UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[ X ]  QUARTERLY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 

ACT OF 1934

 

FOR THE  QUARTERLY PERIOD ENDED JUNE 30, 2009

 

OR

 

[    ]  TRANSITION REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 

ACT OF 1934

 

FOR THE  TRANSITION PERIOD FROM ____ TO ____

 

**COMMISSION  FILE NUMBER  0-21220**

 

 

**ALAMO GROUP INC.**

(EXACT  NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 
| **DELAWARE**                      | ** ** | **74-1621248**           |
|-----------------------------------|------------|--------------------------|
| (*State or other jurisdiction of* | * *   | *(I.R.S. Employer*       |
| *incorporation or organization)*  | * *   | *Identification Number)* |

 

**1627 East Walnut, Seguin, Texas  78155**

*(Address of principal executive  offices*)

 

**830-379-1480**

(*Registrant’s telephone number,  including area code*)

 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIREDTO BE FILED BY SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DURING THEPRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIREDTO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FORTHE PAST 90 DAYS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Yes  X      No  ___

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| INDICATE BY CHECK MARK  WHETHER REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, OR A  NON-ACCELERATED FILER.  SEE DEFINITION OF “ACCELERATED FILER AND LARGE  ACCELERATED FILER” IN EXCHANGE ACT RULE 12B-2.    LARGE ACCELERATED FILER [   ]                ACCELERATED FILER [X]               NON-ACCELERATED FILER   [  ]

 

INDICATE BY CHECK MARK  WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE  EXCHANGE ACT).           YES [  ]            NO [X]

  |
| AT AUGUST 1, 2009, 10,046,929 SHARES OF COMMON STOCK, $.10 PAR  VALUE, OF THE REGISTRANT WERE OUTSTANDING.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

** **

 

 

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**Alamo Group Inc. and Subsidiaries**

** **

INDEX

 

 

|                                 |                                                               | PAGE  |
|--------------------------------------|--------------------------------------------------------------------|------------|
|                                 |                                                               |       |
|                                 |                                                               |       |
| PART I.                         | FINANCIAL INFORMATION                                         |       |
| ** **                           | ** **                                                         | ** ** |
| Item 1.                         | Interim  Consolidated Financial Statements                         |       |
|                                 |                                                               |       |
|                                 | Interim  Consolidated Balance Sheets                               | 3     |
|                                 | June 30, 2009 (Unaudited)  and December 31, 2008 (Audited)         |       |
|                                 |                                                               |       |
|                                 | Interim  Consolidated Statements of Income                         | 4     |
|        | Three months and Six  months ended June 30, 2009 and June 30, 2008 |       |
|                                 |                                                               |       |
|        | Interim  Consolidated Statements of Cash Flows                     | 5     |
|             | Six months ended June  30, 2009 and June 30, 2008                  |       |
|                                 |                                                               |       |
|        | Notes to Interim  Consolidated Financial Statements                | 6     |
|                                 |                                                               |       |
|                                 |                                                               |       |
| Item 2.                              | Management's  Discussion and Analysis of Financial Condition       | 15    |
|                                 | and Results of  Operations                                         |       |
|                                 |                                                               |       |
|                                 |                                                               |       |
| Item 3.                              | Quantitative and  Qualitative Disclosures about Market Risks       | 23    |
|                                 |                                                               |       |
| Item 4.                              | Controls and  Procedures                                           | 24    |
|                                 |  

                                                      |       |
| PART II.                        | OTHER INFORMATION                                                  | 24    |
|                                 |                                                               |       |
| Item 1.                         | None                                                               |       |
| Item 2.                         | None                                                               |       |
| Item 3.                              | None                                                               |       |
| Item 4.                         | None                                                               |       |
| Item 5.                         | Other Information                                                  |       |
| Item 6.                         | Exhibits                                                           |       |
|                                 |                                                               |       |
|                                 | SIGNATURES                                                         |       |

 

| 2 |
|---|

 

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## Alamo Group Inc. and Subsidiaries

**Interim Consolidated Balance  Sheets**

 

|  

(in thousands, except share amounts)                                                                                                                                                                        |   |   | **June 30,**

**2009**

**(Unaudited)** |   |   | **December 31, 2008**

**(Audited)** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------|
| **ASSETS**                                                                                                                                                                                                          |   |   |                                    |   |   |                                 |
|     Current assets:                                                                                                                                                                                  |   |   |                                    |   |   |                                 |
|       Cash and cash equivalents                                                                                                                                                            |   | $      | 6,074                              |   | $      | 4,532                           |
|       Accounts receivable, net                                                                                                                                                             |   |   | 124,733                            |   |   | 124,197                         |
|       Inventories                                                                                                                                                                          |   |   | 125,114                            |   |   | 132,248                         |
|       Deferred income taxes                                                                                                                                                                |   |   | 2,646                              |   |   | 2,671                           |
|       Prepaid expenses                                                                                                                                                                     |   |   | 3,108                              |   |   | 2,377                           |
|           Total current assets                                                                                                                                         |   |   | 261,675                            |   |   | 266,025                         |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|     Property, plant and equipment                                                                                                                                                                    |   |   | 128,486                            |   |   | 125,952                         |
|           Less:  Accumulated depreciation                                                                                                                         |   |   | (68,124)                                |   |   | (64,168)                             |
|                                                                                                                                                                                                                |   |   | 60,362                             |   |   | 61,784                          |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|     Goodwill                                                                                                                                                                                         |   |   | 48,696                             |   |   | 48,107                          |
|     Intangible assets                                                                                                                                                                                |   |   | 3,942                              |   |   | 3,982                           |
|     Deferred income taxes                                                                                                                                                                            |   |   | 2,463                              |   |   | 2,463                           |
|     Assets held for sale                                                                                                                                                                             |   |   | 426                                |   |   | 291                             |
|     Other assets                                                                                                                                                                                     |   |   | 1,309                              |   |   | 1,702                           |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|             Total assets                                                                                                                                     |   | $      | 378,873                            |   | $      | 384,354                         |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                           |   |   |                                    |   |   |                                 |
|       Current liabilities:                                                                                                                                                                 |   |   |                                    |   |   |                                 |
|       Trade accounts payable                                                                                                                                                               |   | $      | 45,308                             |   | $      | 54,598                          |
|       Income taxes payable                                                                                                                                                                 |   |   | 1,971                              |   |   | 841                             |
|       Accrued liabilities                                                                                                                                                                  |   |   | 28,755                             |   |   | 26,059                          |
|       Current maturities of long-term debt                                                                                                                                                 |   |   | 3,913                              |   |   | 4,186                           |
|           Total current liabilities                                                                                                                                    |   |   | 79,947                             |   |   | 85,684                          |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|       Long-term debt, net of current maturities                                                                                                                                            |   |   | 91,257                             |   |   | 99,884                          |
|       Deferred pension liability                                                                                                                                                           |   |   | 8,651                              |   |   | 8,682                           |
|       Other long-term liabilities                                                                                                                                                          |   |   | 4,422                              |   |   | 5,139                           |
|       Deferred income taxes                                                                                                                                                                |   |   | 940                                |   |   | 653                             |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|       Stockholders’ equity:                                                                                                                                                           |   |   |                                    |   |   |                                 |
|       Common stock, $.10 par value, 20,000,000 shares  authorized;

      10,053,754 and 9,964,529  issued and outstanding at June 30, 2009 and December 31, 2008 |   |   | 1,005                              |   |   | 996                             |
|       Additional paid-in capital                                                                                                                                                           |   |   | 56,724                             |   |   | 55,683                          |
|       Treasury stock, at cost; 42,600 shares at June 30, 2009  and December 31, 2008                                                                                                       |   |   | (426)                                   |   |   | (426)                                |
|       Retained earnings                                                                                                                                                                    |   |   | 135,405                            |   |   | 132,064                         |
|       Accumulated other comprehensive income                                                                                                                                               |   |   | 948                                |   |   | (4,005)                              |
|           Total  stockholders’ equity                                                                                                                             |   |   | 193,656                            |   |   | 184,312                         |
|                                                                                                                                                                                                                |   |   |                                    |   |   |                                 |
|           Total liabilities and stockholders’ equity                                                                                                              |   | $      | 378,873                            |   | $      | 384,354                         |
|                                                                                                                                                                                                                     |        |        |                                         |        |        |                                      |  |

See accompanying notes.

|   |
|--------|

3

 

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## Alamo Group Inc. and Subsidiaries 

**Interim Consolidated Statements of  Income **

**(Unaudited) **

 

|                                                    |   | Three Months Ended |          | Six Months Ended |
|---------------------------------------------------------|--------|--------------------|---------------|------------------|
|                                                    |   |               | June 30,      |             |   | **June 30,** |
| (in  thousands, except per share amounts)** **     |   |               | 2009     |             |   | 2008 |   |   | **2009** |   |   | **2008** |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Net sales:                                         |   |               |          |             |   |   |   |   |   |   |   |   |
|     North American                  |   |               |          |             |   |   |   |   |   |   |   |   |
|         Industrial   |   | $                  | 46,038   |             | $ | 72,452  |   | $ | 89,190  |   | $ | 135,063  |
|         Agricultural |   |               | 19,274   |             |   | 32,768  |   |   | 43,105  |   |   | 65,271  |
|     European                             |   |               | 47,931   |             |   | 46,940  |   |   | 91,091  |   |   | 85,607  |
| Total net  sales                                        |   |               | 113,243  |             |   | 152,160  |   |   | 223,386  |   |   | 285,941  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Cost of  sales                                          |   |               | 88,914   |             |   | 121,656  |   |   | 177,330  |   |   | 230,456  |
| Gross  profit                                           |   |               | 24,329   |             |   | 30,504  |   |   | 46,056  |   |   | 55,485  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Selling,  general and administrative expense            |   |               | 18,945   |             |   | 21,104  |   |   | 37,495  |   |   | 40,723  |
|     Income  from operations              |   |               | 5,384    |             |   | 9,400  |   |   | 8,561  |   |   | 14,762  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Interest  expense                                       |   |               | (1,147)       |             |   | (1,889) |   |   | (2,243) |   |   | (3,724) |
| Interest  income                                        |   |               | 162      |             |   | 529  |   |   | 322  |   |   | 939  |
| Other  income (expense), net                            |   |               | (49)          |             |   | 408  |   |   | (4) |   |   | 659  |
|     Income  before income taxes          |   |               | 4,350    |             |   | 8,448  |   |   | 6,636  |   |   | 12,636  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Provision  for income taxes                             |   |               | 1,358    |             |   | 2,883  |   |   | 2,101  |   |   | 4,239  |
|     Net income                           |   | $                  | 2,992    |             | $ | 5,565  |   | $ | 4,535  |   | $ | 8,397  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Net income per common share:                            |   |               |          |             |   |   |   |   |   |   |   |   |
|     Basic                                |   | $                  | 0.30     |             | $ | 0.57  |   | $ | 0.46  |   | $ | 0.86  |
|     Diluted                              |   | $                  | 0.30     |             | $ | 0.56  |   | $ | 0.45  |   | $ | 0.84  |
| Average  common shares                             |   |               |          |             |   |   |   |   |   |   |   |   |
|     Basic                                |   |               | 9,977    |             |   | 9,799  |   |   | 9,958  |   |   | 9,798  |
|     Diluted                              |   |               | 9,986    |             |   | 9,957  |   |   | 9,975  |   |   | 9,939  |
|                                                    |   |               |          |             |   |   |   |   |   |   |   |   |
| Dividends  declared                                     |   | $                  | 0.06     |             | $ | 0.06  |   | $ | 0.12  |   | $ | 0.12  |
|                                                         |        |                    |               |                  |  |  |  |  |  |  |  |  |  |

 

 

See accompanying notes.

