ALAMO GROUP INC 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures . 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 . Management’s report on the Company’s internal control over financial reporting is included on page 45 of this Annual Report on Form 10-K and incorporated by reference herein. The Company’s independent registered public accounting firm has audited and issued a report on the Company’s internal control over financial reporting which is included on page 48 of this Annual Report on Form 10-K and incorporated by reference herein. The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by KPMG LLP, an independent registered public accounting firm, and the firm’s report on this matter is included in Item 8 of this annual report on Form 10-K. Changes in Internal Controls over Financial Reporting . There have not been any changes in the Company's internal control over financial reporting (as such term is defined by paragraph (d) of Rule 13a-15 under the Securities Exchange Act) during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART III Item 10. Directors, Executive Officers and Corporate Governance There are incorporated in this Item 10, by reference, those portions of the Company’s definitive proxy statement for the 2023 Annual Meeting of Stockholders which appear therein under the captions “Proposal 1 - Election of Directors,” “Nominees for Election to the Board of Directors,” “Information Concerning Directors,” “Meetings and Committees of the Board,” “The Audit Committee,” and “The Nominating/Corporate Governance Committee." See also the information under the caption “Information About Our Executive Officers” in Part I of this Report. The Board of Directors has delegated certain responsibilities to three Committees of the Board. The Committees are the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. The Board of Directors has also adopted Corporate Governance guidelines and a Code of Business Conduct and Ethics for all employees, including the Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer and those individuals performing similar functions. The Committee Charters, Code of Business Conduct and Ethics, and Corporate Governance Guidelines may be found on the Company’s website (www.alamo-group.com) under the “Corporate Governance” tab at https://www.alamo-group.com/our-company/corporate-governance/ and are also available in printed form at no charge by sending a request to the Corporate Secretary, Alamo Group Inc., 1627 E. Walnut Street, Seguin, Texas 78155, which is the principal executive office of the Company. The telephone number is (830) 379-1480. The Company will post any amendments to the Code of Conduct and Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on the Company’s website. 37 Item 11. Executive Compensation There are incorporated in this Item 11, by reference, those portions of the Company’s definitive proxy statement for the 2023 Annual Meeting of Stockholders which appear therein under the captions "Executive Compensation," “The Compensation Committee,” “Compensation Discussion and Analysis,” "Compensation Committee Report” and “Director Compensation during 2022.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters There is incorporated in this Item 12, by reference, that portion of the Company’s definitive proxy statement for the 2023 Annual Meeting of Stockholders which appears under the caption “Beneficial Ownership of our Common Stock.” Information on Alamo Group Inc.’s Equity Compensation Plans 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 that is not approved by the Stockholders. The numbers in the table are as of December 31, 2022, the last day of Alamo Group Inc.’s 2022 fiscal year. A B C Equity Compensation Plan Category Number of Securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of Securities that remain available for future issuance under equity compensation plans (excluding securities reflected in column A) Plans approved by stockholders 2005 Incentive Stock Option Plan 10,500 $48.36 — 2009 Equity Incentive Plan 6,300 $97.30 — 2015 Incentive Stock Option Plan 74,147 $114.65 286,033 2019 Equity Incentive Plan 92,330 $135.29 381,531 Plans not approved by stockholders — — — Total 183,277 667,564 Item 13. Certain Relationships, Related Transactions and Director Independence Information regarding certain relationships and related transactions is set forth under the caption “Certain Relationships and Related Transactions” in the Company’s definitive proxy statement for the 2023 Annual Meeting of Stockholders, and such information is incorporated by reference herein. There were no such reportable relationships or related party transactions in the fiscal year ended December 31, 2022. Information regarding director independence is set forth under the caption “Information Concerning Directors” in the Company’s definitive proxy statement for the 2023 Annual Meeting of Stockholders, and such information is incorporated by reference herein. 38 Item 14. Principal Accountant Fees and Services Our independent registered public accounting firm is KPMG LLP , San Antonio, TX , Auditor Firm ID: 185 . 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 2023 Annual Meeting of Stockholders, and such information is incorporated by reference herein. PART IV Item 15. Exhibits and Financial Statement Schedules Financial Statements Page Report of Management on Internal Control over Financial Reporting 43 Reports of Independent Registered Public Accounting Firm (KPMG LLP) 44 Consolidated Balance Sheets 47 Consolidated Statements of Income 48 Consolidated Statements of Comprehensive Income 49 Consolidated Statements of Stockholders’ Equity 50 Consolidated Statements of Cash Flows 51 Notes to Consolidated Financial Statements 52 Financial Statement Schedules All schedules for which a provision is made in the applicable accounting regulation of the Securities and Exchange Commission are omitted because they are not required or because the required information is included in the consolidated financial statements or notes thereto. Item 16. Summary None. 39 Exhibits Exhibits – The following exhibits are incorporated by reference to the filing indicated or are included following the index to Exhibits. INDEX TO EXHIBITS Incorporated by Reference From the Following Exhibits Exhibit Title Documents 3.1 — Certificate of Incorporation, as amended, of Alamo Group Inc. Filed as Exhibit 3.1 to Form S-1, February 5, 1993 3.2 — Certificate of Amendment of Certificate of Incorporation of Alamo Group Inc. Filed as Exhibit 3.1 to Form 8-K, May 10, 2016 3.3 — By-Laws of Alamo Group Inc. as amended Filed as Exhibit 3.1 to Form 8-K, December 12, 202 2 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 10.1 — Form of indemnification agreements with Directors of Alamo Group Inc. Filed as Exhibit 10.1 to Form 10-Q, May 15, 1997 10.2 — Form of indemnification agreements with certain executive officers of Alamo Group Inc. Filed as Exhibit 10.2 to Form 10-Q, May 15, 1997 *10.3 — 401(k) Restoration Plan for Highly Compensated Employees, adopted on December 9, 1997 Filed as Exhibit 10.15 to Form 10-K, March 31, 1998 *10.4 — 2005 Incentive Stock Option Plan, adopted by the Board of Directors on May 4, 2005 Filed as Appendix E to Schedule 14A, March 29, 2005 10.5 — Third Amended and Restated Credit Agreement, dated as of October 28, 2022, by and among Alamo Group Inc., Bank of America, N.A. as administrative agent, Wells Fargo Bank, N.A., and PNC Bank, N.A. as co-syndication agents, TD Bank, N.A. as documentation agent, and the other lenders party thereto. Filed as Exhibit 10.1 to Form 8-K, October 31, 2022 10.6 — 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. Filed as Exhibit 10.2 to Form 10-Q, October 31, 2019 *10.7 — Form of Restricted Stock Award Agreement under the 2009 Equity Incentive Plan Filed as Exhibit 10.2 to Form 8-K, May 13, 2009 *10.8 — Supplemental Executive Retirement Plan Filed as Exhibit 10.1 to Form 8-K, January 18, 2011 *10.9 — Amended and Restated Executive Incentive Plan Filed as Exhibit 10.26 to Form 10-K, March 1, 2018 *10.10 — 2015 Incentive Stock Option Plan, adopted by the Board of Directors on May 7, 2015 Filed as Appendix A to Schedule 14A, March 19, 2015 *10.11 — Alamo Group Inc. 2019 Equity Incentive Plan Filed as Exhibit 10.1 to Form 8-K, May 7, 2019 *10.12 — Form of Restricted Stock Award Agreement under the Alamo Group Inc. 2019 Equity Incentive Plan Filed as Exhibit 10.23 to Form 10-K, February 28, 2020 *10.13 — Form of Restricted Stock Unit Agreement under the Alamo Group Inc. 2019 Equity Incentive Plan Filed as Exhibit 10.24 to Form 10-K, February 28, 2020 40 *10.14 — Form of Performance Share Unit Agreement under the Alamo Group Inc. 2019 Equity Incentive Plan Filed as Exhibit 10.22 to Form 10-K, February 26, 2021 10.15 — Form of Executive Change in Control Agreement Filed as Exhibit 10.1 to Form 8-K, March 10, 2020 10.16 — Amendment to Executive Change in Control Agreement Filed as Exhibit 10.1 to Form 10-Q, August 4, 2021 10.17 — Executive Change in Control Agreement by and between Alamo Group Inc. and