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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-28 · 102 added, 102 removed, 108 unchanged (65% of the section changed)

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and Results of Operations

This report contains forward-looking statements that are based on Alamo Group’s current expectations.

This re port 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 beginning on page 13.

In 2019, the Company encountered several challenges including, among other things, ongoing weak agricultural markets worldwide, slowing economic conditions due to weakening in the overall industrial markets we serve, and continued trade disputes between the U.S.

and China, all of which hampered sales.

While the Company believes that some of these adverse conditions are showing signs of moderating in 2020, we remain cautious in terms of our outlook for the year, given ever-changing market conditions and global uncertainty.

Input costs can and do change regularly, while international trade disputes and a continuing tight labor market remain of concern.

In addition, U.S.

national elections in 2020 create further uncertainty for us, particularly in some of the governmental markets we serve.

Despite the challenges faced in 2019, we were successful in completing three important acquisition transactions and, as a result, our backlog was in excess of $260,000,000 as of December 31, 2019, which is almost 9% higher than our backlog level at December 31, 2018.

We believe these recent acquisitions will facilitate stronger top and bottom line growth for us going forward as we integrate the acquired businesses and focus our efforts on realizing identified cost and revenue synergies.

We will also continue our focus on ongoing operational improvement initiatives and, as we did in 2019, will maintain a high level of capital expenditures in 2020 in line with expenditures of the last several years.

In 2020, the COVID-19 pandemic triggered a worldwide recession that caused a significant downturn in our markets globally and negatively affected our expected results.

These unfavorable market conditions continued throughout much of 2020 and could continue for an extended period of time.

In an effort to contain the spread of COVID-19, maintain the health and safety of our employees, meet reduced demand from our customers, and in accordance with governmental requirements, we closed or partially shut down certain office and manufacturing facilities around the world at different times in early 2020.

Although most of our facilities re-opened in the second quarter of 2020, some operated at reduced capacities depending on fluctuations in customer demand and measures taken at our facilities to protect employees which included quarantining of personnel as needed.

Despite some of our markets showing signs of recovery in the second half of 2020, the ongoing spread of the virus presents several risks to our business, especially for the first half of 2021.

In the fourth quarter of 2020 we experienced some operational and supply chain disruptions caused by the pandemic.

We continue to experience varying levels of disruption, particularly in our supply chain, and it is hard to predict the extent to which these disruptions may continue.

COVID-19 vaccines are currently being administered around the world with the hope that the majority of the population will have access to the vaccine by the second half of 2021.

If vaccine effectiveness is consistent with current government and health organization estimates, we believe the vaccine will mitigate the spread of the virus and allow a return to more normal operations in the second half of the year.

However, we recognize that case surges or new strains of the virus or other unanticipated events could lead to new restrictions or lockdowns, which may limit our operational capabilities and/or lead to a renewed softening of customer demand.

All of this is dependent on future developments relating to the pandemic, which are highly uncertain and unpredictable at this time.

In addition, certain i nput costs, most notably steel, have recently increased, while international trade disputes, shipping delays, a changing political landscape in the U.S., and a continuing tight labor market are also of concern.

Given the current level of business uncertainty, we remain cautious in terms of our outlook for the year.

Despite the challenges faced in 2020, we will continue our focus on ongoing operational improvement initiatives and, as we did in 2020, will monitor capital expenditures in 2021 in line with depreciation levels of the last several years.

Of course, we may also be negatively affected by several other unanticipated factors, such as a weakness in the overall economy;

significant changes in currency exchange rates;

further changes in trade policy;

further changes in trade or tax policy;

Brexit integration impacts;

increased levels of government regulations;

increased levels of government regulation;

weakness in the agricultural sector;

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and other risks and uncertainties as described in “Risk Factors.”

Beginning with the fourth quarter of 2019, the Company began reporting operating results on the basis of two segments, namely the Industrial Division and the Agricultural Division, to align with certain changes in how our chief operating decision maker manages and allocates resources to our business.

Prior to the fourth quarter of 2019, the Company had been reporting its operating results on the basis of three segments which included the Company's European Division.

The Company's European Division was a mixture of industrial and agricultural products similar to those within our other two segments.