 

 

 

 

|   |
|--------|

4

 

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## Alamo Group Inc. and Subsidiaries

**Interim Consolidated Statements of Cash Flows**

**(Unaudited)**

** **

|                                                                                                              |   | **Six Months Ended**

**June 30,** |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|
| (in thousands)                                                                                                    |   |                               | **2009** | ** ** | ** ** | **2008** |
| **Operating  Activities**                                                                                         |   |                               |   |   |   |   |
| Net  income                                                                                                       |   | $                                  | 4,535 |   | $ | 8,397  |
| Adjustment  to reconcile net income to net cash

    provided  (used) by operating activities:     |   |                               |   |   |   |   |
|           Provision  for doubtful accounts                           |   |                               | 193 |   |   | 82  |
|           Depreciation                                               |   |                               | 4,053 |   |   | 4,598  |
|           Amortization                                               |   |                               | 39 |   |   | 52  |
|           Stock-based  compensation expense                          |   |                               | 253 |   |   | 322  |
|           Excess  tax benefits from stock-based payment arrangements |   |                               | (15) |   |   | (42) |
|           Provision  for deferred income tax benefit                 |   |                               | 338 |   |   | 201  |
|           Gain  on sale of equipment                                 |   |                               | (27) |   |   | (110) |
| Changes in  operating assets and liabilities:                                                                     |   |                               |   |   |   |   |
|           Accounts  receivable                                       |   |                               | 1,794 |   |   | (29,756) |
|           Inventories                                                |   |                               | 8,564 |   |   | (660) |
|           Prepaid  expenses and other assets                         |   |                               | (99) |   |   | 359  |
|           Trade  accounts payable and accrued liabilities            |   |                               | (7,628) |   |   | 15,428  |
|           Income  taxes payable                                      |   |                               | 883 |   |   | 1,098  |
|           Other  long term liabilities                               |   |                               | (440) |   |   | (1,074) |
| Net cash provided  (used) by operating activities                                                                 |   |                               | 12,443 |   |   | (1,105) |
|                                                                                                              |   |                               |   |   |   |   |
| **Investing  Activities**                                                                                         |   |                               |   |   |   |   |
| Acquisitions,  net of cash acquired                                                                               |   |                               | –  |   |   | (22,184) |
| Purchase  of property, plant and equipment                                                                        |   |                               | (1,852) |   |   | (3,594) |
| Proceeds  from sale of property, plant and equipment                                                              |   |                               | 65 |   |   | 170  |
| Net cash  provided (used) by investing activities                                                                 |   |                               | (1,787) |   |   | (25,608) |
|                                                                                                              |   |                               |   |   |   |   |
| **Financing  Activities**                                                                                         |   |                               |   |   |   |   |
| Net change  in bank revolving credit facility                                                                     |   |                               | (8,000) |   |   | 24,000  |
| Principal  payments / proceeds on long-term debt and capital leases                                               |   |                               | (1,439) |   |   | (649) |
| Proceeds  from issuance of long term debt                                                                         |   |                               | 545 |   |   | 2,720  |
| Dividends  paid                                                                                                   |   |                               | (1,194) |   |   | (1,176) |
| Proceeds  from sale of common stock                                                                               |   |                               | 797 |   |   | 223  |
| Excess tax  benefits from stock-based payment arrangements                                                        |   |                               | 15 |   |   | 42  |
| Net cash  provided (used) by financing activities                                                                 |   |                               | (9,276) |   |   | 25,160  |
|                                                                                                              |   |                               |   |   |   |   |
| Effect of  exchange rate changes on cash                                                                          |   |                               | 162 |   |   | 428  |
| Net change  in cash and cash equivalents                                                                          |   |                               | 1,542 |   |   | (1,125) |
| Cash and  cash equivalents at beginning of the period                                                             |   |                               | 4,532 |   |   | 4,459  |
| Cash and  cash equivalents at end of the period                                                                   |   | $                                  | 6,074 |   | $ | 3,334  |
|                                                                                                              |   |                               |   |   |   |   |
| Cash paid  during the period for:                                                                                 |   |                               |   |   |   |   |
|         Interest                                                               |   | $                                  | 2,538 |   | $ | 3,798  |
|         Income  taxes                                                          |   | $                                  | 1,958 |   | $ | 2,227  |
|                                                                                                                   |        |                                    |  |  |  |  |  |

 

See accompanying notes.

|   |
|--------|

5

 

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** **

**Alamo Group Inc. and Subsidiaries**

**Notes to Interim Condensed  Consolidated Financial Statements - (Unaudited)**

## June 30, 2009

** **

**1.  Basis of Financial Statement Presentation**

 

    The accompanying unaudited interim consolidatedfinancial statements of Alamo Group Inc. and its subsidiaries (the “Company”)have been prepared in accordance with U.S. generally accepted accountingprinciples (“GAAP”) for interim financial information and with the instructionsto Form 10-Q and Article 10 of Regulations S-X.  Accordingly, they do notinclude all of the information and footnotes required by U.S. GAAP for completefinancial statements.  In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included.  Operating results for the periods presentedare not necessarily indicative of the results that may be expected for the yearending December 31, 2009.  The balance sheet at December 31, 2008, has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by U.S. GAAP for completefinancial statements.  For further information, refer to the consolidatedfinancial statements and footnotes thereto included in the Company’s annualreport on Form 10-K for the year ended December 31, 2008.

 

    In connection with the preparation of theconsolidated financial statements and in accordance with the recently issuedStatement of Financial Standards No. (SFAS) 165, Subsequent Events, the Companyevaluated subsequent events after the balance sheet date of June 30, 2009through August 7, 2009 and had nothing to disclose.

**2.   Acquisitions**

      The acquisition described below was accounted for asa business combination in accordance with Statement of Financial AccountingStandards No. 141, “Business Combinations”.  Accordingly, the purchase price hasbeen allocated to the underlying assets and liabilities based on estimated fairvalues at the date of acquisition.  The operating results of the acquiredcompany are included with the Company’s results of operations since acquisitiondate.  

** **

On May 30, 2008 the Company purchased RivardDeveloppement (“*Rivard*”), a leading French manufacturer of vacuumtrucks, high pressure cleaning systems and trenchers.  The purchase price was €15million (approximately U.S. $23 million) plus the assumption of certainliabilities.  We have allocated the purchase price to the acquired assets andliabilities assumed and recorded goodwill of €9 million (approximately U.S. $13million) related to this acquisition. The majority of the purchase price wasfunded utilizing the Company’s cash reserves in Europe, with the balance frombank credit facilities.  *Rivard’s* sales in 2007 were €40 million,(approximately U.S. $62 million) and the company has 275 full-time employees.  *Rivard* is located in Daumeray, France and was founded in1952.

 

      The unaudited pro formastatement of income of the Company assuming these transactions occurred atJanuary 1, 2008 is as follows:

|                                      | **Six Months Ended** |
|-------------------------------------------|----------------------|
|                                      | **June 30,**         |
| (In thousands, except per  share amounts) | **2009**             | ** ** | **2008** |
|                                      | ** **           |
| Net Sales                                 | $                    | 223,386 |   | $ | 311,774  |
| Net  Income                               | $                    | 4,535 |   | $ | 10,049  |
| Diluted  Earnings per Share               | $                    | 0.45 |   | $ | 1.01  |
|                                 |                      |  |  |  |  |  |  |

**3.  Accounts Receivable**

 

      Accounts Receivable is shown less allowance fordoubtful accounts of $2,393,000 and $2,430,000at June 30, 2009 and December 31, 2008, respectively.

6

 

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**4.  Inventories**

 

      Inventories are valued at last in first out (LIFO)cost represented 56% and 57% of total inventory at June 30, 2009 and December31, 2008, respectively.  The excess of current costs over LIFO valuedinventories were $12,791,000 at June 30, 2009 and December 31, 2008.  Inventoryobsolescence reserves were $8,553,000 at June 30, 2009 and $8,978,000 atDecember 31, 2008.  Net inventories consist of the following:

 

| (in thousands)   |   |   | **June 30,**

**2009** |   | **December 31,**

**2008** |
|------------------|--------|--------|------------------------|--------|----------------------------|
|             |   |   |                   |   |                       |   |
| Finished  goods  |   | $      | 102,872                |   | $                          | 104,819 |
| Work in  process |   |   | 11,738                 |   |                       | 16,247 |
| Raw  materials   |   |   | 10,504                 |   |                       | 11,182 |
|             |   | $      | 125,114                |   | $                          | 132,248 |
|                  |        |        |                        |        |                            |  |  |

 

      An actual valuation of inventory under the LIFOmethod can be made only at the end of each year based on the inventory levelsand costs at that time.  Accordingly, interim LIFO must necessarily be based onmanagement's estimates. 

