UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

**Form 10-K**

 

|                        
[ X]

ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE  SECURITIES EXCHANGE ACT OF 1934
 
 
 

For the  fiscal year ended December 31, 2009
 
 
[   ]

TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE  SECURITIES EXCHANGE ACT OF 1934
 
 

Commission  file number 0-21220

**ALAMO  GROUP INC.**

(Exact  name of registrant as specified in its charter)

 
DELAWARE

74-1621248

(State  or other jurisdiction of 		incorporation or organization)

(I.R.S.  Employer		Identification  Number)

 
 
 
1627  East Walnut, Seguin, Texas 78155

*(Address  of principal executive offices, including zip code)*

 

830-379-1480*(Registrant’s telephone number, including area code)*

Securities registered pursuant to Section 12(b) of the Act**:**

 
Title of  each class

Name of  each exchange

Common  Stock, par value

on which  registered

$.10 per  share

New    York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:   NONE

 

        Indicate by check mark if  the registrant is a well-known seasoned issuer, as defined in Rule 405 of the  Securities  Act.  Yes [  ] No [X]  

        Indicate by check mark if  the registrant is not required to file reports pursuant to Section 13 or  Section 15(d) of the Exchange Act.  Yes [  ] No [X]

 
        Indicate by check mark whether the registrant (1) has  filed all reports required to be filed by Section 13 or 15(d) of the  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 the registrant has  submitted electronically and posted on its corporate Web site, if any, every  Interactive Data File required to be submitted and posted pursuant to Rule  405 of Regulation S-T during the preceding 12 months (or for such shorter  period that the registrant was required to submit and post such files). Yes [    ] No [   ] 

 
        Indicate by check mark if  disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not  contained herein, and will not be contained, to the best of Registrant’s  knowledge, in definitive proxy or information statements incorporated by  reference in Part III of this Form 10-K or any amendment to this Form 10‐K.  [    ]

 
        Indicate by check mark whether registrant is a large  accelerated filer, an accelerated filer, a non-accelerated filer, or a  smaller reporting company.  See definition of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the  Exchange  Act.

 

        

        Large accelerated	filer   [  ] 
Accelerated filer                        		[X]
        Non-accelerated  filer     [  ] 
Smaller reporting company        		[  ]
 

        Indicate by check mark  whether the registrant is a shell company (as defined in Rule 12b-2 of the  Exchange Act). Yes [  ] No [X]

 

        The aggregate market value of the voting stock (which  consists solely of shares of common stock) held by non-affiliates of the  registrant as of June 30, 2009 (based upon the last reported sale price of $10.10 per share) was approximately $66,407,460 on such date.

 
        The number of shares of the registrant’s common stock,  par value $.10 per share, outstanding as of February 26, 2010 was 11,746,929  shares.

 

        Documents incorporated by reference:  Portions of the  registrant’s proxy statement relating to the 2010 Annual Meeting of  Stockholders to be held on May 6, 2010, have been incorporated by reference  herein in response to Part III.

 
 

 

 

 

**ALAMOGROUP INC. AND CONSOLIDATED SUBSIDIARIES**

FORM 10-K

TABLE OF CONTENTS

 

PART I

Page
   
Item 1.

Business

3
   
Item 1A.
Risk  Factors
13   
Item 1B.
Unresolved  Staff Comments
19   
Item 2.

Properties 

20
   
Item 3. 		

Legal Proceedings

21
   
Item 4. 		

[Reserved]

21
   
 

PART II

 
   
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters  and Issuer Purchases of Equity Securities

22
   
Item 6.

Selected Financial Data

24
   
Item 7.

Management’s Discussion and  Analysis of Financial Condition and Results of Operations

24
   
Item 7A.

Quantitative and Qualitative Disclosures  about Market Risk

32
   
Item 8.

Financial Statements and Supplementary Data

33
   
Item 9.

Changes in and Disagreements with Accountants on Accounting and  Financial Disclosure

33
   
Item 9A.

Controls and Procedures

34
   
Item 9B.

Other Information

34
   
 

PART  III

 
   
Item 10.

Directors, Executive Officers and Corporate  Governance

34
   
Item 11.

Executive Compensation

34
   
Item 12.

Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters

35
   
Item 13.

Certain Relationships, Related  Transactions, and Director Independence

36
   
Item 14.

Principal Accountant Fees and  Services

36
   
 

PART IV

 
   
Item 15.

Exhibits and Financial Statement Schedules		

37
   
 

Index to Consolidated Financial Statements		

38

 

 

 

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PART I
Item 1. Business
*Unless the context otherwise requires, the terms “the Company,” “we,” “our” and “us” refer to Alamo Group Inc. and its subsidiaries on aconsolidated basis.*

** **

**General**

 

TheCompany is a leader in the design, manufacture, distribution and service ofhigh quality equipment for right-of-way maintenance and agriculture. TheCompany’s products include tractor-mounted mowing and other vegetationmaintenance equipment, street sweepers, excavators, vacuum trucks, snow removalequipment, pothole patchers, zero turn radius mowers, agricultural implementsand related aftermarket parts and services. The Company emphasizes highquality, cost effective products for its customers and strives to develop andmarket innovative products while constantly monitoring and seeking to containits manufacturing and overhead costs. The Company has a long-standing strategyof supplementing its internal growth through acquisitions of businesses or productlines that currently complement, command, or have the potential to achieve ameaningful share of their niche markets. The Company has 2,340 employees and operates a total of eighteen plants in NorthAmerica, Europe and Australia. The Company sells its products primarily througha network of independent dealers and distributors, governmental end-users,related independent contractors, as well as to the agricultural and commercialturf markets. The Company operates primarily in the United States, England, France, Canada and Australia.

 

      The predecessor corporationto Alamo Group Inc. was incorporated in the State of Texas in 1969, as asuccessor to a business that began selling mowing equipment in 1955, and AlamoGroup Inc. was reincorporated in the State of Delaware in 1987. 

 

**History**

** **

      Since its founding in 1969,the Company has focused on satisfying customer needs through geographic marketexpansion, product development and refinement, and selected acquisitions.  TheCompany’s first products were based on rotary cutting technology.  Throughacquisitions, the Company added flail cutting technology in 1983 and sickle-barcutting technology in 1984.  The Company added to its presence in theindustrial and governmental vegetation markets with the acquisition of TigerCorporation *(“Tiger”)* in late 1994.

      The Company entered theagricultural mowing markets in 1986 with the acquisition of Rhino Products Inc.*(“Rhino”)*, a leading manufacturer in this field. With this acquisition, theCompany embarked on a strategy to increase the *Rhino* dealer distributionnetwork during a period of industry contraction.  The addition of M&W GearCompany*(“M&W”)* in early 1995 allowed the Company to enter into themanufacturing and distribution of tillage equipment, which complements the *Rhino*distribution network.  *M&W* has been integrated into the agriculturalmarketing group, utilizing the same sales force to cross sell *Rhino*and*M&W*products. 

      In 1991, the Company beganits international expansion with the acquisition of McConnel Ltd*. (“McConnel”)*,a United Kingdom (“U.K.”) manufacturer of vegetation maintenance equipment,principally hydraulic boom-mounted hedge and grass cutters and related parts. Bomford-TurnerLtd*. (“Bomford”)*, also a U.K. company, was acquired in 1993. *Bomford*is a manufacturer of heavy-duty, tractor-mounted grass and hedge mowingequipment. *McConnel* and *Bomford* sell their products to dealersand distributors through their respective sales forces.

      In 1994, the Companyacquired Signalisation Moderne Autoroutiere S.A*. (“SMA”)* located inOrleans, France. *SMA* manufactures and sells principally a line ofheavy-duty, tractor-mounted grass and hedge mowing equipment and associatedreplacement parts primarily to departments of the French government. Thisacquisition, along with the acquisitions of Forges Gorce, a flail blademanufacturer in France, in 1996 and Rousseau Holdings, S.A. (“*Rousseau*”),a leading French manufacturer of hedge and verge mowers, in 2004, when combinedwith *McConnel* and *Bomford,*has made the Company one of thelargest manufacturers in the European market for the kind of equipment sold bythe Company.

       In 1995, the Companyexpanded its business in the agricultural market with the acquisition of HerschelCorporation*(“Herschel”)*, a leading manufacturer and distributor ofaftermarket farm equipment replacement and wear parts.

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      In 2000, the Companyacquired Schwarze Industries, Inc*. (“Schwarze”)*. *Schwarze* is amanufacturer of a broad range of street sweeping equipment which is sold togovernmental agencies and contractors. The Company believes the *Schwarze*sweeper products fit the Company’s strategy of identifying product offeringswith brand recognition in the industrial markets the Company serves.   In 2004,the Company purchased the pothole patcher from Wildcat Manufacturing, Inc. Theproduct line was merged into the *Schwarze* operation and is complementaryto its current product offerings.

      In 2000, the Companypurchased the product line and associated assets of Twose of Tiverton Ltd.*(*“*Twose*”)in the U.K. and incorporated its production into the existing facilities at *McConnel*and *Bomford* while maintaining its own sales force and dealerdistribution network. *Twose* was a small regional manufacturer of powerarm flail mowers and parts, as well as harrows and rollers, which strengthenedthe Company’s market leadership position in the U.K.

      In 2000, the Companyacquired Schulte Industries Ltd. and its related entities *(“Schulte”)*.*Schulte*is a Canadian manufacturer of mechanical rotary mowers, snow blowers, and rockremoval equipment. *Schulte* strengthened the Company’s Canadian presencein both marketing and manufacturing. It also expanded the Company’s range oflarge, heavy-duty rotary mowers.

      In 2001, the Companyacquired all of the assets of SMC Corporation *(“SMC”). SMC* manufacturesfront-end loaders and backhoes principally for Original Equipment Manufacturer(“OEM”) customers and its own *SMC* brand. This acquisition expanded theproduct range of our agricultural division by branding a line of loaders for *Rhino*.

      In 2002, the Companypurchased inventory, fixed assets and certain other assets of Valu-Bilt TractorParts (“*Valu-Bilt*”), a subsidiary of Quality Stores, Inc., located inDes Moines, Iowa. *Valu-Bilt* is a distributor of new, used and rebuilttractor parts and other agricultural spare and wear parts sold directly tocustomers through its catalog and the internet and on a wholesale basis todealers. Subsequent to the purchase, the operations of *Valu-Bilt* in DesMoines, Iowa, were consolidated into the Company’s *Herschel* facility inIndianola, Iowa.

      In 2002, the Companypurchased substantially all of the assets of Faucheux Industries S.A. (“*Faucheux*”),a leading French manufacturer of front-end loaders and attachments. The Companyacquired *Faucheux* out of administration, a form of bankruptcy in France.This acquisition broadened the range of our agricultural implements in theFrench market which we have expanded in the U.K. as well.

      In 2005, the Company,through its European subsidiary Alamo Group (EUR) Ltd., acquired 100% of theissued and outstanding stock of Spearhead Machinery Limited (“*Spearhead*”)and subsequently merged its manufacturing operations into *Bomford*’sfacility. *Spearhead* manufactures a range of tractor-mounted vegetationmaintenance equipment, including reach mowers, flail mowers and rotary cutters.This acquisition extends our product lines and market coverage in Europe.

      In early 2006, the Companypurchased substantially all of the assets of the Gradall excavator business (“*Gradall*”)of JLG Industries, Inc. including their manufacturing plant in NewPhiladelphia, Ohio. *Gradall* is a leading manufacturer of both wheeledand crawler telescopic excavators in North America. This acquisition hasenhanced our Industrial Division products which are sold to governmental buyersand related contractors for maintenance along right-of-ways. 

      In 2006, the Company purchasedthe vacuum truck and sweeper lines of Clean Earth Environmental Group, LLC andClean Earth Kentucky, LLC (collectively referred to as “*VacAll”).*Thisincludes the product lines, inventory and certain other assets that relate tothis business. The production of the vacuum truck line was moved to the *Gradall*facility in New Philadelphia, Ohio, and the sweeper line was merged into the *Schwarze*product line in Huntsville, Alabama.

      In, 2006, the Companyacquired 100% of the ownership interests in**Nite-Hawk Sweepers LLC (“*Nite-Hawk*”),a manufacturer of truck mounted sweeping equipment primarily for the contractsweeping market, which has expanded its presence in that market and complementsits *Schwarze* sweeper line. 

      On March 6, 2007, theCompany purchased Henke Manufacturing Corporation (“*Henke*”), amanufacturer of specialty snow removal attachments. *Henke*’s products aremounted on both heavy industrial equipment and medium to heavy-duty trucks. Theprimary end-users are governmental agencies, related contractors and otherindustrial users. 

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      On May 30, 2008, theCompany acquired Rivard Developpement S.A.S. (“*Rivard*”), a leadingFrench manufacturer of vacuum trucks, high pressure cleaning systems andtrenchers.  The acquisition broadened the Company’s product offering to itscustomers in Europe and other markets we serve.

      On October 22, 2009, the Company acquiredsubstantially all the assets of Bush Hog, LLC. (“*Bush Hog*”), a leadingagricultural equipment manufacturer of rotary cutters, finishing mowers, zeroturn radius mowers (“ZTRs”), front-end loaders, backhoes, landscape equipmentand a variety of other implements.  This acquisition, combined with theCompany’s range of agricultural mowers, creates one of the largest manufacturersof agricultural mowers in the world.

**Marketing and Marketing Strategy**

** **

      The Company believes thatwithin the U.S. it is a leading supplier to governmental markets, a majorsupplier in the U.S. agricultural market, and one of the largest suppliers inthe European market for its niche product offerings. The Company’s products aresold through the Company’s various marketing organizations and extensive worldwidedealer and distributor networks under the *Alamo Industrial*®*,Terrain King*®, *TigerTM, Gradall*®,*VacAllTM, Schwarze*®*,Nite-HawkTM, Henke*®*, Bush Hog*®*, Rhino*®*,M&W*®*,*,*SMCTM, HerschelTM*,*Valu-Bilt*®, *Fuerst*® ,*Schulte*®*,McConnel*®*, Bomford*®*, SpearheadTM, TwoseTM,SMA*®, *Forges GorceTM, FaucheuxTM, RousseauTM and Rivard*®* *trademarks as well as other**trademarks and trade names.
Products and DistributionChannelsNorth American Industrial
      *Alamo Industrial*equipment is principally sold through independent dealers to governmentalend-users, related independent contractors and, to a lesser extent, utility andother dealers serving right-of-way maintenance operators and other applicationsin the U.S. and other countries. Governmental agencies and contractors thatperform services for such agencies purchase primarily hydraulically-powered,tractor-mounted mowers, including boom-mounted mowers, other types of cuttersand replacement parts for heavy-duty, intensive use applications, including maintenancearound highway, airport, recreational and other public areas. A portion of *AlamoIndustrial’s* sales includes tractors, which are not manufactured by*AlamoIndustrial.*

      *Tiger* equipmentincludes heavy-duty, tractor- and truck-mounted mowing and vegetationmaintenance equipment and replacement parts. *Tiger* sells to state,county and local governmental entities and related contractors, primarilythrough a network of independent dealers. *Tiger’s* dealer distributionnetwork is independent of *Alamo Industrial’s* dealer distributionnetwork. A portion of *Tiger’s* sales includes tractors, which are notmanufactured by *Tiger.*

      *Schwarze* equipmentincludes air, mechanical broom, and regenerative air sweepers along withhigh-efficiency environmental sweepers, pothole patchers and replacement parts.*Schwarze* sells its products primarily to governmental agencies andindependent contractors, either directly or through its independent dealernetwork.  A portion of *Schwarze’s* sales includes chassis which are notmanufactured by *Schwarze*.  The Company believes that *Schwarze*complements *Alamo**Industrial* because the dealer and/or end-userfor both products in many cases are the same. 

      *Gradall* produces a rangeof models based on high-pressure hydraulic telescoping booms which are soldthrough dealers primarily to governmental agencies, contractors and to a lesserextent the mining industry, steel mills and other specialty applications in theU.S. and other countries. Many of these products are designed for excavation,grading, shaping and similar tasks involved in land clearing, road building ormaintenance. These products are available mounted on various types ofundercarriages: wheels for full-speed highway travel, wheels for on/off roaduse, and crawlers. 

