----

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 MARCH 31, 2010

 

OR

 

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

ACT OF 1934

 

FORTHE 

TRANSITION  PERIOD FROM ____ TO ____

 

**COMMISSION  FILE NUMBER  0-21220**

 

 

**ALAMO GROUP INC.**

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS  CHARTER)

 

| DELAWARE

(State or other  jurisdiction of

incorporation or  organization) |   | 74-1621248

(I.R.S. Employer

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 REQUIRED TO BE  FILED BY SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DURING THE  PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS  REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING  REQUIREMENT FOR THE 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 APRIL 29,  2010, 11,748,729 SHARES OF COMMON STOCK, $.10 PAR  VALUE, OF THE REGISTRANT WERE OUTSTANDING.

** **

 

 

 

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** **

## Alamo Group Inc. andSubsidiaries

** **

INDEX

 

**       **

 

                                                                                                                                                                              
|                 |                                                                                                                           |       |
|----------------------|--------------------------------------------------------------------------------------------------------------------------------|------------|
|                 |                                                                                                                           |       |
|                 |                                                                                                                           |       |
| PART  I.   | FINANCIAL  INFORMATION

                                                                                                  | PAGE       |
| Item  1.             | Interim  Condensed Consolidated Financial Statements  (Unaudited)

                                                  |       |
|                 | Interim  Condensed Consolidated Balance Sheets 

  March  31, 2010 and December 31, 2009 (Audited)                        | 3          |
|                 |  

Interim  Condensed Consolidated Statements of Income

  Three  months ended March 31, 2010 and March 31, 2009     |  

4  |
|                 |  

Interim  Condensed Consolidated Statements of Cash Flows

  Three  months ended March 31, 2010 and March 31, 2009 |  

5  |
|                 |  

Notes  to Interim Condensed Consolidated Financial Statements                                                          |  

6  |
|                 |                                                                                                                           |       |
| Item  2              | Management's  Discussion and Analysis of Financial                                                                             | 16         |
|                 |   Condition  and Results of Operations                                                                                    |       |
|  

Item  3      |  

Quantitative  and Qualitative Disclosures About Market Risks                                                           |  

23 |
|                 |                                                                                                                           |       |
| Item  4              | Controls  and Procedures                                                                                                       | 24         |

 

 

 
| PART  II.  | OTHER  INFORMATION                |
|-----------------|-----------------------------------|
|            |                              |
| Item  1.   | None                              |
| Item  2.   | None                              |
| Item  3.        | None                              |
| Item  4.   | None                              |
| Item  5.   | Other  Information                |
| Item  6         | Exhibits  and Reports on Form 8-K |

 
| SIGNATURES |
|------------|

 

 

 

 

 

 

 

 

 

                                                                                                 

| 2 |
|---|

 

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## Alamo Group Inc. andSubsidiaries

**Interim ConsolidatedBalance Sheets**

 
|  

(in thousands, except share amounts)                                                                                                                                                                                                          |   |   | **March 31,**

**2010**

**(Unaudited)** |   |         | **December 31, 	2009**

**(Audited)** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------------|---------------------------------------|
| **ASSETS**                                                                                                                                                                                                                                            |   |   |                                     |   |         |                                  |
|     Current assets:                                                                                                                                                                                                                    |   |   |                                     |   |         |                                  |
|       Cash and cash equivalents                                                                                                                                                                                              |   | $      | 21,027                              |   | $            | 17,774                           |
|       Accounts receivable, net                                                                                                                                                                                               |   |   | 135,295                             |   |         | 111,745                          |
|       Inventories                                                                                                                                                                                                            |   |   | 118,860                             |   |         | 124,322                          |
|       Deferred income taxes                                                                                                                                                                                                  |   |   | 3,105                               |   |         | 3,118                            |
|       Prepaid expenses                                                                                                                                                                                                       |   |   | 4,551                               |   |         | 3,579                            |
|       Income Tax Receivable                                                                                                                                                                                                  |   |   | 1,195                               |   |         | 1,195                            |
|           Total current assets                                                                                                                                                                           |   |   | 284,033                             |   |         | 261,733                          |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
|     Property, plant and equipment                                                                                                                                                                                                      |   |   | 140,433                             |   |         | 142,076                          |
|           Less:  Accumulated depreciation                                                                                                                                                           |   |   | (73,871)                                 |   |         | (72,215)                              |
|                                                                                                                                                                                                                                                  |   |   | 66,562                              |   |         | 69,861                           |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
|     Goodwill                                                                                                                                                                                                                           |   |   | 34,341                              |   |         | 35,207                           |
|     Intangible Assets                                                                                                                                                                                                                  |   |   | 5,783                               |   |         | 5,803                            |
|     Deferred income taxes                                                                                                                                                                                                              |   |   | 4,158                               |   |         | 4,158                            |
|     Other assets                                                                                                                                                                                                                       |   |   | 1,093                               |   |         | 1,201                            |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
|             Total assets                                                                                                                                                                       |   | $      | 395,970                             |   | $            | 377,963                          |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                         |   |   |                                     |   |         |                                  |
|     Current liabilities:                                                                                                                                                                                                               |   |   |                                     |   |         |                                  |
|       Trade accounts payable                                                                                                                                                                                                 |   | $      | 44,402                              |   | $            | 36,046                           |
|       Income taxes payable                                                                                                                                                                                                   |   |   | 2,566                               |   |         | 2,688                            |
|       Accrued liabilities                                                                                                                                                                                                    |   |   | 31,954                              |   |         | 32,013                           |
|       Current maturities of long-term debt                                                                                                                                                                                   |   |   | 5,434                               |   |         | 5,453                            |
|       Deferred income tax                                                                                                                                                                                                    |   |   | 3,164                               |   |         | 3,164                            |
|           Total current liabilities                                                                                                                                                                      |   |   | 87,520                              |   |         | 79,364                           |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
|       Long-term debt, net of current  maturities                                                                                                                                                                             |   |   | 56,845                              |   |         | 44,336                           |
|       Deferred pension liability                                                                                                                                                                                             |   |   | 7,506                               |   |         | 7,640                            |
|       Other long-term liabilities                                                                                                                                                                                            |   |   | 2,310                               |   |         | 3,665                            |
|       Deferred income taxes                                                                                                                                                                                                  |   |   | 7,646                               |   |         | 7,581                            |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
| Stockholders’ equity:                                                                                                                                                                                                                            |   |   |                                     |   |    |                                  |
|       Common stock, $.10 par value,  20,000,000 shares authorized;

      11,791,329  and 11,789,529 issued and outstanding at March 31, 2010        and December 31, 2009 |   |   |  

1,179                       |   |         |  

1,179                    |
|       Additional paid-in capital                                                                                                                                                                                             |   |   | 82,936                              |   |         | 82,721                           |
|       Treasury  stock, at cost; 42,600 shares at March 31, 2010 and 

         December 31, 2009                                                                                               |   |   |  

(426)                            |   |         |  

(426)                         |
|       Retained earnings                                                                                                                                                                                                      |   |   | 150,043                             |   |         | 146,756                          |
|       Accumulated other comprehensive  income, net                                                                                                                                                                           |   |   | 411                                 |   |         | 5,147                            |
|           Total  stockholders’ equity                                                                                                                                                               |   |   | 234,143                             |   |         | 235,377                          |
|                                                                                                                                                                                                                                                  |   |   |                                     |   |         |                                  |
|           Total liabilities and  stockholders’ equity                                                                                                                                               |   | $      | 395,970                             |   | $            | 377,963                          |
|                                                                                                                                                                                                                                                       |        |        |                                          |        |              |                                       |  |

                                                                       

See accompanyingnotes.