We believe that by combining similar products under two reporting segments we will achieve better alignment of our products along functional lines which will allow the Company to operate more efficiently.

Our prior period segment information has been retrospectively adjusted to reflect our current segment presentation.

2020 Performance

In 2020, the Company's net sales increased by 4.0%, but net income decreased by 10.0% compared to 2019.

The increase in net sales was due to the acquisitions of Morbark and Dutch Power in 2019 which was offset by market declines due to COVID-19.

The decrease in net income was attributable to the COVID-19 pandemic which began to materially affect our operations in March 2020 and continued to negatively impact the Company's overall financial performance during the year.

The Company's Industrial Division experienced a 5.6% increase in sales for 2020 compared to 2019 due to the acquisitions of Morbark and Dutch Power .

Without factoring in contributions from Morbark and Dutch Power , sales across all legacy Industrial product groups (with the exception of vegetation control, which was up) were down in 2020 compared to 2019, mostly attributable to the adverse impacts of the COVID-19 pandemic which included temporary plant closures in the U.S., France, and Canada during the second quarter of 2020, as well as other operational disruptions across the Industrial Division and softness in customer demand which occurred over the course of the year.

The Division's new orders showed signs of improvement, though not evenly across product lines.

Some areas, such as forestry, increased above historical average while others, such as excavators and vacuum trucks continued to be soft.

The Company's Agricultural Division sales were up less than 1% in 2020 compared to 2019 but were negatively affected by the COVID-19 pandemic, and to a lesser extent ongoing global trade tensions, which began to hurt Agricultural sales as well as operations in late March of this year.

During the second quarter of 2020 however, North American sales and profitability in the Agricultural Division showed some improvement and continued to show signs of recovery for the remainder of 2020.

Likewise, soft market conditions in the Agricultural Division's operations in the U.K.

and France during the first half of 2020 as well as experiencing temporary plant closures and operational disruptions during the months of March and April due to COVID-19, also showed signs of improvement during the second half of 2020.

Consolidated income from operations was $93.2 million in 2020, which included $4.8 million of non-cash inventory step-up expense related to the Morbark acquisition and redundancy costs in the amount of $2.7 million related to the Company's plan to close the Dutch Power facility located in Enschede, in The Netherlands.

Without these one-time charges, consolidated income from operations was $100.7 million, an increase of 6.4% when compared to 2019, mainly the result of contributions to operating income from the Morbark and Dutch Power acquisitions.

The Company's backlog increased 35.6% to $354.1 million at the end of 2020 versus the backlog of $261.0 million at the end of 2019.

The increase in the Company's backlog was primarily attributable to improved market conditions in the second half of 2020, specifically in the Agricultural Division, offset by adverse effects from the COVID-19 pandemic, which has hurt the Company's overall sales and profitability.

The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K.

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Fiscal 2020 compared to Fiscal 2019

The Company’s net sales in the fiscal year ended December 31, 2019 (“2019”) were $1,119,138,000, an increase of $110,316,000 or 10.9% compared to $1,008,822,000 for the fiscal year ended December 31, 2018 (“2018”).

The increase in net sales was mainly due to the acquisition of Dutch Power, which contributed $36,350,000 in net sales and the Morbark acquisition, which added $35,113,000 in net sales.

The Company’s net sales in the fiscal year ended December 31, 2020 (“2020”) were $1,163.5 million, an increase of $44.4 million or 4.0% compared to $1,119.1 million for the fiscal year ended December 31, 2019 (“2019”).

The increase was attributable to the acquisitions of Morbark and Dutch Power, which year over year contributed net sales of $160.5 million.

Negatively affecting sales in 2020, was the outbreak of the COVID-19 pandemic which began to affect the Company's operations late in the first quarter of 2020.

Net Industrial sales were $811.2 million in 2020 compared to $768.5 million in 2019, an increase of $42.7 million or 5.6%, coming from the acquisitions of Dutch Power and Morbark mentioned above, which were offset by the impacts from the COVID-19 pandemic that began to materially affect the Division late in the first quarter of 2020.

This included temporary plant closures in the U.S., France and Canada along with other operational disruptions throughout our global markets resulting from health concerns and

governmental directives, reduced governmental spending, and customer delivery restrictions, among other things.