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*      VacAll*producescatch basin cleaners and roadway debris vacuum systems. These units arepowerful and versatile with uses including, but not limited to, removal of wetand dry debris, spill elimination and cleaning of sludge beds. *VacAll*also offers a line of sewer cleaners. *VacAll* products are primarily soldthrough dealers to industrial and commercial contractors as well asgovernmental agencies.  A portion of *VacAll’s* sales includes chassiswhich are not manufactured at the *Gradall* facility.

      *Nite-Hawk* manufacturesparking lot sweepers with its unique and innovative hydraulic design. Byeliminating the auxiliary engine,*Nite-Hawk* sweepers have proven to befuel efficient, environmentally conscious, and cost effective to operate.*Nite-Hawk*focuses mainly on and sells direct to parking lot contractors.  A portion of*Nite-Hawk’s*sales includes chassis which are not manufactured by *Nite-Hawk*.

      *Henke*designs and manufactures snow plows and heavy-duty snow removal equipment,hitches and attachments for trucks, loaders and graders sold primarily throughindependent truck and industrial dealers. *Henke’s* primary end-users aregovernmental agencies, related contractors and other industrial users.

** **

**North American Agricultural**

      *Bush Hog,**Rhino*and*M&W* equipment is generally sold to farmers and ranchers to clear brush,maintain pastures and unused farmland, shred crops and till fields and forhaymaking. It is also sold to other customers, such as mowing contractors andconstruction contractors, for non-agricultural purposes. *Bush Hog* and *Rhino*equipment consists principally of a comprehensive line of tractor-poweredequipment, including rotary cutters, finishing mowers, flail mowers, discmowers, ZTR ride-on mowers, front-end loaders, backhoes, rotary tillers, postholediggers, scraper blades and replacement parts. This equipment is primarily soldthrough farm equipment dealers, as well as original equipment manufacturers (“OEMs”)and other distributors. 

*      SMC* equipment includes a broad line of front-endloaders and backhoes that fit many tractors on the market today. The majorityof the products are sold to OEMs and, to a lesser extent, as *Rhino*branded equipment.

      *Herschel/Valu-Bilt*aftermarketreplacement parts are sold for many types of farm equipment and tractors andcertain types of mowing and construction equipment. *Herschel*productsinclude a wide range of cutting parts, plain and hard-faced replacement tillagetools, disc blades and fertilizer application components. *Herschel*replacement tools and parts are sold throughout the United States, Canada andMexico to five major customer groups: farm equipment dealers; fleet stores;wholesale distributors; OEMs; and construction equipment dealers. *Valu-Bilt*complements the *Herschel* product lines while also expanding theCompany’s offering of aftermarket agricultural parts and added catalog andinternet sales direct to end-users.

      *Schulte* equipment includes heavy-duty mechanicalrotary mowers, snow blowers, rock removal equipment and related replacementparts. *Schulte*serves both the agricultural and industrial marketsprimarily in Canada and the U.S. *Schulte* also sells some of theCompany’s other product lines in their markets and some of its products throughindependent distributors throughout the world.

** **

**European**

** **

      *McConnel* equipment principally includes a broad lineof hydraulic, boom-mounted hedge and grass cutters, as well as other tractorattachments and implements such as hydraulic backhoes, cultivators, subsoilers,buckets and other digger implements and related replacement parts. *McConnel*equipment is sold primarily in the U.K., Ireland and France and in other partsof Europe and, to a lesser extent, throughout the world through independentdealers and distributors.

 

*      Bomford*equipmentincludes hydraulic, boom-mounted hedge and hedgerow cutters, industrial grassmowers, agricultural seedbed preparation cultivators and related replacementparts. *Bomford* equipment is sold to governmental agencies, contractorsand agricultural end-users in the U.K., Ireland and France and, to a lesserextent, other countries in Europe, North America, Australia and the Far East. *Bomford’s*sales network is similar to that of *McConnel* in the U.K. *Rhino*sells some of *Bomford’s* product line in the U.S.

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      *SMA* equipmentincludes hydraulic, boom-mounted hedge and hedgerow cutters and relatedreplacement parts. *SMA’s* principal customers are French localauthorities. *SMA’s* product offerings include certain quick-attach boommowers manufactured by the Company in the U.K. to expand its presence inagricultural dealerships. *Forges Gorce*manufactures flail blades whichare sold to some of the Company’s subsidiaries as well as to other customers.

      *Twose* equipmentincludes light-duty power arm mowers, agricultural implements and relatedreplacement parts. *Twose* products are manufactured at the Company’s U.K.facilities. These products are sold through *Twose’s* dealer distributionnetwork in the U.K. and through *Faucheux’s* and other independentdistributors internationally.

      The addition of *Spearhead*expanded the Company’s product lines, particularly rotary cutters, and marketcoverage in Europe and increased utilization of our U.K. manufacturingfacilities.

      *Faucheux* equipment includes front-end loaders,backhoes, attachments and related parts. Historically, the majority of *Faucheux*sales have been in France, but the Company has expanded market coverage to other countries.

 

      *Rousseau* sells hydraulic andmechanical boom mowers, primarily in France through its own sales force anddealer distribution network to mainly agricultural and governmental markets.These products have also been introduced into other markets outside of France.

 

      *Rivard*manufactures vacuumtrucks, high pressure cleaning systems and trenchers.  *Rivard’s*equipment is primarily sold in France and certain other markets, mainly inEurope, to governmental entities and related contractors.  It also complementsour product offerings in North America.

 

**Replacement Parts**

      In addition to the sales of *Herschel*replacement parts, the Company derives a significant portion of itsrevenues from sales of replacement parts for each of its wholegoods lines.Replacement parts represented approximately 24%, 23% and 26% of the Company’stotal sales for the years ended December 31, 2007, 2008 and 2009, respectively.The percentage increase in 2009 was mainly from a change in sales mix betweenwholegoods and parts. Proprietary replacement parts generally are moreprofitable and less cyclical than wholegoods.

 

      Whilethe Company believes that the end-users of its products evaluate theirpurchases on the basis of price, reputation and product quality, such purchasesare also based on a dealer’s service, support of and loyalty to the dealerbased on previous purchase experiences, as well as other factors such asproduct and replacement part availability.

**ProductDevelopment**

      TheCompany’s ability to provide innovative responses to customer needs, to developand manufacture new products, and to enhance existing product lines isimportant to its success. The Company continually conducts research anddevelopment activities in an effort to improve existing products and develop newproducts. As of December 31, 2009, the Company employed 131 people in itsvarious engineering departments, 57 of whom are degreed engineers and thebalance of whom are support staff. Amounts expended on research and developmentactivities were approximately $4,762,000 in 2009, $5,443,000 in 2008 and$5,185,000 in 2007. As a percentage of sales, research and development wasapproximately 1.0% in 2009, 1.0% in 2008 and 1.0% in2007, and is expected to continue at similar levels in 2010.

**Seasonality**

      TheCompany’s sales, both product and spare parts, are generally higher in thesecond and third quarters of the year because a substantial number of theCompany’s products are used for maintenance activities such as vegetationmaintenance, highway right-of-way maintenance, construction, and street andparking lot sweeping. Usage of this equipment is lower in harsh weather.  TheCompany utilizes a rolling twelve-month sales forecast provided by the Company’s marketing departments and order backlogin order to develop a production plan for its manufacturing facilities.Additionally, many of the Company’s marketing departments attempt to equalizedemand for products throughout the calendar year by offering seasonal salesprograms which may provide additional incentives, including discounts andextended payment terms, under these programs.

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**Competition**

**     **The Company’s products are sold in highly competitivemarkets throughout the world. The principal competitive factors are price,quality, availability, service and reputation. The Company competes withseveral large national and international companies that offer a broad range ofequipment and replacement parts, as well as numerous small, privately-heldmanufacturers and suppliers of a limited number of products, mainly on aregional basis. Some of the Company’s competitors are significantly larger thanthe Company and have substantially greater financial and other resources attheir disposal. The Company believes that it is able to compete successfully inits markets by effectively managing its manufacturing costs, offering highquality products, developing and designing innovative products and, to someextent, avoiding direct competition with significantly larger potentialcompetitors. There can be no assurance that the Company’s competitors will notsubstantially increase the resources devoted to the development and marketingof products competitive with the Company’s products or that new competitorswith greater resources will not enter the Company’s markets.

**Unfilled Orders**

**     **As of December 31, 2009, the Company hadunfilled customer orders of $71,333,000 compared to $64,071,000 at December 31,2008. The 11% increase was a result of the acquisition of *Bush Hog*.  TheCompany continues to be affected by soft market conditions due to the downturnin the global economy.  Management expects that substantially all of theCompany’s backlog as of December 31, 2009 will be shipped during fiscalyear 2010. The amount of unfilled orders at a particular time is affected by anumber of factors, including manufacturing and shipping schedules which, inmost instances, are dependent on the Company’s**seasonal sales programsand the requirements of its customers. Certain of the Company’s orders aresubject to cancellation at any time before shipment; therefore, a comparison ofunfilled orders from period to period is not necessarily meaningful and may notbe indicative of future actual shipments. No single customer is responsible forsupplying more than 10% of the aggregate revenue ofthe Company.

**Sources of Supply**

       Theprincipal raw materials used by the Company include steel, other metals andhydraulic tubing.  During 2009, the raw materials needed by the Company wereavailable from a variety of sources in adequate quantities and at prevailingmarket prices.  No one supplier is responsible for supplying more than 10% ofthe principal raw materials used by the Company.

 

       Whilethe Company manufactures many of the parts for its products, a significantpercentage of parts, including most drivelines, gear boxes, industrial engines,and hydraulic components, are purchased from outside suppliers whichmanufacture to the Company’s specifications.  In addition, the Company, throughits subsidiaries, purchases tractors and truck chassis as a number of theCompany’s products are mounted and shipped with a tractor or truck chassis.Tractors and truck chassis are generally available, but some delays inreceiving tractors or truck chassis can occur throughout the year. Some of theU.S. truck chassis and industrial engines used in the Company’s products andmanufactured after January 1, 2010, will be required to meet Tier IV federalguidelines for emission controls, which will increase the cost of our units andour working capital requirements.  Other jurisdictions, particularly in Europe,have already implemented similar requirements.  The Company sources itspurchased goods from international and domestic suppliers.  No single supplieris responsible for supplying more than 10% of the purchased goods used by theCompany. 

** **

**Patents and Trademarks**

** **

      TheCompany owns various U.S. and international patents. While the Companyconsiders its patents to be advantageous to its business, it is not dependenton any single patent or group of patents. The Company amortizes approximately $79,000annually in patents and trademarks relating to the industrial segment. The netbook value of the patents and trademarks was $5,803,000 and $3,982,000 as of December 31, 2009 and 2008,respectively. 

 

      Products manufactured bythe Company are advertised and sold under numerous trademarks. *AlamoIndustrial*®, *Terrain King*®, *Gradall*®*,VacAllTM, Henke*®*, Bush Hog*®,*Rhino*®, *McConnel*®*, Bomford*®*, SMA*®,*Schwarze*®,*Nite-HawkTM, TigerTM, Schulte®,Forges GorceTM, TwoseTM, FaucheuxTM, HerschelTM,Valu-Bilt®,* *Rivard*®*, RousseauTM* and *SpearheadTM*trademarks are the primary marks for the Company’s products. The Companyalso owns other trademarks which it uses to a lesser extent, such as *M&W*®,*SMCTM,**Fuerst*®, *Triumph*®,*Mott*®*, Turner*®*,*and*Dandl*®. Management believes that theCompany’s trademarks are well known in its markets and are valuable and thattheir value is increasing with the development of its business. The Companyactively protects its trademarks against infringement and believes it hasapplied for or registered its trademarks in the appropriate jurisdictions.

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**Environmental and OtherGovernmental Regulations**

      Like other manufacturers, the Company is subject to a broadrange of federal, state, local and foreign laws and requirements, includingthose concerning air emissions, discharges into waterways, and the generation,handling, storage, transportation, treatment and disposal of hazardoussubstances and waste materials, as well as the remediation of contaminationassociated with releases of hazardous substances at the Company’s facilitiesand offsite disposal locations, workplace safety and equal employment opportunities.These laws and regulations are constantly changing, and it is impossible topredict with accuracy the effect that changes to such laws and regulations mayhave on the Company in the future. Like other industrial concerns, theCompany’s manufacturing operations entail the risk of noncompliance, and therecan be no assurance that the Company will not incur material costs or otherliabilities as a result thereof. 

 

      The Company knows that its Indianola, Iowa property iscontaminated with chromium which most likely resulted from chrome platingoperations which were discontinued before the Company purchased the property.Chlorinated volatile organic compounds have also been detected in water sampleson the property, though the source is unknown at this time. The Companyvoluntarily worked with an environmental consultant and the state of Iowa withrespect to these issues and believes it completed its remediation program inJune 2006. The work was accomplished within the Company’s environmental liabilityreserve balance. We requested a “no further action” classification from thestate.  We received a conditional “no further action” letter in January of2009.  When we demonstrate stable or improving conditions below residentialstandards by monitoring existing wells, an unconditional “no further action”letter will be requested.

 

      AtDecember 31, 2009, the Company had an environmental reserve in the amount of$1,608,000 related to the acquisition of *Gradall’s* facility in NewPhiladelphia, Ohio.  Three specific remediation projects that were identifiedprior to the acquisition are in process of remediation with a remaining reservebalance of $143,000.  The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be abated over time.  The balanceof the reserve, $1,188,000, is mainly for potentialground water contamination/remediation that was identified before theacquisition and believed to have been generated by a third party companylocated near the *Gradall* facility.  

 

      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.

 

      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.

 

      The Company is subject tovarious other federal, state, and local laws affecting its business, as well asa variety of regulations relating to such matters as working conditions, equalemployment opportunities, and product safety. A variety of state laws regulatethe Company’s contractual relationships with its dealers, some of which imposerestrictive standards on the relationship between the Company and its dealers,including events of default, grounds for termination, non-renewal of dealercontracts and equipment repurchase requirements. The Company believes it iscurrently in material compliance with all such applicable laws and regulations.

**Employees**

      As of December 31, 2009,the Company employed 2,340employees. In the U.S. the Company has collectivebargaining agreements at the *Gradall* facility which cover 140employees and will expire in March 2010 and at the *SMC*facility covering 38 employees which will expire on June 30, 2012. TheCompany’s European operations, *McConnel,**Bomford*, *SMA*,*ForgesGorce,**Faucheux, Rousseau and Rivard,* also have various collectivebargaining agreements covering 900 employees.The Company considers its employee relations to be satisfactory. 

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**Financial Information aboutSegments**

      See Note 15 of theaccompanying consolidated financial statements.
International Operationsand Geographic Information
      See Note 16 of theaccompanying consolidated financial statements.
Available Information
TheCompany files annual, quarterly and current reports, proxy statements and otherinformation with the Securities and Exchange Commission (the “SEC”). You mayread and copy any document we file with the SEC at the SEC’s Public ReferenceRoom at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for information on the operation of the Public Reference Room.The SEC maintains a website that contains annual, quarterly and currentreports, proxy and information statements and other information that issuers(including the Company) file electronically with the SEC. The SEC’s website ishttp://  www.sec.gov.

TheCompany’s website is   www.alamo-group.com. The Company makes available free of chargethrough its website, via a link to the SEC’s website at   www.sec.gov, its annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and any amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonablypracticable after such material is electronically filed with, or furnished to,the SEC. The Company also makes available through its website, via a link tothe SEC’s website, statements of beneficial ownership of the Company’s equitysecurities filed by its directors, officers, 10% or greater shareholders andothers required to file under Section 16 of the Exchange Act.

