What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-26 · 174 added, 240 removed, 1089 unchanged (28% of the section changed)

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Disclosure Controls and Procedures .

An evaluation was carried out, under the supervision and with the participation of the Company's management, including our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer (Principal Financial Officer), and Vice President and Corporate Controller (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 & Chief Executive Officer, Executive Vice President & Chief Financial Officer (Principal Financial Officer), and Vice President & Corporate Controller (Principal Accounting Officer) concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this report.

An evaluation was carried out, under the supervision and with the participation of the Company's management, including our President & Chief Executive Officer and Executive Vice President & Chief Financial Officer (Principal Financial and 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 & Chief Executive Officer and Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) concluded that the Company’s disclosure controls and procedures were effective at the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting .

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Other Information

(a) On February 27, 2020, the Board of Directors (the "Board") of the Company adopted forms of restricted stock award agreements, restricted stock unit agreements, and performance share unit agreements under the Company’s 2019 Equity Incentive Plan (the “Plan”), which was approved by stockholders at the Company’s 2019 annual meeting of stockholders.

The form of restricted stock award agreement, restricted stock unit agreement and form of performance share unit agreement are attached to this Annual Report on Form 10-K as exhibit 10.23, 10.24 and 10.25, respectively, and the terms thereof are incorporated herein by reference.

(a) On February 24, 2022, the Company entered into a change in control agreement with Michael A.

The Company entered into similar change in control of agreements with its other executive officers on March 6, 2020.

The agreement with Mr.

Haberman is entered into in connection with Mr.

Haberman's recent appointment as the Executive Vice-President of the Company's Industrial Equipment Division.

The intent of this agreement is to provide the executive with financial security in the event of a change in control to facilitate a transaction which may benefit shareholders but result in job loss to the executive.

Haberman is entitled to receive, upon termination of employment within six months preceding or twenty-four months after a change in control of the Company (unless such termination is because of death, disability, for cause, or by the officer other than for "good reason," as defined in the change in control agreement), (a) a lump sum severance payment equal to (i) the executive officers annual base salary in effect immediately prior to the change in control or the date of the executive's termination (whichever is greater) plus (ii) an amount equal to the executive’s target bonus opportunity for the calendar year in which the change in control or the date of the executive's termination occurs (whichever is greater) multiplied by a benefit factor which has been set at a factor of "2" for Mr.

Haberman (the "Severance Factor");

(b) acceleration of vesting of all time-based equity awards including restricted stock awards (RSAs) and stock options that vest ratably over time;

and (c) reimbursement of health care insurance costs for a period of eighteen (18) months following the executive's termination of employment, if COBRA is elected by the executive under the Company's group health plan.

The events that trigger a change-in-control under the agreement include (i) the acquisition of 50% or more of our outstanding common stock by certain persons, (ii) certain changes in the membership of the Board of Directors of the Company, (iii) certain mergers or consolidations, and (iv) a sale or transfer of all or substantially all of the Company’s assets.

The receipt of any and all severance payments pursuant the change in control agreement is expressly conditioned on the executive's execution (and non-revocation) of a release of claims agreement.

The summary is qualified in its entirety by the form of change of control agreement attached hereto as exhibit 10.24 and incorporated herein by reference.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Officers and Corporate Governance

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The following table provides information on the shares that are available under the Company’s stock compensation plans and, in the case of plans where stock options may be granted, the number of shares of common stock issuable upon exercise of those stock options.

The Company currently does not have an Equity Compensation Plan not approved by the Stockholders.

The Company currently does not have an Equity Compensation Plan that is not approved by the Stockholders.

The numbers in the table are as of December 31, 2021, the last day of Alamo Group Inc.’s 2021 fiscal year.

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Principal Accountant Fees and Services

Our independent registered public accounting firm is KPMG LLP , San Antonio, TX , Auditor Firm ID:

Information regarding principal accountant fees and services is set forth under the caption “Proposal 3 – Ratification of Appointment of Independent Auditors” in the Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, and such information is incorporated by reference herein.

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3.3 — By-Laws of Alamo Group Inc.

as amended Filed as Exhibit 3.2 to Form 8-K, May 10, 2016

3.4 — By-Laws of Alamo Group Inc.

as amended Filed as Exhibit 3.

1 to Form 8-K, Ma rch 30 , 20 20

as amended Filed as Exhibit 3.1 to Form 8-K, March 30, 2020

4.1 — Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 Filed as Exhibit 4.1 to Form 10-K, February 28, 2020

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Filed as Exhibit 10.1 to Form 8-K, October 29, 2019

10.8 — Securities Purchase Agreement, dated as of September 11, 2019, by and among Alamo Acquisition Corporation, a Delaware corporation, Alamo Group Inc., a Delaware corporation, Stellex Capital Partners, LP, a Delaware limited partnership, and in its capacity as the initial representative of the other Sellers and Morbark Holdings Group, LLC, a Delaware limited liability company.