 

 

**5.  Derivatives and Hedging**

** **

      Most of the Company’s outstanding debt isadvanced from a revolving credit facility that accrues interest at a contractual margin over current marketinterest rates.  The Company’s financing costs associated with this creditfacility can materially change with market increases and decreases ofshort-term borrowing rates, specifically London Inter Bank Operating Rate(“LIBOR”).  During the second quarter of 2007, the Company entered into twointerest rate swap agreements with one of its current lenders that hedge futurecash flows related to its outstanding debt obligations.  As of June 30, 2009,the Company had $87 million outstanding under its revolving credit facility andtwo interest rate swap contracts designated as cash flow hedges which areeffectively hedging $40 million of these borrowings from changes in underlyingLIBOR base rates.  One swap has a three year term which expires in 2010 andfixes the LIBOR base rate at 4.910% covering $20 million of this debt.  Theother has a four year term which expires in 2011 and fixes the LIBOR base rateat 4.935% covering an additional $20 million of these variable rate borrowings. The fair market value of these hedges, which is the amount that would have beenpaid or received by the Company had it prematurely terminated these swapcontracts at June 30, 2009, was a $1,899,000 liability.  This is included inOther long-term liabilities with an offset in Accumulated other comprehensiveincome, net of taxes.  At June 30, 2009, ineffectiveness related to theinterest rate swap agreements was not material.

 

**6.  Fair Value Measurements**

 

The Company adopted SFAS 157, “Fair Value Measurements”as of January 1, 2008.  FSAS 157 defines fair value as the exchange price thatwould 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 anorderly transaction between market participants.  SFAS 157 also specifies afair value hierarchy based upon the observability of inputs used in valuationtechniques.  Observable inputs (highest level) reflect market data obtainedfrom independent sources, while unobservable inputs (lowest level) reflectinternally developed market assumptions.  In accordance with SFAS 157, fairvalue measurements are classified under the following hierarchy:

 

**Level 1**– Quoted prices for identical instruments in activemarkets.

**Level 2** –Quoted prices for similar instruments in active markets; quoted prices foridentical or similar instruments in markets that are not active; andmodel-derived valuations in which all significant inputs or significantvalue-drivers are observable in active markets.

**Level 3** –Model-derived valuations in which one or more significant inputs or significantvalue-drivers are unobservable

 

| 7 |
|---|

 

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When available, the Company uses quoted market pricesto determine fair value, and the Company classifies such measurements withinLevel 1.  In some cases where market prices are not available, the Companymakes use of observable market based inputs to calculate fair value, in whichcase the measurements are classified with Level 2.  If quoted or observablemarket prices are not available, fair value is based upon internally developedmodels that use, where possible, current market-based parameters such asinterest rates, yield curves, currency rates, etc.  These measurements areclassified within Level 3.

 

Fair value measurements are classified to the lowestlevel input or value-driver that is significant to the valuation.  Ameasurement may therefore be classified within Level 3 even though there may besignificant inputs that are readily observable.

 

**Derivativefinancial instruments**

 

The fair value of interest rate swap derivatives isprimarily based on third-party pricing service models.  These models usediscounted cash flows that utilize the appropriate market-based forward swapcurves and zero-coupon interest rates.  Interest rate swap derivatives areLevel 2 measurements and have a fair value of a negative $1,899,000 as of June30, 2009.

 

The fair value of foreign currency forward contractsis based on a valuation model that discounts cash flows resulting from the differentialbetween the contract price and the market-based forward rate and is a Level 2measurement and has a fair value of $85,000 as of June 30, 2009.

** **

**7.  Common Stock and Dividends**

** **

Dividends declared and paidon a per share basis were as follows:

** **

|                |   | Six Months Ended |
|---------------------|--------|------------------|
|                |   |             | **June 30,** |
|                |   |             | **2009** |   |   | **2008** |
|                |   |             |   |   |   |   |
| Dividends  declared |   | $                | 0.12 |   | $ | 0.12 |
| Dividends  paid     |   | $                | 0.12 |   | $ | 0.12 |

** **

** **

**8.  Stock-Based     Compensation**

** **      The Company has grantedoptions to purchase its common stock to employees and directors of the Companyand its affiliates under various stock option plans at no less than the fairmarket value of the underlying stock on the date of grant.  These options aregranted for a term not exceeding ten years and are forfeited in the event theemployee or director terminates his or her employment or relationship with theCompany or one of its affiliates other than by retirement, based on certaincriteria.  These options generally vest over five years.  All option planscontain anti-dilutive provisions that permit an adjustment of the number ofshares of the Company’s common stock represented by each option for any changein capitalization.

 

| 8 |
|---|

 

----

 

 

 

 

 

      The Company adopted thefair value recognition provisions of Statement of Financial AccountingStandards No. 123(R), Share-Based Payment (“Statement 123(R)”), on January 1, 2006, using the modified-prospective-transition method.  The fair value of theoptions is estimated using a Black-Scholes option-pricing model and are amortizedto expense over the options’ vesting period.  Prior to adoption of Statement123(R), the Company accounted for share based payments under the recognitionand measurement provisions of APB Opinion No. 25, Accounting for Stock Issuedto Employees (“APB 25”), and related Interpretations, as permitted by Statementof Financial Accounting Standards No. 123, Accounting for Stock-BasedCompensation (“Statement 123”).  The Company did not recognize employeecompensation cost related to its stock option grants in its ConsolidatedStatement of Income prior to adoption of Statement 123(R), as all optionsgranted had an exercise price equal to the market value of the underlyingcommon stock on the date of grant. Under the modified-prospective-transitionmethod, compensation cost recognized beginning in 2006 includes: (a)compensation cost for all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant date fair value estimated inaccordance with the original provisions of Statement 123, and (b) compensationcost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions ofStatement 123(R).  

 

      The Company’s stock-based compensation expense was $253,000 and $322,000for the six months ended June 30, 2009 and 2008, respectively.

 

      Prior to the adoption ofStatement 123(R), the Company presented all tax benefits of deductionsresulting from the exercise of stock options as operating cash flows in theStatement of Cash Flows.  Statement 123(R) requires the cash flows resultingfrom the tax benefits resulting from tax deductions in excess of thecompensation cost recognized for those options (excess tax benefits) to beclassified as financing cash flows. 

 

      Therewere 192,000 shares granted during the second quarter of 2009 and 39,000 sharesgranted in the second quarter of 2008.  The Company calculated the fair valuefor the 2009 and 2008 options using a Black-Scholes option pricing model usingweighted average assumptions.  For options granted in the second quarter of 2009and 2008, they are as follows:

 

|                            |   |   | 2009      | 2008      |
|---------------------------------|--------|--------|-----------|-----------|
| Risk-free  interest rate        |   |   | 2.67%     | 3.13%     |
| Dividend  Yield                 |   |   | 1.20%     | 1.20%     |
| Volatility  Factors             |   |   | 42.8%     | 43.6%     |
| Weighted  Average Expected Life |   |   | 7.5 years | 9.0 years |

** **

*Qualified Options*

 

      Followingis a summary of activity in the Incentive Stock Option Plans for the periodindicated:

 

| *For  six months ending June 30, 2009*        |   | ** **     |
|-----------------------------------------------|--------|----------------|
|                                          |   |  

Shares |   |   | Exercise

Price* |
| Options  outstanding at beginning of year     |   | 253,980   |   |   |   |
|       Granted        |   | 99,000    |   |   | $11.45  |
|       Exercised      |   | –    |   |   |   |
|       Cancelled      |   | –    |   |   |   |
|                                          |   |           |   |   |   |
| Options  outstanding at June 30, 2009         |   | 352,980   |   |   | $17.92  |
| Options  exercisable at June 30, 2009         |   | 159,780   |   |   | $18.77  |
| Options  available for grant at June 30, 2009 |   | 208,000   |   |   |   |

**WeightedAverages*

 

      Optionsoutstanding and exercisable at June 30, 2009 were as follows:

 

| **Qualified  Stock Options**         |   | **Options Outstanding** |   |   | **Options Exercisable**            |
|--------------------------------------|--------|-------------------------|--------|--------|------------------------------------|
|                                 |   |  

 

Shares  |   |   | Remaining

Contractual

Life(yrs)* |  

Exercise

Price* |   |   |  

 

Shares |  

Exercise

Price* |
| Range of Exercise Price              |   |                    |   |   |                               |   |   |   |   |   |
| $11.45 - $17.85                      |   | 159,980            |   |   | 7.77                               | $ 12.29  |   |   | 60,980    | $ 13.65  |
| $19.79 -  $25.18                     |   | 193,000            |   |   | 7.44                               | $ 22.58  |   |   | 98,800    | $ 21.93  |
|       Total |   | 352,980            |   |   |                               |   |   |   | 159,780    |   |

**WeightedAverages*

| 9 |
|---|

 

----

 

***Non-qualifiedOptions***

 

Following is a summary of activity in the Non-Qualified StockOption Plans for the period indicated:

| *For  six months ending June 30, 2009*        |   | ** **    |
|-----------------------------------------------|--------|---------------|
|                                          |   | Shares        |   |   | Exercise

Price* |
| Options  outstanding at beginning of year     |   | 226,000  |   |   |   |
|       Granted        |   | 93,000   |   |   |   |
|       Exercised      |   | (89,225)      |   |   | $8.9375  |
|       Cancelled      |   | –   |   |   |   |
|                                          |   |          |   |   |   |
| Options outstanding  at June 30, 2009         |   | 229,775  |   |   | $  13.58  |
| Options  exercisable at June 30, 2009         |   | 114,275  |   |   | $  13.18  |
| Options  available for grant at June 30, 2009 |   | 367,000  |   |   |   |

**WeightedAverages*

* *

      Options outstanding and exercisable at June 30, 2009were as follows:

| **Non-Qualified  Stock Options**     |   | **Options Outstanding** |   |   | **Options Exercisable**            |
|--------------------------------------|--------|-------------------------|--------|--------|------------------------------------|
|                                 |   |  

 

Shares  |   |   | Remaining

Contractual

Life(yrs)* |  

Exercise  

Price*    |   |   |  

 

Shares   |  

Exercise

Price* |
| Range of Exercise Price              |   |                    |   |   |                               |   |   |   |   |   |
| $8.9375 -  $12.10                    |   | 183,775            |   |   | 6.00                               | $11.16  |   |   | 90,775    | $10.85  |
| $13.96 -  $19.79                     |   | 13,500             |   |   | 5.26                               | $18.71  |   |   | 10,500    |  $18.40  |
| $25.02 -  $25.18                     |   | 32,500             |   |   | 7.92                               | $25.17  |   |   | 13,000    |  $25.17  |
|       Total |   | 229,775            |   |   |                               |   |   |   | 114,275    |   |

