activities was $3.3 million and net
cash used in financing activities was $74.1 million during the nine
month periods ended September 30, 2021 and September 30,
2020, respectively. Higher Net cash provided by financing
activities for the first nine months of 2021 relates to increase
borrowings on the revolving credit facility for increased working
capital in support of elevated backlog levels.
The Company had $85.0 million in cash and cash equivalents held by
its foreign subsidiaries as of September 30, 2021. 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, but will need to 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 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 September 30, 2021, $295.0 million was outstanding
under the Credit Agreement, $270.0 million on the Term Facility and
$25.0 million on the Revolver Facility. On September 30, 2021,
$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 $191.6 million in
available borrowings. The Company is in compliance with the
covenants under the Agreement as of September 30,
2021.
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 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 2020 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 2020 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.
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; trade wars or
other negative economic impacts resulting from geopolitical events;
decreases in the prices of agricultural commodities, which could
affect our customers' income levels; increase in input costs;
weakness in our Industrial Division due to changes in customer
behavior; 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, particularly
steel and steel products; energy cost; increased cost of
governmental regulations which effect corporations including
related fines and penalties (such as the European General Data
Protection Regulation and the California Consumer Privacy Act); the
potential effects on the buying habits of our customers due to
animal disease outbreaks and other epidemics; the Company’s ability
to develop and manufacture new and existing products profitably;
market acceptance of new and existing products; the Company’s
ability to maintain good relations with its employees; the
Company's ability to successfully complete acquisitions and operate
acquired businesses or assets; the ability to hire and retain
quality skilled employees; cyber security risks affecting
information technology or data security breaches; and the possible
effects of events beyond our control, such as political unrest,
acts of terror, natural disasters and pandemics, on the Company or
its customers, suppliers and the economy in general. The Company
continues to experience the impacts of COVID-19 on its markets and
operations including, most notably, supply chain disruptions 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.
Foreign Currency
Risk
International Sales
A portion of the Company’s operations consists of manufacturing and
sales activities in international jurisdictions. The Company
primarily manufactures its products in the U.S., U.K., France,
Canada, Brazil, Australia and the Netherlands. The Company
sells its products primarily in the functional currency within the
markets where the products are produced, but certain sales from the
Company's U.K. and Canadian operations are denominated in other
foreign currencies. As a result, the Company’s financials,
specifically the value of its foreign assets, could be affected by
factors such as changes in foreign currency exchange rates or weak
economic conditions in the other markets in which the subsidiaries
of the Company distribute their products. Foreign exchange rates
and economic conditions in these foreign markets may be further
impacted by the effects of the COVID-19 pandemic.
Exposure to Exchange Rates
The Company translates the assets and liabilities of foreign-owned
subsidiaries at rates in effect at the balance sheet date. Revenues
and expenses are translated at average rates in effect during the
reporting period. Translation adjustments are included in
accumulated other comprehensive income within the statement of
stockholders’ equity. The total foreign currency translation
adjustment for the current quarter decreased stockholders’ equity
by $9.2 million.
The Company’s earnings are affected by fluctuations in the value of
the U.S. dollar as compared to foreign currencies, predominately in
Europe and Canada, as a result of the sales of its products in
international markets. Forward currency contracts are used to
hedge against the earnings effects of such fluctuations. The
result of a uniform 10% strengthening or 10% decrease in the value
of the dollar relative to the currencies in which the Company’s
sales are denominated would result in a change in gross profit of
$6.7 million for the nine month period ended September 30,
2021. 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) maturing
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 third quarter 2021 average interest rate under these
borrowings, the Company’s interest expense would have changed by
approximately $1.5 million. In the event of an adverse change
in interest rates, management could take actions to mitigate its
exposure. However, due to the uncertainty of the actions that
would be taken and their possible effects this analysis assumes no
such actions. Further this analysis does not consider the
effects of the change in the level of overall economic activity
that could exist in such an environment.
In January 2020, the Company entered into an interest rate swap
agreement with three of its total lenders that hedge future cash
flows related to its outstanding debt obligations. As of
September 30, 2021, the Company had $295.0 million outstanding
under the Credit Agreement of which $200.0 million was hedged in a
three year interest rate swap contract with a fixed LIBOR base rate
of 1.43%.
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, 2020 (the "2020 10-K").
Item 1A. - Risk Factors
There have not been any material changes from the risk factors
previously disclosed in the 2020 Form 10-K for the year ended
December 31, 2020.
Item 2. - Unregistered Sales of Equity Securities and Use of
Proceeds
The following table provides a summary of the Company's repurchase
activity for its common stock during the three months ended
September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
|
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly announced
Plans or Programs |
Maximum Dollar Value of Shares That May Yet Be Purchased Under the
Plans or Programs
(a)
|
|
July 1-31, 2021 |
— |
|
— |
|
— |
|
$25,861,222 |
|
August 1-31, 2021 |
— |
|
— |
|
— |
|
$25,861,222 |
|
September 1-30, 2021 |
— |
|
— |
|
— |
|
$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 have a term of five (5) years, terminating on
December 12, 2023. |
Item 3. - Defaults Upon Senior Securities
None.
Item 4. - Mine Safety Disclosures
Not Applicable
Item 5. - Other Information
(a) Reports on Form 8-K
None.
(b) Other Information
None.
Item 6. - Exhibits
(a) Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibits |
Exhibit Title |
|
Incorporated by Reference From the Following Documents
|
|
18.1 |
— |
|
|
Filed Herewith |
|
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 document |
|
Filed Herewith |
|
101.SCH |
— |
XBRL Taxonomy Extension Schema Document |
|
Filed Herewith |
|
101.CAL |
— |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
Filed Herewith |
|
101.DEF |
— |
XBRL Taxonomy Extension Definition Linkbase Document |
|
Filed Herewith |
|
101.LAB |
— |
XBRL Taxonomy Extension Label Linkbase Document |
|
Filed Herewith |
|
101.PRE |
— |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
Filed Herewith |
|
104 |
— |
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101) |
|
Filed Herewith |
Alamo Group Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
|
November 3, 2021 |
Alamo Group Inc.
|
|
(Registrant)
|
|
|
|
/s/ Jeffery A. Leonard |
|
Jeffery A. Leonard |
|
President & Chief Executive Officer
|
|
|
|
|
|
|
|
/s/ Richard J. Wehrle
|
|
Richard J. Wehrle
|
|
Executive Vice President & Chief Financial Officer
|
|
(Principal Financial Officer)
|
Alamo (NYSE:ALG)
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