TheCompany also makes available on its website its most recent annual report onForm 10-K, its quarterly reports on Form 10-Q for the current fiscal year, itsmost recent proxy statement and its most recent annual report to stockholders, althoughin some cases these documents are not available on our site as soon as they areavailable on the SEC’s site. You will need to have on your computer the AdobeAcrobat Reader® software to view the documents, which are in PDF format. Inaddition, the Company posts on its website its Charters for its AuditCommittee, Compensation Committee and Nominating/Corporate GovernanceCommittee, as well as its Corporate Governance Policies and its Code of Conductand Ethics for its directors, officers and employees. You can obtain a writtencopy of these documents, excluding exhibits, at no cost, by sending yourrequest to the Corporate Secretary, Alamo Group Inc., 1627 E. Walnut Street,Seguin, Texas 78155, which is the principal corporate office of the Company.The telephone number is (830) 379-1480 ext. 1670. The information on theCompany’s website is not incorporated by reference into this report.
Forward-LookingInformation
      Part I of thisAnnual Report on Form 10‐K and the “Management’s Discussion and Analysisof Financial Condition and Results of Operations” included in Part II of thisAnnual 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 arenot historical are forward-looking. When used by us or on our behalf, the words“will,” “estimate,” “believe,” “intend,” “could,” “should,” “anticipate,”“project,” “forecast,” “plan,” “may” and similar expressions generally identifyforward-looking statements made by us or on our behalf. Forward-lookingstatements involve risks and uncertainties. These uncertainties include factorsthat affect all businesses operating in a global market, as well as mattersspecific to the Company and the markets we serve. Certain particular risks anduncertainties that continually face us include the following:
-  budget constraints andrevenue shortfalls which could affect the purchases of our type of equipment bygovernmental customers and related contractors;
-  market acceptance ofnew and existing products;
-  our ability tomaintain good relations with our employees; 
-  our ability to hireand retain quality employees; and
-  decreases in theprices of agricultural commodities, which could affect our customers’   incomelevels.

 

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      In addition, we aresubject to risks and uncertainties facing the industry in general, includingthe following:
-  impact of tightercredit markets on the Company, its dealers and end-users;
-  changes in businessand political conditions and the economy in general in both domestic andinternational markets;
-  increase in unfundedpension plan liability due to financial market deterioration;
-  price and availabilityof critical raw materials, particularly steel and steel products; 
-  increased competition; 
-  our ability to developand manufacture new and existing products profitably;
-  adverse weatherconditions such as droughts and floods which can affect the buying patterns ofour customers and related contractors;
-  increased costs ofcomplying with new regulations which affect public companies;
-  the potential effectson the buying habits of our customers due to animal disease outbreaks such asmad cow and other epidemics;
-  impairment in thecarrying value of goodwill;
-  adverse marketconditions and credit constraints which could affect our customers, such ascutbacks on dealer stocking levels;
-  changes in marketdemand;
-  financial marketchanges including increases in interest rates and fluctuations in foreignexchange rates;
-  actions ofcompetitors;
-  the inability of oursuppliers, customers, creditors, public utility providers and financial serviceorganizations to deliver or provide their products or services to us; 
-  seasonal factors inour industry;
-  unforeseen litigation; 
-  changes in domesticand foreign governmental policies and laws, including increased   levels ofgovernment regulation and changes in agricultural policies; 
-  government actionsincluding budget levels, regulations and legislation, relating to theenvironment, commerce, infrastructure spending, health and safety; and 
-  amount of farmsubsidies and farm payments.

      We wish to caution readers not to place undue reliance onany forward-looking statement and to recognize that the statements are notpredictions of actual future results. Actual results could differ materiallyfrom those anticipated in the forward-looking statements and from historicalresults, due to the risks and uncertainties described above and under “RiskFactors,” as well as others not now anticipated. The foregoing statements arenot exclusive and further information concerning us and our businesses,including factors that could potentially materially affect our financialresults, may emerge from time to time. It is not possible for management topredict all risk factors or to assess the impact of such risk factors on theCompany’s businesses.

 

 

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Executive Officers of the Company
 

      Certain informationis set forth below concerning the executive officers of the Company, each ofwhom has been elected to serve until the 2010 annual meeting of directors oruntil his successor is duly elected and qualified.

Name

** **

**Age**

** **

Position
Ronald A. Robinson			 
57			    President and Chief			Executive Officer
Dan E. Malone

 

49

 

   Executive Vice President and Chief Financial Officer

Robert H. George 

 

63

 

   Vice President, Secretary  and Treasurer

Richard J. Wehrle

 

53

 

   Vice  President and Controller

Donald C. Duncan

 

58

 

   Vice President and General Counsel			

Geoff Davies

 

62

 

   Vice President, Alamo Group  Inc. and Managing       Director, Alamo Group (EUR) Ltd.			

Richard D. Pummell

 

63

 

   Vice President, Alamo Group  Inc. and Executive       Vice President Alamo Group  (USA) Inc., Agricultural Division

 

        Ronald A. Robinson was appointed President, Chief ExecutiveOfficer and a director of the Company on July 7, 1999. Mr. Robinson hadpreviously been President of Svedala Industries, Inc., the U.S. subsidiary ofSvedala Industries AB of Malmo, Sweden, a leading manufacturer of equipment andsystems for the worldwide construction, mineral processing and materialshandling industries. Mr. Robinson joined Svedala in 1992 when it acquiredDenver Equipment Company of which he was Chairman and Chief Executive Officer.

      Dan E. Malone wasappointed Executive Vice President, Chief Financial Officer on January 15,2007. Prior to joining the Company, Mr. Malone held the position of ExecutiveVice President, Chief Financial Officer & Corporate Secretary at IglooProducts Corporation, from 2002 to January 2007. Mr. Malone was Vice Presidentand Chief Financial Officer of The York Group, Inc. from 2000 to 2002 and heldvarious financial positions from 1987 to 2000 with Cooper Industries, Inc. andits various subsidiaries.

      Robert H. Georgejoined the Company in May 1987 as Vice President and Secretary/Treasurer andhas served the Company in various executive capacities since that time. Priorto joining the Company, Mr. George was Senior Vice President of Frost NationalBank from 1978 to 1987.

      Richard J. Wehrlehas been Vice President and Controller of the Company since May 2001. Prior tohis appointment, Mr. Wehrle served in various accounting management capacitieswithin the Company since 1988.

      Donald C. Duncan has beenGeneral Counsel of the Company since January 2002 and was elected VicePresident in February 2003. Prior to joining the Company, Mr. Duncan wascounsel for various publicly held companies in Houston, Texas and most recentlywas Associate General Counsel for EGL, Inc. from 2000 to 2001 and SeniorCounsel for Weatherford International Inc. from 1997 to 1999. 

      GeoffDavies, OBE and PhD, has been Managing Director of Alamo Group (EUR) Ltd. sinceDecember 1993 and was elected Vice President of the Company in February 2003.From 1988 to 1993, Dr. Davies served *McConnel* Ltd., a U.K. companyacquired by Alamo Group in 1991, in various capacities including serving as itsMarketing Director from February 1992 until December 1993.

 

      RichardD. Pummell was elected Vice President of Alamo Group Inc. in November 2009. Mr. Pummell joined the Company in 2005 as Executive Vice President of AlamoGroup (USA) Inc. and is in charge of the Agricultural division.  Prior tojoining the Company, Mr. Pummell was Vice President for Global Supply andGeneral Manager of Metso Minerals.

 

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**Item 1A.Risk Factors**

      You should carefullyconsider each of the risks described below, together with all of the otherinformation contained in this Annual Report on Form 10-K, before making aninvestment decision with respect to the Company’s securities. If any of thefollowing risks develop into actual events, the Company’s business, financialcondition or results from operations could be materially and adversely affectedand you could lose all or part of your investment. 

**Risksrelated to our business**

** **

**Deteriorationof industry conditions could harm our business, results of operations andfinancial condition.**

** **

      Our business depends to alarge extent upon the prospects for the mowing, right-of-way maintenance andagricultural markets in general. Future prospects of the industry dependlargely on factors outside of our control. Any of those factors could adverselyimpact demand for our products, which could adversely impact our business,results of operations and financial condition. These factors include thefollowing:
-  weakness in worldwide economy;
-  the price and availability of raw materials, purchased  componentsand energy;
-  budget constraints and revenue shortfalls for our governmentalcustomers;
-  changes in domestic and foreign governmental policies and laws,including increased levels of  governmental regulation; 
-  the levels of interest rates; 
-  the value of the U.S. dollar relative to the foreign currencies incountries where we sell our  products and in which we don’t have amanufacturing presence;
-  impact of tighter credit markets on the Company, its dealers and end-users; 
-  impairment in the carrying value of goodwill; and 
-  increase in unfunded pension plan liability due to financialmarket deterioration.

      In addition, our business is susceptible to a number offactors that specifically affect agricultural customer spending patterns,including the following: 
-  animal disease outbreaks, epidemics and crop pests; 
-  weather conditions, such as droughts and floods; 
-  changes in farm incomes;
-  cattle and agricultural commodity prices;
-  changes in governmental agricultural policies worldwide; 
-  the level of worldwide farm output and demand for farm products;and
-  limits on agricultural imports.

**Adownturn in general economic conditions and outlook in the United States andaround the world could adversely affect our net sales and earnings.**

      The strength andprofitability of our business depends on the overall demand for our productsand upon economic conditions and outlook, including but not limited to economicgrowth rates; consumer spending levels; financing availability, pricing andterms for our dealers and end-users; employment rates; interest rates;inflation; consumer confidence and general economic and political conditionsand expectations in the United States and the foreign economies in which weconduct business.  Slow or negative growth rates, inflationary pressures,higher commodity costs and energy prices, reduced credit availability orunfavorable credit terms for our dealers and end-user customers, increasedunemployment rates, and continued recessionary economic conditions and outlookcould cause consumers to continue to reduce spending, which may cause them todelay or forego purchases of our products and could have an adverse effect onour net sales and earnings.

** **

**We dependon governmental sales and a decrease in such sales could adversely affect us.**

** **

Asubstantial portion of our revenues is derived from sales to federal, state andlocal governmental entities. These sales depend primarily on the levels ofbudgeted and appropriated expenditures for highway, airport, roadside and parksmaintenance by various governmental entities and are affected by changes inlocal and national economic conditions.

 

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**Ourdependence on, and the price and availability of, raw materials as well aspurchased components may adversely affect our business, results of operationsand financial condition.**

We are subject to fluctuations in market prices for raw materialssuch as steel and energy.  Additionally, although most of the raw materials andpurchase components we use are commercially available from a number of sources,we could experience disruptions in the availability of such materials. If weare unable to purchase materials we require or are unable to pass on priceincreases to our customers or otherwise reduce our cost of goods sold, ourbusiness, results of operations and financial condition may be adverselyaffected. In addition, higher energy costs may negatively affect spending byfarmers, including their purchases of our products. 

**Impairment in the carrying value of goodwill could negativelyimpact our consolidated results of operations and net worth.**

      The Company estimates thefair value of its reporting units using a discounted cash flow analysis. Thisanalysis requires the Company to make significant assumptions and estimatesabout the extent and timing of future cash flows, discount rates and growth rates.The cash flows are estimated over a significant future period of time, whichmakes those estimates and assumptions subject to an even higher degree ofuncertainty. The Company also utilizes market valuation models and otherfinancial ratios, which require the Company to make certain assumptions andestimates regarding the applicability of those models to its assets andbusinesses. The Company believes that the assumptions and estimates used todetermine the estimated fair values of each of its reporting units arereasonable. However, different assumptions could materially affect the estimated fairvalue. The Company recognized goodwill impairment in the North AmericanIndustrial segment of $14,104,000 in 2009 and $5,010,000 in the North AmericanAgricultural segment in 2008.  No goodwill impairment was recorded in 2007.  As of December 31, 2009, goodwill was $35,207,000, which represents 9%of total assets.  Duringthe 2009 impairment analysis review, it was noted that even though the Schwarzereporting unit’s fair value was above carrying value it was not materiallydifferent. At December 31, 2009, there was approximately $6.8 million ofgoodwill related to the Schwarze reporting unit. This reporting unit would bemost likely affected by changes in the Company’s assumptions and estimates. Thecalculation of fair value could increase or decrease depending on changes inthe inputs and assumptions used, such as changes in the reporting unit’s futuregrowth rates, discount rates, etc.  

**We operate in a highly competitive industry, and some of ourcompetitors and potential competitors have greater resources than we do.**

Our products are sold in highly competitive markets throughout theworld. We compete with several large national and international companies thatoffer a broad range of equipment and replacement parts that compete with ourproducts, as well as numerous small, privately-held manufacturers and suppliersof a limited number of products mainly on a regional basis. Some of ourcompetitors are significantly larger than we are and have substantially greaterfinancial and other resources at their disposal. We believe that we are able tocompete successfully in our markets by, to some extent, avoiding directcompetition with significantly larger potential competitors. There can be noassurance that our competitors will not substantially increase the resourcesdevoted to the development and marketing of products competitive with ourproducts or that new competitors with greater resources will not enter ourmarkets. Any failure to effectively compete could have an adverse effect on ourbusiness, results of operations and financial condition.

**Weoperate and source internationally, which exposes us to the political, economicand other risks of doing business abroad.**

** **

We haveoperations in a number of countries outside of the United States. Ourinternational operations are subject to the risks normally associated withconducting business in foreign countries, including but not limited to the following:
-  limitationson ownership and on repatriation of earnings;
-  importand export restrictions, tariffs and quotas;
-  additionalexpenses relating to the difficulties and costs of staffing and managinginternational operations;
-  labordisputes and uncertain political and economic environments and the impact offoreign business cycles;
-  changesin laws or policies;

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-  delaysin obtaining or the inability to obtain necessary governmental permits;
-  potentiallyadverse consequences resulting from the applicability of foreign tax laws; 
-  culturaldifferences; 
-  increasedexpenses due to inflation; 
-  weakeconomic conditions in foreign markets where our subsidiaries distribute theirproducts; 
-  changesin currency exchange rates; and
-  disruptionsin transportation and port authorities.

Our internationaloperations may also be adversely affected by laws and policies of the UnitedStates and the other countries in which we operate affecting foreign trade,investment and taxation. 

 

Inaddition, political developments and governmental regulations and policies inthe countries in which we operate directly affect the demand for our products.For example, decreases or delays in farm subsidies to our agriculturalcustomers, or changes in environmental policies aimed at limiting mowingactivities, could adversely affect our business, results of operations andfinancial condition. 

**Our acquisition strategy may not be successful, which mayadversely affect our business, results of operations and financial condition.**

We intend to grow internally and through the acquisition ofbusinesses and assets that will complement our current businesses. To date, amaterial portion of our growth has come through acquisitions. We cannot becertain that we will be able to identify attractive acquisition targets, obtainfinancing for acquisitions on satisfactory terms or successfully acquireidentified targets. Competition for acquisition opportunities may also increaseour costs of making acquisitions or prevent us from making certainacquisitions. These and other acquisition-related factors may adversely impactour business, results of operations and financial condition.

**We may be unable to complete or integrate existing or futureacquisitions effectively, and businesses we have acquired, or may acquire inthe future, may not perform as expected.**

We may not be successful in integrating acquired businesses intoour existing operations and achieving projected synergies. We could face manyrisks in integrating acquired businesses, but not limited to the following:
-  we may incur substantial costs, delays or other operational orfinancial challenges in integrating acquired businesses, including integratingeach company's accounting, information technology, human resource and otheradministrative systems to permit effective management;
-  we may be unable to achieve expected cost reductions, to takeadvantage of cross-selling opportunities, or to eliminate redundant operations,facilities and systems;
-  we may need to implement or improve controls, procedures andpolicies appropriate for a public company;
-  acquisitions may divert our management’s attention from theoperation of our businesses;
-  we may not be able to retain key personnel of acquired businesses;	
-  there may be cultural challenges associated with integratingmanagement and employees from the acquired businesses into our organization;and
-  we may encounter unanticipated events, circumstances or legalliabilities.

   Our integration of acquired businesses requires significantefforts from the management of each entity, including coordinating existingbusiness plans and research and development efforts. Integrating operations maydistract management’s attention from the day-to-day operation of the combinedcompanies. Ultimately, our attempts to integrate the operations, technology andpersonnel of acquired businesses may not be successful. If we are unable tosuccessfully integrate acquired businesses, our future results may benegatively impacted.

   In addition, we may be adversely affected if businesses that wehave acquired, or that we acquire in the future, do not perform as expected. Anacquired business could perform below our expectations for a number of reasons,including legislative or regulatory changes that affect the areas in which theacquired business specializes, the loss of customers and dealers, generaleconomic factors that directly affect the acquired business, and the culturalincompatibility of its management team. Any or all of these reasons could adverselyaffect our business, results of operation and financial condition. 