Filed as Exhibit 10.1 to Form 8-K, September 17, 2019

10.8 — First Amendment to Securities Purchase Agreement, dated as of October 22, 2019, by and among Alamo Acquisition Corporation, a Delaware corporation, Alamo Group Inc., a Delaware corporation, Stellex Capital Partners, LP, a Delaware limited partnership, and in its capacity as the initial representative of the other Sellers pursuant to Section 10.6 of the Securities Purchase Agreement.

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*10.21 — Form of Performance Share Unit Agreement under the Alamo Group Inc.

2019 Equity Incentive Plan Filed Herewith

10.23 Executive Change in Control Agreement Filed as Exhibit 10.1 to Form 8-K, March 10, 2020

2019 Equity Incentive Plan Filed as Exhibit 10.22 to Form 10-K, February 26, 2021

10.22 — Form of Executive Change in Control Agreement Filed as Exhibit 10.1 to Form 8-K, March 10, 2020

10.23 — Amendment to Executive Change in Control Agreement Filed as Exhibit 10.1 to Form 10-Q, August 4, 2021

10.24 — Executive Change in Control Agreement by and between Alamo Group Inc.

and Michael A.

Haberman Filed Herewith

18.1 — Lifo Preferability Letter Filed as Exhibit 1 8 .1 to Form 10-Q, November 3 , 2021

21.1 — Subsidiaries of the Registrant Filed Herewith

23.1 — Consent of KPMG LLP Filed Herewith

31.1 — Certification by Ronald A.

Robinson under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith

31.2 — Certification by Dan E.

Malone under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith

31.1 — Certification by Jeffery A.

Leonard under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith

31.2 — Certification by Richard J.

Wehrle under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith

32.1 — Certification by Ronald A.

Robinson under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith

32.2 — Certification by Dan E.

Malone under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith

32.1 — Certification by Jeffery A.

Leonard under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith

32.2 — Certification by Richard J.

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February 24, 2022

/s/ Ronald A.

/s/ Jeffery A.

President & Chief Executive Officer

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Chairman of the Board & Director

/s/ RONALD A.

/s/ JEFFERY A.

President & Chief Executive Officer

(Principal Executive Officer)

Executive Vice President & Chief Financial Officer (Principal Financial Officer)

/s/ RICHARD J.

Vice President, Controller & Treasurer

(Principal Accounting Officer)

Executive Vice President & Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

/s/ ROBERT P.

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KPMG LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting, which is included herein.

February 25, 2021 /s/ Ronald A.

February 24, 2022 /s/ Jeffery A.

President, Chief Executive Officer & Director (Principal Executive Officer)

Executive Vice President & Chief Financial Officer (Principal Financial Officer)

/s/Richard J.

Vice President, Controller & Treasurer (Principal Accounting Officer)

Executive Vice President & Chief Financial Officer (Principal Financial Officer)

Report of Independent Registered Public Accounting Firm

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Long-term tax liability 4,416 3,954

Deferred pension liability 1,731 1,844

Other long-term liabilities 27,119 32,475

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Total liabilities and stockholders’ equity $ 1,205,742 $ 1,121,859

$ 1,109,329 $ 1,212,763

* Years ended December 31, 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Note 1 to the Consolidated Financial Statements.

See accompanying notes.

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2021 2020 2019

Industrial $ 811,161 $ 768,454 $ 638,198

Agricultural 352,305 350,684 370,624

Vegetation Management $ 812,676 $ 654,630 $ 502,194

Industrial Equipment 521,547 508,836 616,944

Total net sales 1,334,223 1,163,466 1,119,138

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Diluted 11,896 11,845 11,800

* Years ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Note 1 to the Consolidated Financial Statements.

See accompanying notes.

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Year Ended December 31,

(in thousands, except per share amounts) 2020 2019 2018

(in thousands) 2021 2020 2019

Net income $ 80,245 $ 57,804 $ 63,103

Other comprehensive income (loss):

Foreign currency translation adjustment 8,862 3,363 ( 13,347 )

Unrealized (loss) gains on derivative instruments ( 9,326 ) 610 —

Net loss on pension and other post-retirement benefits ( 1,096 ) ( 683 ) ( 1,667 )

Other comprehensive (loss) income before income tax (expense) benefit ( 1,560 ) 3,290 ( 15,014 )

Income tax benefit related to items of other comprehensive income (loss) 2,072 703 349

Other comprehensive income (loss) $ 512 $ 3,993 $ ( 14,665 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment, net of tax (expense) benefit of $( 344 ), $ 810 , and zero

( 15,800 ) 8,862 3,363

Unrealized income (loss) on derivative instruments, net of tax (expense) benefit of $( 1,405 ), $ 1,842 , and zero , respectively

5,298 ( 7,484 ) 610

Recognition of deferred pension and other post-retirement benefits, net of tax (expense) benefit of $( 356 ), $ 230 , and $ 703 , respectively

1,838 ( 866 ) 20

Other comprehensive (loss) income, net of tax $ ( 8,664 ) $ 512 $ 3,993

Comprehensive income $ 71,581 $ 58,316 $ 67,096

* Years ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Note 1 to the Consolidated Financial Statements.

See accompanying notes.