Michael A. Haberman Filed as Exhibit 10.2 4 to Form 10-K, February 2 4 , 20 2 2 21.1 — Subsidiaries of the Registrant Filed Herewith 23.1 — Consent of KPMG LLP 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 Jeffery A. Leonard under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith 32.2 — Certification by Richard J. Wehrle under Section 906 of the Sarbanes-Oxley Act of 2002 Filed Herewith 101.INS — XBRL Instance Document Filed Herewith 101.SCH — XBRL Taxonomy Extension Schema Document Filed Herewith 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith 101.LAB — XBRL Taxonomy Extension Label Linkbase Document Filed Herewith 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith 101.DEF — XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith 104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed Herewith ________________________________________________________________________________________________________________________ *Compensatory Plan 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALAMO GROUP INC. Date: February 23, 2023 /s/ Jeffery A. Leonard Jeffery A. Leonard President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the 23th day of February 2023. Signature Title /s/ RODERICK R. BATY Roderick R. Baty Independent Board Chair & Director /s/ JEFFERY A. LEONARD Jeffery A. Leonard President & Chief Executive Officer (Principal Executive Officer) /s/ RICHARD J. WEHRLE Richard J. Wehrle Executive Vice President & Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ ROBERT P. BAUER Robert P. Bauer Director /s/ ERIC P. ETCHART Eric P. Etchart Director /s/NINA C. GROOMS Nina C. Grooms Director /s/TRACY C. JOKINEN Tracy C. Jokinen Director /s/RICHARD W. PAROD Richard W. Parod Director /s/RONALD A. ROBINSON Ronald A. Robinson Director /s/LORIE L. TEKORIUS Lorie L. Tekorius Director 42 Report of Management on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 using the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, the Company’s management concludes that, as of December 31, 2022, the Company’s internal controls over financial reporting were effective based on these criteria. 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. Date: February 23, 2023 /s/ Jeffery A. Leonard Jeffery A. Leonard President, Chief Executive Officer & Director (Principal Executive Officer) /s/Richard J. Wehrle Richard J. Wehrle Executive Vice President & Chief Financial Officer (Principal Financial Officer) 43 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Alamo Group Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Alamo Group Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates . Sufficiency of evidence over the existence of inventory As discussed in Note 6 to the consolidated financial statements, the value of inventory was $353 million as of December 31, 2022. To facilitate the global delivery of goods to customers, the Company operates across North America, South America, Europe and Australia. Within these locations, the Company has 28 principal manufacturing plants located in six countries. We identified the assessment of the sufficiency of evidence over the existence of inventory as a critical audit matter. The geographical dispersion of inventory required especially subjective auditor judgment in determining the sufficiency of audit evidence obtained over the existence of inventory. 44 The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the existence of inventory including determining where we would perform procedures. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s inventory process at certain manufacturing plants. This included controls related to the physical inspection of inventories at certain plants. We performed independent test counts for a sample of items and compared them to the Company’s records to evaluate the inventory at those specific plants. We selected a sample of inventory transactions that were made by the Company near the Company’s fiscal year-end and evaluated the accounting period in which they were recorded. We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed. /s/ KPMG LLP We have served as the Company’s auditor since 2009. San Antonio, Texas February 23, 2023 45 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Alamo Group Inc.: Opinion on Internal Control Over Financial Reporting We have audited Alamo Group Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2023 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP San Antonio, Texas February 23, 2023 46 Alamo Group Inc. and Subsidiaries Consolidated Balance Sheets Year Ended December 31, (in thousands, except per share amounts) 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 47,016 $ 42,115 Accounts receivable, net 317,581 237,970 Inventories, net 352,553 320,917 Prepaid expenses and other current assets 9,144 9,500 Income tax receivable 916 1,666 Total current assets 727,210 612,168 Rental equipment, net 33,723 32,514 Property, plant and equipment 335,078 321,863 Less: Accumulated depreciation ( 180,071 ) ( 169,372 ) Total property, plant and equipment, net 155,007 152,491 Goodwill 195,858 202,406 Intangible assets, net 171,341 183,466 Deferred income taxes 969 1,110 Other non-current assets 24,400 21,587 Total assets $ 1,308,508 $ 1,205,742 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable $ 97,537 $ 101,396 Income taxes payable 6,592 2,613 Accrued liabilities 71,368 73,523 Current maturities of long-term debt and finance lease obligations 15,009 15,032 Total current liabilities 190,506 192,564 Long-term debt and finance lease obligations, net of current maturities 286,943 254,522 Long-term tax liability 3,781 4,416 Other long-term liabilities 23,668 27,119 Deferred income taxes 18,250 21,458 Stockholders’ equity: Common stock, $ .10 par value, 20,000,000 shares authorized; 11,913,890 and 11,874,178 outstanding at December 31, 2022 and December 31, 2021, respectively 1,191 1,187 Additional paid-in capital 129,820 124,228 Treasury stock, at cost; 82,600 shares at December 31, 2022 and December 31, 2021 ( 4,566 ) ( 4,566 ) Retained earnings 727,183 633,804 Accumulated other comprehensive loss ( 68,268 ) ( 48,990 ) Total stockholders’ equity 785,360 705,663 Total liabilities and stockholders’ equity $ 1,308,508 $ 1,205,742 See accompanying notes. 47 Alamo Group Inc. and Subsidiaries Consolidated Statements of Income Year Ended December 31, (in thousands, except per share amounts) 2022 2021 2020 Net sales: Vegetation Management $ 937,065 $ 812,676 $ 654,630 Industrial Equipment 576,551 521,547 508,836 Total net sales 1,513,616 1,334,223 1,163,466 Cost of sales 1,137,098 999,709 869,736 Gross profit 376,518 334,514 293,730 Selling, general and administrative expenses 212,649 202,939 184,199 Amortization expense 15,277 14,637 14,746 Income from operations 148,592 116,938 94,785 Interest expense ( 14,361 ) ( 10,533 ) ( 15,837 ) Interest income 752 1,149 1,366 Other income ( 673 ) 1,944 ( 557 ) Income before income taxes 134,310 109,498 79,757 Provision for income taxes 32,382 29,253 21,953 Net income $ 101,928 $ 80,245 $ 57,804 Net income per common share: Basic $ 8.58 $ 6.78 $ 4.91 Diluted $ 8.54 $ 6.75 $ 4.88 Average common shares: Basic 11,877 11,837 11,782 Diluted 11,934 11,896 11,845 See accompanying notes. 48 Alamo Group Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Year Ended December 31, (in thousands) 2022 2021 2020 Net income $ 101,928 $ 80,245 $ 57,804 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax (expense) benefit of $ 1,069 , $( 344 ), and $ 810 ( 23,032 ) ( 15,800 ) 8,862 Unrealized income (loss) on derivative instruments, net of tax (expense) benefit of $( 497 ), $( 1,405 ), and $ 1,842 , respectively 2,047 5,298 ( 7,484 ) Recognition of deferred pension and other post-retirement benefits, net of tax (expense) benefit of $( 194 ), $( 356 ), and $ 230 , respectively 1,707 1,838 (866) Other comprehensive (loss) income, net of tax $ ( 19,278 ) $ ( 8,664 ) $ 512 Comprehensive income $ 82,650 $ 71,581 $ 58,316 See accompanying notes. 49 Alamo Group Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Total Stock- holders’ Equity (in thousands) Shares Amount Balance at December 31, 2019 11,670 $ 1,175 $ 113,666 $ ( 4566 ) $ 508,506 $ ( 40,838 ) $ 577,943 Other comprehensive income — — — — 57,804 512 58,316 Stock-based compensation expense — — 4,119 — — — 4,119 Stock-based compensation transactions 57 6 743 — — — 749 Dividends paid ($ 0.52 per share) — — — — ( 6,124 ) — ( 6,124 ) Balance at December 31, 2020 11,727 $ 1,181 $ 118,528 $ ( 4,566 ) $ 560,186 $ ( 40,326 ) $ 635,003 Other comprehensive income — — — — 80,245 ( 8,664 ) 71,581 Stock-based compensation expense — — 5,987 — — — 5,987 Stock-based compensation transactions 64 6 ( 287 ) — — — ( 281 ) Dividends paid ($ 0.56 per share) — — — — ( 6,627 ) — ( 6,627 ) Balance at December 31, 2021 11,791 $ 1,187 $ 124,228 $ ( 4,566 ) $ 633,804 $ ( 48,990 ) $ 705,663 Other comprehensive income — — — — 101,928 ( 19,278 ) 82,650 Stock-based compensation expense — — 5,561 — — — 5,561 Stock-based compensation transactions 40 4 31 — — — 35 Dividends paid ($ 0.72 per share) — — — — ( 8,549 ) — ( 8,549 ) Balance at December 31, 2022 11,831 $ 1,191 $ 129,820 $ ( 4,566 ) $ 727,183 $ ( 68,268 ) $ 785,360 See accompanying notes. 