Net Agricultural sales were $352.3 million in 2020 compared to $350.7 million in 2019, representing an increase of $1.6 million or 0.5%.

Despite the COVID-19 pandemic, agricultural market conditions began to improve during the second quarter of 2020 as demand for our products continued to outpace last year.

Sales in this Division's North American operations did reasonably well and benefited from the contributions of Dixie Chopper but the ongoing pandemic affected supply chain and logistics across the entire Division as well as sales and operations, particularly in our U.K.

and French Agricultural businesses, as they experienced temporary plant closures and soft markets.

Gross profit for 2020 was $292.1 million (25.1% of net sales) compared to $273.2 million (24.4% of net sales) in 2019, an increase of $18.9 million.

The increase in gross profit mainly came from the acquisitions of Dutch Power and Morbark.

Gross margin percentage improved year over year primarily due to a favorable mix of parts sales and pricing actions which more than offset the negative impact of higher steel prices and lower factory utilization.

Also, negatively affecting the gross margin and gross margin percentage during the first nine months of 2020 were $4.8 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 $184.2 million (15.8% of net sales) in 2020 compared to $172.9 million (15.5% of net sales) in 2019, an increase of $11.3 million.

Morbark and Dutch Power accounted for $23.6 million of net additional SG&A expense in 2020 offset by $12.3 million in expense savings related to the COVID-19 pandemic.

2019 included $1.9 million of acquisition expenses related to the Morbark and Dutch Power .

Amortization expense in 2020 was $14.7 million compared to $5.7 million in 2019, an increase of $9.0 million.

The increased amortization expense in 2020 was primarily from the acquisitions of Morbark and Dutch Power.

Interest expense for 2020 was $15.8 million compared to $10.7 million in 2019, an increase of $5.1 million or 47.4%.

The increase in interest expense in 2020 came from increased borrowings due to the Morbark acquisition in 2019 offset by a decrease in interest rates.

Other income (expense), net was expense of $0.6 million during 2020 compared to expense of $0.8 million in 2019.

The expense in 2020 and the expense in 2019 were primarily the result of changes in exchange rates.

Provision for income taxes was $21.5 million (27.5% of income before income taxes) for 2020 compared to $21.4 million (25.4% of income before income taxes) in 2019.

The increase in the tax rate for 2020 was due to the reversal of a FIN 48 benefit recognized in 2019 partially offset by the benefit of the final GILTI regulations issued in July of 2020.

Net income for 2020 was $56.6 million compared to $62.9 million in 2019, due to the factors described above.

Fiscal 2019 compared to Fiscal 2018

The Company’s net sales in the fiscal year ended December 31, 2019 (“2019”) were $1,119.1 million, an increase of $110.3 million or 10.9% compared to $1,008.8 million for the fiscal year ended December 31, 2018 (“2018”).

The increase in net sales was mainly due to the acquisition of Dutch Power, which contributed $36.4 million in net sales and the Morbark acquisition, which added $35.1 million in net sales.

Also contributing to the increase in sales for 2019 was relatively strong demand for our products in the Company's Industrial Division.

These positive net sales impacts more than offset lower sales in our Agricultural Division due to weak market conditions as well as unfavorable currency translation effects in our European operations.

Net Industrial sales were $768,454,000 in 2019 compared to $638,198,000 in 2018, an increase of $130,256,000 or 20.4%, primarily resulting from the acquisitions of Dutch Power and Morbark which together accounted for $71,463,000 of the increase in net sales.

Net Industrial sales were $768.5 million in 2019 compared to $638.2 million in 2018, an increase of $130.3 million or 20.4%, primarily resulting from the acquisitions of Dutch Power and Morbark which together accounted for $71.5 million of the increase in net sales.

Also contributing to the increase were higher sales of vacuum trucks, sweepers, excavators and snow equipment.

To a lesser extent, negatively affecting sales in this division were lower mowing equipment sales.

Net Agricultural sales were $350,684,000 in 2019 compared to $370,624,000 in 2018, representing a decrease of $19,940,000 or 5.4%.

Negatively affecting sales in this Division were weak market conditions and lower farm incomes, which have been impacted by lower commodity prices as well as on going trade disputes.