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**The agricultural industry and the mowing and growth maintenanceindustry are seasonal and are affected by the weather, and seasonalfluctuations may cause our results of operations and working capital tofluctuate from quarter to quarter.**

In general, agricultural and governmental end-users typicallypurchase new equipment during the first and second calendar quarters. Otherproducts such as street sweepers, excavators, snow blowers, front-end loadersand pothole patchers have different seasonal patterns, as do replacement partsin general. In attempting to achieve efficient utilization of manpower andfacilities throughout the year, we estimate seasonal demand months in advanceand manufacturing capacity is scheduled in anticipation of such demand. Weutilize a rolling twelve-month sales forecast provided by our marketingdivisions and order backlog in order to develop a production plan for ourmanufacturing facilities. Additionally, many of our marketing departmentsattempt to equalize demand for their products throughout the calendar year byoffering seasonal sales programs which may provide additional incentives,including discounts and extended payment terms, on equipment that is orderedduring off-season periods. Because we spread our production and wholesaleshipments throughout the year to take into account the factors described above,sales in any given period may not reflect the timing of dealer orders andretail demand.

   Weather conditions and general economic conditions may affectthe timing of purchases and actual industry conditions might differ from ourforecasts. Consequently, we cannot assure that sudden or significant declinesin industry demand would not adversely affect our working capital or results ofoperations.

**If we do not retain key personnel and attract and retain otherhighly skilled employees, our business may suffer**.

Our continued success will depend on, among other things, theefforts and skills of our executive officers, including our president and chiefexecutive officer, and our ability to attract and retain additional highlyqualified managerial, technical, manufacturing and sales and marketingpersonnel. We do not maintain “key man” life insurance for any of ouremployees, and all of our senior management are employed at will. We cannotassure you that we will be able to attract and hire suitable replacements forany of our key employees. We believe the loss of a key executive officer orother key employee could have an adverse effect on our business, results ofoperations and financial condition. 

**We are subject on an ongoing basis to the risk of productliability claims and other litigation arising in the ordinary course ofbusiness.**

Like other manufacturers, we are subject to various claims,including product liability claims, arising in the ordinary course of business,and we are a party to various legal proceedings that constitute routinelitigation incidental to our business. We may be exposed to product liabilityclaims in the event that the use of our products results, or is alleged toresult, in bodily injury, property damage, or both. We cannot assure you thatwe will not experience any material product liability losses in the future orthat we will not incur significant costs to defend such claims. While wecurrently have product liability insurance, we cannot assure you that ourproduct liability insurance coverage will be adequate for any liabilities thatmay ultimately be incurred or that it will continue to be available on termsacceptable to us. A successful claim brought against us in excess of availableinsurance coverage or a requirement to participate in a product recall may havea materially adverse effect on our business.

**We are subject to environmental, health and safety and employmentlaws and regulations and related compliance expenditures and liabilities.**

Like other manufacturers, the Company is subject to a broad rangeof federal, state, local and foreign laws and requirements, including thoseconcerning air emissions, discharges into waterways, and the generation,handling, storage, transportation, treatment and disposal of hazardoussubstances and waste materials, as well as the remediation of contaminationassociated with releases of hazardous substances at our facilities and offsitedisposal locations, workplace safety and equal employment opportunities. Theselaws and regulations are constantly changing, and it is impossible to predictwith accuracy the effect that changes to such laws and regulations may have onus in the future. Like other industrial concerns, our manufacturing operationsentail the risk of noncompliance, and there can be no assurance that we willnot incur material costs or other liabilities as a result thereof. 

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      The Company knows that its Indianola, Iowa property iscontaminated with chromium which most likely resulted from chrome platingoperations which were discontinued before the Company purchased the property.Chlorinated volatile organic compounds have also been detected in water sampleson the property, though the source is unknown at this time. The Companyvoluntarily worked with an environmental consultant and the state of Iowa withrespect to these issues and believes it completed its remediation program inJune 2006. The work was accomplished within the Company’s environmentalliability reserve balance. We requested a “no further action” classificationfrom the state.  We received a conditional “no further action” letter inJanuary of 2009.  When we demonstrate stable or improving conditions belowresidential standards by future monitoring of existing wells, an unconditional“no further action” letter will be requested.

 

      At December 31, 2009, the Company had an environmentalreserve in the amount of$1,608,000 related to the acquisition of *Gradall’s* facility in NewPhiladelphia, Ohio.  Three specific remediation projects that were identifiedprior to the acquisition are in process of remediation with a remaining reservebalance of $143,000.  The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be abated over time.  The balanceof the reserve, $1,188,000, is mainly for potentialground water contamination/remediation that was identified before theacquisition and believed to have been generated by a third party companylocated near the *Gradall* facility.  

 

      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.

**     **

** **

      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.

** **

     Wehave incurred and will continue to incur capital and other expenditures tocomply with the laws and regulations applicable to our operations. In particular, if wefail to comply with any environmental regulations, then we could be subject tofuture liabilities, fines or penalties or the suspension of production at ourmanufacturing facilities. If unexpected obligations at these or other sites ormore stringent environmental laws are imposed in the future, our business,results of operations and financial condition may be adversely affected.

** **

**Fluctuationsin currency exchange rates may adversely affect our financial results.**

 

Ourearnings are affected by fluctuations in the value of the U.S. dollar as comparedto foreign currencies, predominantly in European countries, Canada andAustralia, as a result of the sale of our products in international markets.While we do hedge against such fluctuations to an extent (primarily in the U.K.market), we cannot assure you that we will be able to effectively manage theserisks. Significant long-term fluctuations in relative currency values, such asa devaluation of the Euro against the U.S. dollar, could have an adverse effecton our future results of operations or financial condition.

 

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** **

**Risks related to investing in ourcommon stock**

** **

**Becausethe price of our common stock may fluctuate significantly and its tradingvolume has generally been low, it may be difficult for you to resell our commonstock when desired or at attractive prices.**

 

Thetrading price of our common stock has and may continue to fluctuate. Theclosing prices of our common stock on the NYSE during 2009 ranged from $17.15 to $9.37 pershare, and during 2008 from $25.98 to $10.80 per share. Our stock price may fluctuate in response to the risk factors set forthherein and to a number of events and factors, such as quarterly variations inoperating and financial results, litigation, changes in financial estimates andrecommendations by securities analysts, the operating and stock performance ofother companies that investors may deem comparable to us, news reports relatingto us or trends in our industry or general economic conditions. Furthermore, the trading volume of our common stock has generally beenlow, which may increase the volatility of the market price for our stock. Thestock price volatility and low trading volume may make it difficult for you toresell your shares of our common stock when desired or at attractive prices.

**You may experience dilution of your ownership interests due to thefuture issuance of additional shares of our common stock.**

We may issue shares of our previously authorized and unissuedsecurities which will result in the dilution of the ownership interests of ourpresent stockholders. We are currently authorized to issue 20,000,000 shares ofcommon stock. At December 31, 2009, 11,746,929 shares of our common stock were issuedand outstanding, and there were outstanding options to purchase an additional539,480 shares of our common stock. We also have additional shares availablefor grant under our 2005 Incentive Stock Option Planand our 2009 Equity Incentive Plan.  Additional stock option or othercompensation plans or amendments to existing plans for employees and directorsmay be adopted. Issuance of these shares of common stock may dilute theownership interests of our then existing stockholders. We may also issueadditional shares of our common stock in connection with the hiring ofpersonnel, future acquisitions, such as the 1,700,000 shares issued asconsideration for the acquisition of *Bush Hog*, future private placementsof our securities for capital raising purposes or for other business purposes. This would further dilute the interests of our existing stockholders. 

**Futuresales, or the possibility of future sales, of a substantial amount of ourcommon stock may depress the price of the shares of our common stock.**

 

Futuresales, or the availability for sale in the public market, of substantialamounts of our common stock could adversely affect the prevailing market priceof our common stock and could impair our ability to raise capital throughfuture sales of equity securities. If we or our existing stockholders sellsubstantial amounts of our common stock in the public market or if there is aperception that these sales may occur, the market price of our common stockcould decline. 

 

**There isno assurance that we will continue declaring dividends or have the availablecash to make dividend payments.**

 

Althoughwe have paid a cash dividend of $0.06 per share in each quarter since thethird quarter of 1999, there can be no assurance that we will continue todeclare dividends or that funds will continue to be available for this purposein the future. The declaration and payment of dividends are restricted by theterms of our amended and restated revolving credit agreement and are subject tothe discretion of our Board of Directors, are not cumulative, and will dependupon our profitability, financial condition, capital needs, future prospects,and other factors deemed relevant by our Board of Directors. 

 

 

** **

-18 -

 

 

 

 

 

**Provisions of our corporatedocuments may have anti-takeover effects that could prevent a change incontrol.**

 

Provisions of our charter, bylawsand Delaware law could make it more difficult for a third party to acquire us,even if doing so would be beneficial to our stockholders. These provisionsinclude supermajority voting requirements, prohibiting the stockholder fromcalling stockholder meetings, removal of directors for cause only andprohibiting shareholder actions by written consent. Our Certificate ofIncorporation and By-laws state that any amendment to certain provisions,including those provisions regarding the removal of directors and limitationson action by written consent discussed above, be approved by the holders of atleast two-thirds of our common stock. We are also afforded the protections ofSection 203 of the Delaware General Corporation Law, which would prevent usfrom engaging in a business combination with a person who becomes a 15% orgreater shareholder for a period of three years from the date such personacquired such status unless certain board or shareholder approvals wereobtained. For more information, see “Description of Capital Stock.”

** **

**      Certain stockholders own asignificant amount of our common stock, and their interests may conflict withthose of our other stockholders.**

 

As of December 31, 2009, CapitalSouthwest Venture Corporation, a subsidiary of Capital Southwest Corporation,beneficially owned approximately24% of our outstanding common stock and five otherinvestors, Third Avenue Management LLC, Duroc, LLC, Dimensional Fund AdvisorsLP, Tradewinds Global Investor, LLC and Met Investors Advisory, LLC,beneficially own over 44% of our outstandingcommon stock. As a result, either Capital Southwest or the other majorstockholders combined could be able to significantly influence the direction ofthe Company, the election of our Board of Directors and the outcome of anyother matter requiring stockholder approval, including mergers, consolidationsand the sale of all or substantially all of our assets, and together with otherbeneficially owned investors, to prevent or cause a change in control of theCompany. In addition, the interests of Capital Southwest and other majorstockholders may conflict with the interests of our other stockholders.

 

**Item 1B.Unresolved StaffComments **

      The Company has nounresolved staff comments to report pursuant to Item 1B.

 

 

 

 

-19 -

 

 

 

 

 

**Item 2. Properties**

**     **At December 31, 2009, the Company utilized nine principalmanufacturing plants located in the United States, seven in Europe, one inCanada, and one in Australia. The facilities are listed below:

 

 

Facility

 

**SquareFootage**

 

**Principal  Types of Products**

**Manufactured  And Assembled**

Selma, Alabama

1,016,700 

Owned

Mechanical Rotary mowers, finishing mowers,  zero turn radius mowers, backhoes, front-end loaders for *Bush Hog*

New Philadelphia, Ohio

430,000 

Owned

Telescopic Excavators for			*Gradall* and  Vacuum Trucks for *VacAll*

Gibson City, Illinois

275,000 

Owned

Mechanical Mowers for			*Rhino*and *M&W,*  Mechanical Rotary Mowers, Blades and Post Hole Diggers for *Rhino*, and  Deep Tillage Equipment

Seguin, Texas

230,000 

Owned

Hydraulic  and Mechanical Rotary and Flail Mowers, Sickle-Bar Mowers, and Boom-Mounted  Equipment for *Alamo Industrial*

Indianola, Iowa

200,000 

Owned

Distribution  and Manufacturing of Aftermarket Farm Equipment Replacement and Wear Parts  for *Herschel/Valu-Bilt*

Neuville, France

195,000 

Leased

Hydraulic  and Mechanical Boom-Mounted Hedge and Grass Cutters for *Rousseau*

Ludlow, England

160,000 

Owned

Hydraulic  Boom-Mounted Hedge and Grass Cutters and other Equipment for *McConnel and Twose*

Chartres, France

136,000 

Owned

Front-end  Loaders, Backhoes and Attachments for *Faucheux* and *McConnel*

Huntsville, Alabama

136,000 

Owned

Air and  Mechanical Sweeping Equipment for *Schwarze*

Salford Priors, England

106,000 

Owned

Tractor-Mounted  Power Arm Flails and other Equipment for *Bomford*and*Twose*and			*Spearhead*

Daumeray, France

100,000 

Leased

Vacuum  trucks, high pressure cleaning systems and trenchers for *Rivard*

Leavenworth, Kansas

70,000 

Owned

Snow  Plows and Heavy-duty Snow Removal Equipment for *Henke*

Sioux Falls, South Dakota

66,000 

Owned

Hydraulic  and Mechanical Mowing Equipment for *Tiger*

Englefeld, Saskatchewan, Canada

64,000 

Owned

Mechanical  Rotary Mowers, Snow Blowers, and Rock Removal Equipment for *Schulte*

Sioux Falls, South Dakota

59,000 

Owned

Front-end  Loaders and Backhoes for OEMs, *SMC*and*Rhino*

Kent, Washington

        42,800 

Leased

Truck  Mounted Sweeping Equipment for the contractor market branded*Nite-Hawk*

Orleans, France

40,000 

Owned

Heavy-Duty,  Tractor-Mounted Grass and Hedge Mowing Equipment for *SMA*

Ipswich, Australia

15,000 

Leased

Air and  Mechanical Sweeping Equipment for *Schwarze*

Peschadoires, France

12,000 

Owned

Replacement  Parts for Blades, Knives and Shackles for *Forges Gorce*

Warehouses & Sales

Offices, Seguin, Texas 

Offices

58,000 

10,400 

5,600 

Owned

Owned

Leased

Service Parts Distribution and  Sales Office

Corporate Office 

 

Total

 

3,427,500 

 

 

 

-20 -

 

 

 

 

 

      Approximately 90% of the manufacturing, warehouse and office space is owned. During 2009, the Company closed its warehouse operations in Memphis, Tennesseeand this 15,000 sq. ft. facility is for sale. Except as otherwise statedherein, the Company considers each of its facilities to be well maintained, ingood operating condition and adequate for its present level of operations.

**Item 3. Legal Proceedings**

**     **The Company is subject to various legal actions which have arisenin the ordinary course of its business. The most prevalent of such actionsrelate to product liability, which is generally covered by insurance aftervarious self-insured retention amounts. While amounts claimed might besubstantial and the ultimate liability with respect to such litigation cannotbe determined at this time, the Company believes that the ultimate outcome ofthese matters will not have a material adverse effect on the Company’sconsolidated financial position or results of operations; however, the ultimateresolution cannot be determined at this time. 

 

      The Company knows that its Indianola, Iowa property iscontaminated with chromium which most likely resulted from chrome platingoperations which were discontinued before the Company purchased the property.Chlorinated volatile organic compounds have also been detected in water sampleson the property, though the source is unknown at this time. The Companyvoluntarily worked with an environmental consultant and the state of Iowa withrespect to these issues and believes it completed its remediation program inJune 2006. The work was accomplished within the Company’s environmentalliability reserve balance. We requested a “no further action” classificationfrom the state.  We received a conditional “no further action” letter in Januaryof 2009.  When we demonstrate stable or improving conditions below residentialstandards by future monitoring of existing wells, an unconditional “no furtheraction” letter will be requested.

 

      AtDecember 31, 2009, the Company had an environmental reserve in the amount of$1,608,000 related to the acquisition of *Gradall’s* facility in NewPhiladelphia, Ohio.  Three specific remediation projects that were identifiedprior to the acquisition are in process of remediation with a remaining reservebalance of $143,000.  The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be abated over time.  The balanceof the reserve, $1,188,000, is mainly for potential ground watercontamination/remediation that was identified before the acquisition andbelieved to have been generated by a third party company located near the *Gradall*facility.  