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Stock-based compensation transactions 90 9 1,975 — — — 1,984

Repurchased shares ( 40 ) — ( 4,140 ) — — ( 4,140 )

Dividends paid ($ 0.48 per share)

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Balance at December 31, 2021 11,791 $ 1,187 $ 124,228 $ ( 4,566 ) $ 633,804 $ ( 48,990 ) $ 705,663

* Years ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Note 1 to the Consolidated Financial Statements.

See accompanying notes.

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Net income $ 80,245 $ 57,804 $ 63,103

Adjustments to reconcile net income to cash provided by

operating activities:

Adjustments to reconcile net income to cash provided by operating activities:

Provision for doubtful accounts 506 860 575

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Common stock repurchased ( 1,957 ) ( 710 ) ( 589 )

Net cash (used in) provided by financing activities ( 164,242 ) 349,223 22,208

Net cash used in financing activities ( 23,001 ) ( 164,242 ) 349,223

Effect of exchange rate changes on cash ( 1,308 ) 1,964 172

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Income taxes $ 32,865 $ 17,140 $ 23,099

* Years ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Note 1 to the Consolidated Financial Statements.

See accompanying notes.

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The Company manages its business through two principal reporting segments:

Industrial and Agricultural which are discussed in Note 18 .

Vegetation Management and Industrial Equipment, which are discussed in Note 18 .

Basis of Presentation and Principles of Consolidation

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Reclassifications

At the beginning of the fourth quarter of 2019, the Company began reporting operating results on the basis of two segments, the Industrial Division and the Agricultural Division.

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 the other two segments.

At the beginning of the fourth quarter of 2021, the Company began reporting operating results on the basis of two new segments, the Vegetation Management Division and the Industrial Equipment Division.

Prior to the fourth quarter of 2021, the Company had been reporting its operating results on the basis of two segments, the Industrial and Agricultural Divisions.

The realignment into these two new segments will allow the Company to capture synergies in areas such as cross-branding, distribution and product development.

The prior period segment information has been retrospectively adjusted to reflect the current segment presentation in Note 18 to the Consolidated Financial Statements.

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The credit risk is limited because of the large numbers and types of customers and their geographic dispersion.

Inventories of U.S.

operating subsidiaries are stated at the lower of cost (last-in, first-out method) (“LIFO”) or market, and the Company’s international subsidiaries’ inventories are stated at the lower of cost (first-in, first-out) (“FIFO”) or market.

Inventory costs include those costs directly attributable to products, including raw materials, labor and overhead.

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.

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 twelve

months ended December 31, 2021, 2020 and 2019.

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 December 31, 2020

(in thousands)

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

Property, Plant and Equipment

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Factors considered include macroeconomic, industry and competitive conditions, legal and regulatory environment, historical financial performance and significant changes in the reporting unit.

If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.

qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.

Alternatively, we may also bypass the qualitative assessment and go ahead and perform step 1 to determine if the carrying amount exceeds the reporting unit’s fair value.

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The Company presents two reportable operating segments within its financial statements:

Industrial and Agricultural.

Vegetation Management and Industrial Equipment.

Contract terms and performance obligations within each contractual agreement are generally consistent for both divisions, with small differences that do not have a significant impact on the revenue recognition considerations under Topic 606.

Revenues are recognized when we satisfy our performance obligation to transfer product to our customers, which typically occurs at a point in time upon shipment or delivery of the product, and for an amount that reflects the transaction price that is allocated to the performance obligation.

Our contracts with customers state the

final terms of sale, including the description, quantity and price for goods sold.

Our contracts with customers state the final terms of sale, including the description, quantity and price for goods sold.

In the normal course of business, we generally do not accept product returns.

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, available tax carry backs and tax planning strategies in making this assessment other than those which we have reserved.

Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, available tax carrybacks and tax planning strategies in making this assessment other than those which we have reserved.

We have elected to treat the global intangible low-taxed income (GILTI) tax as a period expense.

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All option plans contain anti-dilutive provisions that permit an adjustment of the number of shares of the Company’s common stock represented by each option for any change in capitalization.

Excess tax benefits or awards that are recognized in equity related to stock option exercises are reflected as cash flows from financing activities in the statement of cash flows.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method with the following assumptions noted:

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The treasury stock method is used to compute diluted EPS which gives effect to the potential dilution of earnings that could have occurred if additional shares were issued for awards granted under the Company’s incentive stock option plans.

The treasury stock method assumes proceeds obtained upon exercise of awards granted under the incentive stock option plans are used to purchase outstanding common stock at the average market price during the period.

The treasury stock method assumes that proceeds obtained upon exercise of awards granted under the incentive stock option plans are used to purchase outstanding common stock at the average market price during the period.

ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted on January 1, 2021

In August 2018, the FASB issued Accounting Statement Update (ASU) No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements.

Among other things, the amendments added disclosures for changes in unrealized gains and losses on Level 3 fair value measurements and required additional disclosures on unobservable inputs associated with Level 3 assets.

The guidance became effective for us on January 1, 2020.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments - Credit Losses,” to improve information on credit losses for financial instruments.

The ASU replaces the previous incurred loss impairment methodology with a methodology that reflects expected credit losses.