                                                                                           

| 3 |
|---|

 

----

 

 

 

 

 

**Alamo Group Inc. andSubsidiaries**

**Interim ConsolidatedStatements of Income**

**(Unaudited)**

 

|                                          |   | Three  Months Ended |
|-----------------------------------------------|--------|---------------------|
|                                          |   |                | **March 31,** |
| (in  thousands, except per share amounts)     |   |                | **2010** |   |   | **2009** |
| Net sales:                                    |   |                |   |   |   |   |
|     North American             |   |                |   |   |   |   |
|       Industrial     |   | $                   | 46,140  |   | $ | 43,152  |
|       Agricultural   |   |                | 40,299  |   |   | 23,831  |
|     European                   |   |                | 41,950  |   |   | 43,160  |
| Total net sales                               |   |                | 128,389  |   |   | 110,143  |
|                                          |   |                |   |   |   |   |
| Cost of sales                                 |   |                | 100,254  |   |   | 88,416  |
| Gross profit                                  |   |                | 28,135  |   |   | 21,727  |
|                                          |   |                |   |   |   |   |
| Selling,  general and administrative expense  |   |                | 21,668  |   |   | 18,550  |
|     Income from operations     |   |                | 6,467  |   |   | 3,177  |
|                                          |   |                |   |   |   |   |
| Interest expense                              |   |                | (1,250) |   |   | (1,096) |
| Interest income                               |   |                | 812  |   |   | 160  |
| Other income (expense), net                   |   |                | (10) |   |   | 45  |
|     Income before income taxes |   |                | 6,019  |   |   | 2,286  |
|                                          |   |                |   |   |   |   |
| Provision for income taxes                    |   |                | 2,026  |   |   | 743  |
|     Net Income                 |   | $                   | 3,993  |   | $ | 1,543  |
|                                          |   |                |   |   |   |   |
|                                          |   |                |   |   |   |   |
| Net income per common share:                  |   |                |   |   |   |   |
|     Basic                      |   | $                   | 0.34  |   | $ | 0.16  |
|     Diluted                    |   | $                   | 0.34  |   | $ | 0.15  |
| Average common shares:                        |   |                |   |   |   |   |
|     Basic                      |   |                | 11,747  |   |   | 9,939  |
|     Diluted                    |   |                | 11,833  |   |   | 9,963  |
|                                          |   |                |   |   |   |   |
| Dividends declared                            |   | $                   | 0.06  |   | $ | 0.06  |

 

 

See accompanyingnotes.

 

 

 

 

 

 

| 4 |
|---|

 

----

 

 

 

 

 

**Alamo Group Inc. andSubsidiaries**

**Interim ConsolidatedStatements of Cash Flows**

** (Unaudited)**

** **

** **

|                                                                                                                                      |   | **Three Months Ended** |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                                                      |   | **March 31,**          |
| (in  thousands)                                                                                                                           |   |                   | **2010** | ** ** | **2009** |
| **Operating  Activities**                                                                                                                 |   |                   |   |   |   |
| Net  income                                                                                                                               |   | $                      | 3,993  | $ | 1,543  |
| Adjustment  to reconcile net income to net cash

        used  by operating activities:                |   |                   |   |   |   |
|               Provision  for doubtful accounts                           |   |                   | 177  |   | 35  |
|               Depreciation                                               |   |                   | 2,664  |   | 2,028  |
|               Amortization  of intangibles                               |   |                   | 86  |   | 20  |
|               Amortization  of debt issuance                             |   |                   | 94  |   | –  |
|               Stock-based  compensation expense                          |   |                   | 189  |   | 111  |
|               Excess  tax benefits from stock-based payment arrangements |   |                   | (31) |   | (8) |
|               Provision  for deferred income tax benefit (expense)       |   |                   | 188  |   | 177  |
|               Loss  on sale of property, plant & equipment           |   |                   | 30 |   | (3) |
| Changes  in operating assets and liabilities:                                                                                             |   |                   |   |   |   |
|               Accounts  receivable                                       |   |                   | (26,050) |   | (10,541) |
|               Inventories                                                |   |                   | 4,200  |   | (485) |
|               Prepaid  expenses and other assets                         |   |                   | (1,273) |   | (370) |
|               Trade  accounts payable and accrued liabilities            |   |                   | 11,406  |   | (3,031) |
|               Income  taxes payable                                      |   |                   | (1,913) |   | (80) |
|               Other  long-term liabilities                               |   |                   | (365) |   | (105) |
| Net  cash used by operating activities                                                                                                    |   |                   | (6,605) |   | (10,709) |
|                                                                                                                                      |   |                   |   |   |   |
| **Investing  Activities**                                                                                                                 |   |                   |   |   |   |
| Acquisitions,  net of cash acquired                                                                                                       |   |                   | (431) |   | –  |
| Purchase  of property, plant and equipment                                                                                                |   |                   | (878) |   | (1,077) |
| Proceeds  from sale of property, plant and equipment                                                                                      |   |                   | 76  |   | 30  |
| Net  cash used by investing activities                                                                                                    |   |                   | (1,233) |   | (1,047) |
|                                                                                                                                      |   |                   |   |   |   |
| **Financing  Activities**                                                                                                                 |   |                   |   |   |   |
| Net  change in bank revolving credit facility                                                                                             |   |                   | 13,000  |   | 10,500  |
| Principal  payments on long-term debt and capital leases                                                                                  |   |                   | (908) |   | (809) |
| Proceeds  from issuance of long-term debt                                                                                                 |   |                   | 542  |   | 2,048  |
| Dividends  paid                                                                                                                           |   |                   | (705) |   | (595) |
| Proceeds  from sale of common stock                                                                                                       |   |                   | 26  |   | 378  |
| Excess  tax benefits from stock-based payment arrangements                                                                                |   |                   | 31  |   | 8  |
| Net  cash provided by financing activities                                                                                                |   |                   | 11,986  |   | 11,530  |
|                                                                                                                                      |   |                   |   |   |   |
| Effect  of exchange rate changes on cash                                                                                                  |   |                   | (895) |   | (71) |
| Net  change in cash and cash equivalents                                                                                                  |   |                   | 3,253  |   | (297) |
| Cash  and cash equivalents at beginning of the period                                                                                     |   |                   | 17,774  |   | 4,532  |
| Cash  and cash equivalents at end of the period                                                                                           |   | $                      | 21,027  | $ | 4,235  |
|                                                                                                                                      |   |                   |   |   |   |
| Cash  paid during the period for:                                                                                                         |   |                   |   |   |   |
|           Interest                                                                           |   | $                      | 1,121  | $ | 1,165  |
|           Income  taxes                                                                      |   | $                      | 2,178  | $ | 1,821  |
|                                                                                                                                           |        |                        |  |  |  |  |

See accompanyingnotes.

|  

 

 

5 |
|---------------------------|

 

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**Alamo Group Inc.  and Subsidiaries**

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

## March 31, 2010

 

**1. Basis of Financial Statement Presentation**

 

    The accompanying unaudited interimconsolidated financial statements of Alamo Group Inc. and its subsidiaries (the“Company”) have been prepared in accordance with U.S. generally acceptedaccounting principles (“GAAP”) for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulations S-X.  Accordingly, theydo not include all of the information and footnotes required by U.S. GAAP forcomplete financial 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, 2010.  The balance sheet at December 31, 2009, 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 consolidated financialstatements and footnotes thereto included in the Company’s annual report onForm 10-K for the year ended December 31, 2009.

 

In connection with the preparation ofthe consolidated financial statements and in accordance with FASB ASC Topic855, Subsequent Events, formerly Statement of Financial Standards No. (SFAS)165, Subsequent Events, the Company evaluated subsequent events after thebalance sheet date of March 31, 2010 through May 7, 2010 and have no subsequentevents to disclose.

 

**2.  Acquisitions**

 

On October 22, 2009 (“Closing Date”), theCompany acquired the majority of the assets and assumed certain liabilities of theBush Hog, LLC, a Delaware limited liability company (“*Bush Hog*”) locatedin Selma, Alabama.  The purchase included substantially all of the ongoingbusiness of *Bush Hog*, including the *Bush Hog* brand name and allrelated product names and trademarks (the “Acquisition”). The purchase priceconsideration was 1.7 million unregistered shares of Alamo Group common stockwhich represented approximately 14.5% of the outstanding stock of Alamo Group. The closing price on October 22, 2009 was $16.09 per share. 

The Acquisition hasbeen accounted for in accordance with ASC Topic 805, *Business Combinations*(“ASCTopic 805”).  Accordingly, the total purchase price has been allocated on aprovisional basis to assets acquired and net liabilities assumed in connectionwith the Acquisition based on their estimated fair values as of the completionof the Acquisition.  These allocations reflect various provisional estimatesthat were available at the time and are subject to change during the purchaseprice allocation period as valuations are finalized. 

The fair value of thenet assets acquired was approximately $53.1 million, which exceeds the preliminaryestimated purchase price of $25.4 million.  Accordingly, the Company recognizedthe excess of the fair value of the net assets over the purchase price ofapproximately $27.7 million as a gain on bargain purchase. The gain on bargainpurchase of $27.7 million was shownseparately within income from operations in the Consolidated Statements ofIncome in the third quarter of 2009. The recorded amounts are provisional andsubject to change. The Company continues to evaluate the purchase priceallocation, including the opening fair value of inventory, accounts receivable,property, plant & equipment, accrued liabilities and deferred taxes, whichmay require the Company to adjust the recorded gain. 