**Weighted Averages*

** **

** **

**9.  Earnings Per Share**

** **

The following table sets forth the reconciliationfrom basic to diluted average common shares and the calculations of net incomeper common share.  Net income is the same for basic and diluted per sharecalculations. 

 
|   | **Three Months Ended** |       | Six Months Ended |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|------------------------|------------|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **June 30,**           | ** ** | June 30,         |  
(In  thousands, except per share amounts)

**2009**

** **

**2008**

** **

**2009**

** **

**2008**

 
 

** **

Net  Income 

$

2,992

 

$

5,565

** **

$

4,535

 

$

8,397

** **

 
                               	

 

 

 

 

 

** **

 

 

** **

 

 

** **

 
Average  Common Shares:                                               	

 

 

 

 

 

** **

 

 

** **

 

 

** **

 
      Basic  (weighted-average outstanding shares) 

 

9,977

 

 

9,799

** **

 

9,958

** **

 

9,798

** **

 
 

 

 

 

 

 

** **

 

 

** **

 

 

** **

 
      Dilutive potential common shares from stock	

      options 

 

 

9

** **

 

 

158

** **

 

 

17

** **

 

 

141

** **

 
       Diluted (weighted-average outstanding shares) 

 

9,986

 

 

9,957

** **

 

9,975

** **

 

9,939

** **

 
 

 

 

 

 

 

** **

 

 

** **

 

 

** **

 
Basic  earnings per share 

$

0.30

 

$

0.57

** **

$

0.46

** **

$

0.86

** **

 
 

 

 

 

 

 

** **

 

 

** **

 

 

** **

 
Diluted  earnings per share 

$

0.30

 

$

0.56

** **

$

0.45

** **

$

0.84

** **

 
 

10

 

 

 

 

 

 

   **10.  SegmentReporting**

** **

At June 30, 2009 and June 30, 2008 thefollowing unaudited financial information is segmented:  

 

 

 

**Three Months Ended**

** **

** **

**Six Months Ended**

 

 

**June 30,**

** **

** **

**June 30,**

(In  thousands)

 

**2009**

** **

** **

**2008**

** **

** **

**2009**

** **

**2008**

 

 

 

 

 

 

 

 

 

 

 
Net Revenue
 

 

 

 

 

 

 

 

 

 

        Industrial

$

46,038

 

$

72,452

 

$

89,190 

$

135,063

        Agricultural

 

19,274

 

 

32,768

 

 

43,105 

 

65,271

        European

 

47,931

 

 

46,940

 

 

91,091 

 

85,607

Consolidated

 

113,243

 

 

152,160

 

 

223,386 

 

285,941

 

 

 

 

 

 

 

 

 

 

 

**Income  from Operations**

 

 

 

 

 

 

 

 

 

 

        Industrial

$

576

 

$

4,424

 

$

(532)

$

5,926

        Agricultural

 

219

 

 

1,193

 

 

1,460 

 

2,105

        European

 

4,589

 

 

3,783

 

 

7,633 

 

6,731

Consolidated

 

5,384

 

 

9,400

 

 

8,561 

 

14,762

 

 

 

 

 

 

 

 

 

 

 

**Goodwill**

 

 

 

 

 

 

 

 

 

 

        Industrial

$

26,895

 

$

27,331

 

$

26,895 

$

27,331

        Agricultural

 

– 

 

 

5,760

 

 

– 

 

5,760

        European

 

21,801

 

 

25,566

 

 

21,801 

 

25,566

Consolidated

 

48,696

 

 

58,657

 

 

48,696 

 

58,657

 

 

 

 

 

 

 

 

 

 

 

**Total  Identifiable Assets**

 

 

 

 

 

 

 

 

 

 

        Industrial

$

160,887

 

$

180,158

 

$

160,887 

$

180,158

        Agricultural

 

80,779

 

 

91,920

 

 

80,779 

 

91,920

        European

 

137,207

 

 

154,758

 

 

137,207 

 

154,758

Consolidated

 

378,873

 

 

426,836

 

 

378,873 

 

426,836

 

 

**      11.  Off Balance Sheet Arrangements**

       

The Company does not have any obligation under anytransaction, agreement or other contractual arrangement to which an entityunconsolidated with the Company is party, that has or is reasonably likely tohave a material effect on the Company’s financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

 

 

**12.  Comprehensive Income**

The components of ComprehensiveIncome, net of related tax are as follows:**

 

 

 

 

**Three Months Ended**

** **

** **

**Six Months Ended**

 

 

 

**June 30,**

** **

** **

**June 30,**

(in  thousands)

 

 

**2009**

** **

** **

**2008**

** **

** **

**2009**

** **

** **

**2008**

Net  Income 

 

$

2,992

 

$

5,565 

 

$

4,535

 

$

8,397 

Cash  flow derivatives, net of taxes

 

 

173

 

 

704 

 

 

334

 

 

(3)

Amortization  of actuarial net gain 

 

 

39

 

 

(20)

 

 

78

 

 

(40)

Foreign  currency  translation adjustment 

 

 

8,371

 

 

483 

 

 

4,541

 

 

2,002 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive  Income 

 

$

11,575

 

$

6,732 

 

$

9,488

 

$

10,356 

 

11

 

 

 

 

 

 

The components of Accumulated Other ComprehensiveIncome as shown on the Balance Sheet, are as follows:

** **

 

 

 

**June 30,**

**December 31,**

(in  thousands)

** **

** **

**2009**

** **

** **

**2008**

 

 

 

 

 

 

 

Foreign  currency translation

 

$

6,046 

 

$

   1,553 

Derivatives,  net of taxes

 

 

(1,178)

 

 

(1,560)

Actuarial  gains related to defined benefit plans

 

 

(3,920)

 

 

(3,998)

Total  Accumulated other comprehensive income

 

$

948 

 

$

(4,005)

** **

** **

**13.  Contingent Matters**

** **

      The Company is subject to various unresolved legalactions that arise in the ordinary course of its business.  The most prevalentof such actions relates to product liability, which is generally covered byinsurance after various self-insured retention (“SIR”) amounts.  While amountsclaimed might be substantial and the liability with respect to such litigationcannot be determined at this time, the Company believes that the outcome ofthese matters will not have a material adverse effect on the Company’sconsolidated financial position or results of operations; however, the ultimateresolution cannot be determined at this time.

      TheCompany is subject to numerous environmental laws and regulations concerningair emissions, discharges into waterways, and the generation, handling,storage, transportation, treatment and disposal of waste materials.  TheCompany’s policy is to comply with all applicable environmental, health andsafety laws and regulations, and the Company believes it is currently inmaterial compliance with all such applicable laws and regulations.  These lawsand regulations are constantly changing, and it is impossible to predict withaccuracy the effect that changes to such laws and regulations may have on theCompany in the future.  Like other industrial concerns, the Company’smanufacturing operations entail the risk of noncompliance, and there can be noassurance that the Company will not incur material costs or other liabilitiesas a result.  

 

      TheCompany knows that its Indianola, Iowa property is contaminated with chromiumwhich most likely resulted from chrome plating operations which werediscontinued before the Company purchased the property.  Chlorinated volatileorganic compounds have also been detected in water samples on the property,though the source is unknown at this time.  The Company has been voluntarilyworking with an environmental consultant and the State of Iowa with respect tothese issues and believes it completed its remediation program in June 2006. The work was accomplished within the Company’s environmental liability reservebalance.  We requested a “no further action” classification from the state.  Wereceived a conditional “no further action” letter in January of 2009.  When wedemonstrate stable or improving conditions below residential standards byfuture monitoring of existing wells, an unconditional no further action letterwill be requested.

 

      At December31, 2008, the Company had an environmental reserve in the amount of $1,608,000related to the acquisition of *Gradall’s* facility in Ohio.  Threespecific remediation projects that were identified prior to the acquisition arein process of remediation with a remaining reserve balance of $143,000.  TheCompany has a reserve of $277,000 concerning a potential asbestos issue that isexpected to be abated over time.  The balance of the reserve, $1,188,000, ismainly for potential ground water contamination/remediation that was identifiedbefore the acquisition and believed to have been generated by a third partycompany located near the *Gradall* facility.  Certain other assets of theCompany contain asbestos that may have to be remediated over time.  Managementhas made its best estimate of the cost to remediate these environmentalissues.  However, such estimates are difficult to estimate including the timingof such costs.  The Company believes that any subsequent change in theliability associated with the asbestos removal will not have a material adverseeffect on the Company’s consolidated financial position or results ofoperations.

**     **

12

 

 

 

 

 

 

      The Company is subject to various other federal,state, and local laws affecting its business, as well as a variety of regulationsrelating to such matters as working conditions, equal employment opportunities,and product safety. A variety of state laws regulate the Company’s contractualrelationships with its dealers, some of which impose restrictive standards onthe relationship between the Company and its dealers, including events ofdefault, grounds for termination, non-renewal of dealer contracts and equipmentrepurchase requirements. The Company believes it is currently in materialcompliance with all such applicable laws and regulations.

**14.  PensionBenefits**

** **

      In connection with the February 3,2006 purchase of all the net assets of the *Gradall* excavator business,Alamo Group Inc. assumed sponsorship of two *Gradall* non-contributorydefined benefit pension plans, both of which were frozen with respect to bothfuture benefit accruals and future new entrants.  

 

      The *Gradall*Company Hourly Employees’ Pension Plan covers approximately 310 formeremployees and 210 current employees who (i) were formerly employed by the formerparent of Gradall, (ii) were covered by a collective bargaining agreement and(iii) first participated in the plan before April 6, 1997.  An amendmentceasing all future benefit accruals was effective April 6, 1997.

 

      The *Gradall*Company Employees’ Retirement Plan covers approximately 190 former employeesand 150 current employees who (i) were formerly employed by the former parentof Gradall, (ii) were not covered by a collective bargaining agreement and(iii) first participated in the plan before December 31, 2004. An amendmentceasing future benefit accruals for certain participants was effective December31, 2004.  A second amendment discontinued all future benefit accruals for allparticipants effective April 24, 2006.