This guidance became effective for us on January 1, 2020.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued Accounting Statement Update (ASU) No.

2018-14, “Compensation, Defined Benefit Plans", which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The update removes certain disclosures that are no longer considered cost beneficial and adds disclosure requirements identified as relevant.

We have elected to adopt this accounting guidance as of January 1, 2021.

In December 2019, the FASB issued ASU No.

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The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

We have elected to adopt this accounting guidance as of January 1, 2021.

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.

BUSINESS COMBINATIONS

Morbark, LLC.

On October 24, 2019, the Company completed the acquisition of 100 % of the outstanding capital shares of Morbark, LLC.

(" Morbark ") a former portfolio company of Stellex Capital Management.

Morbark manufacturers equipment and aftermarket parts for forestry, tree maintenance, biomass, land management and recycling markets.

These products are marketed under the Morbark, Rayco, Denis Cimaf and Boxer Equipment brand names.

The total consideration for the purchase was approximately $ 354.0 million on a debt free basis and subject to certain post-closing adjustments.

The primary reason for the acquisition is to expand and complement our range of vegetation maintenance equipment in an adjacent market along with accelerating Morbark's international growth using the Company's existing presence in Europe, Brazil and Australia.

The acquisition was accounted for in accordance with ASC Topic 805 Business Combinations ("ASC Topic 805").

The total purchase price has been allocated to assets acquired and liabilities assumed, including deferred taxes, as of October 24, 2019.

The Company completed its review of the valuation of the purchase price allocation for Morbark during the fourth quarter of 2020.

The Company found that no additional changes were necessary and that the values disclosed in the Company's 2020 third quarter 10-Q were final.

The valuation of Morbark resulted in goodwill of $ 98.6 million, all of which has been assigned to the Company's Industrial reporting segment, $ 93.0 million of goodwill is tax deductible, the remaining balance is not.

In the period between the date of acquisition and December 31, 2019, Morbark generated approximately $ 35.1 million of net sales and $ 1.5 million of net loss.

The Company has included the operating results of Morbark in its consolidated financial statements since the date of acquisition.

The following table reflects the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

Accounts receivable $ 13,966

Inventory 72,972

Prepaid and other assets 5,180

Rental Equipment 1,133

Property, plant and equipment 42,969

Intangible assets 149,790

Deferred tax liability ( 4,982 )

Other liabilities assumed ( 30,056 )

Net assets assumed $ 250,972

Goodwill 98,604

Total Acquisition Price net cash 349,576

Total Consideration $ 354,311

Dutch Power Company B.V.

On March 4, 2019, the Company acquired 100 % of the issued and outstanding equity interests of Dutch Power Company B.V.

(" Dutch Power ").

Dutch Power designs, manufactures and sells a variety of landscape and vegetation management machines primarily in Europe.

The primary reason for the Dutch Power acquisition was to enhance the Company's platform for growth by increasing both the Company's product portfolio and capabilities in the European market.

On October 26, 2021, the Company acquired 100 % of the issued and outstanding equity interests of Timberwolf Limited (“ Timberwolf ”).

Timberwolf manufactures a broad range of commercial wood chippers, primarily serving markets in the U.K.

and the European Union.

The primary reason for the Timberwolf acquisition was to enhance the Company's forestry and tree care platform for growth by increasing both the Company's product portfolio and capabilities in the European market.

The acquisition price was approximately $ 25.0 million.

The Company completed its review of the valuation of the purchase price allocation for Dutch Power during the first quarter of 2020.

The Company found that no additional changes were necessary and that the values disclosed in the 2019 10-K were final.

The Company has included the operating results of Timberwolf in its consolidated financial statements since the date of acquisition, these results are considered immaterial.

EARNINGS PER SHARE

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Historically, those adjustments have not been material.

Inventories – Obsolete and Slow Moving

Reserve for Inventory Obsolescence

We value inventories at the lower of the cost of inventory or net realizable value.

As needed, we record an inventory valuation adjustment for excess, slow moving, and obsolete inventory that is equal to the excess of the cost of the inventory over the estimated net realizable value.

The inventory valuation adjustment to net realizable value establishes a new cost basis of the inventory that cannot be subsequently reversed.

Such inventory valuation adjustments for excess, obsolete, and slow moving inventory are not reduced or removed until the product is sold or disposed of.

The Company had a reserve of $ 12.9 million on December 31, 2021 and $ 12.0 million on December 31, 2020 to cover obsolete and slow moving inventory.

The increase in the reserve was primarily attributable to the Company's Industrial Division.

The obsolete and slow moving inventory reserve is calculated as follows:

The increase in the reserve was primarily attributable to the Company's Industrial Equipment Division.

The reserve for inventory obsolescence is calculated as follows:

1) no inventory usage over a three-year period is deemed obsolete and reserved at 100 %;

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The Company’s warranty policy is generally to provide its customers warranty for up to one year on all wholegood units and 90 days on parts, though some components can have warranty for longer terms.

Warranty reserve, as a percentage of sales, is generally calculated by looking at the current twelve months ’ expenses and prorating that amount based on twelve months ’ sales with a 90 day to six-month lag period.