 

      Certainother assets of the Company contain asbestos that may have to be remediatedover time.  Management has made its best estimate of the cost to remediatethese environmental issues.  However, such estimates are difficult to estimate includingthe timing of such costs.  The Company believes that any subsequent change inthe liability associated with the asbestos removal will not have a materialadverse effect on the Company’s consolidated financial position or results ofoperations.

 

      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.

 

**Item 4. [Reserved]**

-21 -

 

 

 

 

 

PART II
Item 5.Market for Registrant’s Common Equity, Related StockholderMatters and Issuer    Purchases of Equity Securities
      The Company’s common stocktrades on the New York Stock Exchange under the symbol: ALG. On February 26,2010, there were11,746,929 shares of common stock outstanding, heldby approximately 116 holders of record, but the total number ofbeneficial owners of the Company’s common stock exceedsthis number. On February 26, 2010, the closing price of the common stockon the New York Stock Exchange was $17.81 pershare.

      The following tablesets forth, for the period indicated, on a per share basis, the range of highand low sales prices for the Company’s common stock as quoted by the New YorkStock Exchange. These price quotations reflect inter-dealer prices, withoutadjustment for retail markups, markdowns or commissions, and may notnecessarily represent actual transactions.

**2009**

			   

**2008**

 

 

 

 

 

 

**Cash**

 

 

 

 

 

 

 

**   Cash**

 

 

**Sales  Price**

 

**Dividends**

 

 

 

**Sales  Price**

 

**Dividends**

Quarter Ended

 

**High**

 

**Low**

 

**Declared**

 

**Quarter  Ended**

 

**High**

** **

**Low**

** **

** Declared**

March 31, 2009

$

18.04

      $

9.22

 

$   .06    

 

March 31, 2008

$

21.40

 $			

17.34

 

$    .06    

June 30, 2009

 

13.25

 

9.90

 

 .06    

 

June 30, 2008

 

26.46

 

19.27

 

 .06    

September 30, 2009

 

17.16

 

9.98

 

 .06    

 

September 30, 2008

 

23.46

 

15.84

 

 .06    

December 31, 2009

 

17.33

 

13.10  

 

 .06    

 

December 31, 2008

 

17.22

 

10.69

 

 .06    

 

      OnJanuary 5, 2010, the Board of Directors of the Company declared a quarterlydividend of $.06 per share which was paid on February 3, 2010, to holders ofrecord as of January 19, 2010. The Company expects to continue its policyof paying regular cash dividends, although there is no assurance as to futuredividends as they depend on future earnings, capital requirements and financialcondition. In addition, the payment of dividends is subject to restrictionsunder the Company’s bank revolving credit agreement. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources” in Item 7 of Part II of this Annual Report onForm 10‐K for a further description of the bank revolving creditagreement.

 

      TheCompany was authorized by its Board of Directorsin 1997 to repurchase up to 1,000,000 shares of the Company’s common stock tobe funded through working capital and credit facility borrowings. There were noshares repurchased in 2008 or in 2009. The authorization to repurchase up to1,000,000 shares remains available, less 42,600 shares previously purchased. 

      Information relatingto compensation plans under which equity securities of the Company areauthorized for issuance is set forth in Part III, Item 13 of this Annual Report on Form 10-K.
Stock Price Performance Graph
      Theinformation contained in this Stock Performance Graph section shall not bedeemed to be “soliciting material” or “filed” with the SEC or subject to theliabilities of Section 18 of the Exchange Act except to the extent that AlamoGroup Inc. specifically incorporates it by reference into a document filedunder the Securities Act or the Exchange Act.

 

      Thefollowing graph and table set forth the cumulative total return to theCompany's stockholders of our Common Stock  during a five-year period endedDecember 31, 2009, as well as the performance of an overall stock market index(the S&P 500 Index) and the Company's selected peer group index (theRussell 2000 Index).

 

      TheCompany believes a representative industry peer group of companies with asimilar business segment profile does not exist. The SEC has indicated thatcompanies may use a base other than industry or line of business fordetermining its peer group index, such as an index of companies with similarmarket capitalization. Accordingly, the Company has selected the Russell 2000Index, a widely used small market capitalization index, to use as arepresentative peer group.

 

 -22 -

 

 

 

 

 
 **12/04****12/05****12/06****12/07****12/08****12/09**       **Alamo Group Inc.****100.00****76.30****88.28****68.85****57.55****67.27****S&P 500****100.00****104.91****121.48****128.16****80.74****102.11****Russell 2000****100.00****104.55****123.76****121.82****80.66****102.58**
 

 

** **

 

 

-23 -

 

 

** **

**Item6. Selected Financial Data**

** **

      The following selectedfinancial data is derived from the consolidated financial statements of AlamoGroup Inc. and its subsidiaries. The data should be read in conjunction withthe consolidated financial statements, related notes and other financialinformation included herein.

** **

**Fiscal  Year Ended December 31,(1)**

** **

(in thousands, except per share amounts)

** **

**2009**  

 

** **

**2008**  

 

** **

**2007**  

 

** **

**2006**  

 

** **

**2005**  

**Operations:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net  sales 

$

446,487 
 
$

557,135 

 

$

504,386 

 

$

456,494 

 

$

368,110 

Income  before income taxes

 

28,619 
  
17,226 

 

 

18,035 

 

 

16,975 

 

 

16,739 

Net  income 

 

17,091 
  
10,999 

 

 

12,365 

 

 

11,488 

 

 

11,291 

Percent  of sales

 

3.8%
  
2.0%

 

 

2.5%

 

 

2.5%

 

 

3.1%

Earnings  per share 

 

 
  
 
  
 

 

 

 

 

 

 

   Basic

 

1.65 
  
1.12 
  
1.26 

 

 

1.18 

 

 

1.16 

   Diluted 

 

1.65 
  
1.11 
  
1.24 

 

 

1.16 

 

 

1.14 

Dividends  per share

 

0.24 
  
0.24 
  
0.24 

 

 

0.24 

 

 

0.24 

Average  common shares 

 

 
  
 
  
 

 

 
   
 

   Basic

 

10,330 

 

 

9,847 

 

 

9,781 

 

 

9,756 

 

 

9,746 

   Diluted 

 

10,363 

 

 

9,950 

 

 

9,953 

 

 

9,925 

 

 

9,908 

**Financial  Position:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total  assets

$

377,963 

 

$

386,132 

 

$

350,630 

 

$

326,634 

 

$

246,216 

Short-term  debt and current maturities 

 

5,453 

 

 

4,186 

 

 

3,368 

 

 

3,339 

 

 

2,997 

Long-term  debt, excluding current maturities

 

44,336 

 

 

99,884 

 

 

78,527 

 

 

78,526 

 

 

30,912 

Stockholders’  equity 

$

235,377 

 

$

184,312 

 

$

198,698 

 

$

181,734 

 

$

163,476 

 

(1)   Includes the results of operations of companies acquired from theeffective dates of acquisitions.

** **

** **

**Item 7. Management’s Discussion andAnalysis of Financial Condition AndResults of Operations**

 

*      The following discussionshould be read in conjunction with the consolidated financial statements of theCompany and the notes thereto included elsewhere in this Annual Report on Form10-K.*

      The following tables setforth, for the periods indicated, certain financial data:

 

**                   Fiscal Year Ended December 31,**

 

Net sales (data in thousands):

** **

**2009**  

 

** **

**2008**  

 

** **

**2007**  

                                        		

 

 

 

 

 

    North American

 

 

 

 

 

        Industrial

$      173,905

 

$      254,787

 

$       253,203

        Agricultural		

92,415

 

120,232

 

117,652

    European

180,167

 

182,116

 

133,531

    Total net sales

$      446,487

 

$       557,135

 

$       504,386

 

 

 

 

 

 

Cost and profit margins, as percentages of net sales:

 

 

 

 

 

 

 

 

 

 

 

        Cost of sales

78.8%

 

80.4%

 

80.6%

        Gross profit

21.2%

 

19.6%

 

19.4%

        Selling, general and administrative expenses

17.0%

 

14.9%

 

14.6%

        Income from operations

7.2%

 

3.8%

 

4.7%

        Income before income taxes

6.4%

 

3.1%

 

3.6%

        Net income

3.8%

 

2.0%

 

2.5%

 

-24 -

 

 

 

 

 

**Results of Operations**

** **

***Fiscal 2009 compared toFiscal 2008***

*** ***

The Company’s net sales in thefiscal year ended December 31, 2009 (“2009”) were $446,487,000, a decrease of$110,648,000 or 19.9% compared to $557,135,000 for the fiscal year endedDecember 31, 2008 (“2008”). The decrease was primarily attributable to thegeneral weakness in the worldwide economy which began in the fourth quarter of2008 and continues to affect the markets the Company serves.  The acquisitionsof *Rivard* and *Bush Hog* were accretive to the Company’s sales for2009.

 

North American Industrial sales (net) were $173,905,000 in 2009 compared to$254,787,000 in 2008, an $80,882,000 or 31.7% decrease. The decrease came fromlower sales of excavator, vacuum truck, sweeper and mowing equipment asgovernmental entities continue to be affected by budget constraints and revenueshortfalls.  Sales to cities and counties remained steadier than those to stateagencies.

North American Agricultural sales (net) were$92,415,000 in 2009 compared to $120,232,000 in 2008, representing a decreaseof $27,817,000 or 23.1%. The decrease was due to market uncertainty and tightercredit as dealers were reluctant to stock inventory at historical levels.  Theacquisition of *Bush Hog* on October 22, 2009 added $10,863,000 in sales.

 

European sales (net) decreased$1,949,000 or 1.1% to$180,167,000 in 2009 compared to $182,116,000 in 2008.This decrease was mainly due to changes in the exchange rates and softness inthe French markets and to a lesser extent was offset by higher export salesoutside our core markets.  The *Rivard* acquisition added $23,858,000 to salesfor 2009.

 

Grossmargins for 2009 were $94,561,000 (21.2% of net sales) compared to $109,414,000(19.6% of net sales) in 2008, a decrease of $14,853,000. The decrease was dueto reduced sales during 2009, which was somewhat offset by the *Rivard*acquisition.  Gross margin percentages improved over 2008 as a result offavorable pricing in both raw and purchase components and continued improvementin efficiency initiatives. 

 

      Selling,general and administrative expenses (“SG&A”) were $76,099,000 (17.0% of net sales) in2009 compared to $83,059,000 (14.9% of net sales) in 2008. The decrease of$6,960,000 in SG&A in 2009 primarily came from reductions in workforce netof $1,158,000 in severance costs, lower insurance premiums and professionalfees, and reduced commissions from lower sales volumes.  *Bush Hog*acquisition costs were $828,000 in 2009 and, during the fourth quarter of 2009,the Company also incurred $1,383,000 at *Bush Hog* relating to severanceand restructuring costs.  The acquisitions of *Rivard* and *Bush Hog*added $3,230,000 and $2,204,000 respectively to the SG&A expense for 2009.

 

      TheCompany recorded a $27,689,000 bargain purchase gain relating to theacquisition of *Bush Hog,* which was completed in October of 2009.  Thepurchase price consideration was 1,700,000 unregistered shares of Alamo Groupstock at a closing price of $16.09 per share plus the assumption of certainliabilities and other considerations.

 

      Goodwillimpairment for 2009 was non-cash $14,104,000compared to non-cash $5,010,000 in 2008.  In 2009, theCompany wrote off the goodwill at *Gradall/VacAll* and just over 75% ofthe goodwill at *Nite-Hawk* in its Industrial Division after performingits required impairment test review.  The Company wrote off the entire goodwillrelating to its Agricultural Division in 2008.  

 

      Interest expense for 2009 was$4,766,000 compared to $7,450,000 in 2008, a $2,684,000 or a 36% decrease. Thedecrease was due primarily to reduced borrowingsalong with lower interest rates in 2009. 

      Other Income(expense) net, was$625,000 during 2009 compared to income of $1,513,000in 2008. The gains in both 2009 and 2008 are entirely from changes in exchangerates.

-25 -

 

 

 

 

 

      Provision for IncomeTaxes was $11,528,000 (40.3%of income before income taxes) for 2009 compared to $6,227,000 (36.1% of income before income taxes) in 2008. The increase in theeffective tax rate for 2009 was from increased state taxes in the United Statesand from the non-deductible tax write-off of goodwill in the IndustrialDivision.

      NetIncome for 2009 was $17,091,000 compared to $10,999,000 in 2008 due to thefactors described above. 

 

***Fiscal 2008 compared to Fiscal 2007***

*** ***

The Company’s net sales in the fiscal yearended December 31, 2008 (“2008”) were $557,135,000, an increase of $52,749,000or 10.5% compared to $504,386,000 for the fiscal year ended December 31, 2007(“2007”). The increase was primarily attributable to the acquisitions of*Rivard*and *Henke* in the amount of $41,615,000, and continued demand for ourproducts in most of the Company’s segments.  The Company’s sales during thelast quarter of 2008 were negatively impacted by the decline in the worldwideeconomy.

 

North American Industrial sales (net)were $254,787,000 in 2008 compared to 253,203,000 in 2007, a $1,584,000 or 0.6%increase. The increase came from the acquisition of *Henke*in the amountof $1,662,000. The Industrial segment did experience higher sales in the firsthalf of 2008 from the excavator and vacuum truck business.  Sweeper marketsales were soft throughout the year due to the weak retail market and relatedcutback in parking lot sweeper activity.  Also negatively impacting thissegment were late deliveries of key components from suppliers.

 

North American Agricultural sales (net) were$120,232,000 in 2008 compared to $117,652,000 in 2007, representing an increaseof $2,580,000 or 2.2%. The increase was mainly due to steady market conditions,specifically mowing and front-end loader equipment.  During the third quarterof 2008, this division experienced delays in deliveries of key components fromsuppliers which prevented us from delivering to our customers in a timelyfashion.  Drought conditions in the southern part of the U.S. also had anegative impact on sales during most of the year along with lower commodityprices in late 2008.

 

European sales (net) increased $48,585,000or 36.4% to $182,116,000 in 2008 compared to $133,531,000 in 2007. Thisincrease was mainly from the acquisition of *Rivard* in the amount of$39,953,000, and to a lesser extent higher export sales outside our coremarkets, along with improved agricultural market conditions in the first half of2008.  The European segment was negatively affected by changes ininternational currency rates.

 

GrossMargins for 2008 were $109,414,000 (19.6% of net sales) compared to $97,711,000(19.4% of net sales) in 2007, an increase of $11,703,000. The increase was dueto the acquisitions of *Rivard*and*Henke* along with steady marketconditions for the first nine months of 2008.  Negatively affecting theCompany’s gross margin were higher steel, steel products and energy prices.

 

      Selling,general and administrative expenses (“SG&A”) were $83,059,000 (14.9% of netsales) in 2008 compared to $73,874,000 (14.6% of net sales) in 2007. Theincrease of $9,185,000 in SG&A in 2008 primarily came from the addition of*Rivard*and*Henke,*in the amount of $5,525,000 along with increased salescommissions from higher sales.

 

      Goodwillimpairment for 2008 was $5,010,000 compared to zero in 2007.  The Company wroteoff the entire goodwill in its Agricultural Division after performing itsrequired impairment test review.  The severe decline in market values of theCompany, along with uncertainty in the economy going forward, was the cause forthe write-down.

 

      Interest expense for 2008 was$7,450,000 compared to $8,338,000 in 2007, an $888,000 or a 10.7% decrease. Thedecrease was due to lower interest rates in 2008. 

-26 -

 

 

 

 

 

      Other Income (expense), net was$1,513,000 of income during 2008 versus income of $813,000 in 2007. The incomein 2008 was entirely from changes in exchange rates.  The income in 2007 wasmainly from exchange rate gains of $703,000 and a gain of $150,000 relating tothe sale of the Company’s investment in a small business along with a loss onthe sale of the Guymon property held for sale.

      Provision for Income Taxes was$6,227,000 (36.1% of income before income taxes) for 2008 compared to$5,670,000 (31.4% of income before income taxes) in 2007. The increase in theeffective tax rate for 2008 was from increased state taxes in the United Statesand from the non-deductible tax write-off of goodwill.

      NetIncome for 2008 was $10,999,000 compared to $12,365,000 in 2007 due to thefactors described above. 