Net Agricultural sales were $350.7 million in 2019 compared to $370.6 million in 2018, representing a decrease of $19.9 million or 5.4%.

Negatively affecting sales in the Agricultural Division were weak market conditions and lower farm incomes, which have been impacted by lower commodity prices as well as on

going trade disputes.

A first quarter 2019 shutdown in this Division's largest manufacturing facility to install an upgrade to its paint system in addition to heavy rains and flooding throughout the mid-west part of the U.S.

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during the second half of 2019.

Gross profit for 2019 was $273,227,000 (24.4% of net sales) compared to $256,115,000 (25.4% of net sales) in 2018, an increase of $17,112,000.

Gross profit for 2019 was $273.2 million (24.4% of net sales) compared to $256.1 million (25.4% of net sales) in 2018, an increase of $17.1 million.

The increase in gross profit for 2019 came from the acquisitions of Dutch Power and Morbark and higher equipment sales in the Company's Industrial Division.

Negatively affecting the gross margin and margin percentage for 2019 as compared to 2018 were the step-up inventory charge of $3,251,000 at Morbark due to the acquisition, the effects of lower production in our Agricultural Division and unfavorable product mix, partially offset by lower material costs and improvements in the Rivard vacuum truck business.

Selling, general and administrative expenses (“SG&A”) were $172,921,000 (15.5% of net sales) in 2019 compared to $151,522,000 (15.0% of net sales) in 2018, an increase of $21,399,000.

To a large extent, the increase in SG&A was a result of the acquisitions of Dutch Power and Morbark which accounted for $12,498,000 of the increase.

Also contributing to the higher SG&A costs were increased spending in research and development

projects, higher commissions and other selling expenses as well as acquisition expenses, in the amount of $1,940,000.

Amortization expense in 2019 was $5,658,000 compared to $3,505,000 in 2018, an increase of $2,153,000.

Negatively affecting the gross margin and margin percentage for 2019 as compared to 2018 were the step-up inventory charge of $3.3 million at Morbark due to the acquisition, the effects of lower production in our Agricultural Division and unfavorable product mix, partially offset by lower material costs and improvements in the Rivard vacuum truck business.

Selling, general and administrative expenses (“SG&A”) were $172.9 million (15.5% of net sales) in 2019 compared to $151.5 million (15.0% of net sales) in 2018, an increase of $21.4 million.

To a large extent, the increase in SG&A was a result of the acquisitions of Dutch Power and Morbark which accounted for $12.5 million of the increase.

Also contributing to the higher SG&A costs were increased spending in research and development projects, higher commissions and other selling expenses as well as acquisition expenses, in the amount of $1.9 million.

Amortization expense in 2019 was $5.7 million compared to $3.5 million in 2018, an increase of $2.2 million.

The increased amortization expense in 2019 was primarily from the acquisitions of Dutch Power and Morbark.

Interest expense for 2019 was $10,747,000 compared to $5,493,000 in 2018, an increase of $5,254,000 or 95.6%.

Interest expense for 2019 was $10.7 million compared to $5.5 million in 2018, an increase of $5.2 million or 95.6%.

The increase in interest expense in 2019 came from increased borrowings due to the Dutch Power and Morbark acquisitions.

Other income (expense), net was expense of $795,000 during 2019 compared to expense of $1,474,000 in 2018.

Other income (expense), net was expense of $0.8 million during 2019 compared to expense of $1.5 million in 2018.

The expense in 2019 and the expense in 2018 were primarily the result of changes in exchange rates.

Provision for income taxes was $21,429,000 (25.4% of income before income taxes) for 2019 compared to $21,045,000 (22.3% of income before income taxes) in 2018.

The lower effective tax rate in 2018 as compared to 2019 was a result of the Company recording a net benefit to income taxes of $3,331,000 in 2018 relating to the adjustment in the provisional amounts recorded in the fourth quarter of 2017 upon enactment of Tax Cuts and Jobs Act ("TCJA"), as more fully described in Note 14 of the Notes to the Consolidated Financial Statements.

Provision for income taxes was $21.4 million (25.4% of income before income taxes) for 2019 compared to $21.0 million (22.3% of income before income taxes) in 2018.