The Company’s historical experience is that an end-user takes approximately 90 days to six months from the receipt of the unit to file a warranty claim.

A warranty reserve is established for each different marketing group.

The Company’s historical experience is that an end-user takes approximately three to six months from the receipt of the unit to file a warranty claim.

The current liability warranty reserve balance was $ 10.0 million on December 31, 2021 and $ 9.1 million on December 31, 2020 and is included in Note 11 .

Inventories valued at LIFO represented 41 % and 42 % of total inventory for the years ended December 31, 2020 and 2019, respectively.

The excess of current costs (market value) over LIFO-valued inventories was $ 12.5 million and $ 10.9 million on December 31, 2020 and December 31, 2019, respectively.

Inventories consisted of the following on a cost basis, net of reserves for obsolescence and LIFO:

Inventories consisted of the following:

(in thousands) 2021 2020

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The changes in the carrying amount of goodwill for the year ended December 31, 2019, 2020, and 2021 are as follows:

Industrial Agricultural Consolidated

Vegetation Management Industrial Equipment Consolidated

(in thousands)

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Translation adjustment ( 72 ) 92 20

Goodwill adjustment 84 774 858

Balance at December 31, 2018 $ 68,672 $ 14,571 $ 83,243

Translation adjustment ( 124 ) 144 20

Goodwill acquired 110,215 4,544 114,759

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Balance at December 31, 2020 $ 124,981 $ 70,151 $ 195,132

DEFINITE- AND INDEFINITE-LIVED INTANGIBLE ASSETS

The following is a summary of both the Company's definite and indefinite-lived intangible assets net of the accumulated amortization:

Translation adjustment ( 1,510 ) ( 708 ) ( 2,218 )

Goodwill acquired 9,492 — 9,492

Balance at December 31, 2021 $ 132,963 $ 69,443 $ 202,406

INTANGIBLE ASSETS

The following is a summary of the Company's intangible assets net of the accumulated amortization:

(in thousands) Estimated Useful Lives December 31, 2021 December 31, 2020

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Future Minimum Lease Payments

December 31, 2020

(in thousands)

2021 $ 4,072 $ 69

2022 3,063 40

2023 2,089 17

2024 1,465 17

2025 1,244 16

Thereafter 3,090

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Total lease liabilities $ 16,892

As of December 31, 2019, future minimum lease payments under these non-cancelable leases are:

December 31, 2019

(in thousands)

2020 $ 4,305 $ 97

2021 2,718 83

2022 2,051 45

2023 1,459 22

Thereafter 2,587 14

Total minimum lease payments $ 14,061 $ 280

Less imputed interest ( 1,100 ) ( 16 )

Total lease liabilities $ 12,961 $ 264

Rental expense for operating leases was $ 7.0 million for 2021, $ 6.1 million for 2020, and $ 5.5 million for 2019.

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Total operating lease liabilities $ 16,892 $ 14,245

Finance Leases

(in thousands) 2020 2019

Property, plant and equipment, gross $ 331 $ 524

Accumulated Depreciation ( 211 ) ( 265 )

Property, plant and equipment, net $ 120 $ 259

Current maturities of long-term debt and finance lease obligations $ 66 $ 90

Long-term debt and finance lease obligations, net of current maturities 87 174

Total finance lease liabilities $ 153 $ 264

Weighted Average Remaining Lease Term

Operating leases 5.83 years 5.10 years

Finance leases 2.62 years 3.47 years

Weighted average remaining lease term 5.14 years 5.83 years

Weighted average discount rate 2.83 % 3.04 %

Operating leases 3.04 % 3.29 %

Finance leases 3.38 % 3.39 %

Supplemental cash flow information related to leases was as follows:

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Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from finance leases $ 6 $ 10

Operating cash flows from operating leases 5,013 4,487

Financing cash flows from finance leases 88 122

ACCRUED LIABILITIES

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Salaries, wages and bonuses $ 37,462 $ 31,658

Lease liability 4,655 3,680

Taxes 1,902 5,907

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GAAP requires or permits certain assets or liabilities to be measured at fair value on a recurring or non- recurring basis in our balance sheets.

GAAP also requires the disclosure of the fair values of financial instruments when on option to elect fair value accounting has been provided but such election has not been made.

GAAP also requires the disclosure of the fair values of financial instruments when an option to elect fair value accounting has been provided but such election has not been made.

A debt obligation is an example of such a financial instrument.

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There is a three-tier fair value hierarchy based upon the observability of inputs used in valuation techniques.

Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.

Observable inputs (highest level) reflect market data obtained from independent sources, while

unobservable inputs (lowest level) reflect internally developed market assumptions.

In fair value, measurements are classified under the following hierarchy:

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Other than the investments held by the retirement benefit plans, as described in Note 17 to the Consolidated Financial Statements, the Company does not have any other significant financial assets or liabilities measured at fair value on a recurring basis.

The Company has no recurring nor nonrecurring valuations that fall under Level 3 of the fair value hierarchy as of December 31, 2020 and 2019.