 

**Liquidity and Capital Resources**

** **

      Inaddition to normal operating expenses, the Company has ongoing cashrequirements which are necessary to conduct the Company’s business, includinginventory purchases and capital expenditures. The Company’s inventory andaccounts payable levels, particularly in its North American AgriculturalDivision, build in the first quarter and early spring and, to a lesser extent,in the fourth quarter in anticipation of the spring and fall selling seasons.Accounts receivable historically build in the first and fourth quarters of eachyear as a result of pre-season sales. These sales balance the Company’sproduction during the first and fourth quarters. Some of the Company’s recentacquisitions which are not involved in vegetation maintenance have helped tosoften this seasonality pattern.

 

        As ofDecember 31, 2009, the Company had working capital of $182,369,000, whichrepresents an increase of $2,050,000 from working capital of $180,319,000 as ofDecember 31, 2008. The increase in working capital was primarily from higheraccounts receivable and inventory associated with the acquisition of *BushHog*offset by decreases in accounts receivable and inventory in theCompany’s North American and European operations.

 

      Capitalexpenditures were $3,453,000 for 2009, compared to $6,553,000 for 2008. For2010, capital expenditures are expected to be highercompared to 2009. The Company expects to fund capital expenditures fromoperating cash flows or through its revolving credit facility, described below.

 

      The Company was authorized by its Board of Directors in 1997to repurchase up to 1,000,000 shares of the Company’s common stock to be fundedthrough working capital and credit facility borrowings. There were no sharesrepurchased in 2008 or in 2009.  The authorization to repurchase up to1,000,000 shares remains available less 42,600 shares previously purchased.

 

      Netcash provided byoperating activities was $72,086,000 for 2009, compared to $8,724,000 for 2008.The increase of cash from operating activities resulted primarily from reducedaccounts receivable and inventory levels from initiatives implemented in 2009.

 

      Netcash used by financing activities was $56,965,000 for 2009, compared to netcash provided of $19,550,000 for 2008. Thedifference was mainly from reduced borrowings under the Company’s revolvingline of credit.

 

      OnAugust 25, 2004, the Company entered into a five-year $70 million Amended andRestated Revolving Credit Agreement with its lenders, Bank of America, JPMorganChase Bank, 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. 

 

-27 -

 

 

 

 

 

      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 the Fourth Amendment of the Amendedand Restated Revolving Credit Agreement, dated March 30, 2006 (the “Amended andRestated Revolving Credit Agreement”), between the Company and Bank of America,N.A., JPMorgan Chase Bank and Guaranty Bank, as its lenders. Pursuant to theterms of the Amended and Restated Revolving Credit Agreement, the Company addedGradall Industries, Inc., formerly Alamo Group (OH) Inc., and N.P. Real EstateInc. as members of the Obligated Group. The Amendment also allows for capitalexpenditures not to exceed $14 million for the fiscal year ending 2006 and $10million in the aggregate during each fiscal year thereafter.

      On May 7, 2007, the Company entered into the Fifth Amendedand Restated Revolving Credit Agreement with Bank of America, N.A., JPMorganChase Bank, Guaranty Bank and Rabobank, as its lenders. The Amended andRestated Revolving Credit Agreement provides for a $125 million unsecuredrevolving line of credit for five years with the ability to expand the facilityto $175 million, subject to bank approval. In addition to the extended term ofthe loan to 2012, other major changes were improvements in the leverage ratio,minimum asset coverage ratio and increase in annual allowable capitalexpenditures up to $17.5 million. The banks agreed to eliminate the fixed chargecoverage ratio and minimum net worth requirement along with a reduction in theapplicable interest rate margin. The applicable interest margin fluctuatesquarterly either up or down based upon the Company’s leverage ratio.

 

      On October 14, 2008, the Company entered into the SixthAmendment and Waiver under the Amended and Restated Revolving CreditAgreement.  The purpose of the amendment and waiver was to clarify companynames within the Obligated Group after merging or dissolving some subsidiaries,to define operating cash flow and defining quarterly operating cash flow for *Rivard*through March 31, 2009.  Beginning June 30, 2009, *Rivard*’s actualoperating cash flow was used in the calculation of consolidated operating flow.

 

      OnNovember 6, 2009, the Company entered into the Seventh Amendment of the Amendedand Restated Revolving Credit Agreement with Bank of America, N.A., Wells FargoBank, N.A., BBVA Compass Bank, and Rabobank, as its lenders.  Prior to theexecution of this Amendment, BBVA Compass Bank acquired certain assets ofGuaranty Bank which included this credit facility and JPMorgan Chase Bankassigned its interest to Well Fargo Bank, N.A.  The purpose of the amendmentwas to add *Bush Hog* as a member of the Obligated Group and pledge afirst priority security interest in certain U.S. assets (accounts receivable,inventory, equipment, trademarks and trade names) of the Borrower and eachmember of the Obligated Group.  The Lenders agreed to increase the operatingleverage ratio during the next three quarters and to add a new EBIT to InterestExpense covenant in exchange for a commitment fee and an increase in theApplicable Interest Margin over LIBOR or Prime Rate advances.  

 

      As of December 31, 2009, there was $41,000,000 borrowed under therevolving credit facility.  At December 31, 2009, $877,000 of the revolver capacity was committed to irrevocable standbyletters of credit issued in the ordinary course of business as required byvendors’ contracts resulting in approximately $81,000,000 in availableborrowings.

 

      On May 13, 2008, Alamo Group Europe Limited expanded itsoverdraft facility with Lloyd’s TSB Bank plc from £ 1.0 million to £ 5.5million. The facility was renewed effective November 1, 2009 andoutstandings currently bear interest at Lloyd’s Base Rate plus 1.4% per annum. The facility is unsecured but guaranteed by the U.K. subsidiaries of AlamoGroup Europe Limited.  As of December 31, 2009, there were nooutstanding balances in British pounds borrowed againstthe U.K. overdraft facility.

 

      There are additional lines of credit: for the Company’sFrench operations in the amountof 8,200,000Euros, which includes the *Rivard* credit facilities; for ourCanadian operation in the amount of 3,500,000Canadian dollars; and for our Australian operation in the amount of 800,000 Australian dollars.  As of December 31, 2009, noEuros were borrowed against the French line of credit; 2,706,000 Canadiandollars were outstanding on the Canadian line of credit; and 200,000 Australian dollars were outstanding under its facility.  The Canadianand Australian revolving credit facilities are guaranteed by the Company. 

 

-28 -

 

 

 

 

 

 

      As ofDecember 31, 2009, the Company is in compliance with the terms and conditionsof its credit facilities.

 

      Management believes the bank creditfacilities and the Company’s ability to internally generate funds fromoperations should be sufficient to meet the Company’s cash requirements for theforeseeable future.  However, the challenges affecting the banking industry andcredit markets in general can potentially cause changes to credit availabilitywhich creates a level of uncertainty.

** **

**Inflation**

** **

      The Company believes that inflationgenerally has not had a material impact on its operations or liquidity. TheCompany is exposed to the risk that the price of energy, steel and otherpurchased components may increase and the Company may not be able to increasethe price of its products correspondingly. If this occurs, the Company’sresults of operations would be adversely impacted.

** **

**Recent Accounting Pronouncements **

** **

***FASBStatement No. 166***

 

      InJune 2009, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 166, “Accounting for Transfers of Financial Assets – anamendment of FASB Statement No. 140.” According to ASC Topic 105,“Generally Accepted Accounting Principles,” Statement No. 166 shallcontinue to represent authoritative guidance until it is integrated into theCodification. Statement No. 166 amends and clarifies provisions related tothe transfer of financial assets in order to address application and disclosureissues. In general, Statement No. 166 clarifies the requirements forderecognizing transferred financial assets, removes the concept of a qualifyingspecial-purpose entity and related exceptions, and requires additionaldisclosures related to transfers of financial assets. Statement No. 166 iseffective for fiscal years, and interim periods within those fiscal years,beginning after November 15, 2009, and earlier application is prohibited.The adoption of Statement No. 166 effective January 1, 2010 is notexpected to have a material effect on our financial position or results ofoperations.

 

***FASBStatement No. 167***

 

      InJune 2009, the FASB issued Statement No. 167, “Amendments to FASBInterpretation No. 46(R).” According to ASC Topic 105, StatementNo. 167 shall continue to represent authoritative guidance until it isintegrated into the Codification. Statement No. 167 amends provisionsrelated to variable interest entities to include entities previously consideredqualifying special-purpose entities, as the concept of these entities waseliminated by Statement No. 166. This statement also clarifiesconsolidation requirements and expands disclosure requirements related tovariable interest entities. Statement No. 167 is effective for fiscalyears, and interim periods within those fiscal years, beginning after November 15,2009, and earlier application is prohibited. The adoption of StatementNo. 167 effective January 1, 2010 is not expected to have a materialeffect on our financial position or results of operations.

*** ***

***FairValue Measurements and Disclosures***

 

      InJanuary 2010, the provisions of ASC Topic 820 were modified to requireadditional disclosures, including transfers in and out of Level 1 and 2 fairvalue measurements and the gross basis presentation of the reconciliation ofLevel 3 fair value measurements. This guidance is effective for interim andannual reporting periods beginning after December 15, 2009, except fordisclosures related to Level 3 fair value measurements, which are effective forfiscal years beginning after December 15, 2010 (including interim periods).Early adoption is permitted. We have adopted all of these provisions of ASCTopic 820 effective December 31, 2009. Since only disclosures are affectedby these requirements, the adoption of these provisions will not affect ourfinancial position or results of operations.

 

-29 -

 

 

 

 

 
Off-Balance Sheet Arrangements
The Company does not have anyobligation under any transaction, agreement or other contractual arrangement towhich an entity unconsolidated with the Company is a party, that has or isreasonably likely to have a material effect on the Company’s financialcondition, changes in financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources that ismaterial to investors.
 Contractual and Other Obligations
     The following table shows the Company’sapproximate obligations and commitments to make future payments undercontractual obligations as of December 31, 2009:

 

**Payment  due by period**

(in thousands)
 
 

**    Less than**

** **

**1-3**

** **

**3-5**

** **

**More  than**

**Contractual Obligations**
Total
 
1 Year
 
Years
 
Years
 
5 Years
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term  debt obligations

$

46,556 

 

 $

3,901 

 

    $

41,424 

 

       $

446     

 

   $

785 

Capital lease obligations

 

3,233 

 

 

1,552 

 

 

1,365 

 

 

316     

 

 

— 

Interest obligations

 

6,062 

 

 

2,153 

 

 

3,726 

 

 

110     

 

 

73 

Operating lease obligations

 

3,085 

 

 

1,488 

 

 

1,328 

 

 

254     

 

 

15 

Purchase  obligations

 

60,292 

 

 

60,292 

 

 

— 

 

 

—     

 

 

— 

 

     Total

 

$

 

119,228 

 

 

 $

 

69,386 

 

 

    $

 

47,843 

 

 

       $

 

1,126     

 

 

    $

 

873 

 

Definitions:

(A)
*Long-termdebt obligation* means a principal payment obligation under long-term borrowings.

(B)
*Capitallease obligation* means a principal payment obligation under a lease classified asa capital lease.

(C)
*Interestobligation* represents interest due on long-term debt and capital leaseobligations. Interest on long-term debt assumes all floating rates of interestremain the same as those in effect at December 31, 2009 and include the effectof the Company’s interest rate derivative arrangements on future cash paymentsfor the remaining period of those derivatives.

(D)
*Operatinglease obligation* means a payment obligation under a lease classified as anoperating lease.

(E)
*Purchaseobligation* means an agreement to purchase goods or services that isenforceable and legally binding on the registrant that specifies allsignificant terms, including:  fixed or minimum quantities to be purchased;fixed, minimum or variable price provisions; and the approximate timing of thetransactions.

 

In addition, the Company sponsorsvarious pension plans that may obligate it to make contributions from time totime. We expect to make a cash contribution to our pension plans in 2010.

 
Critical Accounting Estimates
Management’s Discussion andAnalysis of Financial Condition and Results of Operations are based upon ourConsolidated Financial Statements, which have been prepared in accordance withU.S. Generally Accepted Accounting Principles (“GAAP”). The preparation ofthese financial statements requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenueand expenses, and related disclosure of contingent assets and liabilities.Management bases its estimates on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions orconditions.

 
Critical Accounting Policies
An accounting policy is deemed tobe critical if it requires an accounting estimate to be made based onassumptions about matters that are highly uncertain at the time the estimate ismade, 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 Consolidated FinancialStatements.

 

-30 -

 

 

 

 

 

 

***Allowance for Doubtful Accounts***

 

The Company evaluates the collectibility of its accountsreceivable based on a combination of factors. In circumstances where it isaware of a specific customer’s inability to meet its financial obligations, theCompany records a specific reserve to reduce the amounts recorded to what itbelieves will be collected. For all other customers, it recognizes reserves forbad debt based on historical experience of bad debts as a percent of revenues foreach business unit, adjusted for relative improvements or deteriorations in theaging and changes in current economic conditions.

 

      The Company evaluates all receivables that are over 60 daysold and will reserve specifically on a 90-day basis. The Company has a securedinterest on most of its wholegoods that each customer purchases. This allowsthe Company, in times of a difficult economy when the customer is unable to payor has filed for bankruptcy (usually Chapter 11), to repossess the customer’sinventory. This also allows Alamo Group to maintain only a reserve over itscost, which usually represents the margin on the original sales price.

 

      Theallowance for doubtful accounts balance was $2,548,000 at December 31, 2009,and $2,430,000 at December 31, 2008.  The increase was mainly from theCompany’s European operations.

 

***SalesDiscounts***

* *

      AtDecember 31, 2009, the Company had $3,803,000 in reserves for sales discountscompared to $6,849,000 at December 31, 2008 on product shipped to our customers under various promotional programs. The decreasewas due primarily to lower sales activity of the Company’s agriculturalproducts during the pre-season, which runs from September to December of eachyear with orders shipped through the first quarter of 2010.  The Companyreviews the reserve quarterly based on analysis made on each programoutstanding at the time. 

 

The Company bases its reserves onhistorical data relating to discounts taken by the customer under each program.Historically, between85% and 95% of the Company’s customers who qualify for each program actuallytake the discount that is available.

 

***Inventories – Obsolete and Slow Moving***

* *

      The Company had a reserve of $9,060,000 at December 31, 2009and $8,978,000 at December 31, 2008 to cover obsolete and slow movinginventory.  The increase in the reserve was mainly from the Company’s U.S.operations.  The obsolete and slow moving inventory policy states that thereserve is to be calculated as follows: 1) no inventory usage over a three-year period is deemed obsolete and reserved at 100percent; and 2) slow moving inventory with little usage requires a 100 percentreserve on items that have a quantity greater than a three-year supply.  Thereare exceptions to the obsolete and slow moving classifications if approved byan officer of the Company, based on specific identification of an item or itemsthat are deemed to be either included or excluded from this classification.  Incases where there is no historical data, management makes a judgment based on aspecific review of the inventory in question to determine what reserves, ifany, are appropriate.  New products or parts are generally excluded from thereserve policy until a three year history has been established.

                                                                                                       

The reserve is reviewed and, ifnecessary, adjustments are made on a quarterly basis. The Company relies onhistorical information when available to support its reserve. The Company doesnot adjust the reserve balance until the inventory is liquidated.

*** ***

***Warranty***

* *

*     *The Company’s warranty policy is generally to provide itscustomers warranty for up to one year on all wholegood units and 90 days onparts.

 

      Warranty reserve, as a percentage of sales, is generallycalculated by looking at the current twelve months’ expenses and prorating thatamount based on twelve months’ sales with a ninety-day to six-month lag period.The Company’s historical experience is that an end-user takes approximately 90days to six months from the receipt of the unit to file a warranty claim. Awarranty reserve is established for each different marketing group. Reservebalances are evaluated on a quarterly basis and adjustments made when required.

 

      Thecurrent liability warranty reserve balance was $6,337,000 at December 31, 2009and $4,764,000 at December 31, 2008.  The increase came mainly from theacquisition of Bush Hog.

 

-31 -

 

 

 

 

***Goodwill***

 

      Goodwill must be tested forimpairment at least annually. In the fourth quarter of each year, or whenevents and circumstances warrant such a review, the Company tests the goodwillof all of its reporting units for impairment. The goodwill impairment test isdetermined using a two-step process.  The first step is to identify if apotential impairment exists by comparing the fair value of a reporting unitwith its carrying amount, including goodwill (Step 1).  If the fair value of areporting unit exceeds its carrying value amount, goodwill of the reportingunit is not considered to have a potential impairment and the second step isnot necessary.  However, if the carrying amount of the reporting unit exceedsits fair value, the second step (Step 2) is performed to determine if goodwillis impaired and to measure the amount of impairment loss to recognize, if any.Step 2 compares the implied fair value of goodwill with the carrying amount ofgoodwill.  If the implied value of goodwill is less than the carrying amount ofgoodwill, then a charge is recorded to reduce goodwill to the implied goodwill.The implied goodwill is calculated based on a hypothetical purchase priceallocation similar to the requirements of SFAS No.141, Business Combinations,in that it takes the implied fair value of the reporting unit and allocatessuch fair value to the fair value of the assets and liabilities of thereporting unit.  

      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 valuation models and other financial ratios, which requirethe Company to make certain assumptions and estimates regarding theapplicability of those models to its assets and businesses. The Companybelieves that the assumptions and estimates used to determine the estimatedfair values of each of its reporting units are reasonable. However, different assumptions couldmaterially affect the estimated fair value. The Company recognized goodwillimpairment in the North American Industrial segment of $14,104,000 in 2009 and$5,010,000 in the North American Agricultural segment in 2008.  No goodwillimpairment was recorded in 2007.  As of December 31,2009, goodwill was $35,207,000, whichrepresents 9% of total assets.  During the 2009impairment analysis review, it was noted that even though the *Schwarze*reporting unit’s fair value was above carrying value it was not materiallydifferent. At December 31, 2009, there was approximately $6.8 million ofgoodwill related to the *Schwarze* reporting unit. This reporting unitwould be most likely affected by changes in the Company’s assumptions andestimates. The calculation of fair value could increase or decrease dependingon changes in the inputs and assumptions used, such as changes in the reportingunit’s future growth rates, discount rates, etc.  

 

See Note 6 to the Consolidated Financial Statements for moreinformation regarding goodwill. 

 

**Item 7A.Quantitative and Qualitative Disclosures about MarketRisk**

** **

      The Company is exposed to various financial market risks.Market risk is the potential loss arising from adverse changes in market pricesand rates. The Company does not enter into derivative or other

financial instruments for trading or speculative purposes.

** **

**Foreign Currency Risk**

** **

**International Sales**

      A portion of theCompany’s operations consists of manufacturing and sales activities ininternational jurisdictions. The Company primarily manufactures its products inthe United States, the U.K., France, Canada and Australia. The Company sellsits products primarily within the markets where the products are produced, butcertain of the Company’s sales from its U.K. operations are denominated inother European currencies. As a result, the Company’s financials, specificallythe value of its foreign assets, could be affected by factors such as changesin foreign currency exchange rates or weak economic conditions in the othermarkets in which the subsidiaries of the Company distribute their products.

-32 -

 

 

 

 

 

      To mitigate the short-termeffect of changes in currency exchange rates on the Company’s functionalcurrency-basedsales, the Company’s U.K. subsidiaries regularly enter into foreign exchangeforward contracts to hedge approximately 90% of its future net foreign currencycash receipts over a period of six months. As of December 31, 2009, theCompany had $2,223,000 outstanding in forward exchange contracts related toaccounts receivable.  A 15% fluctuation in exchange rates for these currencieswould change the fair value by approximately $334,000. However, since thesecontracts hedge foreign currency denominated transactions, any change in thefair value of the contracts should be offset bychanges in the underlying value of the transaction being hedged.

At December 31, 2009, the fair value of theseagreements was in a favorable position; therefore, the derivative financialinstruments were recorded as a gain of $66,000, which has been recognized inother income (expense), net. 

** **

**Exposure to Exchange Rates**

      The Company’s earnings are affected by fluctuations in thevalue of the U.S. dollar as compared to foreign currencies, predominantly in European countries,Canada and Australia, as a result of the sale of its products in internationalmarkets. Foreign currency forward contracts in the U.K. are used to hedgeagainst the earnings effects of such fluctuations. At December 31, 2009, theresult of a uniform 10% strengthening in the value of the U.S. dollar relativeto the currencies in which the Company’s sales are denominated would result ina decrease in gross profit of $4,891,000 for the year ended December 31, 2009.Comparatively, at December 31, 2008, the result of a uniform 10% strengtheningin the value of the dollar relative to the currencies in which the Company’ssales are denominated would have resulted in a decrease in gross profit ofapproximately $4,902,000 for the year ended December 31, 2008. This calculationassumes that each exchange rate would change in the same direction relative tothe U.S. dollar. In addition to the direct effects of changes in exchangerates, which are a changed dollar value of the resulting sales, changes inexchange rates may also affect the volume of sales or the foreign currencysales price as competitors’ products become more or less attractive. TheCompany’s sensitivity analysis of the effects of changes in foreign currency exchangerates does not factor in a potential change in sales levels or local currencyprices. The translation adjustment during 2009 was a gain of $6,595,000. OnDecember 31, 2009, the British pound closed at .6187 relative to the U.S.dollar, and the Euro closed at .6985 relative to the U.S. dollar. Bycomparison, on December 31, 2008, the British pound closed at .6853relative to the U.S. dollar, and the Euro closed at .7159 relative to the U.S.dollar.  No assurance can be given as to future valuation of the British poundor Euro or how further movements in those or other currencies could affectfuture earnings or the financial position of the Company.

 
Interest Rate Risk
      The majority of the Company’s long-term debt bears interestat variable rates. Accordingly, the Company’s net income is affected bychanges in interest rates. Assuming the current level of borrowings at variablerates and a two hundred basis point change in the 2009 average interest rateunder these borrowings, the Company’s 2009 interest expense would have changedby approximately $820,000. In theevent of an adverse change in interest rates, management could take actions tomitigate its exposure. Further, this analysis does not consider the effects ofthe change in the level of overall economic activity that could exist in suchan environment.  However, the challenges affecting the banking industry andcredit markets in general can potentially cause changes to credit availabilitywhich creates a level of uncertainty.

** **

**Item 8. Financial Statements and Supplementary Data**

** **

      The financial statements andsupplementary data described I n Item 15 of this report and included on pages44 through 79 of this report are incorporated hereinby reference.

**Item 9.Changes in andDisagreements with Accountants on Accounting and Financial Disclosure**

      Onor about January 16, 2009, the independent registered public accounting firmfor the Company was changed from Ernst & Young LLP to KPMG LLP. Informationregarding this change in the independent registered public accounting firm wasdisclosed in our Current Report on Form 8-K dated January 23, 2009. There wereno disagreements or any reportable events requiring disclosure under Item304(a) of Regulation S-K.

.

-33 -

 

 

 

 

 

 

**Item 9A.Controls and Procedures**

      **Disclosure Controls and Procedures**. An evaluation wascarried out under the supervision and with the participation of Alamo’smanagement, including our President and Chief Executive Officer, Executive VicePresident and Chief Financial Officer (Principal Financial Officer), and VicePresident and Corporate Controller (Principal Accounting Officer), of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1933).Based upon the evaluation, the President & Chief Executive Officer,Executive Vice President & Chief Financial Officer (Principal FinancialOfficer), and Vice President & Corporate Controller (Principal AccountingOfficer) concluded that the Company’s design and operation of these disclosurecontrols and procedures were effective at the end of the period covered by thisreport.

 

      **Management’s AnnualReport on Internal Control Over Financial Reporting**.  Management’s reporton the Company’s internal control over financial reporting is included on page 40of this Annual Report on Form 10-K and incorporated by reference herein. TheCompany’s independent public accounting firm has audited and issued a report onthe Company’s internal control over financial reporting which is included onpage 41 of this Annual Report on Form 10-K and incorporated by referenceherein.

 

      **Changes in InternalControls over Financial Reporting.**There have not been any changes in Alamo’sinternal control over financial reporting (as such term is defined by paragraph(d) of Rule 13-a-15) under the Securities Exchange Act during the fourth fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, Alamo’s internal control over financial reporting.

 

**Item 9B. Other Information**

      None.

 

PARTIII

 

**Item 10.Directors, Executive Officers and Corporate Governance**

** **

      There is incorporated in this Item 10, by reference, that portion of the Company’s definitiveproxy statement for the 2010 Annual Meeting of Stockholders, which appearstherein under the captions “Item 1: Election of Directors,” “InformationConcerning Directors,” and “Section 16(a) Beneficial Ownership ReportingCompliance.”  See also the information under the caption “Executive Officers ofthe Company” in Part I of this Report.

      The Board ofDirectors has delegated certain responsibilities to three Committees of theBoard. The Committees are the Audit Committee, Compensation Committee andNominating/Corporate Governance Committee. The Board of Directors has alsoadopted Corporate Governance guidelines and a Code of Conduct and Ethics forall employees, including the Chief Executive Officer, Principal FinancialOfficer, Principal Accounting Officer and those individuals performing similarfunctions.

      The CommitteeCharters, Code of Conduct and Ethics, and Corporate Governance Guidelines maybe found on the Company’s website **(**  www.alamo-group.com**)** under the “OurCommitment” tab and are also available without charge in print by sending arequest to the Corporate Secretary, Alamo Group Inc., 1627 E. Walnut Street,Seguin, Texas, 78155, which is the principal executive office of the Company.The telephone number is 830-379-1480. The Company will post any amendments tothe Code of Conduct and Ethics, and any waivers that are required to bedisclosed by the rules of either the SEC or the New York Stock Exchange (“NYSE”), on theCompany’s website.

**Item 11. Executive Compensation**

      There is incorporated inthis Item 11, by reference, that portion of the Company’s definitive proxystatement for the 2010 Annual Meeting of Stockholders which appears under thecaption “Executive Compensation.”

-34 -

 

 

 

 

 

 

**Item 12.Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

      There is incorporated inthis Item 12, by reference, that portion of the Company’s definitive proxystatement for the 2010 Annual Meeting of Stockholders which appears under thecaption “Beneficial Owners of Common Stock.”

**Information on Alamo Group Inc.’sEquity Compensation Plans**

** **

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

 

      The numbers in the table are as of December 31, 2009, thelast day of Alamo Group Inc.’s 2009 fiscal year.

  

** Equity  Compensation**

**     Plan Category**

**A**

** **

** **

**Number of Securities to 		be  issued upon**

**exercise of outstanding**

**options, warrants and 		rights**

**B**

** **

** **

**Weighted-average 		exercise**

**price of outstanding**

**options, warrants and**

**rights**

**C**

**Number of Securities 		that  remain**

**available for future 		issuance**

** under equity 		compensation  plans 		(excluding securities 		reflected in column A)** 		

** **

** **

** **

** **

**Plans approved by stockholders**

 

 

 

*                                   *

 

 

 

*First Amended and Restated 1994 		Incentive Stock Option  Plan*

  59,980

$13.58

—

                                   		

 

 

 

*First Amended and Restated 1999				Non-Qualified Stock  Option Plan*

161,000

$15.05

—

 

** **

** **

** **

*2005 Incentive Stock Option Plan*

285,500

$18.77

214,500

* *
 
 
 
*2009 Equity Incentive Plan*

  25,000

$11.45

367,000

 

** **

** **

** **

Equity  compensation plans 		not approved by stockholders

—

—

—

 

** **

** **

** **

 

       		**Total**

** **

**531,480**

** **

** **

**581,500**  

** **

 

 

-35 -

 

 

 

 

 

 

**Item 13.Certain Relationships,Related Transactions and Director Independence**

      Information regardingcertain relationships and related transactions is set forth under the caption“Certain Relationships and Related Transactions” in the Company’s definitiveproxy statement for the 2010 Annual Meeting of Stockholders and suchinformation is incorporated by reference herein.  Therewere no such reportable relationships or related party transactions in thefiscal year ended December 31, 2009.  In 1999, the Company approved asupplemental retirement benefit for Donald J. Douglass which is paid on aquarterly basis over a period of fourteen and one-half years that began in theyear 2000. The remaining balances at December 31, 2009 and 2008 were $308,000 and $363,000, respectively, and are included in theAccrued liabilities and Other long-term liabilities sections of the Company’sbalance sheets.

      Information regardingdirector independence is set forth under the caption “Proposal 1 – Election ofDirectors” in the Company’s definitive proxy statement for the 2010 AnnualMeeting of Stockholders and such information is incorporated by referenceherein.

**Item 14. Principal AccountantFees and Services**

**     **Informationregarding principal accountant fees and services is set forth under the caption“Proposal 2 – Appointment of Auditors” in the Company’s definitive proxystatement for the 2010 Annual Meeting of Stockholders and such information isincorporated by reference herein.

 

 

 

 

 

 

 

 

 

 

-36 -

 

 

 

 

 

 
PART IV
**Item 15. Exhibits and FinancialStatement Schedules**

**Financial Statements**
  
**Page**

 

 

 

 

Report of Management on Internal Control  Over Financial Reporting

41

 

Reports of Independent Registered Public  Accounting Firm (KPMG LLP)

42-43

 

Report of Independent Registered Public  Accounting Firm (Ernst & Young LLP)

44

 

Consolidated Balance Sheets

45

 

Consolidated Statements of  Income

46

 

Consolidated Statements of  Stockholders’ Equity 

47

 

Consolidated Statements of Cash  Flows 

48

 

Notes to Consolidated Financial  Statements 

49

 

**Financial Statement Schedules**

      All schedules for which aprovision is made in the applicable accounting regulation of the Securities andExchange Commission are omitted because they are not required or because therequired information is included in the consolidated financial statements ornotes thereto.

 

 

-37 -

 

 

**Exhibits**

      Exhibits– The following exhibits are incorporated by reference to the filing indicatedor are included following the index to Exhibits.

 
 INDEX TO EXHIBITS
 

 

** **

** **
 
** **

Incorporated by Reference

** **

** **
 
** **

From the Following

Exhibits

** **

Exhibit Title

** **

Documents

 

 

 

 

 

2.1 

—

Asset Purchase Agreement, dated February 3, 2006, between the  Alamo Group Inc. and JLG Industries Inc.

		     

Filed as Exhibit 2.1 to Form 8-K, February 8, 2006

2.2 

—

Asset Purchase Agreement, dated September 4, 2009, between the  Company and *Bush Hog*

 

Filed as Exhibit 2.1 to Form 8-K, September 4, 2009, as amended  by Form 8-K/A, November 9, 2009

3.1 

—

Certificate of Incorporation, as amended, of Alamo Group Inc.

 

Filed as Exhibit 3.1 to Form S-1, February 5, 1993

3.2 

—

By-Laws of Alamo Group Inc. as amended

 

Filed as Exhibit 3.2 to Form 10K, March 10, 2009

10.1 

—

Form of indemnification agreements with Directors of Alamo Group  Inc.

 

Filed as Exhibit 10.1 to Form 10-Q, May 15, 1997

10.2 

—

Form of indemnification agreements with certain executive  officers of Alamo Group Inc.