 

      The Company’s pension expense was$138,000 and pension income was $89,000 for the three months ended June 30,2009 and 2008, respectively.  The Company is required to contribute $496,000 tothe pension plans for 2009.

 

**15.  Income Taxes**

** **

The Company adopted FASBInterpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) onJanuary 1, 2007. At January 1, 2007, the Company recognized a liability ofapproximately $379,000 for “unrecognized tax positions,” which includes penaltyand interest of $134,000.  The balance at June 30, 2009 was $456,000.  Theimpact to the Interim Consolidated Statements of Income was zero in the secondquarter of 2009 and 2008.

 

**16.  RecentAccounting Pronouncements**

 

        Statementof Financial Accounting Standards No. 141, "BusinessCombinations (Revised 2007)."  “Statement 141(R)”) 141R replaces Statementof Financial Accounting Standards No. 141, "BusinessCombinations," (“Statement 141”) and applies to all transactions and otherevents in which one entity obtains control over one or more other businesses. Statement141(R) requires an acquirer, upon initially obtaining control of anotherentity, to recognize the assets, liabilities and any non-controlling interestin the acquiree at fair value as of the acquisition date. Contingentconsideration is required to be recognized and measured at fair value on thedate of acquisition rather than at a later date when the amount of thatconsideration may be determinable beyond a reasonable doubt. This fair valueapproach replaces the cost-allocation process required under Statement 141whereby the cost of an acquisition was allocated to the individual assetsacquired and liabilities assumed based on their estimated fair value. Statement 141Rrequires acquirers to expense acquisition-related costs as incurred rather thanallocating such costs to the assets acquired and liabilities assumed, as waspreviously the case under Statement 141. Under Statement 141(R), therequirements of Statement of Financial Accounting Standards No. 146,"Accounting for Costs Associated with Exit or Disposal Activities,"would have to be met by the target in order to accrue for a restructuring planin purchase accounting. Pre-acquisition contingencies are to be recognized atfair value, unless it is a non-contractual contingency that is not likely tomaterialize, in which case, nothing should be recognized in purchase accountingand, instead, that contingency would be subject to the probable and estimablerecognition criteria of Statement of Financial Accounting Standards No. 5,"Accounting for Contingencies." Statement  141(R) is expected tohave a significant impact on the Company's accounting for business combinationsclosing on or after January 1, 2009.

 

13

 

 

 

 

 

 

      Statement of FinancialAccounting Standards No. 160, "Non-controlling Interest inConsolidated Financial Statements, an amendment of ARB Statement No. 51."(“Statement 160”) amends Accounting Research Bulletin (ARB) No. 51,"Consolidated Financial Statements," to establish accounting andreporting standards for the non-controlling interest in a subsidiary and forthe deconsolidation of a subsidiary. Statement 160 clarifies that anon-controlling interest in a subsidiary, which is sometimes referred to asminority interest, is an ownership interest in the consolidated entity thatshould be reported as a component of equity in the consolidated financialstatements. Among other requirements, Statement 160 requires consolidatednet income to be reported at amounts that include the amounts attributable toboth the parent and the non-controlling interest. It also requires disclosure,on the face of the consolidated income statement, of the amounts ofconsolidated net income attributable to the parent and to the non-controllinginterest. Statement 160 is effective for the Corporation on January 1, 2009 and is not expected to have a significant impact on the Company'sfinancial statements.

 

      Statement of Financial Accounting StandardsNo. 161, "Disclosures About Derivative Instruments and HedgingActivities, an Amendment of FASB Statement No. 133."**(“Statement161”) amends Statement of Financial Accounting No. 133, "Accounting forDerivative Instruments and Hedging Activities," (“Statement 133”)to amendand expand the disclosure requirements of Statement 133 to provide greatertransparency about (i) how and why an entity uses derivative instruments,(ii) how derivative instruments and related hedge items are accounted forunder Statement 133 and its related interpretations, and (iii) howderivative instruments and related hedged items affect an entity's financialposition, results of operations and cash flows. To meet those objectives, Statement 161requires qualitative disclosures about objectives and strategies for usingderivatives, quantitative disclosures about fair value amounts of gains and losseson derivative instruments and disclosures about credit-risk-related contingentfeatures in derivative agreements. Statement 161 is effective for theCompany on January 1, 2009 and is not expected to have a significant impact onthe Company's financial statements.

 

In April 2009, the FASB issued three related StaffPositions: (i) FSP 157-4, Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability have Significantly Decreased andIdentifying Transactions That Are Not Orderly. (ii) FSP 115-2 and FSP124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and(iii) FSP 107 and APB 28-1, Interim Disclosures about Fair Value ofFinancial Instruments, which will be effective for interim and annual periodsending after June 15, 2009. FSP 157-4 provides guidance on how todetermine the fair value of assets and liabilities under SFAS 157 in thecurrent economic environment and reemphasizes that the objective of a fairvalue measurement remains an exit price. If we were to conclude that there hasbeen a significant decrease in the volume and level of activity of the asset orliability in relation to normal market activities, quoted market values may notbe representative of fair value and we may conclude that a change in valuationtechnique or the use of multiple valuation techniques may be appropriate. FSP115-2 and FSP 124-2 modify the requirements for recognizingother-than-temporarily impaired debt securities and revise the existingimpairment model for such securities, by modifying the current intent andability indicator in determining whether a debt security isother-than-temporarily impaired. FSP 107 and APB 28-1 enhance the disclosure ofinstruments under the scope of SFAS 157 for both interim and annual periods. This statement did not have a material impact on ourconsolidated financial statements.

 

In April 2009, the FASB issued FASB Staff PositionNo. SFAS 107-1 and APB No. 28-1, *Interim Disclosures about FairValue of Financial Instruments*, which requires quarterly disclosure ofinformation about the fair value of financial instruments within the scope ofSFAS 107, *Disclosures about Fair Value of Financial Instruments*. FSP FAS 107-1 and APB 28-1 has an effective date requiring adoption by thesecond quarter of 2009 with early adoption permitted. We adopted the provisionsof FSP FAS 107-1 and APB 28-1 in the second quarter. Thisstatement did not have a material impact on our consolidated financialstatements.

 

In May 2009, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 165, “SubsequentEvents” (“SFAS No. 165”).  SFAS No. 165 establishesprinciples and standards related to the accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued.  SFAS No. 165 requires an entity to recognize, in thefinancial statements, subsequent events that provide additional informationregarding conditions that existed at the balance sheet date.  In accordancewith this standard, which is effective for the quarter ended June 30, 2009,management has evaluated subsequent events for accounting and disclosurethrough the date of filing this quarterly report on Form 10-Q, which is August10,2009.

 

14

 

 

 

 

 

 

In June 2009, the FASB issued SFAS 167, *Amendmentsto FASB Interpretation No. 46(R),* which amends FASB InterpretationNo. 46(revised December 2003) to address the elimination of theconcept of a qualifying special purpose entity. SFAS 167 also replaces thequantitative-based risks and rewards calculation for determining whichenterprise has a controlling financial interest in a variable interest entitywith an approach focused on identifying which enterprise has the power todirect the activities of a variable interest entity and the obligation toabsorb losses of the entity or the right to receive benefits from the entity.Additionally, SFAS 167 provides more timely and useful information about anenterprise’s involvement with a variable interest entity. SFAS 167 will becomeeffective in the first quarter of 2010. We are currently evaluating the impactof this standard on our Consolidated Financial Statements.

 

In June 2009, the FASB issued SFAS 168, *The FASBAccounting Standards Codification and the Hierarchy of Generally Accepted AccountingPrinciples, a replacement of FASB Statement No. 162*.  U.S. GAAP will nolonger be issued in the form of an “accounting standard,” but rather as anupdate to the applicable “topic” or “subtopic” within the codification. Assuch, accounting guidance will be classified as either “authoritative” or“nonauthoritative” based on its inclusion or exclusion from the codification. The codification will be the single source of authoritative U.S. accounting and reporting standards, except for rules and interpretive releases of the SEC underauthority of federal securities laws, which are sources of authoritative GAAPfor SEC registrants.  The codification of U.S. GAAP will be effective forinterim or annual periods ending after September 15, 2009.  We do not expect this statement to have a materialimpact on our consolidated financial statements.

 

 

**Item 2.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

The following tables set forth, forthe periods indicated, certain financial data:

 

 

**Three Months Ended**

 

**Six Months Ended**

** **

**June 30,**

 

**June 30,**

 

**As Percentages of Net Sales**

**2009**

 

**2008**

 

**2009**

 

 

**2008**

 

North American

 

 

 

 

 

 

 

 

 

    Industrial 

40.7

%

47.6

%

39.9

%

 

47.2

%

    Agricultural 

17.0

%

21.5

%

19.3

%

 

22.8

%

European 

42.3

%

30.9

%

40.8

%

 

30.0

%

    Total sales, net 

100.0

%

100.0

%

100.0

%

 

100.0

%

 

 

**Three Months Ended**

 

**Six Months Ended**

 

** **

**June 30,**

 

**June 30,**

 

**Cost  Trends and Profit Margin,**

** as Percentages  of Net Sales**

** **

**2009**

 

** **

**2008**

 

** **

**2009**

 

** **

**2008**

 

 

 

 

 

 

 

 

 

 

Gross profit 

21.5

%

20.0

%

20.6

%

19.4

%

Income from operations 

4.8

%

6.2

%

3.8

%

5.2

%

Income before income taxes 

3.8

%

5.6

%

3.0

%

4.4

%

Net income 

2.6

%

3.7

%

2.0

%

2.9

%

** **

**Overview**

** **

*Thisreport contains forward-looking statements that are based on Alamo Group’scurrent expectations.  Actual results in future periods may differ materiallyfrom those expressed or implied because of a number of risks and uncertaintieswhich are discussed below and in the Forward-Looking Information section.*

 

15

 

 

 

 

 

 

            Duringthe first six months of 2009, the Company’s net income was down due to thegeneral weakness in the worldwide economy.  The acquisition of Rivard continuedto be accretive to the Company in sales and net income during both the secondquarter and the first half of the year.  Sales in the Industrial Division weredown 34% during the first six months of 2009 due to budget shortfalls ofgovernmental entities and related contractors.  Higher dollar items such as theexcavator and sweeper products were particularly affected.  The AgriculturalDivision also saw a 34% decrease as both dealers and end users were reluctantto make commitments due to the uncertainty in the economy.  Excluding theacquisition of Rivard, sales in local currency for the European Division wereup 3% for the first half of 2009 primarily due to export sales outside of itsprincipal markets and aggressive marketing initiatives.  