The lower effective tax rate in 2018 as compared to 2019 was a result of the Company recording a net benefit to income taxes of $3.3 million in 2018 relating to the adjustment in the provisional amounts recorded in the fourth quarter of 2017 upon enactment of Tax Cuts and Jobs Act ("TCJA"), as more fully described in Note 14 of the Notes to the Consolidated Financial Statements.

This factor reduced the Company's effective income tax rate for 2018 to 22.3%.

Net income for 2019 was $62,906,000 compared to $73,486,000 in 2018, due to the factors described above.

Fiscal 2018 compared to Fiscal 2017

The Company’s net sales in the fiscal year ended December 31, 2018 (“2018”) were $1,008,822,000, an increase of $96,442,000 or 10.6% compared to $912,380,000 for the fiscal year ended December 31, 2017 (“2017”).

The increase was mainly attributable to the increased demand for our products in the Company's Industrial Division and in our Agricultural Division's European operations.

Our acquisitions of Santa Izabel , ODB and RPM added $39,396,000 to the increase in net sales.

Also contributing to the increase in sales for 2018 were favorable currency translation effects primarily relating to our European sales.

Net Industrial sales were $638,198,000 in 2018 compared to $563,599,000 in 2017, an increase of $74,599,000 or 13.2%.

The increase primarily came from higher sales of vacuum trucks, mowing equipment, sweepers, excavators and snow equipment.

Also contributing to the increase were the acquisitions of ODB and RPM which together added $29,174,000 in net sales.

Net Agricultural sales were $370,624,000 in 2018 compared to $348,781,000 in 2017, representing an increase of $21,843,000 or 6.3%.

The increase was a result of the acquisition of Santa Izabel which accounted for $10,222,000 in net sales along with increased sales in our European agriculture markets.

Negatively affecting this Division were soft market conditions which resulted from lower farm incomes and commodity prices and the impacts of new and retaliatory tariffs.

Gross profit for 2018 was $256,115,000 (25.4% of net sales) compared to $234,693,000 (25.7% of net sales) in 2017, an increase of $21,422,000.

The increase in gross profit for 2018 resulted from higher equipment sales in the Company's Industrial Division and in our Agricultural Division's European operations and, to a lesser extent, the acquisitions of Santa Izabel , ODB and RPM .

Negatively affecting the gross margin and margin percentage for 2018 were higher steel, freight and other input costs (including tariff impacts) which more than offset productivity improvements, pricing actions, and purchasing initiatives.

To a lesser extent, gross margin percentage was also impacted by the mix of higher wholegoods, tractor and chassis sales compared to modest higher margin part sales.

Selling, general and administrative expenses (“SG&A”) were $151,522,000 (15.0% of net sales) in 2018 compared to $142,638,000 (15.6% of net sales) in 2017, an increase of $8,884,000.

The increase in SG&A was primarily the result of the acquisitions of Santa Izabe l, ODB and RPM in the amount of $5,120,000 and to a lesser extent higher commissions and other selling expenses and higher spending on research and development projects.

Amortization expense in 2018 was $3,505,000 compared to $3,317,000 in 2017, an increase of $188,000.

The increased expense in 2018 was primarily from currency translation effects on our foreign amortization expense.

Interest expense for 2018 was $5,493,000 compared to $4,839,000 in 2017, an increase of $654,000 or 13.5%.

The increase in expense in 2018 was due to higher debt levels as a result of increased demands in working capital and an increase in interest rates during 2018.

Other income (expense), net was expense of $1,474,000 during 2018 compared to expense of $1,868,000 in 2017.

The expense in 2018 and the expense in 2017 were primarily the result of changes in exchange rates.

Provision for income taxes was $21,045,000 (22.3% of income before income taxes) for 2018 compared to $38,052,000 (46.2% of income before income taxes) in 2017.

The decrease in both income taxes and the effective tax rate was due to the enactment of the TCJA which lowered the U.S.

statutory income tax rate from 35% in 2017 to 21% in 2018.

In addition, the Company recorded during 2018, a net benefit to income taxes of $3,331,000 relating to the adjustment in the provisional amounts recorded in the fourth quarter of 2017 upon enactment of TCJA, as more fully described in Note 14 of the Notes to the Consolidated Financial Statements.