The Company has no recurring or nonrecurring valuations that fall under Level 3 of the fair value hierarchy as of December 31, 2021 and 2020.

LONG-TERM DEBT

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

Outstanding loans under the revolving credit facility bear interest at a variable rate generally based on LIBOR or an alternative variable rate based on the highest of the Bank of America prime rate, the federal funds rate or a rate generally based on LIBOR, in each case depending on the leverage ratio.

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

1 unchanged sentence

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.

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

As of December 31, 2021, $ 269.5 million was outstanding under the Credit Agreement.

7 unchanged sentences

$ 0.01 million in 2025;

and $ 0.02 million in 2025;

and zero thereafter.

Income Statement Components

The jurisdictional components of income before taxes consist of the following:

Earnings before income taxes were as follows:

(in thousands) 2021 2020 2019

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$ 109,498 $ 79,757 $ 84,599

The components of income tax expense (benefit) consist of the following:

The components of income tax expense (benefit) were as follows:

(in thousands) 2021 2020 2019

8 unchanged sentences

Total income taxes $ 29,253 $ 21,953 $ 21,496

The difference between income tax expense (benefit) for financial statement purposes and the amount of income tax expense computed by applying the domestic statutory income tax rate of 21% to income before income taxes consists of the following:

A reconciliation of the income tax at the Company’s U.S.

statutory federal income tax rate to the provision for income taxes follows:

(in thousands) 2021 2020 2019

3 unchanged sentences

Jurisdictional rate differences 1,599 1,034 988

Valuation allowance ( 63 ) 460 ( 267 )

Executive compensation limitation 1,314 170 715

Stock based compensation ( 322 ) ( 366 ) ( 358 )

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Other, net 605 ( 748 ) 580

Provision for income taxes before tax reform $ 21,507 $ 21,429 $ 24,376

Effective tax rate before effects of tax reform 28 % 25 % 26 %

Rate change of deferreds — — 1,200

Transition tax on deemed repatriation — — ( 4,531 )

Impact of tax reform $ — $ — $ ( 3,331 )

Provision for income tax $ 21,507 $ 21,429 $ 21,045

Provision for income taxes $ 29,253 $ 21,953 $ 21,496

Effective tax rate 27 % 28 % 25 %

Deferred Income Tax Assets and Liabilities

Deferred income taxes arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

The components of the Company’s deferred income tax assets and liabilities consist of the following:

The components of the Company’s deferred income tax assets and liabilities were as follows:

(in thousands) 2021 2020

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state net operating loss carry-forwards in the amount of $ 3.6 million which will expire between 2022 and 2030.

We have recorded a valuation allowance as of December 31, 2020 and 2019 due to uncertainties related to our ability to utilize some of the deferred income tax assets, primarily consisting of international operating losses and foreign tax credits generated by the transition tax, before they expire.

The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will be recoverable.

Related to the utilization of net operating loss carry forwards utilized to offset current year earnings, there is not a sufficient history of earnings to fully release the valuation allowances at this time.

The Company's valuation allowances as of December 31, 2021 and 2020 related primarily to foreign net operating losses and foreign tax credits.

Unrecognized Tax Benefits

Unrecognized tax benefits in the amount of $ 0.3 million and $ 0.3 million for 2020 and 2019, respectively, are included in other non-current liabilities on the balance sheet.

The unrecognized tax benefits, if recognized, would favorably impact our effective tax rate in a future period.

We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.

The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

Unrecognized Tax Benefits

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Increases for tax positions related to the current year 82 88

Increases in tax positions taken related to liabilities assumed in acquisitions — 2,219

Decreases in tax positions taken related to liabilities assumed in acquisitions — ( 1,504 )

Decreases as a result of settlements with taxing authorities related to liabilities assumed in acquisitions — ( 715 )

Decreases due to lapse of statute of limitations ( 74 ) ( 88 )

Balance as of end of year $ 270 $ 262

The Company adopted the policy to include interest and penalty expense related to income taxes as interest and other expense, respectively.

As of December 31, 2020, no interest or penalties has been accrued.

The Company’s open tax years for its federal and state income tax returns are for the tax years ended 2015 through 2020.

The Company’s open tax years for its foreign income tax returns are for the tax years ended 2013 through 2020.

The Company is currently under audit with the state of Michigan.

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 foreign affiliates.

We will distribute earnings from our European subsidiaries, while maintaining our permanent reinvestment for our other foreign subsidiaries.

There will generally be no U.S.

corporate taxes imposed on such future distributions of the earnings or withholding and other local taxes.

For the amounts we continue to assert permanent reinvestment, if the amounts were distributed, the company would be subject to approximately $ 4.2 million in withholding taxes.

On January 4, 2021, the Board of Directors of the Company declared a quarterly dividend of $ 0.14 per share which was paid on January 29, 2021 to holders of record as of January 19, 2021.

The Company has adopted the policy to include interest and penalty expense related to income taxes as interest and other expense, respectively.

As of December 31, 2021, no interest or penalties have accrued.

With few exceptions, the Company’s open tax years for its federal and state income tax returns are for the tax years ended 2018 through 2021, and for tax years ended 2014 through 2021 for its foreign income tax returns.