50 Alamo Group Inc. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, (in thousands) 2022 2021 2020 Operating Activities Net income $ 101,928 $ 80,245 $ 57,804 Adjustments to reconcile net income to cash provided by operating activities: Provision for doubtful accounts 424 506 860 Depreciation - PP&E 23,673 21,229 19,264 Depreciation - Rental 7,739 8,613 9,830 Amortization of intangibles 15,277 14,637 14,746 Amortization of debt issuance 667 667 634 Stock-based compensation expense 5,561 5,987 4,119 Provision for deferred income tax (benefit) expense ( 2,337 ) ( 1,182 ) ( 855 ) Gain on sale of property, plant and equipment ( 161 ) ( 3,779 ) ( 1,094 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 85,055 ) ( 27,571 ) 28,064 Inventories ( 37,739 ) ( 78,463 ) 38,275 Rental equipment ( 9,196 ) 1,138 4,542 Prepaid expenses and other ( 6,146 ) ( 6,994 ) 6,373 Trade accounts payable and accrued liabilities ( 2,879 ) 32,532 ( 3,783 ) Income taxes payable 2,934 4,648 6,601 Long term tax payable ( 635 ) 462 ( 3,478 ) Other assets and liabilities, net 475 ( 3,008 ) 2,431 Net cash provided by operating activities 14,530 49,667 184,333 Investing Activities Acquisitions, net of cash acquired ( 2,000 ) ( 17,798 ) — Purchase of property, plant and equipment ( 31,141 ) ( 25,263 ) ( 17,874 ) Proceeds from sale of property, plant and equipment 1,566 9,667 3,703 Purchase of patents ( 163 ) ( 44 ) — Net cash used in investing activities ( 31,738 ) ( 33,438 ) ( 14,171 ) Financing Activities Borrowings on bank revolving credit facility 222,000 188,000 115,000 Repayment on bank revolving credit facility ( 174,000 ) ( 189,000 ) ( 255,000 ) Principal payments on long-term debt and capital leases ( 15,031 ) ( 15,093 ) ( 18,867 ) Dividends paid ( 8,549 ) ( 6,627 ) ( 6,124 ) Proceeds from exercise of stock options 803 1,676 1,459 Common stock repurchased ( 768 ) ( 1,957 ) ( 710 ) Net cash provided (used) in financing activities 24,455 ( 23,001 ) ( 164,242 ) Effect of exchange rate changes on cash ( 2,346 ) ( 1,308 ) 1,964 Net change in cash and cash equivalents 4,901 ( 8,080 ) 7,884 Cash and cash equivalents at beginning of the year 42,115 50,195 42,311 Cash and cash equivalents at end of the year $ 47,016 $ 42,115 $ 50,195 Cash paid during the year for: Interest $ 14,575 $ 10,248 $ 17,049 Income taxes $ 35,102 $ 32,865 $ 17,140 See accompanying notes. 51 Alamo Group Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES Description of the Business and Segments The Company manufactures, distributes and services high quality tractor-mounted mowing and other vegetation maintenance equipment, street sweepers, excavators, vacuum trucks, forestry and tree maintenance equipment, snow removal equipment, leaf collection equipment, pothole patchers, zero turn radius mowers, agricultural implements and related aftermarket parts and services. The Company manages its business through two principal reporting segments: Vegetation Management and Industrial Equipment, which are discussed in Note 18 . Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of Alamo Group Inc. and its subsidiaries (the “Company” or “Alamo Group”), all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenues, and expenses reported in the financial statements and accompanying notes. Judgments related to asset impairment and certain reserves are particularly subject to change. Actual results could differ from those estimates. Such estimates include, but are not limited to, allowance for doubtful accounts, reserve for sales discounts, estimated realizable value on obsolete and slow-moving inventory, warranty reserve, estimates related to pension accounting, estimates related to fair value for purposes of assessing goodwill, long-lived assets and intangible assets for impairment, estimates related to income taxes, and estimates related to contingencies. Foreign Currency The Company translates the assets and liabilities of foreign-owned subsidiaries at rates in effect at the end of the year. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in Accumulated other comprehensive income (loss). Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. As of December 31, 2022 and December 31, 2021, there was no restricted cash. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The credit risk is limited because of the large numbers and types of customers and their geographic dispersion. 52 Inventory Valuation Inventories are stated at the lower of cost or net realizable value. Property, Plant and Equipment Property, plant, and equipment are stated on the basis of cost. Major renewals and betterments are charged to the property accounts, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed to the current period. Depreciation is provided at amounts calculated to amortize the cost of the assets over their estimated useful economic lives using the straight-line method. Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment, rental equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares non-discounted cash flows expected to be generated by that asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on a non-discounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is instead tested for impairment at least annually, or whenever events or circumstances change between the annual impairment tests that make it likely that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. The Company performs its annual test for goodwill impairment related to its reporting units on October 1 of each fiscal year. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available, and segment management regularly reviews the operating results of that component. We perform a qualitative assessment for all of our reporting units to determine whether it is more likely than not that an impairment exists. 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. 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. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. We typically use discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those we believe a hypothetical marketplace participant would use. See Note 8 to the Consolidated Financial Statements for more information regarding goodwill. Intangible Assets The Company has intangible assets with both definite and indefinite useful lives. The definite-lived assets are trade names and trademarks, customer and dealer relationships, and patents and drawings that are subject to amortization with useful lives ranging from 3 years to 25 years. Impairment of definite-lived assets is discussed as part of the Impairment of Long-Lived Assets paragraph above. The indefinite-lived assets not subject to amortization consist of trade names. The Company tests its indefinite-lived intangible assets for impairment on an annual basis at year-end, or more frequently if an event occurs or circumstances change that indicate that the fair value of an indefinite-lived intangible asset could be below its carrying amount. The impairment test consists of comparing the fair value of the indefinite-lived intangible asset, 53 determined using the relief from royalty method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value. See Note 9 to the Consolidated Financial Statements for more information regarding intangible assets. Leases We determine if an arrangement is a lease at inception. Operating leases are included in other non-current assets, accrued liabilities, and other long-term liabilities on our consolidated balance sheets. Finance leases are included in property, plant and equipment, accrued liabilities, and other long-term liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have elected to not account for the lease and non-lease components separately for most of our asset classes with the exception of real-estate. We have also elected to exclude all lease agreements with an initial term of 12 months or less from the lease recognition requirements as allowed by ASC. See Note 10 to the Consolidated Financial Statements for more information regarding leases. Pensions The Company records annual amounts relating to its pension and post-retirement plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in Accumulated other comprehensive income (loss) and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The net periodic costs are recognized as employees render the services necessary to earn the post-retirement benefits. Revenue Recognition The majority of the Company's revenue is recognized from product sales under contracts with customers. The Company presents two reportable operating segments within its financial statements: 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. In the normal course of business, we generally do not accept product returns. The transaction price is the consideration that we expect to be entitled to in exchange for our products. Some of our contracts contain variable consideration in the form of sales incentives to our customers, such as discounts and rebates. For contracts that include variable consideration, we estimate the factors that determine the variable consideration in order to establish the transaction price. We have elected that any taxes collected from customers and remitted to government authorities (i.e., sales tax, use tax, etc.) are excluded from the measurement of the transaction price and therefore are excluded from net sales in the consolidated statements of operations. 54 There are instances where we provide shipping services in relation to the goods sold to our customers. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are included in cost of goods sold. We have elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service. Rental Equipment The Company enters into operating lease agreements with customers related to the rental of certain equipment. In accounting for these leases, the cost of the equipment purchased or manufactured by the Company is recorded as an asset, and is depreciated over its estimated useful life. Accumulated depreciation relating to the rental equipment was $ 22.3 million and $ 20.1 million on December 31, 2022 and December 31, 2021, respectively. Shipping and Handling Costs The Company’s policy is to include shipping and handling costs in costs of goods sold. Advertising We charge advertising costs to expense as incurred. Advertising and marketing expense related to operations for fiscal years 2022, 2021, and 2020 was approximately $ 10.9 million, $ 10.2 million and $ 10.1 million, respectively. Advertising and marketing expenses are included in Selling, General and Administrative expenses (“SG&A”). Research and Development Product development and engineering costs charged to SG&A amounted to $ 14.3 million, $ 11.7 million, and $ 12.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company's policy is to accrue for legal costs expected to be incurred in connection with loss contingencies. Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities, and are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. 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 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. Stock-Based Compensation The Company has granted options to purchase its common stock, restricted stock awards, restricted stock units, and performance stock units to certain employees and directors of the Company and its affiliates under various stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited in the event that the employee or director terminates his or her employment or relationship with the Company or one of its affiliates other than by retirement or death. These options generally vest over five years . 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. 55 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: 1. The risk-free rate is based on the U.S. Treasury rate over the expected life of the option at the time of the grant. 2. The dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of the grant. 3. The expected volatility factors are based on the historical movement of the Company’s common stock price over the expected life of the option. 4. The expected life is the average length of time in which officers, other employees, and non-employee directors are expected to exercise their options, and which are primarily based on historical experience. The Company calculated the fair value for options with the following weighted-average assumptions for 2022, 2021, and 2020: Fair Value Calculation Assumptions for Stock Compensation December 31, 2022 2021 2020 Risk-free interest rate 1.93 % 1.25 % 1.22 % Dividend yield 0.5 % 0.4 % 0.5 % Volatility factors 33.2 % 33.9 % 30.0 % Weighted-average expected life 8.0 years 8.0 years 8.0 years Earnings per Common Share (“EPS”) Basic EPS is computed using the weighted-average number of common shares outstanding during the year. 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 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. 2. ACCOUNTING PRONOUNCEMENTS Accounting Pronouncements Not Yet Adopted In September 2022, the FASB issues ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. The amendments in this Update are effective for are effective for fiscal years beginning after December 15, 202 and require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve this objective, the Company will disclose qualitative and quantitative information about its supplier finance programs. 3. BUSINESS COMBINATIONS On October 26, 2021, the Company acquired 100 % of the issued and outstanding equity interests of Timberwolf Limited (“ Timberwolf ”). Timberwolf manufactures a broad range of commercial wood chippers, primarily serving markets in the U.K. and the European Union. The primary reason for the Timberwolf acquisition was to enhance the Company's forestry and tree care platform for growth by increasing both the Company's product portfolio and capabilities in the European market. The acquisition price was approximately $ 25.0 million. The Company has included the operating results of Timberwolf in its consolidated financial statements since the date of acquisition, these results are considered immaterial. 56 4. EARNINGS PER SHARE The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net income per common share. Net income for basic and diluted calculations does not differ. (in thousands, except per share amounts) 2022 2021 2020 Net income $ 101,928 $ 80,245 $ 57,804 Average common shares: Basic (weighted-average outstanding shares) 11,877 11,837 11,782 Dilutive potential common shares from stock options 57 59 63 Diluted (weighted-average outstanding shares) 11,934 11,896 11,845 Basic earnings per share $ 8.58 $ 6.78 $ 4.91 Diluted earnings per share $ 8.54 $ 6.75 $ 4.88 Stock options totaling 25,610 shares in 2022, 15,586 shares in 2021, and 9,864 shares in 2020 were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive. 5. VALUATION AND QUALIFYING ACCOUNTS Valuation and qualifying accounts included the following: (in thousands) Balance Beginning of Year Net Charged to Costs and Expenses Translations, Reclassifications and Acquisitions Net Write-Offs or Discounts Taken Balance End of Year 2022 Reserve for sales discounts $ 12,567 $ 137,553 $ ( 21 ) $ ( 130,238 ) $ 19,861 Reserve for inventory obsolescence 12,908 6,998 ( 277 ) ( 6,420 ) 13,209 Reserve for warranty 9,953 11,290 ( 244 ) ( 11,659 ) 9,340 2021 Reserve for sales discounts $ 13,549 $ 116,114 $ ( 688 ) $ ( 116,408 ) $ 12,567 Reserve for inventory obsolescence 12,027 6,531 ( 146 ) ( 5,504 ) 12,908 Reserve for warranty 9,096 10,727 ( 132 ) ( 9,738 ) 9,953 2020 Reserve for sales discounts $ 16,883 $ 93,398 $ 15 $ ( 96,747 ) $ 13,549 Reserve for inventory obsolescence 8,233 4,609 1,471 ( 2,286 ) 12,027 Reserve for warranty 10,249 8,466 247 ( 9,866 ) 9,096 Sales Discounts On December 31, 2022, the Company had $ 19.9 million in reserves for sales discounts compared to $ 12.6 million on December 31, 2021 on product shipped to our 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. 57 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 $ 13.2 million on December 31, 2022 and $ 12.9 million on December 31, 2021 to cover obsolete and slow moving inventory. 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 %; and 2) slow moving inventory with little usage requires a 100 % reserve on items that have a quantity greater than a three-year supply. There are exceptions to the obsolete and slow moving classifications if approved by an officer of the Company, based on specific identification of an item or items that are deemed to be either included or excluded from this classification. In cases where there is no historical data, management makes a judgment based on a specific review of the inventory in question to determine what reserves, if any, are appropriate. New products or parts are generally excluded from the reserve until a three-year history has been established. Warranty 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 three to six month lag period. 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 $ 9.3 million on December 31, 2022 and $ 10.0 million on December 31, 2021 and is included in Note 11 . 6. INVENTORIES Inventories consisted of the following: December 31, (in thousands) 2022 2021 Finished goods and parts $ 312,726 $ 277,760 Work in process 22,273 24,895 Raw materials 17,554 18,262 Inventory, net $ 352,553 $ 320,917 58 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31, (in thousands) 2022 2021 Useful Lives Land $ 12,792 $ 12,838 Buildings and improvements 145,616 145,086 5 - 20 yrs. Machinery and equipment 140,252 129,901 3 - 10 yrs. Office furniture and equipment 13,270 13,291 3 - 7 yrs. Computer software 13,551 12,384 3 - 7 yrs. Transportation equipment 9,597 8,363 3 yrs. Property, plant and equipment, at cost 335,078 321,863 Accumulated depreciation ( 180,071 ) ( 169,372 ) Property, plant and equipment, net $ 155,007 $ 152,491 8. GOODWILL The changes in the carrying amount of goodwill for the year ended December 31, 2020, 2021, and 2022 are as follows: Vegetation Management Industrial Equipment Consolidated (in thousands) Balance at December 31, 2019 $ 126,894 $ 71,128 $ 198,022 Translation adjustment 132 1,036 1,168 Goodwill adjustment ( 2,045 ) ( 2,013 ) ( 4,058 ) Balance at December 31, 2020 $ 124,981 $ 70,151 $ 195,132 Translation adjustment ( 1,510 ) ( 708 ) ( 2,218 ) Goodwill acquired 9,492 — 9,492 Balance at December 31, 2021 $ 132,963 $ 69,443 $ 202,406 Translation adjustment ( 1,882 ) ( 1,147 ) ( 3,029 ) Goodwill adjustment ( 3,519 ) — ( 3,519 ) Balance at December 31, 2022 $ 127,562 $ 68,296 $ 195,858 59 9. 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, 2022 December 31, 2021 Definite: Trade names and trademarks 15 - 25 years $ 68,797 $ 68,321 Customer and dealer relationships 8 - 15 years 129,338 126,104 Patents and developed technologies 3 - 12 years 28,437 29,338 Favorable leasehold interests 7 years 4,200 4,200 Total at cost 230,772 227,963 Less accumulated amortization ( 64,931 ) ( 49,997 ) Total net 165,841 177,966 Indefinite: Trade names and trademarks 5,500 5,500 Total Intangible Assets $ 171,341 $ 183,466 The Company's net carrying value at December 31, 2022 of intangible assets with definite useful lives consists of trade names and trademarks at $ 54.9 million, customer and dealer relationships at $ 90.2 million, patents and drawings at $ 18.5 million, and favorable leasehold interests at $ 2.3 million. As of December 31, 2022, the related accumulated amortization balance for the definite-lived assets were $ 13.9 million for trade names and trademarks, $ 39.2 million for customer and dealer relationships, $ 9.9 million for patents and drawings, and $ 1.9 million for favorable leasehold interests. The Company estimates amortization expense to be $ 15.3 million for each of the next five years. Indefinite-lived trade names and trademarks consisted of the Gradall trade name with a carrying value of $ 3.6 million and the Bush Hog trade name with a carrying value of $ 1.9 million. 60 10. LEASES Leases The Company leases office space and equipment under various operating and capital leases, which generally are expected to be renewed or replaced by other leases. As of December 31, 2022, the components of lease cost were as follows: Components of Lease Cost Twelve Months Ended December 31, (in thousands) 2022 2021 Finance lease cost: Amortization of right-of-use assets $ 30 $ 67 Interest on lease liabilities 1 3 Operating lease cost 5,783 5,571 1,397 1,033 Variable lease cost 348 410 Total lease cost $ 7,559 $ 7,084 As of December 31, 2022, future minimum lease payments under these non-cancelable leases are: Future Minimum Lease Payments (in thousands) Operating Leases 2023 $ 5,177 2024 4,099 2025 3,294 2026 2,728 2027 1,780 Thereafter 1,743 Total minimum lease payments $ 18,821 Less imputed interest ( 1,287 ) Total lease liabilities $ 17,534 Rental expense for operating leases was $ 7.5 million for 2022, $ 7.0 million for 2021, and $ 6.1 million for 2020. 61 Future Lease Commencements As of December 31, 2022, we have additional operating leases that have not yet commenced in the amount of $ 3.1 million. These operating leases will commence in fiscal year 2023. Supplemental balance sheet information related to leases was as follows: Operating Leases December 31, (in thousands) 2022 2021 Other non-current assets $ 17,249 $ 16,744 Accrued liabilities 4,685 4,655 Other long-term liabilities 12,849 12,237 Total operating lease liabilities $ 17,534 $ 16,892 Weighted average remaining lease term 4.66 years 5.14 years Weighted average discount rate 3.30 % 2.83 % Supplemental cash flow information related to leases was as follows: Twelve Months Ended December 31, (in thousands) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,246 $ 5,013 11. ACCRUED LIABILITIES Accrued liabilities consist of the following balances: December 31, (in thousands) 2022 2021 Salaries, wages and bonuses $ 37,590 $ 37,462 Lease liability 4,685 4,655 Taxes 2,426 1,902 Warranty 9,340 9,953 Retirement provision 2,588 2,967 Customer deposits 5,197 6,383 Other 9,542 10,201 Accrued liabilities $ 71,368 $ 73,523 12. FAIR VALUE OF FINANCIAL INSTRUMENTS U.S. 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. U.S. 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. 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 62 unobservable inputs (lowest level) reflect internally developed market assumptions. In fair value, measurements are classified under the following hierarchy: Level 1 – Quoted prices for identical assets or liabilities in active markets. Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Level 3 – Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable. When measuring fair value, the Company maximizes use of observable inputs and minimizes the use of unobservable inputs. Fair value measurements are classified to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable. The carrying values of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value because of the short-term nature of these items. The carrying value of our debt approximates the fair value as of December 31, 2022 and 2021, as the floating rates on our outstanding balances approximate current market rates. This conclusion was made based on Level 2 inputs. Fair values determined by Level 2 utilize inputs that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 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 or nonrecurring valuations that fall under Level 3 of the fair value hierarchy as of December 31, 2022 and 2021. 13. LONG-TERM DEBT The components of long-term debt are as follows: December 31, (in thousands) 2022 2021 Bank revolving credit facility $ 52,000 $ 4,000 Term debt 249,928 265,498 Capital lease obligations 24 56 Total debt 301,952 269,554 Less current maturities 15,009 15,032 Total long-term debt $ 286,943 $ 254,522 On October 28, 2022, the Company, as Borrower, and each of its domestic subsidiaries as guarantors, entered into a Third Amended and Restated Credit Agreement (the “2022 Credit Agreement”) with Bank of America, N.A., as Administrative Agent. The 2022 Credit Agreement provides Borrower with the ability to request loans and other financial obligations in an aggregate amount of up to $ 655.0 million. Under the 2022 Credit Agreement, the Company has borrowed $ 255.0 million pursuant to a Term Facility, while up to $ 400.0 million is available to the Company pursuant to a Revolver Facility which terminates in 5 years. The Term Facility requires the Company to make equal quarterly principal payments of $ 3,750,000 over the term of the loan, with the final payment of any outstanding principal amount, plus interest, due at the end of the five year term. Borrowings under the 2022 Credit Agreement bear interest, at the Company’s option, at a Term Secured Overnight Financing Rate (“SOFR”) or a Base Rate (each as defined in the 2022 Credit Agreement), plus, in each case, an applicable margin. The applicable margin ranges from 1.25 % to 2.50 % for Term SOFR borrowings and from .25 % to 1.50 % for Base Rate borrowings with the margin percentage based upon the Company's consolidated leverage ratio. The Company must also pay a commitment fee to the lenders ranging between 0.15 % to 0.30 % on any unused portion of the $ 400,000,000 Revolver Facility. 63 The 2022 Credit Agreement requires the Company to maintain two financial covenants, namely, a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. The Agreement also contains various covenants relating to limitations on indebtedness, limitations on investments and acquisitions, limitations on the sale of properties and limitations on liens and capital expenditures. The Agreement also contains other customary covenants, representations and events of defaults. The expiration date of the 2022 Credit Agreement, including the Term Facility and the Revolver Facility, is October 28, 2027. As of December 31, 2022, $ 301.9 million was outstanding under the Credit Agreement. Of the total outstanding, $ 249.9 million was on the Term Facility at a rate of 6.17 % and $ 52.0 million was on the Revolver Facility at a rate of 6.25 %. On December 31, 2022, $ 2.8 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 $ 295.2 million in available borrowings. The Company is in compliance with the covenants under the Credit Agreement. The aggregate maturities of long-term debt, as of December 31, 2022, are as follows: $ 15.0 million in 2023; $ 15.0 million in 2024; $ 15.0 million in 2025; $ 15.0 million in 2026; $ 241.9 in 2027; and zero thereafter. 