 

            TheCompany remains concerned that our markets for the remainder of 2009 couldcontinue to be negatively affected by a variety of factors such as the downturnin the overall economy; constrained credit availability; increase ingovernmental regulations, changes in farm incomes due to commodity prices orgovernmental aid programs; adverse situations that could affect our customers suchas animal disease epidemics; weather conditions such as droughts and floods;budget constraints or revenue shortfalls in governmental entities to which theCompany sells its products and changes in our customer’s buying habits due tolack of confidence in the economic outlook.

 

**Results of Operations**

*Three Months Ended June 30, 2009 vs. Three Months Ended June30, 2008*

 

Net sales for the second quarter of 2009 were $113,243,000,a decrease of $38,917,000, or 25.6% compared to $152,160,000 for the secondquarter of 2008.  The decrease was primarily attributable to the decline in theeconomy which continued to affect the markets which the Company serves. 

 

Net North American Industrial sales decreased duringthe second quarter by $26,414,000 or 36.5% to $46,038,000 for 2009 compared to$72,452,000 during the same period in 2008. The decrease came primarily fromlower sales of excavators, sweepers and mowing equipment to governmentalentities and related contractors.  Sales to cities and counties were steadiercompared to 2008.

 

Net North American Agricultural sales were$19,274,000 in 2009 compared to $32,768,000 for the same period in 2008, adecrease of $13,494,000 or 41.2%.  The decrease was mainly due to continuedsoft market conditions in the agricultural market as dealers and end users werereluctant to buy at historical levels due to market uncertainty and tightercredit.

 

Net European Sales for the second quarter of 2009were $47,931,000, an increase of $991,000 or 2.1% compared to $46,940,000during the second quarter of 2008.  The increase was primarily from theacquisition of *Rivard* which was partially offset by changes in theexchange rates.

 

Gross profitfor the second quarter of 2009 was $24,329,000 (21.5% of net sales) compared to$30,504,000 (20.0% of net sales) during the same period in 2008, a decrease of$6,175,000.  The increase in gross margin percentage was a result of favorablepricing of raw materials and purchased components, plus cost savingsinitiatives despite the affects of lower sales volume.
 
Selling,general and administrative expense (“SG&A”) was $18,945,000 (16.7% of netsales) during the second quarter of 2009 compared to $21,104,000 (13.9% of netsales) during the same period of 2008, a decrease of $2,159,000.  The Companycontinued to adjust its workforce during the quarter with reductions inheadcounts along with lower commissions due to reduced sales volumes.  

 

            Interest expensewas $1,147,000 for the second quarter of 2009 compared to $1,889,000 during thesame period in 2008, a decrease of $742,000.  The decrease was from reducedborrowings and lower interest rates in 2009 compared to 2008.

 

            Other income(expense), net was $49,000 of expense during the second quarter of 2009compared to $408,000 of income in the second quarter of 2008.  The amount inthe second quarters of 2009 and 2008 are all from changes in exchange rates.  

 

            Provision forincome taxes was $1,358,000 (31.2%) in the second quarter of 2009 compared to$2,883,000 (34.1%) during the same period in 2008.

 

16

 

 

 

 

 

 
                        
            The Company’s netincome after tax was $2,992,000 or $.30 per share on a diluted basis for thesecond quarter of 2009 compared to $5,565,000 or $.56 per share on a dilutedbasis for the second quarter of 2008.  The decrease of $2,573,000 resulted fromthe factors described above.

 

 

*Six Months Ended June 30, 2009 vs. Six Months Ended June 30,2008*

 

Net sales for the first six months of 2009 were$223,386,000, a decrease of $62,555,000 or 21.9% compared to $285,941,000 forthe first six months of 2008.  The decrease was primarily from the continuedweakness in the worldwide economy which has continued since the fourth quarterof 2008.

 

Net North American Industrial sales decreased duringthe first six months by $45,873,000 or 34.0% to $89,190,000 for 2009 comparedto $135,063,000 during the same period in 2008.  The decrease was due fromlower sales in the excavator, vacuum truck, sweepers and mowing equipment asgovernmental authorities, particularly at the state level, continue to be affectedby budget shortfalls.  

 

Net North American Agricultural sales were$43,105,000 in 2009 compared to $65,271,000 for the same period in 2008, adecrease of $22,166,000 or 34.0%.  The decrease was mainly due to dealerreluctance to stock farm equipment at historical levels as a result of theslowdown in the agricultural sector and concerns about the overall economy.

 

Net European sales for the first six months of 2009were $91,091,000, an increase of $5,484,000 or 6.4% compared to $85,607,000during the same period of 2008.  The increase was mainly from the *Rivard*acquisition and export sales outside principal markets in Western Europe. Thiswas partially offset by changes in the exchange rates.

 

Gross profitfor the first six months of 2009 was $46,056,000 (20.6% of net sales) comparedto $55,485,000 (19.4% of net sales) during the same period in 2008, a decreaseof $9,429,000.  The decrease was mainly from reduced sales during the firsthalf of 2009, which was offset by the Rivard acquisition.  Gross marginpercentages improved over 2008 as a result of continued improvements fromefficiency initiatives in our product lines, along with favorable pricing inboth raw material and purchased components.

 

Selling,general and administrative expenses (“SG&A”) were $37,495,000 (16.8% of netsales) during the first six months of 2009 compared to $40,723,000 (14.2% ofnet sales) during the same period of 2008, a decrease of $3,228,000.  Thedecrease in SG&A for the first six months of 2009 was due to reductions inworkforce, savings in audit fees and insurance premiums, reduced commissions onlower sales volumes along with other cost savings initiatives.

 

            Interest expensewas $2,243,000 for the first six months of 2009 compared to $3,724,000 duringthe same period in 2008, a decrease of $1,481,000.  The decrease was due toreduced borrowings and lower interest rates in the first half of 2009.

 

            Other income(expense), net was $4,000 of expense during the first six months of 2009compared to $659,000 of income in the first six months of 2008.  The expense in2009 and the income in 2008 were entirely from changes in exchange rates. 

 

            Provision forincome taxes was $2,101,000 (31.7%) in the first six months of 2009 compared to$4,239,000 (33.5%) during the same period in 2008.     
                        
            The Company’s netincome after tax was $4,535,000 or $0.45 per share on a diluted basis for thefirst six months of 2009 compared to $8,397,000 or $0.84 per share on a dilutedbasis for the first six months of 2008.  The decrease of $3,862,000 resultedfrom the factors described above.

 

**Liquidity and Capital Resources**

17

 

 

 

 

 

 

 

In addition to normal operatingexpenses, the Company has ongoing cash requirements which are necessary tooperate the Company’s business, including inventory purchases and capitalexpenditures.  The Company’s inventory and accounts payable levels typicallybuild in the first half of the year and in the fourth quarter in anticipationof the spring and fall selling seasons.  Accounts receivable historically buildin the first and fourth quarters of each year as a result of fall preseasonsales programs and out of season sales.  These sales level the Company’sproduction during the off season. 

 

As of June 30, 2009, the Company had working capitalof $181,728,000 which represents an increase of $1,387,000 from working capitalof $180,341,000 as of December 31, 2008.  The increase in working capital wasprimarily from reductions of current liabilities, mainly trade payables, as theCompany reduced purchases for both inventory and expenses compared to 2008levels. 

 

Capital expenditures were $1,852,000 for the firstsix months of 2009, compared to $3,594,000 during the first six months of2008.  Capital expenditures for 2009 are expected to be below 2008 levels.  The Company expects to fund expenditures from operating cash flows or throughits revolving credit facility, described below.

 

The Company was authorized by its Board of Directorsin 1997 to repurchase up to 1,000,000 shares of the Company’s common stock tobe funded through working capital and credit facility borrowings.  There wereno shares purchased in 2008 or the first half of 2009.  The authorization torepurchase up to 1,000,000 shares remains available less 42,600 sharespreviously repurchased.
 
      Net cash use by financingactivities was $9,276,000 during the six month period ending June 30, 2009,compared to net cash provided of $25,160,000 for the same period in 2008.  Thedecrease in financing activities in 2009 was from paydowns on the bank creditfacility due to cash provided by operating activities.

 

      On August 25, 2004, theCompany entered into a five-year $70 million Amended and Restated RevolvingCredit Agreement with its lenders, Bank of America, JPMorgan Chase Bank, andGuaranty Bank. This contractually committed, unsecured facility allows theCompany to borrow and repay amounts drawn at floating or fixed interest ratesbased upon Prime or LIBOR rates. Proceeds may be used for general corporatepurposes or, subject to certain limitations, acquisitions. The loan agreementcontains among other things the following financial covenants:  Minimum FixedCharge Coverage Ratios, Minimum Consolidated Tangible Net Worth, ConsolidatedFunded Debt to EBITDA Ratio and Minimum Asset Coverage Ratio, along withlimitations on dividends, other indebtedness, liens, investments and capitalexpenditures. 

 

      On February 3, 2006, theCompany amended and restated the credit agreement to increase the Company’sexisting credit facility from $70 million to $125 million. Pursuant to theterms of the Amended and Restated Revolving Credit Agreement, the Company hasthe ability to request an increase in commitments by $25 million. In addition,the existing credit facility was modified in other respects, including reducingthe asset coverage ratio and lowering the interest margins.

 

      On March 30, 2006 the Company entered into the Fourth Amendment ofthe Amended and Restated Revolving Credit Agreement, dated March 30, 2006 (the“Amended and Restated Revolving Credit Agreement”), between the Company andBank of America, N.A., JPMorgan Chase Bank and Guaranty Bank, as its lenders.Pursuant to the terms of the Amended and Restated Revolving Credit Agreement,the Company added *Gradall* Industries, Inc., formerly Alamo Group (OH)Inc., and N.P. Real Estate Inc. as members of the Obligated Group. TheAmendment also allows for capital expenditures not to exceed $14 million forthe fiscal year ending 2006 and $10 million in the aggregate during each fiscalyear thereafter.