The Company currently intends to permanently reinvest its earnings in certain foreign subsidiaries.

corporate income taxes or foreign withholding taxes should be imposed on future distributions of the earnings not permanently reinvested.

If the amounts asserted as permanent reinvestment were distributed, the Company would be subject to approximately $ 4.5 million in withholding taxes.

On January 3, 2022, the Board of Directors of the Company declared a quarterly dividend of $ 0.18 per share which was paid on February 1, 2022 to holders of record as of January 18, 2022.

The Company also has a share repurchase program under which the Company is authorized to repurchase, in the aggregate, up to $ 30.0 million of its outstanding common stock.

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33,710 7.08 $ 102.27 13,460 $ 95.85

$ 156.38 - $ 234.57

18,000 9.16 $ 156.38 — $ —

Total 87,610 49,360

8 unchanged sentences

Options available for grant at end of year 423,969 455,549 499,640

(1) In 2020 and 2019, options available are from the 2019 Equity Incentive Plan.

(2) In 2018, options available are from the 2009 Equity Incentive Plan.

We also maintain other incentive option plans that have expired, under which previously granted awards remain outstanding.

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There were no options granted in 2019 , 2020 or 2021.

Stock option expense was zero , $ 0.01 million and $ 0.02 million for years ending 2020, 2019, and 2018, respectively.

Stock option expense was zero , zero and $ 0.01 million for years ending 2021, 2020, and 2019, respectively.

As of December 31, 2021, there was zero unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans.

1 unchanged sentence

Restricted Stock Awards/Units

Following is a summary of activity in the Restricted Stock Awards for the periods indicated:

Following is a summary of activity in the Restricted Stock Awards (" RSA ")/Units for the periods indicated:

2021 2020 2019

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*Weighted Averages

Restricted stock awards granted in 2018 and 2019 vest 25 % after one year following the award date and for an additional 25 % of total awarded shares each succeeding year until fully vested.

Restricted stock awards granted in 2020 vest over a three year period.

Restricted stock awards granted in 2019 vest 25 % after one year following the award date and for an additional 25 % of total awarded shares each succeeding year until fully vested.

Restricted stock awards granted in 2020 and 2021 vest over a three year period.

The weighted-average remaining contractual life in years for 2021, 2020 and 2019 was 1.61 , 1.95 and 2.48 , respectively.

Compensation expense was $ 5.4 million, $ 3.7 million and $ 2.8 million for years ending 2021, 2020, and 2019, respectively.

As of December 31, 2020, there was $ 6.2 million of total

unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans.

As of December 31, 2021, there was $ 6.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans.

The cost for awards granted prior to 2020 is expected to be recognized over a period of four years .

1 unchanged sentence

Performance Stock Units

In 2020, the Company's Board of Directors approved a change to our long-term incentive compensation plan to implement a new performance-based equity grants in the form of a Performance Stock Unit ("PSU") award.

In 2020, the Company's Board of Directors approved a change to our long-term incentive compensation plan to implement new performance-based equity grants in the form of a Performance Stock Unit ("PSU") award.

PSU award vesting and payout amounts are tied to the Company's achievement of certain targeted financial metrics relating to a three-year performance period with the goal of more closely aligning executive compensation with long-term Company performance.

The 2020 target long-term incentive compensation mix established for the Company's Section 16 filers consists of RSA's and PSU's each representing fifty percent ( 50 %) of the total long-term incentive compensation target value.

The 2020 target long-term incentive compensation mix established for the Company's Section 16 filers consists of RSAs and PSUs each representing fifty percent ( 50 %) of the total long-term incentive compensation target value.

PSU awards represent a right to receive a certain number of shares of the Company’s common stock at the end of the three-year performance period if certain financial or other performance targets/metrics have been met.

28 unchanged sentences

The Company measures the funded status of a plan as of the date of the year-end consolidated balance sheet.

The underfunded status of the plan of $ 1.7 million and $ 1.8 million as of December 31, 2020 and 2019, respectively, is recognized in the accompanying consolidated balance sheets as long-term accrued pension liability because plan assets are less than the value of benefit obligations expected to be paid.

The accumulated benefit obligation for our pension plan represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels.

10 unchanged sentences

The Company employs a building block approach in determining the expected long-term rate of return on plan assets.

Historical markets are studied and long-term historical relationships between equities and fixed income are

preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run.

Historical markets are studied and long-term historical relationships between equities and fixed income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run.

Current market factors such as inflation and interest rates are evaluated before long-term market assumptions are determined.

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Mid Cap $ 637 $ 637 $ — $ —

Large Cap 3,233 3,233 — —

International 940 940 — —

Common/Collective Trusts:

Wells Fargo Liability Driven Solution 3,106 — 3,106 —

Wells Fargo Liability Driven Solution CIT I 7,782 — 7,782 —

Wells Fargo Liability Driven Solution CIT II 7,026 — 7,026 —

Wells Fargo BlackRock International Equity 616 — 616 —

Wells Fargo Core Bond 1,552 — 1,552 —

Wells Fargo/Causeway International Value 586 — 586 —

124 unchanged sentences

Other includes rental sales, extended warranty sales and service sales as it is considered immaterial.