The combination of these two factors reduced the Company's effective income tax rate for 2018 to 22.3%.

Net income for 2018 was $73,486,000 compared to $44,315,000 in 2017, due to the factors described above.

Net income for 2019 was $62.9 million compared to $73.5 million in 2018, due to the factors described above.

Liquidity and Capital Resources

In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to conduct the Company’s business, including inventory purchases and capital expenditures.

The Company’s inventory and accounts payable levels, particularly in its Agricultural 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.

The Company’s accounts receivable, inventory and accounts payable levels, particularly in its Agricultural 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 Agricultural Division, help balance the Company’s production during the first and fourth quarters.

As of December 31, 2019, the Company had working capital of $407,954,000, which represents an increase of $55,963,000 from working capital of $351,991,000 as of December 31, 2018.

The increase in working capital was primarily due to the acquisitions of Dutch Power and Morbark .

Capital expenditures were $31,337,000 for 2019, compared to $26,587,000 for 2018.

The increase was primarily related to the construction of a new plant in Mukwonago, Wisconsin for the Company's Super Products vacuum truck operations as well as a significant plant expansion of the Company's Tenco facility in Canada.

The Company will continue to maintain a high level of capital expenditures in order to increase production capacity, support improvement in operational efficiencies, invest in technology, as well as expand an existing manufacturing facility.

We will fund future capital expenditures from operating cash flows or through our revolving credit facility, described below.

In conjunction with our implementation of the provisions of TCJA, and as more fully described in Note 14 to the consolidated financial statements, we recorded a liability in 2017 for the estimated U.S.

federal tax due on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries not previously distributed.

We will pay this liability over the eight-year period permitted by the TCJA provisions.

The deemed repatriation of these accumulated earnings and profits is generally no longer subject to any U.S.

federal income tax consequences associated with the repatriation of the Company's $37,003,000 in cash and cash equivalents held by its foreign subsidiaries as of December 31, 2019;

however, a portion would be subject to foreign withholding tax.

The majority of these funds are at our French and Canadian facilities.

As a result of the fundamental changes to the taxation of multinational corporations created by TCJA, we no longer intend to permanently reinvest all of the historical undistributed earnings of our European foreign affiliates.

While the Company intends to use some of these funds for working capital and capital expenditures outside the U.S., recent changes in the U.S.

tax laws have substantially mitigated the cost of repatriation.

Consequently, the Company now intends to repatriate foreign cash and cash equivalents in excess of amounts needed to fund foreign operating and investing activities.

As of December 31, 2020, the Company had working capital of $345.7 million, which represents a decrease of $62.3 million from working capital of $408.0 million as of December 31, 2019.

The decrease in working capital was primarily due to reductions of accounts receivable and inventory levels which created excess cash used to reduce debt levels.

This was done in response to the COVID-19 pandemic.

Capital expenditures were $17.9 million for 2020, compared to $31.3 million for 2019.

The decrease was related to the COVID-19 pandemic.

In the first quarter of 2020, we began to limit new capital expenditures;

however, any previously approved projects and related spending carried over.

The Company will fund any future expenditure from operating cash flows or through our revolving credit facility, described below.

Net cash provided by operating activities was $184.3 million for 2020, compared to $88.8 million for 2019.

The increase of cash from operating activities came primarily from working capital due to reductions in accounts

receivable and inventory levels as well as a decreased in the Company's investment in rental equipment in the Industrial Division .

Net cash used in investing activities was $14.2 million for 2020, compared to $429.9 million for 2019.

The decrease in cash used in investing activities was primarily due to repayment of debt related to the acquisitions in 2019 of Morbark , Dutch Power and to a lesser extent Dixie Chopper .

Net cash used by financing activities was $164.2 million for 2020, compared to $349.2 million of net cash provided for 2019.

The majority of the net cash provided by financing activities in 2019 was due to borrowings to finance the acquisitions of Morbark , Dutch Power , and to a lesser extent Dixie Chopper .

The Company had $44.7 million in cash and cash equivalents held by its foreign subsidiaries as of December 31, 2020.