The Company believesthat it was able to acquire *Bush Hog* for less than the fair value of itsassets because of (i) the Company’s unique position as a market leader in thisindustry segment and (ii) the seller’s intent to exit its *Bush Hog*operations. *Bush Hog* was an unprofitable venture, and the sellerapproached the Company in an effort to sell *Bush Hog* and exit theagricultural equipment manufacturing business that no longer fit its strategy.With the seller's intent to exit the agricultural manufacturing businesssegment and the Company’s position as a market leader, the Company was able toagree on a favorable purchase price.

 

| 6 |
|---|

 

----

 

 

 

 

 

The primary reasonfor the *Bush Hog* acquisition was to help the Company further the goal ofbecoming the largest manufacturer of agricultural mowers in the world. Thisacquisition enabled the Company to expand its market presence, expand itsproduct offerings and enter new markets. 

The following tablesummarizes the provisional amounts recognized for assets acquired andliabilities assumed as of the Closing Date. A single estimate of fair valueresults from a complex series of judgments about future events anduncertainties and relies heavily on estimates and assumptions. The Company’sjudgments used to determine the estimated fair value assigned to each class ofassets acquired and liabilities assumed, as well as asset lives, can materiallyimpact the Company’s results of operations. Certain estimated values are notyet finalized and are subject to change, which could be significant. TheCompany will finalize the amounts recognized as information necessary tocomplete the analyses is obtained. The Company expects to finalize theseamounts as soon as possible but no later than one year from the acquisitiondate. The following are estimated fair value of assets acquired and liabilitiesassumed as of the Acquisition date (in thousands):

 

| Accounts  receivable                                              |   | $      | 25,571  |   |
|-------------------------------------------------------------------|--------|--------|--------------|--------|
| Inventory                                                         |   |   | 21,875  |   |
| Prepaid  expenses                   |   |   | 395     |   |
| Property,  plant & equipment                                  |   |   | 12,743  |   |
| Other  liabilities                                                |   |   | (9,357)      |   |
|       Net assets acquired                |   |   | 51,227  |   |
| Intangible asset                                                  |   |   |         |   |
|       *Bush Hog* trade name              |   |   | 1,900   |   |
|    Total assets acquired                                |   |   | 53,127  |   |
|                                                              |   |   |         |   |
|    Less: Fair value of 1.7 million  unregistered shares |   |   | 25,438  |   |
| .. Gain  on Bargain purchase                                      |   | $      | 27,689  |   |

 

 

In accordance withthe closing documents, the Company received a 50% undivided interest in theAccounts Receivable of *Bush Hog*, subject to any net working capitaladjustment.  The post closing net working capital adjustment was $3.8 millionwhich increased accounts receivable and the gain on bargain purchase. The Companywill collect payments on the acquired accounts receivable and remit 50% of thecollections to the seller less the $3.8 million. The *Bush Hog* accountsreceivable were recorded at 50% of the fair value, plus the working capitaladjustment.

As of the acquisition date, the fair value ofaccounts receivable was $25.6 million. The gross contractual amount receivablewas $34.6 million of which $9.0 million was not expected to be collected. 

The intangible asset relates to the appraisedvalue of the *Bush Hog* name at closing and has an indefinite life.

Under 805-10,acquisition related costs (i.e., advisory, legal, valuation and otherprofessional fees) are not included as a component of considerationtransferred, but are accounted for as expenses in the periods in which thecosts are incurred.  The Company incurred $828,000 of acquisition relatedcosts.  The Company will incur integration expenses during 2010 relating tomanufacturing process changes and computer conversion, but it is expected to beimmaterial.

In the period between the Closing Date andDecember 31, 2009, *Bush Hog* generated approximately $10.9 million of netrevenue and $1.5 million net loss. The Company has included the operatingresults of *Bush Hog* in its consolidated financial statements since theClosing Date.

| 7 |
|---|

 

----

 

 

 

 

 

     The unauditedpro forma statement of income of the Company assuming this transaction occurredat January 1, 2009 is as follows:

|                                      | **Three  Months Ended** |
|-------------------------------------------|-------------------------|
|                                      | **March 31**            |
| (In thousands,  except per share amounts) | **2010**                | ** ** | **2009** |
|                                      | ** **              |
| Net  Sales                                | $                       | 128,389  |   | $ | 127,309  |
| Net  Income                               | $                       | 3,993  |   | $ | (4,093) |
| Diluted  Earnings per Share               | $                       | 0.34  |   | $ | (0.41) |
|                                           |                         |  |  |  |  |  |  |

 

      The unaudited pro formafinancial information is presented for informational purposes only and is notintended to represent or be indicative of the consolidated results ofoperations of the Company that would have been reported had the acquisitionbeen completed as of the beginning of the periods presented, and should not betaken as being representative of the future consolidated results of operationsof the Company. 

** **

**3.  Accounts Receivable**

 

      Accounts Receivable is shown netof the allowance for doubtful accounts of $2,743,000 and $2,548,000 at March31, 2010 and December 31, 2009, respectively.

** **

**4.  Inventories**

 

      Inventories valued at LIFO cost represented60% and 57% of total inventory at March 31, 2010 and December 31, 2009,respectively.  The excess of current cost over LIFO valued inventories was $8,677,000at March 31, 2010 and  $9,106,000 at December 31, 2009.  Inventory obsolescencereserves were $8,728,000 at March 31, 2010 and $9,060,000 at December 31, 2009. The decrease in reserve for obsolescence was mainly due to inventory dispositionsin the Company’s U.S. and European operations.  Net inventories consist of thefollowing:

 

|  

(in thousands) |   |   | **March 31,**

**2010** |   | **December 31,**

**2009** |
|------------------------|--------|--------|-------------------------|--------|----------------------------|
|                   |   |   |                    |   |                       |   |
| Finished  goods        |   | $      | 95,285                  |   | $                          | 102,681 |
| Work  in process       |   |   | 13,635                  |   |                       | 10,611 |
| Raw  materials         |   |   | 9,940                   |   |                       | 11,030 |
|                   |   | $      | 118,860                 |   | $                          | 124,322 |
|                        |        |        |                         |        |                            |  |  |

 

      An actualvaluation of inventory under the LIFO method is made at the end of each year basedon the inventory levels and costs at that time.  The Company reviews LIFO ateach quarter end based to some extent on management's estimates, the impact tothe Interim Consolidated Statement of Income was a decrease to cost of sales of$429,000 at March 31, 2009. 

** 5. Derivatives and Hedging**

** **Most of the Company’s outstandingdebt is advanced from a revolving credit facility that accrues interest at acontractual margin over current market interest rates.  The Company’sfinancing costs associated with this credit facility can materially change withmarket increases and decreases of short-term borrowing rates, specificallyLondon Inter Bank Operating Rate (“LIBOR”).  During the second quarter of2007, the Company entered into two interest rate swap agreements with JPMorganthat hedge future cash flows related to its outstanding debt obligations. One swap had a three-year term and fixed the LIBOR base rate at 4.910% covering$20 million of this debt and expired on March 31, 2010.  The other has afour-year term and fixed the LIBOR base rate at 4.935% covering an additional$20 million of these variable rate borrowings and expires on March 31, 2011. On November 5, 2009, JPMorgan transferred the swap transactions to Bank ofAmerica.  The terms of the hedging instrument remain the same.  As ofMarch 31, 2010, the Company had $54 million outstanding under its revolvingcredit facility and the one interest rate swap contracts designated as cash flowhedges which are effectively hedging $20 million of these borrowings fromchanges in underlying LIBOR base rates.  The fair market value of thesehedges, which is the amount that would have been paid or received by the Companyhad it prematurely terminated these swap contracts at March 31, 2010, LIBOR wasan $890,000 liability.  This is included in Accrued liabilities with anoffset in Accumulated other comprehensive income, net of taxes.  At March31, 2010, ineffectiveness related to the interest rate swap agreements was notmaterial.

| 8 |
|---|

 

----

 

 

**6. Fair Value Measurements**

 

      The Company adopted ASC Subtopic820-10, (formerly SFAS 157), “Fair Value Measurements and Disclosures, asamended” as of January 1, 2008.  FSAS 157 defines fair value as the exchangeprice that would be received for an asset or paid to transfer a liability (anexit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants.  There is athree-tier fair value hierarchy based upon the observability of inputs used invaluation techniques.  Observable inputs (highest level) reflect market dataobtained from independent sources, while unobservable inputs (lowest level)reflect internally developed market assumptions.  Fair value measurements areclassified under the following hierarchy:

 

**Level1**– Quoted prices foridentical instruments in active markets.

**Level 2** – Quoted prices for similarinstruments in active markets; quoted prices for identical or similarinstruments in markets that are not active; and model-derived valuations inwhich all significant inputs or significant value-drivers are observable inactive markets.

**Level 3** – Model-derived valuations in whichone or more significant inputs or significant value-drivers are unobservable

 

When available, the Company usesquoted market prices to determine fair value, and the Company classifies suchmeasurements within Level 1.  In some cases where market prices are notavailable, the Company makes use of observable market based inputs to calculatefair value, in which case the measurements are classified with Level 2.  Ifquoted or observable market prices are not available, fair value is based uponinternally developed models that use, where possible, current market-basedparameters such as interest rates, yield curves, currency rates, etc.  Thesemeasurements are classified within Level 3.

 

Fair value measurements are classifiedto the lowest level input or value-driver that is significant to thevaluation.  A measurement may therefore be classified within Level 3 eventhough there may be significant inputs that are readily observable.

 

**Derivativefinancial instruments**

 

The fair value of interest rate swapderivatives is primarily based on third-party pricing service models.  Thesemodels use discounted cash flows that utilize the appropriate market-basedforward swap curves and zero-coupon interest rates.  Interest rate swapderivatives are Level 2 measurements and have a fair value of negative $890,000as of March 31, 2010.

 

The fair value of foreign currencyforward contracts is based on a valuation model that discounts cash flowsresulting from the differential between the contract price and the market-basedforward rate and is a Level 2 measurement and has a fair value of positive $42,000as of March 31, 2010.

** **

| 9 |
|---|

 

----

 

 

 

 

 

** **

**7. Common Stock and Dividends**

** **

Dividendsdeclared and paid on a per share basis were as follows:

** **

|                |   | **March 31,**

**Three Months Ended** |
|---------------------|--------|---------------------------------------|
|                |   |                                  | **2010** |   |   | **2009** |
|                |   |                                  |   |   |   |   |
| Dividends  declared |   | $                                     | 0.06 |   | $ | 0.06 |
| Dividends  paid     |   |                                  | 0.06 |   |   | 0.06 |

** **

** **

**8. Stock-Based Compensation**

** **

      TheCompany has granted options to purchase its common stock to certain employeesand directors of the Company and its affiliates under various stock optionplans at no less than the fair market value of the underlying stock on the dateof grant.  These options are granted for a term not exceeding ten years and areforfeited in the event the employee or director terminates his or heremployment or relationship with the Company or one of its affiliates other thanby retirement, based on certain criteria.  These options generally vest overfive years.  All option plans contain anti-dilutive provisions that permit anadjustment of the number of shares of the Company’s common stock represented byeach option for any change in capitalization.

 

      TheCompany’s stock-based compensation expense was $189,000 and $111,000 for the quarterended March 31, 2010 and 2009, respectively.

 

*Qualified Options*

 

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

 

| *For  three months ending March 31, 2010*      |   | ** **     |
|------------------------------------------------|--------|----------------|
|                                           |   |  

Shares |   |   | Exercise

Price* |
| Options  outstanding at beginning of year      |   | 345,480   |   |   |   |
|       Granted         |   | –    |   |   |   |
|       Exercised       |   | (1,800)        |   |   | $14.61  |
|       Cancelled       |   | –    |   |   |   |
|                                           |   |           |   |   |   |
| Options  outstanding at March 31, 2010         |   | 343,680   |   |   | $17.89  |
| Options  exercisable at March 31, 2010         |   | 165,580   |   |   | $19.06  |
| Options  available for grant at March 31, 2010 |   | 214,500   |   |   |   |

**WeightedAverages*

 

      Optionsoutstanding and exercisable at March 31, 2010 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                     |   | 155,680            |   |   | 6.83                               | $ 12.24  |   |   | 58,180    | $ 13.55  |
| $19.79  - $25.18                     |   | 188,000            |   |   | 6.43                               | $ 22.57  |   |   | 107,400    | $ 22.05  |
|       Total |   | 343,680            |   |   |                               |   |   |   | 165,580    |   |

**WeightedAverages*

| 10 |
|----|

 

----

 

***Non-qualifiedOptions***

 

      Followingis a summary of activity in the Non-Qualified Stock Option Plans for the periodindicated:

 

| *For  three months ending March 31, 2010*      |   | ** **         |
|------------------------------------------------|--------|--------------------|
|                                           |   | Shares             |   |   | Exercise

Price* |
| Options  outstanding at beginning of year      |   | 186,000       |   |   |   |
|       Granted         |   | –   |   |   |   |
|       Exercised       |   | –   |   |   |   |
|       Cancelled       |   | –   |   |   |   |
|                                           |   |               |   |   |   |
| Options  outstanding at March 31, 2010         |   | 186,000       |   |   | $14.57  |
| Options  exercisable at March 31, 2010         |   | 79,000        |   |   | $15.17  |
| Options  available for grant at March 31, 2010 |   | 367,000       |   |   |   |

**WeightedAverages*

* *

      Options outstanding and exercisable at March31, 2010 were as follows:

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

 

Shares  |   |   | Remaining

Contractual

Life(yrs)* |  

Exercise  

Price*    |   |   |  

 

Shares   |  

Exercise

Price* |
| Range of Exercise Price              |   |                    |   |   |                               |   |   |   |   |   |
| $11.45  - $12.10                     |   | 140,000            |   |   | 6.64                               | $11.71  |   |   | 55,000    | $12.10  |
| $13.96  - $19.79                     |   | 13,500             |   |   | 4.26                               | $18.71  |   |   | 10,500    |  $18.40  |
| $25.02  - $25.18                     |   | 32,500             |   |   | 6.92                               | $25.17  |   |   | 13,500    |  $25.16  |
|       Total |   | 186,000            |   |   |                               |   |   |   | 79,000    |   |

**Weighted Averages*

* *

***Restricted Stock Units***

 

Following is a summary ofactivity in the Restricted Stock Units for the periods indicated:

 

 
|                                                   |   |  

 

 

 

Shares |   |   |  

 

 

 

Price |  

Weighted- average  remaining

contractual term (in  years) |
|--------------------------------------------------------|--------|----------------------------------------|--------|--------|---------------------------------------|--------------------------------------------------------------------|
| Options  outstanding at beginning of year              |   | 8,000                             |   |   | 11.45                            | 3.00                                                               |
|       Granted                 |   | —                            |   | $      | —                           | —                                                             |
|       Vested                  |   | —                            |   |   | —                           | —                                                             |
|       Forfeited  or Cancelled |   | —                            |   |   | —                           | —                                                             |
| Options  outstanding at end of year                    |   | 8,000                             |   | $      | 11.45                            |                                                               |

 

| 11 |
|----|

 

----

 

 

 

 

 

** **

**9.  Earnings Per Share**

** **

      The following table sets forththe reconciliation from basic to diluted average common shares and thecalculations of net income per common share.  Net income for basic and dilutedcalculations do not differ. 

 

|   | **Three  Months Ended	March 31,**(In  thousands, except per share)   
**2010 **      **2009 **
Net  Income

$

3,993

 

$

1,543

       

 

 

 

 

 

Average  Common Shares:

 

 

 

 

 

    Basic  (weighted-average outstanding shares)

 

11,747

 

 

9,939

    Dilutive  potential common shares from stock options 

 

86

 

 

24

     Diluted (weighted-average outstanding shares)

 

11,833

 

 

9,963

 

 

 

 

 

 

Basic  earnings per share

$

0.34

 

$

0.16

 

 

 

 

 

 

Diluted  earnings per share

$

0.34

 

$

0.15

** **

**10.  Segment Reporting**

** **

      At March 31, 2010 the followingincludes a summary of the unaudited financial information by reporting segment: 

 

 

 

 

**Three Months Ended**

 

 

**March 31,**

(in  thousands)

 

**2010**

** **

** **

**2009**

 

 

 

 

 

 
Net Revenue
 

 

 

 

 

        Industrial

$

46,140 

 

$

43,152 

        Agricultural

 

40,299 

 

 

23,831 

        European

 

41,950 

 

 

43,160 

Consolidated

$

128,389 

 

$

110,143 

 

 

 

 

 

 

**Operating  Income**

 

 

 

 

 

        Industrial

$

1,840

 

$

(1,108)

        Agricultural

 

985 

 

 

1,241 

        European

 

3,642 

 

 

3,044 

Consolidated

$

6,467 

 

$

3,177 

 

 

 

 

 

 

**Goodwill**

 

 

 

 

 

        Industrial

$

13,555 

 

$

26,649 

        Agricultural

 

– 

 

 

– 

        European

 

20,786 

 

 

20,338 

Consolidated

$

34,341 

 

$

46,987 

 

 

 

 

 

 

**Total  Identifiable Assets**

 

 

 

 

 

        Industrial

$

128,149 

 

$

170,254 

        Agricultural

 

130,716 

 

 

91,176 

        European

 

137,105 

 

 

126,523 

Consolidated

$

395,970 

 

$

387,953 

** **

12

 

 

 

 

** **

**11.  Off-Balance Sheet Arrangements**

      TheCompany does not have any obligation under any transaction, agreement or othercontractual arrangement to which an entity unconsolidated with the Company isparty, that has or is reasonably likely to have a material effect on theCompany’s financial condition, changes in financial condition, revenues orexpenses, results of operations, liquidity, capital expenditures or capitalresources that is material to investors.

 

**12.  Comprehensive Income**

      During the first quarter of 2010 and 2009,Comprehensive Income amounted to ($743,000) and ($2,087,000) respectively.

      

      The components of Comprehensive Incomeare as follows:**

 

 

 

 

**Three  Months Ended**

 

 

 

**March  31,**

(in  thousands)

 

 

**2010** 

** **

** **

**2009** 

Net Income

 

$

3,993 

 

$

1,543 

Cash flow derivative, net of taxes

 

 

233 

 

 

161 

Amortization of actuarial net loss(gain)

 

 

19 

 

 

39 

Foreign currency translations adjustment

 

 

(4,988)

 

 

(3,830)

 

 

 

 

 

 

 

Comprehensive Income

 

$

(743)

 

$

(2,087)

** **

    The components of AccumulatedOther Comprehensive Income as shown on the Balance Sheet are as follows:

 

 

 

**March 31,**

**December  31,**

(in  thousands)

** **

** **

**2010**

** **

** **

**2009**

 

 

 

 

 

 

 

Foreign  currency translation

 

$

3,201 

 

$

   8,148 

Derivatives,  net of taxes

 

 

(552)

 

 

(744)

Actuarial  gains related to defined benefit plans

 

 

(2,238)

 

 

(2,257)

Total  Accumulated other comprehensive income

 

$

411 

 

$

5,147 

**                                                                                                                                                                                   **

** **

**13.  ContingentMatters**

 

The Company is subject to various unresolvedlegal actions that arise in the ordinary course of its business.  The mostprevalent of such actions relate to product liability, which is generallycovered by insurance after various self-insured retention (“SIR”) amounts. While amounts claimed might be substantial and the liability with respect tosuch litigation cannot be determined at this time, the Company believes thatthe outcome of these matters will not have a material adverse effect on theCompany’s consolidated financial position or results of operations; however,the ultimate resolution 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.  

 

 

 

	13

 

 

 

      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 voluntarily worked withan environmental consultant and the state of Iowa with respect to these issues andbelieves it completed its remediation program in June 2006. The work wasaccomplished within the Company’s environmental liability reserve balance. Werequested a “no further action” classification from the state.  We received aconditional “no further action” letter in January of 2009.  When we demonstratestable or improving conditions below residential standards by future monitoringof existing wells, an unconditional “no further action” letter will berequested.

                   

      AtMarch 31, 2010, the Company had an environmental reserve in the amount of$1,608,000 related to the acquisition of *Gradall’s* facility in New Philadelphia, Ohio.  Three specific remediation projects that were identified prior tothe acquisition are in process of remediation with a remaining reserve balanceof $143,000.  The Company has a reserve of $277,000 concerning a potentialasbestos issue that is expected to be abated over time.  The balance of thereserve, $1,188,000, is mainly for potential groundwater contamination/remediation that was identified before the acquisition andbelieved to have been generated by a third party company located near the *Gradall*facility.  

 

      The company knows that *Bush Hog*’s main manufacturingproperty in Selma, Alabama is contaminated with chlorinated volatile compoundswhich most likely resulted from painting and cleaning operations during the1960’s and ‘70s.  The contaminated areas are primarily in the location ofunderground storage tanks and underneath the former waste storage area. Underthe Asset Purchase Agreement, *Bush Hog*’s prior owner agreed to removethe underground storage tanks at its cost and is liable for remediating theidentified contamination in accordance with the regulations of the AlabamaDepartment of Environmental Management. An environmental consulting firm hasbeen retained by the prior owner and is administering the cleanup.

 

      Certain other assets of the Company contain asbestos thatmay have to be remediated over time.  Management has made its best estimate ofthe cost to remediate these environmental issues.  However, such estimates aredifficult to estimate including the timing of such costs.  The Company believesthat any subsequent change in the liability associated with the asbestosremoval will not have a material adverse effect on the Company’s consolidatedfinancial position or results of operations.

 

      TheCompany is subject to various other federal, state, and local laws affectingits business, as well as a variety of regulations relating to such matters asworking conditions, equal employment opportunities, and product safety. Avariety of state laws regulate the Company’s contractual relationships with itsdealers, some of which impose restrictive standards on the relationship betweenthe Company and its dealers, including events of default, grounds fortermination, non-renewal of dealer contracts and equipment repurchaserequirements. The Company believes it is currently in material compliance withall such applicable laws and regulations.

 

**14.  Pension Benefits**

** **

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

 

      The*Gradall* Company Hourly Employees’ Pension Plan covers approximately 310former employees and 210 current employees who (i) were formerly employed by theformer parent of Gradall, (ii) were covered by a collective bargainingagreement and (iii) first participated in the plan before April 6, 1997.  Anamendment ceasing all future benefit accruals was effective April 6, 1997.

 

 

 

	14

 

 

      The*Gradall* Company Employees’ Retirement Plan covers approximately 190former employees and 150 current employees who (i) were formerly employed by theformer parent of Gradall, (ii) were not covered by a collective bargainingagreement and (iii) first participated in the plan before December 31, 2004. Anamendment ceasing future benefit accruals for certain participants waseffective December 31, 2004.  A second amendment discontinued all futurebenefit accruals for all participants effective April 24, 2006.

 

      TheCompany’s pension expense was $50,000 and $138,000 for the three months endedMarch 31, 2010 and 2009, respectively.  The Company is required to contribute $1,867,000to the pension plans for 2010.

 

**15.  Income Taxes**

 

      We are subject to U.S. federal income tax and various state, local, and international income taxes in numerous jurisdictions.Our domestic and international tax liabilities are subject to the allocation ofrevenue and expenses in different jurisdictions and the timing of recognizingrevenue and expenses. Additionally, the amount of income taxes paid is subjectto our interpretation of applicable tax laws in the jurisdictions in which wefile. 

      Wecurrently file income tax returns in the U.S., and all foreign jurisdictions inwhich we have entities, which are periodically under audit by federal, state,and international tax authorities. These audits can involve complex mattersthat may require an extended period of time for resolution. There are no incometax examinations currently in process. Although the outcome of open tax auditsis uncertain, in management’s opinion, adequate provisions for income taxeshave been made. If actual outcomes differ materially from these estimates, theycould have a material impact on our financial condition and results ofoperations. Differences between actual results and assumptions, or changes inassumptions in future periods are recorded in the period they become known. Tothe extent additional information becomes available prior to resolution, suchaccruals are adjusted to reflect probable outcomes. Our effective tax rate isimpacted by earnings being realized in countries where we have lower statutoryrates.

** **

**16.  Recent AccountingPronouncements**

** **

***Amendmentsto FASB Interpretation No. 46(R)***

** **

      InDecember 2009, the Financial Accounting Standards Board (FASB) issuedAccounting Standard Update (ASU) 2009-17, which codified Statement of FinancialAccounting Standard (SFAS) 167, Amendments to FASB InterpretationNo. 46(R), issued in June 2009. This guidance amends FASB InterpretationNo. 46 (revised December 2003) to address the elimination of theconcept of a qualifying special purpose entity. ASU 2009-17 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, ASU 2009-17 provides more timely and useful information about anenterprise’s involvement with a variable interest entity. ASU 2009-17 becameeffective for the Company this quarter.  This ASU did not have a materialimpact on our consolidated financial statements.

 

***FairValue Measurements and Disclosures***

 

     InJanuary 2010, the FASB issued ASU 2010-06, “Fair Value Measurements andDisclosures,” which amends the disclosure requirements related to recurring andnonrecurring fair value measurements.  The guidance requires new disclosures onthe transfers of assets and liabilities between Level 1 (quoted prices inactive market for identical assets or liabilities) and Level 2 (significantother observable inputs) of the fair value measurement hierarchy, including thereasons and the timing of the transfers. Additionally, the guidance requires aroll forward of activities on purchases, sales, issuance, and settlements ofthe assets and liabilities measured using significant unobservable inputs(Level 3 fair value measurements). ASU 2010-06 becomes effective for us thisquarter, except for the disclosure on the roll forward activities for Level 3fair value measurements, which will become effective for us in the first annualreporting period that begins after December 15, 2010 and for interim periods withinthat first annual reporting period. Other than requiring additionaldisclosures, adoption of this new guidance will not have a material impact onour financial statements.

 

15

 

 

 

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

 

The following tablesset forth, for the periods indicated, certain financial data:

 

 

**Three Months Ended**

 

** **

**March 31,**

 

**As a**

**Percent of Net Sales**

** **

**2010**

 

** **

**2009**

 

North American

 

 

 

 

    Industrial

35.9

%

39.2

%

    Agricultural

31.4

%

21.6

%

European

32.7

%

39.2

%

   Total sales, net

100.0

%

100.0

%

 

 

 

**Three Months Ended**

 

** **

**March 31,**

 

**Cost Trends and  Profit Margin, as**

**Percentages of Net  Sales**

** **

**2010**

 

** **

**2009**

 

 

 

 

 

 

Gross margin

21.9

%

19.7

%

Income from operations

5.0

%

2.9

%

Income before income taxes

4.7

%

2.1

%

Net income

3.1

%

1.4

%

** **

**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.*

 

      Inthe first quarter of 2010 the Company’s net income was up due to the Company’scontinued efforts with cost control initiatives and the acquisition of Bush Hogwhich was accretive to our sales and net income during the first quarter.  The continuedweakness in the worldwide economy remains a concern as market conditions haveshown little improvement.  The Industrial Division sales increased 7% duringthe first quarter of 2010 due to increases in the excavator market, however;budgets of governmental entities and related contractors continue to beconstrained.  The Agricultural Division saw a 69% increase in sales versus thefirst quarter of 2009 all relating to the Bush Hog acquisition.  Overall marketconditions remained soft and there is dealer reluctance to stock inventory athistoric levels.  European sales in local currency decreased by 10% compared tothe first quarter of 2009 as their markets reflected similar conditions tothose in our North American operations.  European sales in U.S. dollars were onlydown 3% due to changes in exchange rates.  Offsetting some of these declines forthe Company in general were margin percentage improvements from higherproprietary part sales in the first quarter of 2010 compared to the same timein 2009.

 

      TheCompany is concerned that our markets for 2010 could continue to be negativelyaffected by a variety of factors such as a continued downturn in the overalleconomy, credit availability, increased levels of government regulations;changes in farm incomes due to commodity prices or governmental aid programs;adverse situations that could affect our customers such as animal diseaseepidemics, weather conditions such as droughts and floods; budget constraintsor revenue shortfalls in governmental entities and changes in our customerbuying habits due to lack of confidence in the economic outlook.

 

 

16

 

 

 

 

 

 

**Resultsof Operations**

 

*Three Months Ended March 31, 2010 vs. ThreeMonths Ended March 31, 2009*

 

Net sales for the first quarterof 2010 were $128,389,000,an increase of $18,246,000 or 16.6% compared to $110,143,000 for the firstquarter of 2009.  The majority of the increase was all from the acquisition ofBush Hog.

 

NetNorth American Industrial sales increased during the first quarter by$2,988,000 or 6.9% to $46,140,000 for 2010 compared to $43,152,000 during thesame period in 2009.  The increase came primarily from higher sales ofexcavators as sales of mowing equipment and Sweepers to governmental entitiesand related contractors remained soft.  

 

Net North AmericanAgricultural sales were $40,299,000 in 2010 compared to $23,831,000 for thesame period in 2009, an increase of $16,468,000 or 69.1%.  This increase wasfrom the acquisition of Bush Hog in the amount of $20,734,000.  This divisioncontinues to reflect soft conditions in the agricultural market primarily dueto cutbacks in preseason stocking levels by dealer networks due to uncertaintiesin market outlook.

 

NetEuropean Sales for the first quarter of 2010 were $41,950,000, a decrease of$1,210,000 or 2.8% compared to $43,160,000 during the first quarter of 2009. The decrease was primarily from weak market conditions.

 

Grossprofit for the first quarter of 2010 was $28,135,000 (21.9% of net sales)compared to $21,727,000 (19.7%) during the same period in 2009, an increase of$6,408,000.  The increase was mainly attributable to the acquisition of BushHog along with lower manufacturing costs.  The increase in the gross marginpercentage was a result of higher proprietary part sales during the firstquarter of 2010.
 
Selling,general and administrative expenses (“SG&A”) were $21,668,000 (16.9% of netsales) during the first quarter of 2010 compared to $18,550,000 (16.8% of netsales) during the same period of 2009, an increase of $3,118,000.  Theacquisition of Bush Hog added $3,566,000.  Without Bush Hog, SG&A declined$448,000 mainly from reduced commissions and lower overhead costs.

 

Interestexpense was $1,250,000 for the first quarter of 2010 compared to $1,096,000during the same period in 2009, an increase of $154,000.  The increase camemainly from amortization of bank fees from the amendment to our Company’s revolvingcredit facility in November 2009 and higher interest rates due to changes inour amended debt agreement during the first quarter of 2010.

 

OtherIncome was a $10,000 loss for the first quarter of 2010 compared to a $45,000gain in 2009.  Other income in 2010 and 2009 was all a result of transactionalexchange rate changes.

                                          

Provisionfor income taxes was $2,026,000 (33.7%) in the first quarter of 2010 comparedto $743,000 (32.5%) during the same period in 2009.
     
TheCompany’s net income after tax was $3,993,000 or $0.34 per share on a dilutedbasis for the first quarter of 2010 compared to 1,543,000 or $0.15 per share ona diluted basis for the first quarter of 2009.  The increase of $2,450,000resulted from the factors described above.

 

17

 

 

 

 

 

 

** **

**Liquidity and Capital Resources**

 

In addition to normaloperating expenses, the Company has ongoing cash requirements which arenecessary to operate the Company’s business, including inventory purchases andcapital expenditures.  The Company’s inventory and accounts payable levelstypically build in the first half of the year and in the fourth quarter inanticipation of the spring and fall selling seasons.  Accounts receivablehistorically build in the first and fourth quarters of each year as a result offall preseason sales programs and out of season sales, particularly in ourAgricultural Division.  These sales help level the Company’s production duringthe off season. 

 

As of March 31, 2010,the Company had working capital of $196,513,000 which represents an increase of$14,144,000 from working capital of $182,369,000 of December 31, 2009.  Theincrease in working capital was primarily from higher levels of accountsreceivable due to seasonality.

 

Capital expenditureswere $878,000 for the first three months of 2010, compared to $1,077,000 duringthe first three months of 2009.  Capital expenditures for 2010 are expected tobe higher than 2009 levels.   The Company expects to fund expenditures fromoperating cash flows or through its revolving credit facility, described below.

 

The Company wasauthorized by its Board of Directors in 1997 to repurchase up to 1,000,000shares of the Company’s common stock to be funded through working capital andcredit facility borrowings.  There were no shares purchased in 2009 or thefirst quarter of 2010.  The authorization to repurchase up to 1,000,000 sharesremains available less 42,600 shares previously repurchased.

 

Net cash provided byfinancing activities was $11,986,000 during the three month period ending March31, 2010, compared to $11,530,000 for the same period in 2009.  

 

On August25, 2004, the Company entered into a five-year $70 million Amended and RestatedRevolving Credit Agreement with its lenders, Bank of America, JPMorgan ChaseBank, and Guaranty Bank. This contractually committed, unsecured facilityallows the Company to borrow and repay amounts drawn at floating or fixedinterest rates based upon Prime or LIBOR rates. Proceeds may be used forgeneral corporate purposes or, subject to certain limitations, acquisitions.The loan agreement contains among other things the following financialcovenants:  Minimum Fixed Charge Coverage Ratios, Minimum Consolidated TangibleNet Worth, Consolidated Funded Debt to EBITDA Ratio and Minimum Asset CoverageRatio, along with limitations on dividends, other indebtedness, liens,investments and capital expenditures. 

 

OnFebruary 3, 2006, the Company amended and restated the credit agreement toincrease the Company’s existing credit facility from $70 million to $125million. Pursuant to the terms of the Amended and Restated Revolving CreditAgreement, the Company has the ability to request an increase in commitments by$25 million. In addition, the existing credit facility was modified in otherrespects, including reducing the asset coverage ratio and lowering the interestmargins.

 

On March 30, 2006 the Company entered into theFourth Amendment of the Amended and Restated Revolving Credit Agreement, datedMarch 30, 2006 (the “Amended and Restated Revolving Credit Agreement”), betweenthe Company and Bank of America, N.A., JPMorgan Chase Bank and Guaranty Bank,as its lenders. Pursuant to the terms of the Amended and Restated RevolvingCredit Agreement, the Company added *Gradall* Industries, Inc., formerlyAlamo Group (OH) Inc., and N.P. Real Estate Inc. as members of the ObligatedGroup. The Amendment also allows for capital expenditures not to exceed $14million for the fiscal year ending 2006 and $10 million in the aggregate duringeach fiscal year 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 31,2010.  Beginning June 30, 2010, *Rivard*’s actual operating cash flow willbe used in the calculation of consolidated operating cash flow.

 

On November 6, 2009,the Company entered into the Seventh Amendment of the Amended and RestatedRevolving Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A.,BBVA Compass Bank, and Rabobank, as its lenders.  Prior to the execution ofthis Amendment, BBVA Compass Bank acquired certain assets of Guaranty Bankwhich included this credit facility and JPMorgan Chase Bank assigned itsinterest to Well Fargo Bank, N.A.  The purpose of the amendment was to add BushHog as a member of the Obligated Group and pledge a first priority securityinterest in certain U.S. assets (accounts receivable, inventory, equipment,trademarks and trade names) of the Borrower and each member of the ObligatedGroup.  The Lenders agreed to increase the operating leverage ratio during thenext three quarters and to add a new EBIT to Interest Expense covenant inexchange for a commitment fee and an increase in the Applicable Interest Marginover LIBOR or Prime Rate advances.

 

As of March 31, 2010,there was $54,000,000 borrowed under the revolving credit facility.  At March31, 2010, $975,000 of the revolver capacity was committed to irrevocablestandby letters of credit issued in the ordinary course of business as requiredby vendors’ contracts resulting in approximately $70,025,000 in availableborrowings.

 

OnMay 13, 2008, Alamo Group Europe Limited expanded its overdraft facility withLloyd’s TSB Bank plc from £ 1.0 million to £ 5.5 million.  The facility wasrenewed on November 1, 2009 and outstandings currently bear interest at Lloyd’sBase Rate plus 1.4% per annum.  The facility is unsecured but guaranteed by the  U.K. subsidiaries of Alamo Group Europe Limited.  As of March 31, 2010, therewere no British pounds borrowed against the U.K. overdraft facility.

 

     Thereare additional lines of credit, for the Company’s French operations in theamount of 7,300,000 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 ofMarch 31, 2010, no Euros were borrowed against the French line of credit, 2,179,000Canadian dollars were outstanding on the Canadian line of credit and 800,000Australian dollars were outstanding under its facility.  The Canadian andAustralian revolving credit facilities are guaranteed by the Company. 

 

As of March31, 2010, the Company is in compliance with the terms and conditions of itscredit facilities.

 

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

 

 

19

 

 

**Critical Accounting Estimates**

Management’sDiscussion and Analysis of Financial Condition and Results of Operations arebased upon our Consolidated Financial Statements, which have been prepared inaccordance with GAAP.  The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenue and expenses, and related disclosure ofcontingent assets and liabilities.  Management bases its estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.

 

**Critical Accounting Policies**

An accounting policyis deemed to be critical if it requires an accounting estimate to be made basedon assumptions about matters that are highly uncertain at the time the estimateis made, and if different estimates that reasonably could have been used, orchanges in the accounting estimates that are reasonably likely to occurperiodically, could materially impact the financial statements.  Managementbelieves the following critical accounting policies reflect its moresignificant estimates and assumptions used in the preparation of theConsolidated Financial Statements.  For further information on the criticalaccounting policies, see Note 1 of our Notes to Consolidate FinancialStatements.

** **

**Critical Accounting Policies**

** **

***Allowancefor Doubtful Accounts***

 

The Company evaluatesthe collectibility of its accounts receivable based on a combination offactors.  In circumstances where it is aware of a specific customer’s inabilityto meet its financial obligations, it records a specific reserve to reduce theamounts recorded to what it believes will be collected.  For all othercustomers, it recognizes reserves for bad debt based on historical experienceof bad debts as a percent of revenues for each business unit, adjusted forrelative improvements or deteriorations in the agings and changes in currenteconomic conditions.

 

The Company evaluatesall aged receivables that are over 60 days old and reserves specifically on a90-day basis.  The Company’s U.S. operations have Uniform Commercial Code(“UCC”) filings on practically all wholegoods each dealer purchases.  Thisallows the Company in times of a difficult economy when the customer is unableto pay or has 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.

 

The bad debt reservebalance was $2,743,000 at March 31, 2010 and $2,548,000 at December 31, 2009. 

 

***SalesDiscounts***

* *

At March 31, 2010 the Company had $6,823,000in reserves for sales discounts compared to $3,803,000 at December 31, 2009 onproducts shipped to our customers under various promotional programs.  Theincrease was due primarily from discounts reserved on the Company’sagricultural**products during the pre-season program, which runs fromSeptember to December of each year on orders that are shipped through the firstquarter of 2010.  The Company reviews the reserve quarterly based on analysismade on each program outstanding at the time.  

 

The Company bases its reserves on historicaldata relating to discounts taken by the customer under each program.  Historicallybetween 85% and 95% of the Company’s customers who qualify for each program,actually take the discount that is available.

 

20

 

 

 

 

 

 

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

* *

The Company had $8,728,000 at March 31, 2010and $9,060,000 at December 31, 2009 in reserve to cover obsolescence and slowmoving inventory.  The decrease in reserve for obsolescence was mainly due toinventory written off in the Company’s U.S. and European operations.  Theobsolescence and slow moving policy states that the reserve is to be calculatedon a basis of: 1) no inventory usage over a three year period and inventorywith quantity on hand is deemed obsolete and reserved at 100 percent and 2)slow moving inventory with little usage requires a 100 percent reserve on itemsthat have a quantity greater than a three year supply.  There are exceptions tothe obsolete 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 thereis no historical data, management makes a judgment based on a specific reviewof the inventory in question to determine what reserves, if any areappropriate.  New products or parts are generally excluded from the reservepolicy until a three year history has been established.

 

The reserve is reviewed and if necessary,adjustments made, on a quarterly basis.  The Company relies on historicalinformation to support its reserve.  Once the inventory is written down, theCompany does not adjust the reserve balance until the inventory is sold.

*** ***

***Warranty***

* *

The Company’s warranty policy is generally toprovide its customers warranty for up to one year on all equipment and 90 daysfor parts.

 

Warranty reserve, as a percent ofsales, is calculated by taking the current twelve months of expenses and proratingthat based on twelve months of sales with a six month lag period.  TheCompany’s historical experience is that an end-user takes approximately 90 daysto six months from the receipt of the unit to file a warranty claim.  Awarranty reserve is established for each different marketing group.  Reservebalances are evaluatedon a quarterly basis and adjustments are made when required.  

 

The current liability warranty reservebalance was $6,321,000 at March 31, 2010 and $6,337,000 at December 31, 2009. 

 

***ProductLiability***

*** ***

At March 31, 2010 theCompany had accrued $478,000 in reserves for product liability cases comparedto $387,000 at December 31, 2009.  The Company accrues primarily on a case bycase basis and adjusts the balance quarterly.

During most of 2009,the self insured retention (S.I.R.) for U.S. product liability coverage for allproducts was at $100,000 per claim.  On September 30, 2009 the Company renewedits insurance coverage and the S.I.R. for all products remained at $100,000over claim level.  The S.I.R. for all Bush Hog products was set at the date ofacquisition at $250,000 per claim.  The Company also carries product liabilitycoverage in Europe, Canada and Australia which contain substantially lowerS.I.R.’s or deductibles.
***Goodwill***
Goodwill must be tested for impairment at least annually. In thefourth quarter of each year, or when events and circumstances warrant such areview, the Company tests the goodwill of all of its reporting units forimpairment. The goodwill impairment test is determined using a two-step process. The first step is to identify if a potential impairment exists by comparing thefair value of a reporting unit with its carrying amount, including goodwill(Step 1).  If the fair value of a reporting unit exceeds its carrying valueamount, goodwill of the reporting unit is not considered to have a potentialimpairment and the second step is not necessary.  However, if the carryingamount of the reporting unit exceeds its fair value, the second step (Step 2) isperformed to determine if goodwill is impaired and to measure the amount ofimpairment loss to recognize, if any. Step 2 compares the implied fair value ofgoodwill with the carrying amount of goodwill.  If the implied value ofgoodwill is less than the carrying amount of goodwill, then a charge is recordedto reduce goodwill to the implied goodwill. The implied goodwill is calculatedbased on a hypothetical purchase price allocation similar to the requirementsfor purchase accounting, in that it takes the implied fair value of thereporting unit and allocates such fair value to the fair value of the assets andliabilities of the reporting unit.  

 

21

 

 

 

 

 

 

The Company estimates the fair value of its reporting unitsusing a discounted cash flow analysis. This analysis requires the Company tomake significant assumptions and estimates about the extent and timing offuture cash flows, discount rates and growth rates. The cash flows areestimated over a significant future period of time, which makes those estimatesand assumptions subject to an even higher degree of uncertainty. The Companyalso utilizes market valuationmodels and other financial ratios, which require the Company to make certainassumptions and estimates regarding the applicability of those models to its assetsand businesses. 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 in the NorthAmerican Industrial segment of $14,104,000 in 2009 and $5,010,000 in the NorthAmerican Agricultural segment in 2008.  During the 2009 impairment analysis review,it was noted that even though the *Schwarze* reporting unit’s fair valuewas above carrying value it was not materially different. At December 31, 2009,there was approximately $6.8 million of goodwill related to the *Schwarze*reporting unit. This reporting unit would be most likely affected by changes inthe Company’s assumptions and estimates. As of March 31, 2010, Goodwill was$34,341,000, which represents 8.7% of total assets. The calculation offair value could increase or decrease depending on changes in the inputs andassumptions used, such as changes in the reporting unit’s future growth rates,discount rates, etc. 

 
***Forward-LookingInformation***
      Part I of thisQuarterly Report on Form 10‐Q and the “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” included in Part IIof this Quarterly Report contain forward-looking statements within the meaning of Section27A of the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934.  In addition, forward-looking statements may be made orally or inpress releases, conferences, reports or otherwise, in the future by or onbehalf of the Company.

      Statements that are nothistorical are forward-looking.  When used by or on behalf of the Company, thewords “estimate,” “believe,” “intend” and similar expressions generallyidentify forward-looking statements made by or on behalf of the Company.

      Forward-looking statementsinvolve risks and uncertainties.  These uncertainties include factors thataffect all businesses operating in a global market, as well as matters specificto the Company and the markets it serves.  Particular risks and uncertaintiesfacing the Company include changes in market conditions; increased competition;decreases in the prices of agricultural commodities, which could affect ourcustomer’s income levels; budget constraints or income shortfalls which couldaffect the purchases 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’s abilityto maintain good relations with its employees; and the ability to hire andretain quality employees.

      In addition, theCompany is subject to risks and uncertainties facing the industry in general,including changes in business and political conditions and the economy ingeneral in both domestic and international markets; weather conditionsaffecting demand; slower growth in the Company’s markets; financial marketchanges including increases in interest rates and fluctuations in foreignexchange rates; actions of competitors; the inability of the Company’ssuppliers, customers, creditors, public utility providers and financial serviceorganizations to deliver or provide their products or services to the Company;seasonal factors in the Company’s industry; unforeseen litigation; governmentactions including budget levels, regulations and legislation, primarilyrelating to the environment, commerce, infrastructure spending, health andsafety; and availability of materials.

22

 

 

 

 

 

 

      The Company wishes to caution readers not to place unduereliance on any forward-looking statements and to recognize that the statementsare not predictions of actual future results.  Actual results could differmaterially from those anticipated in the forward-looking statements and fromhistorical results, due to the risks and uncertainties described above, as wellas others not now anticipated.  The foregoing statements are not exclusive andfurther information concerning the Company and its businesses, includingfactors that could potentially materially affect the Company’sfinancial results, may emerge from time to time.  It is not possible formanagement to predict all risk factors or to assess the impact of such riskfactors on the Company’s businesses.

** **

**Item 3.  Quantitative and QualitativeDisclosures About Market Risks**

 

The Company is exposed tovarious markets risks.  Market risks are the potential losses arising fromadverse changes in market prices and rates.  The Company does not enter intoderivative or other financial instruments for trading or speculative purposes.

** **

**Foreign Currency Risk**

* *

*International Sales*

 

A portion of the Company’s operationsconsists of manufacturing and sales activities in international jurisdictions.The Company primarily manufactures its products in the United States, the U.K., France, Canada and Australia.  The Company sells its products primarilywithin the markets where the products are produced, but certain of theCompany’s sales from its U.K. operations are denominated in other Europeancurrencies.  As a result, the Company’s financials, specifically the value ofits foreign assets, could be affected by factors such as changes in foreigncurrency exchange rates or weak economic conditions in the other markets inwhich the subsidiaries of the Company distribute their products.

To mitigate theshort-term affect of changes in currency exchange rates on the Company’sfunctional currency-based sales, the Company’s U.K. subsidiaries regularlyenter into foreign exchange forward contracts to hedge approximately 80% of itsfuture net foreign currency sales transactions over a period of six months.  Asof March 31, 2010, the Company had $1,211,000 outstanding in forwardexchange contracts related to accounts receivables.  A 15% fluctuation inexchange rates for these currencies would change the fair value byapproximately $182,000.  However, since these contracts hedge foreign currencydenominated transactions, any change in the fair value of the contracts shouldbe offset by changes in the underlying value of the transaction being hedged.

*Exposure toExchange Rates*

 

The Company’searnings are affected by fluctuations in the value of the U.S. dollar ascompared to foreign currencies, predominately in European countries, as aresult of the sales of its products in international markets.  Foreign currencyoptions and forward contracts are used to hedge against the earnings effects ofsuch fluctuations.  At March 31, 2010, the result of a uniform 10%strengthening in the value of the dollar relative tothe currencies in which the Company’s sales are denominated would resultin a decrease in gross profit of $1,143,000 for the period ending March 31, 2010. Comparatively, the result of a uniform 10% strengthening in the value of thedollar relative to the currencies in which the Company’s sales are denominatedwould have resulted in a decrease in gross profit of approximately $1,129,000for the period ended March 31, 2009.  This calculation assumes that eachexchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are achanged dollar value of the resulting sales, changes in exchange rates may alsoaffect 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 first quarter of 2010 was a loss of $4,988,000. On March 31, 2010, the British pound closed at .6591 relative to 1.00 U.S.dollar, and the Euro closed at .7402 relative to 1.00 U.S. dollar.  At December31, 2009 the British pound closed at .6187 relative to 1.00 U.S. dollar and theEuro closed at .6985 relative to 1.00 U.S. dollar.  By comparison, on March 31, 2009, the British pound closed at .6970relative to 1.00 U.S. dollar, and the Euro closed at .7527 relative to 1.00U.S. dollar.  No assurance can be given as to future valuation of the Britishpound or Euro or how further movements in those or other currencies couldaffect future earnings or the financial position of the Company.

23

 

 

 

 

 

 

 

**Interest Rate Risk**

The Company’slong-term debt bears interest at variable rates.  Accordingly, the Company’snet income is affected by changes in interest rates.  Assuming the currentlevel of borrowings at variable rates and a two percentage point change in thefirst quarter 2010 average interest rate under these borrowings, the Company’sinterest expense would have changed by approximately $270,000.  In the event ofan adverse change in interest rates, management could take actions to mitigateits exposure.  However, due to the uncertainty of the actions that would betaken and their possible effects this analysis assumes no such actions. Further this analysis does not consider the effects of the change in the levelof overall economic activity that could exist in such an environment.

 

**Item 4. Controls and Procedures**

 

      **Disclosure Controls and Procedures**. Anevaluation was carried out under the supervision and with the participation ofAlamo’s management, including our President and Chief Executive Officer,Executive Vice President and Chief Financial Officer (Principal FinancialOfficer) and Vice-President and Corporate Controller, (Principal AccountingOfficer), of the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rule 13A-15(e) under the SecuritiesExchange Act of 1933).  Based upon the evaluation, the President and ChiefExecutive Officer, Executive Vice President and Chief Financial Officer(Principal Financial Officer) and Vice-President, Corporate Controller,(Principal Accounting Officer) concluded that the Company’s design andoperation of these disclosure controls and procedures were effective at the endof the period covered by this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

**PART II.  OTHERINFORMATION**

** **

**Item 1. - None**

** **

**Item 2 - None**

** **

**Item 3 - None**

** **

**Item 4 - None**

 

**Item5. Other Information**

 

(a) Reports on Form8-K

 

May 6, 2010 – Press Release announcing FirstQuarter 2010 earnings.

 

(b)   Other Information

 

None

 

**Item6. 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

 

25

 

 

 

 

 

 

 
Alamo Group Inc. andSubsidiaries
** **

** **

SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on 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)

 

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