Effective for the fourth quarter of 2019, the Company began reporting its operating results on the basis of two segments, the Industrial Division and Agricultural Division.

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 the other two segments.

Effective for the fourth quarter of 2021, the Company began reporting its operating results on the basis of the following segments, Vegetation Management Division and Industrial Equipment Division.

Prior to the fourth quarter of 2021, the Company had been reporting its operating results on the basis of two segments which were the Industrial Division and Agricultural Division.

The Vegetation Management Division includes all of the operations of the former Agricultural Division plus the mowing and forestry/tree care operations that were previously part of the former Industrial Division.

The Industrial Equipment Division includes the Company’s vocational truck business and other industrial operations such as excavators, vacuum trucks, street sweepers, and snow removal equipment.

The Company's prior period segment information has been retrospectively adjusted to reflect the current segment presentation.

2 unchanged sentences

(in thousands) 2021 2020 2019

Industrial $ 811,161 $ 768,454 $ 638,198

Agricultural 352,305 350,684 370,624

Vegetation Management $ 812,676 $ 654,630 $ 502,194

Industrial Equipment 521,547 508,836 616,944

Consolidated $ 1,334,223 $ 1,163,466 $ 1,119,138

Income from Operations

Industrial $ 59,881 $ 65,262 $ 65,077

Agricultural 33,284 29,386 36,011

Vegetation Management $ 78,917 $ 46,651 $ 34,035

Industrial Equipment 38,021 48,134 60,877

Consolidated $ 116,938 $ 94,785 $ 94,912

1 unchanged sentence

(in thousands) 2021 2020

Industrial $ 181,338 $ 183,307

Agricultural 13,794 14,715

Vegetation Management $ 132,963 $ 124,981

Industrial Equipment 69,443 70,151

Consolidated $ 202,406 $ 195,132

Identifiable Assets

Industrial $ 868,688 $ 922,738

Agricultural 240,641 290,025

Vegetation Management $ 789,838 $ 707,398

Industrial Equipment 415,904 414,461

Consolidated $ 1,205,742 $ 1,121,859

ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in accumulated other comprehensive loss by component, net of tax, were as follows:

Twelve Months Ended December 31,

(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 ( 15,800 ) — 7,984 ( 7,816 ) 8,862 — ( 5,789 ) 3,073

Amounts reclassified from accumulated other comprehensive loss — 1,838 ( 2,686 ) ( 848 ) — ( 866 ) ( 1,695 ) ( 2,561 )

Other comprehensive income (loss) ( 15,800 ) 1,838 5,298 ( 8,664 ) 8,862 ( 866 ) ( 7,484 ) 512

Balance as of end of period $ ( 42,397 ) $ ( 5,017 ) $ ( 1,576 ) $ ( 48,990 ) $ ( 26,597 ) $ ( 6,855 ) $ ( 6,874 ) $ ( 40,326 )

INTERNATIONAL OPERATIONS AND GEOGRAPHIC INFORMATION

Following is selected financial information on the Company’s international operations, which include the United Kingdom, France, Netherlands, Canada, Brazil, Australia, and China:

Following is selected financial information on the Company’s international operations, which include the United Kingdom, France, Netherlands, Canada, Brazil, and Australia:

International Operations Financial Information

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

OTHER COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

The Company is subject to various unresolved legal actions that arise in the ordinary course of its business.

5 unchanged sentences

Like other industrial concerns, the Company’s manufacturing operations entail the risk of noncompliance, and there can be no assurance that the Company will not incur material costs or other liabilities as a result thereof.

QUARTERLY FINANCIAL DATA (Unaudited)

Summarized quarterly financial data for 2020 and 2019 are presented below.

Seasonal influences affect the Company’s sales and profits, with heavier business occurring in May through August.

(in thousands, except per share amounts)

First Second Third Fourth

Sales $ 314,448 $ 268,635 $ 291,759 $ 288,624 $ 261,934 $ 285,186 $ 271,829 $ 300,189

Gross profit 78,940 67,825 78,636 66,709 63,308 73,133 68,710 68,076

Net income 15,528 12,989 20,033 8,080 15,253 20,667 17,418 9,568

Earnings per share

Diluted $ 1.31 $ 1.10 $ 1.69 $ 0.68 $ 1.30 $ 1.75 $ 1.47 $ 0.81

Average shares

Diluted 11,827 11,842 11,851 11,859 11,777 11,798 11,813 11,811

Dividends per share $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.12 $ 0.12 $ 0.12 $ 0.12

Market price of common stock

High $ 131.87 $ 117.35 $ 116.67 $ 144.75 $ 101.58 $ 106.19 $ 124.33 $ 129.74

Low $ 70.99 $ 76.04 $ 94.90 $ 105.89 $ 74.74 $ 93.00 $ 93.11 $ 103.60

The sum of quarterly earnings per share may not equal total year earnings per share due to rounding of earnings per share amounts, and differences in weighted-average shares and equivalent shares outstanding for each of the periods presented.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures