ALAMO GROUP INC 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to various financial market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Foreign Currency Risk International Sales A portion of the Company’s operations consists of manufacturing and sales activities in international jurisdictions. The Company manufactures its products primarily in the U.S., the U.K., France, the Netherlands, Canada, Brazil and Australia. The Company sells its products primarily within the markets where the products are produced, but some of the Company’s sales from its U.K. and Canadian operations are denominated in other currencies. As a result, the Company’s financials, specifically the value of its foreign assets, could be affected by factors such as changes in foreign currency exchange rates in the U.K. and Canada or weak economic conditions in the other markets in which the subsidiaries of the Company distribute their products. Exposure to Exchange Rates The Company’s earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominantly in European countries and Canada and, to a lesser extent, Australia and Brazil, as a result of the sale of its products in international markets. Foreign currency forward exchange contracts in the U.K. are used to offset the earnings effects of such fluctuations. On December 31, 2025, the result of a uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which the Company’s sales are 37 denominated would have been a decrease in gross profit of $12.5 million. Comparatively, on December 31, 2024, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company’s sales are denominated would have been a decrease in gross profit of approximately $13.1 million. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates may also affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. The Company’s sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. The translation adjustment during 2025 was an unrealized gain of $34.4 million. On December 31, 2025, the British pound closed at 0.7421 relative to the U.S. dollar, and the Euro closed at 0.8511 relative to the U.S. dollar. By comparison, on December 31, 2024, the British pound closed at 0.7991 relative to the U.S. dollar, and the Euro closed at 0.9657 relative to the U.S. dollar. No assurance can be given as to future valuation of the British pound or Euro or how further movements in those or other currencies could affect future earnings or the financial position of the Company. Interest Rate Risk The majority of the Company’s long-term debt bears interest at variable rates. However, as discussed below in Note 13. Long-Term Debt, effective August 30, 2024, the Company put in place an interest rate swap that economically converted the variable interest rate on the Term Facility to a fixed rate of 3.7855% plus an interest margin percentage for the full amount of the outstanding long-term debt for three years. Accordingly, the Company’s net income was affected by changes in interest rates for part of 2024. Assuming the average level of borrowings at variable rates and a two hundred basis point change in the 2025 average interest rate under these borrowings, the Company’s 2025 interest expense would have changed by approximately $4.3 million. In the event of an adverse change in interest rates, management could take actions to mitigate its exposure. Further, this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. However, challenges affecting the banking industry and credit markets in general can potentially cause changes to credit availability and cost of borrowing, which creates a level of uncertainty. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data described in Item 15 of this report and included on pages 49 through 83 of this report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.