14. INCOME TAXES Income Statement Components Earnings before income taxes were as follows: December 31, (in thousands) 2022 2021 2020 Income before income taxes: Domestic $ 86,680 $ 74,070 $ 50,977 Foreign 47,630 35,428 28,780 $ 134,310 $ 109,498 $ 79,757 The components of income tax expense (benefit) were as follows: December 31, (in thousands) 2022 2021 2020 Current: Domestic $ 19,197 $ 16,846 $ 10,823 Foreign 11,848 8,646 8,759 State 3,674 4,943 3,226 34,719 30,435 22,808 Deferred: Domestic ( 2,246 ) ( 679 ) 1,238 Foreign ( 51 ) ( 274 ) ( 1199 ) State ( 40 ) ( 229 ) ( 894 ) ( 2,337 ) ( 1,182 ) ( 855 ) Total income taxes $ 32,382 $ 29,253 $ 21,953 64 A reconciliation of the income tax at the Company’s U.S. statutory federal income tax rate to the provision for income tax follows: December 31, (in thousands) 2022 2021 2020 Income tax expense at statutory rates $ 28,205 $ 22,995 $ 16,749 Increase (reduction) from: Jurisdictional rate differences 1,989 1,599 1,034 Executive compensation limitation 481 1,314 170 Stock based compensation 122 ( 322 ) ( 366 ) U.S. state taxes 2,632 3,724 2,556 Foreign tax expense 267 — 704 R&D credit ( 1,645 ) ( 670 ) ( 415 ) GILTI 500 — 50 Previously unrecognized tax (benefit)/expense 51 8 2,219 Other, net ( 220 ) 605 ( 748 ) Provision for income taxes $ 32,382 $ 29,253 $ 21,953 Effective tax rate 24 % 27 % 28 % 65 Deferred Income Tax Assets and Liabilities The components of the Company’s deferred income tax assets and liabilities were as follows. Certain prior year deferred tax component amounts have been reclassified to conform to the current year presentation. December 31, (in thousands) 2022 2021 Deferred income tax assets: Inventory basis difference $ 3,459 $ 1,136 Accounts receivable reserve 334 270 Rental equipment and Property, plant and equipment 347 201 Stock based compensation 826 754 Pension liability 2,900 3,351 Employee benefit accrual 2,451 3,070 Product liability and warranty reserves 2,177 2,464 Foreign net operating loss 3,078 3,764 Lease liability 4,738 4,221 Capitalized R&D costs 4,230 — Other 1,635 1,415 Total deferred income tax assets $ 26,175 $ 20,646 Less: Valuation allowance ( 3,637 ) ( 4,129 ) Net deferred income tax assets $ 22,538 $ 16,517 Deferred income tax liabilities: Inventory basis differences $ ( 264 ) $ ( 283 ) Rental equipment and Property, plant and equipment ( 14,373 ) ( 13,253 ) Lease asset ( 4,637 ) ( 4,149 ) Intangible assets ( 19,301 ) ( 18,041 ) Expenses not currently deductible for book purposes ( 1,244 ) ( 1,139 ) Total deferred income tax liabilities $ ( 39,819 ) $ ( 36,865 ) Net deferred income taxes $ ( 17,281 ) $ ( 20,348 ) As of December 31, 2022, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. These foreign jurisdictions’ net operating loss carry-forwards are approximately $ 10.1 million with an unlimited carry-forward period. The Company also has U.S. state net operating loss carry-forwards in the amount of $ 0.2 million which will expire between 2036 and 2042. The Company's valuation allowances as of December 31, 2022 and 2021 related primarily to foreign net operating losses and foreign tax credits. 66 Unrecognized Tax Benefits 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 December 31, (in thousands) 2022 2021 Balance as of beginning of year $ 270 $ 262 Increases for tax positions related to the current year 156 82 Decreases due to lapse of statute of limitations ( 105 ) ( 74 ) Balance as of end of year $ 321 $ 270 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, 2022, 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 2017 through 2022, and for tax years ended 2016 through 2022 for its foreign income tax returns. The Company currently intends to permanently reinvest its earnings in certain foreign subsidiaries. No U.S. 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 $ 4.8 million in withholding taxes. 15. COMMON STOCK On January 3, 2023, the Board of Directors of the Company declared a quarterly dividend of $ 0.22 per share which was paid on February 1, 2023 to holders of record as of January 18, 2023. 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. During 2022, the Company purchased zero shares. 16. STOCK OPTIONS Incentive Stock Option Plan On May 7, 2015, the stockholders of the Company approved the 2015 Incentive Stock Option Plan (“2015 ISO Plan”) and the Company reserved 400,000 shares of common stock for options to be issued under the 2015 ISO Plan. Each option becomes vested and exercisable for up to 20 % of the total optioned shares one year following the grant of the option and for an additional 20 % of the total optioned shares after each succeeding year until the option is fully exercisable at the end of the fifth year. We also maintain other incentive option plans that have expired, under which previously granted awards remain outstanding. No additional grants may be awarded under these plans. 67 Following is a summary of activity in the Incentive Stock Option Plans for the periods indicated: 2022 2021 2020 Shares Exercise Price* Shares Exercise Price* Shares Exercise Price* Options outstanding at beginning of year 87,610 $ 91.24 100,920 $ 68.58 119,720 $ 57.65 Granted 17,625 137.93 18,900 156.38 13,950 114.53 Exercised ( 14,780 ) 50.79 ( 30,210 ) 53.68 ( 31,300 ) 45.94 Canceled ( 5,808 ) 114.48 ( 2,000 ) 130.92 ( 1,450 ) 96.97 Options outstanding at end of year 84,647 106.43 87,610 91.24 100,920 68.58 Options exercisable at end of year 43,412 $ 78.50 49,360 $ 61.21 67,700 $ 52.60 Options available for grant at end of year 286,033 297,850 314,750 *Weighted Averages Options outstanding and exercisable at December 31, 2022 were as follows: Qualified Stock Options Options Outstanding Options Exercisable Shares Remaining Contractual Life (yrs)* Exercise Price* Shares Exercise Price* Range of Exercise Price $ 42.70 - $ 83.99 27,725 2.32 $ 57.89 27,725 $ 57.89 $ 92.50 - $ 138.75 40,422 7.57 $ 119.34 12,387 $ 103.89 $ 156.38 - $ 234.57 16,500 8.16 $ 156.38 3,300 $ 156.38 Total 84,647 43,412 *Weighted Averages The weighted-average grant-date fair values of options granted during 2022, 2021, and 2020 were $ 52.70 , $ 59.01 and $ 38.33 , respectively. Stock option expense was $ 0.6 million, $ 0.6 million and $ 0.5 million for years ending 2022, 2021, and 2020, respectively. As of December 31, 2022, there was $ 1.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period of five years . Equity Incentive Plan On May 2, 2019, the stockholders of the Company approved the 2019 Equity Incentive Plan and the Company reserved 500,000 shares of common stock for issuance of equity awards including the issuance of non-qualified options for the purchase of shares of our common stock which may be granted to Company officers and non-employee directors. Options become vested and exercisable for up to 20 % of the total optioned shares one year following the grant of the option and for an additional 20 % of the total optioned shares after each succeeding year until the option is fully exercisable at the end of the fifth year. 2022 2021 2020 Options available for grant at end of year 381,531 423,969 455,549 We also maintain other incentive option plans that have expired, under which previously granted awards remain outstanding. No additional grants may be awarded under these plans. 68 Non-Qualified Options Following is a summary of activity in the Non-Qualified Stock Option Plans for the periods indicated: 2022 2021 2020 Shares Exercise Price* Shares Exercise Price* Shares Exercise Price* Options outstanding at beginning of year 2,000 $ 53.51 3,000 $ 53.51 5,300 $ 46.87 Granted — — — — — — Exercised ( 1,000 ) 53.51 ( 1,000 ) 53.51 ( 2,300 ) 38.22 Canceled — — — — — — Options outstanding at end of year 1,000 53.51 2,000 53.51 3,000 53.51 Options exercisable at end of year 1,000 $ 53.51 2,000 $ 53.51 3,000 $ 53.51 *Weighted Averages Options outstanding and exercisable as of December 31, 2022 were as follows: Non-Qualified Stock Options Options Outstanding Options Exercisable Shares Remaining Contractual Life (yrs)* Exercise Price* Shares Exercise Price* Range of Exercise Price $ 42.70 - $ 83.99 1,000 1.36 $ 53.51 1,000 $ 53.51 Total 1,000 1,000 *Weighted Averages There were no options granted in 2020 , 2021 or 2022. Stock option expense was zero for years ending 2022, 2021, and 2020, respectively. As of December 31, 2022, there was zero unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. During 2022, 2021, and 2020, 1,000 , 1,000 , and 2,300 non-qualified options were exercised, respectively, $ 0.1 million, $ 0.1 million, and $ 0.1 million of cash receipts were received, respectively. Restricted Stock Awards/Units Following is a summary of activity in the Restricted Stock Awards (" RSA ")/Units for the periods indicated: 2022 2021 2020 Shares Grant-Date Fair Value* Shares Grant-Date Fair Value* Shares Grant-Date Fair Value* Awards outstanding at beginning of year 80,616 $ 129.53 91,043 $ 104.77 78,705 $ 94.34 Granted 48,396 133.70 35,224 157.00 44,307 111.95 Exercised ( 29,922 ) 122.19 ( 45,651 ) 101.36 ( 31,594 ) 88.90 Canceled ( 1,460 ) 143.82 — — ( 375 ) 100.34 Awards outstanding at end of year 97,630 133.67 80,616 129.53 91,043 104.77 *Weighted Averages Restricted stock awards vest over a three year period. The weighted-average remaining contractual life in years for 2022, 2021 and 2020 was 1.41 , 1.61 and 1.95 , respectively. Compensation expense was $ 4.9 million, $ 5.4 million and $ 3.7 million for years ending 2022, 2021, and 2020, respectively. As of December 31, 2022, there was $ 7.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period of three years . 69 Performance Stock Units 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 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. 17. RETIREMENT BENEFIT PLANS Defined Benefit Plans In connection with the February 3, 2006 purchase of all the net assets of the Gradall excavator business, the Company assumed sponsorship of two Gradall non-contributory defined benefit pension plans, both of which are frozen with respect to both future benefit accruals and future new entrants. The Gradall Company Employees’ Retirement Plan covers approximately 245 former employees and 51 current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were not covered by a collective bargaining agreement and (iii) first participated in the plan before December 31, 2004. An amendment ceasing future benefit accruals for certain participants was effective December 31, 2004. A second amendment discontinued all future benefit accruals for all participants effective April 24, 2006. The Gradall Company Hourly Employees’ Pension Plan covered former employees and current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were covered by a collective bargaining agreement and (iii) first participated in the plan before April 6, 1997. An amendment ceasing all future benefit accruals was effective April 6, 1997. The following table sets forth the change in plan assets, change in projected benefit obligation, rate assumptions and components of net periodic benefit cost as of December 31 with respect to the plan. The measurement dates of the assets and liabilities of the plan were December 31 of the respective years presented. Reconciliation of Funded Status Year Ended December 31, (in thousands) 2022 2021 Change in projected benefit obligation Benefit obligation at beginning of year $ 22,564 $ 24,100 Service cost 4 5 Interest cost 604 553 Liability actuarial (gain) loss ( 4,761 ) ( 994 ) Benefits paid ( 1,140 ) ( 1,100 ) Benefit obligation at end of year $ 17,271 $ 22,564 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 23,671 $ 22,370 Return on plan assets ( 4,262 ) 2,401 Employer contributions — — Benefits paid ( 1,140 ) ( 1,100 ) Fair value of plan assets at end of year 18,269 23,671 Funded status $ 998 $ 1,107 70 The Company recognizes the overfunded or underfunded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of defined benefit postretirement plans as an asset or liability in its consolidated balance sheet and recognizes changes in the funded status in the year in which the changes occur. The Company measures the funded status of a plan as of the date of the year-end consolidated balance sheet. 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. In determining the projected benefit obligation and the net pension cost, we used the following significant weighted-average assumptions: Rates to Determine Benefit Obligation Year Ended December 31, 2022 2021 Discount rate 5.10 % 2.75 % Composite rate of compensation increase N/A N/A Rates to Determine Net Periodic Benefit Cost Year Ended December 31, 2022 2021 Discount rate 2.75 % 2.35 % Long-term rate of return on plan assets 6.00 % 7.25 % Composite rate of compensation increase N/A N/A 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. Current market factors such as inflation and interest rates are evaluated before long-term market assumptions are determined. The long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed to check for reasonability and appropriateness. The following table presents the components of net periodic benefit cost (gains are denoted with parentheses and losses are not): Components of Net Periodic Benefit Cost Year Ended December 31, (in thousands) 2022 2021 Service cost $ 4 $ 5 Interest cost 604 553 Expected return on plan assets ( 1,384 ) ( 1,581 ) Amortization of net loss 182 542 Net periodic benefit cost $ ( 594 ) $ ( 481 ) The Company estimates that $ 1.0 million of unrecognized actuarial expense will be amortized from Accumulated other comprehensive income (loss) into net periodic benefit costs during 2023. The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large 71 capitalization. Other assets such as real estate, private equity, and hedge funds are used judiciously to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies. Our current asset allocations are consistent with our targeted allocations. The pension plans' weighted-average asset allocation as a percentage of plan assets at December 31 is as follows: Asset Allocation as a Percentage of the Plan Year Ended December 31, 2022 2021 Equity securities 36 % 36 % Debt securities 62 % 62 % Short-term investments 2 % 2 % Other — % — % Total 100 % 100 % The following table presents the hierarchy levels for our postretirement benefit plan investments as of December 31 as described in Note 1 to the Consolidated Financial Statements: (in thousands) December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Mutual Funds: Mid Cap $ 512 $ 512 $ — $ — International 743 743 — — Common/Collective Trusts: Wells Fargo Liability Driven Solution CIT I 7,815 — 7,815 — Wells Fargo Liability Driven Solution CIT II 3,550 — 3,550 — Wells Fargo BlackRock International Equity 488 — 488 — Wells Fargo/Causeway International Value 464 — 464 — Wells Fargo BlackRock Large Cap Growth Index Fund 724 — 724 — Wells Fargo BlackRock Large Cap Value Index Fund 744 — 744 — Wells Fargo Multi-Manager Small Cap 785 — 785 — Wells Fargo BlackRock Russell 2000 Index Fund 261 — 261 — Wells Fargo BlackRock S&P Mid Cap Index Fund 320 — 320 — Wells Fargo/MFS Value CIT F 359 — 359 — Wells Fargo/T. Rowe Price Large-Cap Growth Managed CIT 359 — 359 — Wells Fargo/T. Rowe Price Equity Income Managed CIT 356 — 356 — Wells Fargo Voya Large Cap Growth CIT F 357 — 357 — Cash & Short-term Investments 432 432 — — Total $ 18,269 $ 1,687 $ 16,582 $ — 72 (in thousands) December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Mutual Funds: Mid Cap $ 637 $ 637 $ — $ — International 940 940 — — Common/Collective Trusts: 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/Causeway International Value 586 — 586 — Wells Fargo BlackRock Large Cap Growth Index Fund 950 — 950 — Wells Fargo BlackRock Large Cap Value Index Fund 968 — 968 — Wells Fargo Multi-Manager Small Cap 1,015 — 1,015 — Wells Fargo BlackRock Russell 2000 Index Fund 332 — 332 — Wells Fargo BlackRock S&P Mid Cap Index Fund 419 — 419 — Wells Fargo/MFS Value CIT F 469 — 469 — Wells Fargo/T. Rowe Price Large-Cap Growth Managed CIT 465 — 465 — Wells Fargo/T. Rowe Price Equity Income Managed CIT 487 — 487 — Wells Fargo Voya Large Cap Growth CIT F 482 — 482 — Cash & Short-term Investments 497 497 — — Total $ 23,671 $ 2,074 $ 21,597 $ — Our interests in the common collective trust investments are managed by one custodian. Consistent with our investment policy, the custodian has invested the assets across a widely diversified portfolio of U.S. and international equity and fixed income securities. Fair values of each security within the collective trust as of December 31, 2022 were obtained from the custodian and are based on quoted market prices of individual investments; however, since the fund itself does not have a quoted market price, these assets are considered Level 2. The common collective funds noted in the above table have estimated fair value using the net asset value per share of investments. Investments can be redeemed immediately at the current net asset value per share based on the fair value of the underlying assets. Redemption frequency is daily. The categories contain investments in equity securities of smaller growing companies, medium-sized U.S. companies, large value-oriented and growth-oriented companies, and foreign companies traded on international markets. 73 Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation as of December 31, 2022. The following table illustrates the estimated pension benefit payments that are projected to be paid: Projected Future Benefit Payments (in thousands) Employees’ Retirement Plan 2023 $ 1,275 2024 1,304 2025 1,315 2026 1,312 2027 1,306 Years 2028 through 2032 6,209 Supplemental Retirement Plan The Board of Directors of the Company adopted the Alamo Group Inc. Supplemental Executive Retirement Plan (the “SERP”), effective as of January 3, 2011. The SERP will benefit certain key management or other highly compensated employees of the Company and/or certain subsidiaries who are selected by the Compensation Committee and approved by the Board to participate. The SERP is intended to provide a benefit from the Company upon retirement, death or disability, or a change in control of the Company. Accordingly, the SERP obligates the Company to pay to a participant a Retirement Benefit (as defined in the SERP) upon the occurrence of certain payment events to the extent a participant has a vested right thereto. A participant’s right to his or her Retirement Benefit becomes vested in the Company’s contributions upon 10 years of Credited Service (as defined in the SERP) or a change in control of the Company. The Retirement Benefit is based on 20 % of the final three-year average salary of each participant on or after his or her normal retirement age ( 65 years of age). In the event of the participant’s death or a change in control, the participant’s vested retirement benefit will be paid in a lump sum to the participant or his or her estate, as applicable, within 90 days after the participant’s death or a change in control, as applicable. In the event that the participant is entitled to a benefit from the SERP due to disability, retirement or other termination of employment, the benefit will be paid in monthly installments over a period of fifteen years . The Company records amounts relating to the SERP based on calculations that incorporate various actuarial and other assumptions, including discount rates, rate of compensation increases, retirement dates and life expectancy. The net periodic costs are recognized as employees render the services necessary to earn the SERP benefits. In May of 2015, the Board amended the SERP to allow the Board to modify the retirement benefit percentage either higher or lower than 20%. In May of 2016, the Board added additional highly compensated employees to the plan. As of December 31, 2022, the current retirement benefit (as defined in the plan) for the participants ranges from 10 % to 20 %. 