 

18

 

 

 

 

 

 

      OnMay 7, 2007, the Company entered into the Fifth Amended and Restated RevolvingCredit Agreement with Bank of America, N.A., JPMorgan Chase Bank, Guaranty Bankand Rabobank, as its lenders. The Amended and Restated Revolving CreditAgreement provides for a $125 million unsecured revolving line of credit forfive years with the ability to expand the facility to $175 million, subject tobank approval. In addition to the extended term of the loan to 2012, othermajor changes were improvements in the leverage ratio, minimum asset coverageratio and increase in annual allowable capital expenditures up to $17.5million. The banks agreed to eliminate the fixed charge coverage ratio andminimum net worth requirement along with a reduction in the applicable interestrate margin. The applicable interest margin fluctuates quarterly either up ordown based upon the Company’s leverage ratio.

 

      OnOctober 14, 2008, the Company entered into the Sixth Amendment and Waiver underthe Amended and Restated Revolving Credit Agreement.  The purpose of theamendment and waiver was to clarify company names within the obligated groupafter merging or dissolving some subsidiaries, to define operating cash flowand defining quarterly operating cash flow for *Rivard* through March 31,2009.  Beginning June 30, 2009, *Rivard*’s actual operating cash flow willbe used in the calculation of consolidated operating cash flow.

 

      OnMay 13, 2008, Alamo Group Europe Limited entered into a £5.5 million overdraftfacility with Lloyd’s TSB Bank plc.  The facility expires on October 31, 2008and outstandings bear interest at Lloyd’s Base Rate plus 1.1% per annum.  Thefacility is unsecured but guaranteed by the U.K. subsidiaries of Alamo GroupEurope Limited.  As of June 30, 2009, there was no outstanding balance borrowedagainst the U.K. overdraft facility.

 

As of June 30, 2009, there was $87,000,000 borrowedunder the Revolving Credit Facility.  At June 30, 2009, $900,000 of therevolver capacity was committed to irrevocable standby letters of credit issuedin the ordinary course of business as required by vendors’ contracts resultingin approximately $ 21,000,000 in available borrowings.

 

      Thereare additional lines of credit, for the Company’s French operations in theamount of 9,300,000 Euros, which includes the *Rivard* credit facilities,for our Canadian operation in the amount of 3,500,000 Canadian dollars, and forour Australian operation in the amount of 800,000 Australian dollars.  As ofJune 30, 2009, 1,442,000 Euros were borrowed against the French line of credit,1,573,000 Canadian dollars were outstanding on the Canadian line of credit and100,000 Australian dollars were outstanding under its facility.  The Canadianand Australian revolving credit facilities are guaranteed by the Company. 

 

As of June 30, 2009, theCompany was in compliance with the terms and conditions of its creditfacilities.

 

      Management believes the bank credit facilities and the Company’sability to internally generate funds from operations should be sufficient tomeet the Company’s cash requirements for the foreseeable future.  However, thechallenges affecting the banking industry and credit markets in general canpotentially cause changes to credit availability which creates a level ofuncertainty.

 

**Critical Accounting Estimates**

Management’s Discussion and Analysisof Financial Condition and Results of Operations are based upon ourConsolidated Financial Statements, which have been prepared in accordance withGAAP.  The preparation of these financial statements requires management tomake estimates and assumptions that affect the reported amounts of assets,liabilities, revenue and expenses, and related disclosure of contingent assetsand liabilities.  Management bases its estimates on historical experience andon various other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources.  Actual results may differ from these estimates underdifferent assumptions or conditions.

 

**Critical Accounting Policies**

An accounting policy is deemed to becritical if it requires an accounting estimate to be made based on assumptionsabout matters that are highly uncertain at the time the estimate is made, andif different estimates that reasonably could have been used, or changes in theaccounting estimates that are reasonably likely to occur periodically, couldmaterially impact the financial statements.  Management believes the followingcritical accounting policies reflect its more significant estimates andassumptions used in the preparation of the Consolidated Financial Statements. For further information on the critical accounting policies, see Note 1 of ourNotes to Consolidate Financial Statements.

 

19

 

 

 

 

 

 

 

***Allowancefor Doubtful Accounts***

 

The Company evaluates thecollectibility of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meetits financial obligations, it records a specific reserve to reduce the amountsrecorded to what it believes will be collected.  For all other customers, itrecognizes reserves for bad debt based on historical experience of bad debts asa percent of revenues for each business unit, adjusted for relativeimprovements or deteriorations in the agings and changes in current economicconditions.

 

The Company evaluates all agedreceivables that are over 60 days old and reserves specifically on a 90-daybasis.  The Company’s U.S. operations have Uniform Commercial Code (“UCC”)filings on practically all wholegoods each dealer purchases.  This allows theCompany in times of a difficult economy when the customer is unable to pay orhas filed for bankruptcy (usually Chapter 11), to repossess the customer’sinventory.  This also allows Alamo Group to maintain a reserve over its costwhich usually represents the margin on the original sales price.

 

      Thebad debt reserve balance was $2,393,000 at June 30, 2009 and $2,430,000 atDecember 31, 2008.  

 

***SalesDiscounts***

* *

      At June30, 2009 the Company had $7,751,000 in reserves for sales discounts compared to$6,849,000 at December 31, 2008 on products shipped to our customers undervarious promotional programs.  The increase was due primarily from additionaldiscounts reserved on the Company’s agricultural**products during thepre-season, which runs from September to December of each year and orders areshipped through the first quarter of 2009.  The Company reviews the reservequarterly based on analysis made on each program outstanding at the time. 

 

      TheCompany bases its reserves on historical data relating to discounts taken bythe customer under each program.  Historically between 85% and 95% of theCompany’s customers who qualify for each program, actually take the discountthat is available.

* *

***Inventories– Obsolescence and Slow Moving***

* *

The Company had $8,553,000 at June 30, 2009 and $8,978,000at December 31, 2008 in reserve to cover obsolescence and slow movinginventory.  The decrease in reserve for obsolescence was mainly due toinventory written off in the Company’s European operations.  The obsolescenceand slow moving policy states that the reserve is to be calculated on a basisof: 1) no inventory usage over a three year period and inventory with quantityon hand is deemed obsolete and reserved at 100 percent and 2) slow movinginventory with little usage requires a 100 percent reserve on items that have aquantity greater than a three year supply.  There are exceptions to theobsolete and slow moving classifications if approved by an officer of theCompany based on specific identification of an item or items that are deemed tobe either included or excluded from this classification. 

 

      In cases where there is no historical data, managementmakes a judgment based on a specific review of the inventory in question todetermine what reserves, if any are appropriate.  New products or parts aregenerally excluded from the reserve policy until a three year history has beenestablished.

 

The reserve is reviewed and if necessary, adjustments made,on a quarterly basis.  The Company relies on historical information to supportits reserve.  Once the inventory is written down, the Company does not adjustthe reserve balance until the inventory is sold.

*** ***

***Warranty***

* *

The Company’s warranty policy is generally to provide itscustomers warranty for up to one year on all equipment and 90 days for parts,though some products or components may have extended terms.

 

20

 

 

 

 

 

 

Warranty reserve, as a percent of sales, iscalculated by taking the current twelve months of expenses and prorating thatbased on twelve months of sales with a six month lag period.  The Company’shistorical experience is that a customer takes approximately ninety days to sixmonths from the time the unit is received and put into operation to file any warranty claim.  A warranty reserve is established for each different marketing group. Reserve balances are evaluatedon a quarterly basis and adjustments are made when required.  

 

The current warranty reserve balance was $5,069,000 at June30, 2009 and $5,409,000 at December 31, 2008.  The majority of the decreasecame from lower reserves in the Company’s U.S. Industrial Division.  TheCompany has a long-term liability for extended warranty policies sold tocustomers in the amount of $284,000 at June 30, 2009 and $331,000 at December31, 2008 with a life expectancy of 1 to 5 years. 

*** ***

***Product Liability***

At June 30, 2009 the Company hadaccrued $253,000 in reserves for product liability cases compared to $85,000 atDecember 31, 2008.  The Company accrues primarily on a case by case basis andadjusts the balance quarterly.

During most of 2008, the selfinsured retention (S.I.R.) for U.S. product liability coverage for rotarymowers was $150,000 while the S.I.R. for all other products was at $100,000 perclaim.  On September 30, 2008 the Company renewed its insurance coverage andthe S.I.R. for rotary mowers was reduced from $150,000 to $100,000.  The S.I.R.for all other products remained at $100,000.  The Company also carries productliability coverage in Europe, Canada and Australia which contain substantiallylower S.I.R.’s or deductibles.
***Goodwill***
      UnderStatement of Financial Accounting Standards No.142, Goodwill and OtherIntangible Assets, goodwill is no longer amortized;however, it must be tested for impairment at least annually. In the fourthquarter of each year, or when events and circumstances warrant such a review,the Company tests the goodwill of all of its reporting units for impairment.The goodwill impairment test is determined using a two-step process.  The firststep is to identify if a potential impairment exists by comparing the fairvalue of a reporting unit with its carrying amount, including goodwill (Step1).  If the fair value of a reporting unit exceeds its carrying value amount,goodwill of the reporting unit is not considered to have a potential impairmentand the second step is not necessary.  However, if the carrying amount of thereporting unit exceeds its fair value, the second step (Step 2) is performed todetermine if goodwill is impaired and to measure the amount of impairment lossto recognize, if any. Step 2 compares the implied fair value of goodwill withthe carrying amount of goodwill.  If the implied value of goodwill is less thanthe carrying amount of goodwill, then a charge is recorded to reduce goodwillto the implied goodwill. The implied goodwill is calculated based on ahypothetical purchase price allocation similar to the requirements of Statementof Financial Accounting Standards No.141R, Business Combinations, in that ittakes the implied fair value of the reporting unit and allocates such fairvalue to the fair value of the assets and liabilities of the reporting unit. 

                   

      TheCompany estimated the fair value of its reporting units using various valuationtechniques, with one technique being a discounted cash flow analysis. Thisanalysis requires the Company to make significant assumptions and estimatesabout the extent and timing of future cash flows, discount rates and growthrates. The cash flows are estimated over a significant future period of time,which makes those estimates and assumptions subject to an even higher degree ofuncertainty. The Company also utilizes market valuation models and otherfinancial ratios, which require the Company to make certain assumptions andestimates regarding the applicability of those models to its assets andbusinesses. The Company believes that the assumptions and estimates used todetermine the estimated fair values of each of its reporting units arereasonable. However, different assumptions could materially affect theestimated fair value. The Company recognized goodwill impairment of $5,010,000in the Agricultural segment in 2008.  No goodwill impairment was recorded in2007 or 2006.  As of June 30, 2009, the Company had $48,696,000 of goodwill,which represents 13% of total assets.

 

21

 

 

 

 

 

 

      Managementbelieves that the valuations arrived at are reasonable and consistent with whatother marketplace participants would currently use in valuing the Company’scomponents.  However, management cannot give any assurance that market valueswill not change in the future.  For example, if higher discount rates are demandedby the market increase, this could lead to a reduction under the incomeapproach. If the Company’s projections are not achieved in the future, thiscould lead management to reassess their assumptions and lead to a reductionunder the income approach.  If the current market price of the Company’s stockdecreases, this could cause the Company to reassess the reasonableness of thecontrol premium, which might cause management to assume a higher discount rateunder the income approach. If future similar transactions exhibit lowermultiples than those observed in the past, this could lead to a reduction underthe similar transactions approach.  The Company’s next regularly scheduledannual impairment test is scheduled for the year ending December 31, 2009,however if there are further triggering events, the Company may be required toperform additional testing at other dates.

 
**Forward-Looking Information**
 

      Part I of this Quarterly Report onForm 10‐Q and the “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” included in Part II of this QuarterlyReport contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934.  In addition, forward-lookingstatements may be made orally or in press releases, conferences, reports orotherwise, in the future by or on behalf of the Company.

      Statements that are not historical areforward-looking.  When used by or on behalf of the Company, the words“estimate,” “believe,” “intend” and similar expressions generally identifyforward-looking statements made by or on behalf of the Company.

      Forward-looking statements involve risks anduncertainties.  These uncertainties include factors that affect all businessesoperating in a global market, as well as matters specific to the Company andthe markets it serves.  Particular risks and uncertainties facing the Companyinclude changes in market conditions; increased competition; decreases in theprices of agricultural commodities, which could affect our customer’s incomelevels; budget constraints or income shortfalls which could affect thepurchases of our type of equipment by governmental customers; creditavailability for both the Company and its customers, adverse weather conditionssuch as droughts and floods which can affect buying patterns of the Company’scustomers and related contractors; the price and availability of critical rawmaterials, particularly steel and steel products; energy cost; increased costof new governmental regulations which effect corporations; the potentialeffects on the buying habits of our customers due to diseases such as mad cow;the Company’s ability to develop and manufacture new and existing productsprofitably; market acceptance of new and existing products; the Company’sability to maintain good relations with its employees; and the ability to hireand retain quality employees.

      In addition, the Company is subjectto risks and uncertainties facing the industry in general, including changes inbusiness and political conditions and the economy in general in both domesticand international markets; weather conditions affecting demand; slower growthin the Company’s markets; financial market changes including increases ininterest rates and fluctuations in foreign exchange rates; actions ofcompetitors; the inability of the Company’s suppliers, customers, creditors,public utility providers and financial service organizations to deliver orprovide their products or services to the Company; seasonal factors in theCompany’s industry; unforeseen litigation; government actions including budgetlevels, regulations and legislation, primarily relating to the environment,commerce, infrastructure spending, health and safety; and availability ofmaterials.

      TheCompany wishes to caution readers not to place undue reliance on anyforward-looking statements and to recognize that the statements are notpredictions of actual future results.  Actual results could differ materiallyfrom those anticipated in the forward-looking statements and from historicalresults, due to the risks and uncertainties described above, as well as othersnot now anticipated.  The foregoing statements are not exclusive and furtherinformation concerning the Company and its businesses, including factors thatcould potentially materially affect the Company’s financial results, may emerge from time to time.  It isnot possible for management to predict all risk factors or to assess the impactof such risk factors on the Company’s businesses.

 

 

 

 

 

22

 

 

 

 

 

 

**Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risks**

 

The Company is exposed to various markets risks. Market risks are the potential losses arising from adverse changes in market prices and rates.  The Company does not enter into derivative or other financial instruments fortrading or speculative purposes.

** **

**Foreign Currency Risk**

* *

*International Sales*

 

A portion of the Company’s operations consists ofmanufacturing and sales activities in international jurisdictions. The Companyprimarily manufactures its products in the United States, the U.K., France, Canada and Australia.  The Company sells its products primarily within the marketswhere the products are produced, but certain of the Company’s sales from its U.K. operations are denominated in other European currencies.  As a result, the Company’sfinancials, specifically the value of its foreign assets, could be affected byfactors such as changes in foreign currency exchange rates or weak economicconditions in the other markets in which the subsidiaries of the Company distributetheir products.

To mitigate the short-term affect ofchanges in currency exchange rates on the Company’s functional currency-basedsales, the Company’s U.K. subsidiaries regularly hedge by entering into foreignexchange forward contracts to hedge approximately 80% of its future net foreigncurrency sales transactions over a period of six months.  As of June 30, 2009,the Company had $3,470,000 outstanding in forward exchange contracts related toaccounts receivables.  A 15% fluctuation in exchange rates for these currencieswould change the fair value by approximately $520,000.  However, since thesecontracts hedge foreign currency denominated transactions, any change in thefair value of the contracts should be offset by changes in the underlying valueof the transaction being hedged.

*Exposure to Exchange Rates*

  

The Company’s earnings are affectedby fluctuations in the value of the U.S. dollar as compared to foreigncurrencies, predominately in European countries, as a result of the sales ofits products in international markets.  Foreign currency options and forwardcontracts are used to hedge against the earnings effects of such fluctuations. At June 30, 2009, the result of a uniform 10% strengthening in the value of the dollar relative to the currenciesin which the Company’s sales are denominated would result in a decrease ingross profit of $2,476,000 for the period ending June 30, 2009.  Comparatively,the result of a uniform 10% strengthening in the value of the dollar relativeto the currencies in which the Company’s sales are denominated would haveresulted in a decrease in gross profit of approximately $2,359,000 for theperiod ended June 30, 2008.  This calculation assumes that each exchange ratewould change in the same direction relative to the U.S. dollar.  In addition tothe direct effects of changes in exchange rates, which are a changed dollarvalue 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 sensitivityanalysis of the effects of changes in foreign currency exchange rates does notfactor in a potential change in sales levels or local currency prices.  The translation adjustment during the second quarter of 2009 was a gain of $8,371,000.  On June 30, 2009, the British pound closed at .6078relative to 1.00 U.S. dollar, and the Euro closed at .7128 relative to 1.00U.S. dollar.  At December 31, 2008 the British pound closed at .6853 relativeto 1.00 U.S. dollar and the Euro closed at .7159 relative to 1.00 U.S. dollar. By comparison, on June 30, 2008, the British pound closed at .5020 relative to1.00 U.S. dollar, and the Euro closed at .6352 relative to 1.00 U.S. dollar. No assurance can be given as to future valuation of the British pound or Euroor how further movements in those or other currencies could affect futureearnings or the financial position of the Company.

 

23

 

 
**Interest Rate Risk**
 

 

 

 

The Company’s long-term debt bearsinterest at variable rates.  Accordingly, the Company’s net income is affectedby changes in interest rates.  Assuming the current level of borrowings atvariable rates and a two percentage point change in the 2009 average interestrate under these borrowings, the Company’s interest expense would have changedby approximately $870,000.  In the event of an adverse change in interestrates, management could take actions to mitigate its exposure.  However, due tothe uncertainty of the actions that would be taken and their possible effectsthis analysis assumes no such actions.  Further this analysis does not considerthe effects of the change in the level of overall economic activity that couldexist in such an environment.

 

**Item 4. Controls and Procedures**

 

      **Disclosure Controls and Procedures**.  An evaluation was carried out underthe supervision and with the participation of Alamo’s management, including ourPresident and Chief Executive Officer, Executive Vice President and ChiefFinancial Officer (Principal Financial Officer) and Vice-President and CorporateController, (Principal Accounting Officer), of the effectiveness of the designand operation of our disclosure controls and procedures (as defined in Rule13A-15(e) under the Securities Exchange Act of 1933).  Based upon theevaluation, the President and Chief Executive Officer, Executive Vice Presidentand Chief Financial Officer (Principal Financial Officer) and Vice-President,Corporate Controller, (Principal Accounting Officer) concluded that theCompany’s design and operation of these disclosure controls and procedures wereeffective at the end of the period covered by this report.

 

**     **

**PART II.     OTHER INFORMATION**

**Item 1. - None**

** **

**Item 2 - None**

** **

**Item 3 - None**

** **

**Item 4 - None**

 

**Item 5. OtherInformation**

 

(a)     Reports on Form 8-K

 

August 5, 2009 – Press Release announcing second quarterfiscal 2009 earnings

 

(b)     Other Information

 

None

** **

**Item 6. Exhibits**

 

**Item 6. Exhibits**

 

(a)   Exhibits

31.1 

 

Certification  by Ronald A. Robinson under Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed  Herewith 

31.2 

 

Certification  by Dan E. Malone under Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed  Herewith 

31.3 

 

Certification  by Richard J. Wehrle under Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed  Herewith

32.1 

—

Certification  by Ronald A. Robinson under Section 906 of the  Sarbanes-Oxley Act of 2002

 

Filed  Herewith

32.2 

—

Certification  by Dan E. Malone under Section 906 of the  Sarbanes-Oxley Act of 2002

 

Filed  Herewith

32.3 

—

Certification  by Richard J. Wehrle under Section 906 of the  Sarbanes-Oxley Act of 2002

 

Filed  Herewith

 

24

 

 

 

 

 

 

 
Alamo Group Inc. and Subsidiaries
** **

** **

SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 

Alamo Group Inc.

 

(Registrant)

 

 

 

 

 

 

 

/s/Ronald A. Robinson

 

Ronald A. Robinson

 

President & Chief Executive Officer

 

 

 

 

/s/Dan E.  Malone

 

Dan E.  Malone

 

Executive  Vice President & Chief Financial Officer

 

(Principal  Financial Officer)

 

 

 

 

 

/s/Richard J. Wehrle

 

Richard J. Wehrle

 

Vice President & Corporate Controller

 

(Principal Accounting Officer)

 

25

 
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