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 strength of the U.S.

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.

Net cash provided by operating activities was $88,813,000 for 2019, compared to $12,910,000 for 2018.

The increase of cash from operating activities came primarily from working capital due to reductions in accounts receivable and inventory levels partially offset by increased investment in rental equipment in the Industrial Division .

Net cash used in investing activities was $429,940,000 for 2019, compared to $25,358,000 for 2018.

The increase in cash used in investing activities was primarily due to the acquisitions of Morbark , Dutch Power and to a lesser extent Dixie Chopper .

Net cash provided by financing activities was $349,223,000 for 2019, compared to $22,208,000 for 2018.

The majority of the increase in net cash provided by financing activities in 2019 was due to borrowings to finance the acquisitions of Morbark , Dutch Power , and to a lesser extent Dixie Chopper .

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 $650,000,000 and, subject to certain conditions, the Company has the option to request an increase in aggregate commitments of up to an additional $200,000,000.

Pursuant to the Credit Agreement, the Company has borrowed $300,000,000 pursuant to a Term Facility repayable with interest quarterly at a percentage of the initial principal amount of the Term Facility of 5.0% per year with the remaining principal due in 5 years.

Up to $350,000,000 is available under the Credit Agreement pursuant to a Revolver Facility which terminates in 5 years.

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 has borrowed $300.0 million pursuant to a Term Facility repayable with interest quarterly at a percentage of the initial principal amount of the Term Facility of 5.0% per year with the remaining principal due in 5 years.

Up to $350.0 million is available under the Credit Agreement pursuant to a Revolver Facility which terminates in 5 years.

The Agreement requires the Company to maintain two financial covenants, a maximum leverage ratio and a minimum asset coverage ratio.

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The expiration date of the Term Facility and the Revolver Facility is October 24, 2024.

As of December 31, 2019, $443,717,000 was outstanding under the Credit Agreement, $298,717,000 on the Term Facility and $145,000,000 on the Revolver Facility.

On December 31, 2019, $3,025,000 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 $201,975,000 in available borrowings.

As of December 31, 2020, $285.2 million was outstanding under the Credit Agreement, $280.2 million on the Term Facility and $5.0 million on the Revolver Facility.

On December 31, 2020, $2.2 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 $176.7 million in available borrowings.

The Company is in compliance with the covenants under the Agreement.

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Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.

Assigning estimated fair values to the assets acquired and liabilities assumed requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of intangibles assets that are separately identifiable from goodwill, inventory step-up, and property, plant, and equipment and are based on available historical information, future expectations, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets and other factors.

Such significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach;

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In determining the estimated fair value of acquired property, plant, and equipment, we typically utilize the sales comparison approach or the cost approach depending on the nature of the respective asset and the recency of the construction or procurement of such asset.

Estimated fair values of intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment are based on available historical information, future expectations, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets and other factors.

We may refine the estimated fair values of assets acquired and liabilities assumed, if necessary, over a period not to exceed one year from the date of acquisition by taking into consideration new information that, if known at the date of acquisition, would have affected the estimated fair values ascribed to the assets acquired and liabilities assumed.

Estimates that are sensitive include judgments as to whether information gathered during the measurement period relate to information that was not yet available or whether subsequent developments have occurred that indicate the recognition of other asset or liabilities should be recorded within net earnings.

The judgments made in determining the estimated fair value assigned to assets acquired and liabilities assumed, as well as the estimated useful life and depreciation or amortization method of each asset, can materially impact the net earnings of the periods subsequent to an acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.

During the measurement period, any purchase price allocation changes that impact the carrying value of goodwill will affect any measurement of goodwill impairment taken during the measurement period, if applicable.

Sales Discounts

The Company's products are shipped to customers under various promotional programs.

The most common programs provide a discount when the customer pays within a specified period of time.

The Company reviews the reserve quarterly based on analysis made on each program outstanding at the time.

The cost of these discounts is estimated based on historical experience and known changes in promotional programs and is reported as a reduction to sales when the product sale is recognized.

The reserve is adjusted if discounts paid differ from those estimated.

Historically, those adjustments have not been material.

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What changed 10-K

Item 7. Management’s Discussion and Analysis