74 The change in the Projected Benefit Obligation (PBO) as of December 31, 2022 and 2021, is shown below: Reconciliation of Benefit Obligation Year Ended December 31, (in thousands) 2022 2021 Benefit obligation at January 1, $ 11,326 $ 10,160 Service cost 284 369 Interest cost 278 205 Liability actuarial loss (gain) ( 2,023 ) 759 Benefits paid ( 313 ) ( 167 ) Benefit obligation at December 31, $ 9,552 $ 11,326 The components of net periodic pension expense were as follows: Components of Net Periodic Benefit Cost Year Ended December 31, (in thousands) 2022 2021 Service cost $ 284 $ 369 Interest cost 278 205 Amortization of prior service cost 420 413 Amortization of net (gain)/loss 440 318 Net periodic benefit cost $ 1,422 $ 1,305 The Company estimates that $ 0.4 million of unrecognized actuarial expense will be amortized from Accumulated other comprehensive income into net periodic benefit costs during 2023. In determining the projected benefit obligation and the net pension cost, we used the following significant weighted-average assumptions: Assumptions used to determine benefit obligations at December 31: Rates to Determine Benefit Obligation 2022 2021 Discount rate 5.05 % 2.50 % Composite rate of compensation increase 3.00 % 3.00 % Assumptions used to determine net periodic benefit cost for the years ended December 31: Rates to Determine Net Periodic Benefit Cost 2022 2021 Discount rate 2.50 % 2.05 % Composite rate of compensation increase 3.00 % 3.00 % Long-term rate of return on plan assets N/A N/A 75 Future estimated benefits expected to be paid from the plan over the next ten years as follows: Projected Future Benefit Payments (in thousands) SERP 2023 $ 490 2024 546 2025 639 2026 866 2027 868 Years 2028 through 2032 4,321 Defined Contribution Plans The Company has two defined contribution plans, The Gradall Salaried Employees’ Savings and Investment Plan (“Salary Plan”) and The International Association of Machinist and Aerospace Workers Retirement Plan (“IAM Plan”). The Company contributed $ 0.5 million, $ 0.5 million, and $ 0.4 million to the IAM Plan for the plan years ended December 31, 2022, 2021 and 2020, respectively. The Company converted the Salary Plan into its 401(k) retirement and savings plan and put the Hourly Plan into a separate 401(k) retirement and savings plan. The Company provides a defined contribution 401(k) retirement and savings plan for eligible U.S. employees. Company matching contributions are based on a percentage of employee contributions. Company contributions to the plan during 2022, 2021 and 2020 were $ 4.2 million, $ 3.9 million, and $ 3.5 million, respectively. Three of the Company’s international subsidiaries also participate in a defined contribution and savings plan covering eligible employees. The Company’s international subsidiaries contribute between 0 % and 10 % of the participant’s salary up to a specific limit. Total contributions made to the above plans were $ 0.9 million, $ 0.9 million, and $ 0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. 18. REVENUE AND SEGMENT REPORTING Disaggregation of revenue is presented in the tables below by product type. Management has determined that this level of disaggregation would be beneficial to users of the financial statements. Revenue by Product Type December 31, (in thousands) 2022 2021 2020 Net Sales Wholegoods $ 1,185,885 $ 1,024,158 $ 885,254 Parts 280,261 262,432 247,126 Other * 47,470 47,633 31,086 Consolidated $ 1,513,616 $ 1,334,223 $ 1,163,466 *Other includes rental sales, extended warranty sales and service sales as it is considered immaterial. The Company’s sales are principally within the United States, United Kingdom, France, Canada and Australia. The Company sells its products primarily through a network of independent dealers and distributors to governmental end-users, related independent contractors, as well as to the agricultural and commercial turf markets. 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. 76 The Company has included a summary of the financial information by reporting segment. The following table presents the revenue and income from operations by reporting segment for the years ended December 31, 2022, 2021, and 2020: December 31, (in thousands) 2022 2021 2020 Net Revenue Vegetation Management $ 937,065 $ 812,676 $ 654,630 Industrial Equipment 576,551 521,547 508,836 Consolidated $ 1,513,616 $ 1,334,223 $ 1,163,466 Income from Operations Vegetation Management $ 108,508 $ 78,917 $ 46,651 Industrial Equipment 40,084 38,021 48,134 Consolidated $ 148,592 $ 116,938 $ 94,785 The following table presents the goodwill and total identifiable assets by reporting segment for the years ended December 31, 2022 and 2021: December 31, (in thousands) 2022 2021 Goodwill Vegetation Management $ 127,562 $ 132,963 Industrial Equipment 68,296 69,443 Consolidated $ 195,858 $ 202,406 Identifiable Assets Vegetation Management $ 866,974 $ 789,838 Industrial Equipment 441,534 415,904 Consolidated $ 1,308,508 $ 1,205,742 77 19. ACCUMULATED OTHER COMPREHENSIVE LOSS Changes in accumulated other comprehensive loss by component, net of tax, were as follows: Twelve Months Ended December 31, 2022 2021 (in thousands) Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Foreign Currency Translation Adjustment Defined Benefit Plans Items Gains (Losses) on Cash Flow Hedges Total Balance as of beginning of period $ ( 42,397 ) $ ( 5,017 ) $ ( 1,576 ) $ ( 48,990 ) $ ( 26,597 ) $ ( 6,855 ) $ ( 6,874 ) $ ( 40,326 ) Other comprehensive income (loss) before reclassifications ( 23,032 ) — 1,512 ( 21,520 ) ( 15,800 ) — 7,984 ( 7,816 ) Amounts reclassified from accumulated other comprehensive loss — 1,707 535 2,242 — 1,838 ( 2,686 ) ( 848 ) Other comprehensive income (loss) ( 23,032 ) 1,707 2,047 ( 19,278 ) ( 15,800 ) 1,838 5,298 ( 8,664 ) Balance as of end of period $ ( 65,429 ) $ ( 3,310 ) $ 471 $ ( 68,268 ) $ ( 42,397 ) $ ( 5,017 ) $ ( 1,576 ) $ ( 48,990 ) 20. 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, and Australia: International Operations Financial Information December 31, (in thousands) 2022 2021 2020 Net sales $ 420,678 $ 363,339 $ 312,462 Income from operations 48,893 34,561 31,166 Income before income taxes 51,206 37,051 30,674 Identifiable assets 364,752 352,187 304,536 78 Following is other selected geographic financial information on the Company’s operations: Geographic Financial Information December 31, (in thousands) 2022 2021 2020 Geographic net sales: United States $ 1,080,893 $ 953,024 $ 862,430 France 89,629 92,052 81,259 Canada 95,799 83,392 65,313 United Kingdom 69,454 57,386 47,757 Brazil 46,841 31,365 16,592 Netherlands 23,304 27,964 23,946 Germany 9,115 8,977 9,328 Australia 26,117 20,980 10,999 Other 72,464 59,083 45,842 Total net sales $ 1,513,616 $ 1,334,223 $ 1,163,466 Geographic location of long-lived assets: United States $ 457,075 $ 461,341 $ 480,940 Netherlands 28,428 32,262 39,063 Canada 32,165 32,132 33,573 United Kingdom 31,767 36,569 18,843 France 18,728 19,781 21,033 Brazil 12,175 10,408 11,123 Australia 670 790 964 Total long-lived assets $ 581,008 $ 593,283 $ 605,539 Net sales are attributed to countries based on the location of customers. 21. COMMITMENTS AND CONTINGENCIES The Company is subject to various unresolved legal actions that arise in the ordinary course of its business. The most significant of such actions relates to product liability, which is generally covered by insurance after various self-insured retention amounts. While amounts claimed might be substantial and the liability with respect to such litigation cannot be determined at this time, the Company believes that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations; however, the ultimate resolution cannot be determined at this time. Also, like other manufacturers, the Company is subject to a broad range of federal, state, local and foreign laws and requirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposal locations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on the Company in the future. 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. 79