 

Filed as Exhibit 10.2 to Form 10-Q, May 15, 1997

*10.3 

—

Incentive Compensation Plan, adopted on December 9, 1997

 

Filed as Exhibit 10.14 to Form 10-K, March 31, 1998

*10.4 

—

401(k) Restoration Plan for Highly Compensated Employees,  adopted on December 9, 1997

 

Filed as Exhibit 10.15 to Form 10-K, March 31, 1998

*10.5 

—

Amended and Restated 1994 Incentive Stock Option Plan adopted by  the Board of Directors on July 7, 1999

 

Filed as Exhibit B to Schedule 14A, July 30, 1999

*10.6 

—

First Amended and Restated 1999 Non-Qualified Stock Option Plan,  adopted by the Board of Directors on February 13, 2001

 

Filed as Exhibit B to Schedule 14A, May 3, 2001

*10.7 

—

2005  Incentive Stock Option Plan, adopted by the Board of Directors on May 4, 2005

 

Filed  as Appendix E to Schedule 14A, May 4, 2005

*10.8 

—

2009  Equity Incentive Plan, adopted by the Board of Directors on May 7, 2009

 

Filed  as Exhibit 10.1 to Form 8-K, May 13, 2009

10.9 

—

Amended  and Restated Revolving Credit Agreement among Alamo Group Inc., the  Guarantors, and Bank of America, N.A., Chase Manhattan Bank, and Guaranty  Bank dated February 3, 2006

 

Filed  as Exhibit 10.3 to Form 8-K, February 8, 2006

10.10 

—

Fourth  Amendment of the Amended and Restated Revolving Credit Agreement, dated March  30, 2006, between the Company and Bank of America, N.A., JPMorgan Chase Bank  and Guaranty Bank

 

Filed  as Exhibit 10.1 to Form 8-K, April 5, 2006

10.11 

—

Registration  statement with the Securities and Exchange Commission to register 2,300,000  shares of common stock for offer and sale by Alamo Group

 

Filed  Form S-3, July 27, 2006

10.12 

—

Fifth  Amendment of the Amended and Restated Revolving Credit Agreement, dated May  7, 2007, between the Company and Bank of America, N.A., JPMorgan Chase Bank,  Guaranty Bank and Rabobank

 

Filed  as Exhibit 10.13 to Form 10 Q, May 7, 2007

10.13 

—

Sixth  Amendment of and Waiver under Amended and Restated Revolving Credit  Agreement, dated October 14, 2008, between the Company and Bank of America,  N.A., JPMorgan Chase Bank, Guaranty Bank and Rabobank

 

Filed  as Exhibit 10.12 to Form 10K, March 10, 2009

10.14 

—

Seventh  Amendment of the Amended and Restated Revolving Credit Agreement, dated  November 5, 2009, between the Company and Bank of America, N.A., Wells Fargo  Bank, N.A., BBVA Compass Bank, and Rabobank

 

Filed  as Exhibit 10.1 to Form 10 Q, November 9, 2009

10.15 

—

Form  of Restricted Stock Award Agreement under the 2009 Equity Incentive Plan

 

Filed  as Exhibit 10.2 to Form 8-K, May 13, 2009

10.16 

—

Form  of Restricted Stock Unit Award Agreement under the 2009 Equity Incentive Plan

 

Filed  as Exhibit 10.3 to Form 8-K, May 13, 2009

10.17 

—

Form  of Nonqualified Stock Option Agreement under the 2009 Equity Incentive Plan

 

Filed  as Exhibit 10.4 to Form 8-K, May 13, 2009

10.18 

—

Form  of Nonqualified Stock Option Agreement under the First Amended and Restated  1999 Nonqualified Stock Option Plan

 

Filed  as Exhibit 10.5 to Form 8-K, May 13, 2009

10.19 

—

Form  of Stock Option Agreement under the 2005 Stock Option Plan

 

Filed  as Exhibit 10.6 to Form 8-K, May 13, 2009

 

-38 -

 

 

 

                                                                                      

 

 

21.1 

—

Subsidiaries  of the Registrant

 

Filed  Herewith

23.1 

—

Consent  of KPMG LLP

 

Filed  Herewith

23.2 

—

Consent  of Ernst & Young LLP

 

Filed  Herewith

31.1 

—

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

 

Filed  Herewith 

31.2 

—

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

 

Filed  Herewith

31.3 

—

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

 

** **

*Compensatory Plan

- 39 -

 

 

**SIGNATURES**

      Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

** **

                                                                                               

 
ALAMO GROUP INC.

Date:  March15, 2010
 

 
 

 
By: */s/*RONALD A. ROBINSON

 
President & Chief ExecutiveOfficer  

 

      Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in theircapacities and on15th day of March, 2010.

**Signature**

** **

**Title**

** **

**    **

** **

 

*/s/*DONALD  J. DOUGLASS

Donald J. Douglass

 

 

Chairman  of the Board & Director

 

 

 

 

*/s/*RONALD  A. ROBINSON

Ronald A. Robinson

 

President,  Chief Executive Officer & a Director 			(Principal 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)

 

 

 

*/s/*JERRY  E. GOLDRESS

Jerry E. Goldress

 

Director

 

 

 

*/s/*DAVID  W. GRZELAK

David W. Grzelak

 

Director

 

 

 

*/s/*GARY L.  MARTIN

Gary L. Martin

 

Director

 

 

 

*/s/*DAVID  H. MORRIS

David H. Morris

 

Director

 

 

 

*/s/*JAMES  B. SKAGGS

James B. Skaggs

 

Director

 

 

 

 

 

-40 -

 

 

 

 

 

 

 

**Report of Management on Internal Control over Financial Reporting**

 

      The Company’s management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of1934. The Company’s internal control over financial reporting is designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith U.S. generally accepted accounting principles.

 

      Because of its inherent limitations, internal controls overfinancial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

      TheCompany’s management assessed the effectiveness of the Company’s internal controlover financial reporting as of December 31, 2009 using the framework inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, theCompany’s management concludes that, as of December 31, 2009, the Company’sinternal controls over financial reporting were effective based on theframework in Internal Control – Integrated Framework.

 

      Bush Hog, LLC. (“*Bush Hog*”) was acquired byAlamo Group Inc. in October 2009. The scope of management's assessment of andconclusion on the effectiveness of internal control over financial reportingdid not include the internal controls of*Bush Hog*which is included inthe 2009 consolidated financial statements of Alamo Group Inc. and constituted$60.4 million of assets and $10.9 million of sales for the year ended, December31, 2009.**

 

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

 

 

 

Date:   March 15, 2010

*/s/*Ronald  A. Robinson

 

President & Chief Executive  Officer

 

 

 

*/s/*Dan E. Malone

 

Executive Vice President &

 

Chief Financial Officer

 

 

 

*/s/*Richard J. Wehrle

 

Vice President & Corporate Controller 

 

Principal Accounting Officer

 

 

 

 

-41 -

 

 

 

 

 

Report of IndependentRegistered Public Accounting Firm

 

TheBoard of Directors and Stockholders Alamo Group Inc:

 

We have audited AlamoGroup Inc.’s internal control over financial reporting as of December 31,2009, based on criteria established in *Internal Control – IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO)*.* Alamo Group Inc.’s management is responsiblefor maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Report of Management on Internal Control overFinancial Reporting.  Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit.

 

Weconducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, assessing the risk that a material weakness exists,and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. Our audit also included performing suchother procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (2) provide reasonable assurance that transactions are recordedas necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on thefinancial statements.

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

Inour opinion, Alamo Group Inc. maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009, basedon criteria established in *Internal Control – Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.

AlamoGroup Inc. acquired *Bush Hog* LLC during 2009, and management'sassessment of and conclusion on the effectiveness of internal control overfinancial reporting did not include the internal controls of*Bush Hog*,LLC. (“*Bush Hog*”),which is included in the 2009 consolidated financial statements of Alamo GroupInc. and constituted $60.4 million of assets and $10.9 million of sales for theyear ended December 31, 2009.  Our audit of internal control over financial reporting ofAlamo Group Inc. also excluded an evaluation of the internal control overfinancial reporting of *Bush Hog* LLC.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofAlamo Group Inc. and subsidiaries as of December 31, 2009, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for theyear ended December 31, 2009, and our report dated March 15, 2010 expressedan unqualified opinion on those consolidated financial statements*.*

 

KPMG LLP

SanAntonio, TexasMarch 15, 2010

-42 -

 

 

 

 

 

 

 

Reportof Independent Registered Public Accounting Firm

TheBoard of Directors and Stockholders Alamo Group Inc: 

 

Wehave audited the accompanying consolidated balance sheet of Alamo Group Inc.and subsidiaries as of December 31, 2009, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for theyear ended December 31, 2009.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudit.

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Alamo Group Inc.and subsidiaries as of December 31, 2009, and the results of theiroperations and their cash flows for the year ended December 31, 2009, inconformity with U.S. generally accepted accounting principles.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), Alamo Group Inc.’s internal controlover financial reporting as of December 31, 2009, based on criteria establishedin *Internal Control – Integrated Framework* issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO), and our reportdated March 15, 2010, expressed an unqualified opinion on the effectiveness ofthe Company’s internal control over financial reporting.

As discussed in Note 1 to the consolidated financialstatements, the Company adopted Accounting Standards Topic 805, *BusinessCombinations*, during the year ended December 31, 2009.

 

KPMG LLP

SanAntonio, TexasMarch 15, 2010

-43 -

 

 

 

 

 

 

**Report of IndependentRegistered Public Accounting Firm**

 

 

 

The Board ofDirectors and Stockholders of Alamo Group Inc.

 

We have audited theaccompanying consolidated balance sheet of Alamo Group Inc. and subsidiaries asof December 31, 2008, and the related consolidated statements of income,stockholders' equity, and cash flows for each of the two years in theperiod ended December 31, 2008.  These financial statements are theresponsibility of the Company's management.  Our responsibility is to expressan opinion on these financial statements based on our audits.

 

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Alamo Group Inc. andsubsidiaries at December 31, 2008, and the consolidated results of theiroperations and their cash flows for each of the two years in the period endedDecember 31, 2008, in conformity with U.S. generally accepted accountingprinciples.

 

As discussed in Note1 to the financial statements in 2007 the Company changed its method ofaccounting for income taxes. 

 

 

 

Ernst& Young LLP

San Antonio, Texas

March 6, 2009

 

 

 

 -44 -

 
**AlamoGroup Inc. and Subsidiaries**
ConsolidatedBalance Sheets

** **

 

** **

**December 31,**

 

(in thousands, except per share amounts)

** **

** **

**2009** 

** **

** **

**2008**  

**ASSETS**

** **

** **

** **

** **

** **

** **

Current assets:

 

 

 

 

 

 

Cash and cash equivalents		

 

$

17,774 

		     

$

4,532 

Accounts receivable, net

 

 

111,745 

 

 

124,197 

Inventories		

 

 

124,322 

 

 

132,248 

Deferred income taxes

 

 

3,118 

 

 

2,889 

Prepaid expenses		

 

 

3,579 

 

 

2,377 

Income tax receivable  

 

 

1,195 

 

 

—

Total current assets		

 

 

261,733 

 

 

266,243 

 

 

 

 

 

 

 

Property, plant and equipment		

 

 

142,076 

 

 

125,952 

Less:  Accumulated depreciation		

 

 

(72,215)

 

 

(64,168)

 

 

 

69,861 

 

 

61,784 

 

 

 

 

 

 

 

Goodwill		

 

 

35,207 

 

 

48,107 

Intangible assets

 

 

5,803 

 

 

3,982 

Deferred income taxes

 

 

4,158 

 

 

4,023 

Other assets		

 

 

1,201 

 

 

1,993 

 

 

 

 

 

 

 

Total assets		

 

$

377,963 

 

$

386,132 

 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS’ EQUITY**

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

36,046 

 

$

54,598 

Income taxes payable

 

 

2,688 

 

 

841 

Accrued liabilities

 

 

32,013 

 

 

26,059 

Current maturities of long-term debt and capital lease  obligations

 

 

5,453 

 

 

4,186 

Deferred income taxes

 

 

3,164 

 

 

240 

Total current liabilities		

 

 

79,364 

 

 

85,924 

 

 

 

 

 

 

 

Long-term debt and capital lease obligation, net of current  maturities 

 

 

44,336 

 

 

99,884 

Accrued pension liabilities

 

 

7,640 

 

 

8,682 

Other long-term liabilities

 

 

3,665 

 

 

5,139 

Deferred income taxes

 

 

7,581 

 

 

2,191 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $.10 par value, 20,000,000 shares authorized;		11,789,529  and 9,964,529  issued and outstanding at December 31, 2009 		and December 31, 2008, respectively		

 

 

1,179 

 

 

996 

Additional paid-in capital		

 

 

82,721 

 

 

55,683 

Treasury stock, at cost: 42,600 shares at December 31, 2009  and 		December 31, 2008

 

 

(426)

 

 

(426)

Retained earnings		

 

 

146,756 

 

 

132,064 

Accumulated other comprehensive income (loss)

 

 

5,147 

 

 

(4,005)

Total stockholders’ equity		

 

 

235,377 

 

 

184,312 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity		

 

$

377,963 

 

$

386,132 

Seeaccompanying notes. 

 

** **

** **

** **

** **

-45 -

 

 

 

 

 

**AlamoGroup Inc. and Subsidiaries**

**ConsolidatedStatements of Income**

** **

** **

 

**                  Year Ended December 31,**

 

(in thousands, except per share amounts)

** **

**2009**  

 

 

** **

**2008**  

 

** **

**2007  **

Net sales:

 

 

 

 

 

 

 

 

North American

 

 

 

 

 

 

 

 

    Industrial 

$

173,905 

 

$

254,787 

 

$

253,203 

    Agricultural		

 

92,415 

 

 

120,232 

 

 

117,652 

European 

 

180,167 

 

 

182,116 

 

 

133,531 

Total net sales

 

446,487 

 

 

557,135 

 

 

504,386 

 

 

 

 

 

 

 

 

 

Cost of sales 

 

351,926 

 

 

447,721 

 

 

406,675 

    Gross profit 

 

94,561 

 

 

109,414 

 

 

97,711 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

76,099 

 

 

83,059 

 

 

73,874 

Gain on bargain purchase

 

(27,689)

 

 

—

 

 

—

Goodwill impairment

 

14,104 

 

 

5,010 

 

 

—

    Income from operations 

** **

32,047 

 

 

21,345 

 

 

23,837 

 

** **

 

 

 

 

 

 

 

Interest expense 

** **

(4,766)

 

 

(7,450)

 

 

(8,338)

Interest income

** **

713 

 

 

1,818 

 

 

1,723 

Other income (expense), net

 

625 

 

 

1,513 

 

 

813 

    Income before income taxes

** **

28,619 

 

 

17,226 

 

 

18,035 

 

 

 

 

 

 

 

 

 

Provision for income taxes 

 

11,528 

 

 

6,227 

 

 

5,670 

    Net income

$

17,091 

 

$

10,999 

 

$

12,365 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

    Basic

$

1.65 

 

$

1.12 

 

$

1.26 

    Diluted

$

1.65 

 

$

1.11 

 

$

1.24 

Average  common shares:

 

 

 

 

 

 

 

 

    Basic

 

10,330 

 

 

9,847 

 

 

9,781 

    Diluted

 

10,363 

 

 

9,950 

 

 

9,953 

 

Seeaccompanying notes.

 

-46 -

 

 

 

 

 

**AlamoGroup Inc. and Subsidiaries**

**ConsolidatedStatements of Stockholders’ Equity**

 
		 **Common Stock**		 
**Additional**

**Paid-in**
		 **Treasury**		 Retained		 **Accumulated		OtherComprehensive**		 
**Total  Stock-holders’**

(in thousands)
Shares
 

**Amount**

 
Capital
 
Stock
 
Earnings
 
Income
 
Equity
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2006

9,761 

 

$

980 

 

$

52,400 

 

  $

(426)

 

  $

113,407 

 

  $

15,373 

 

$

181,734 

    Net income		

—

 

 

—

 

 

—

 

 

—

 

 

12,365 

 

 

—

 

 

12,365 

    Translation adjustment

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

5,204 

 

 

5,204 

    Unrealized derivative loss, net of taxes $483

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(788)

 

 

(788)

    Net actuarial gains arising during period net of		

        taxes of $806

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,315 

 

 

 

1,315 

    Total comprehensive income

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

18,096 

    Tax effect of non-qualified stock options

—

 

 

—

 

 

98 

 

 

—

 

 

—

 

 

—

 

 

98 

    Stock-based compensation

—

 

 

—

 

 

650 

 

 

—

 

 

—

 

 

—

 

 

650 

    Exercise of stock options

36 

 

 

4 

 

 

462 

 

 

—

 

 

—

 

 

—

 

 

466 

    Dividends paid ($.24 per share)

—

 

 

—

 

 

—

 

 

—

 

 

(2,346)

 

 

—

 

 

(2,346)

Balance at December 31, 2007

9,797 

 

$

984 

 

$

53,610 

 

  $

(426)

 

  $

123,426 

 

  $

21,104 

 

$

198,698 

    Net income		

—

 

 

—

 

 

—

 

 

—

 

 

10,999 

 

 

—

 

 

10,999 

    Translation adjustment

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(18,121)

 

 

(18,121)

    Unrealized derivative loss, net of taxes $491

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(800)

 

 

(800)

    Net actuarial loss arising during period net of		

        taxes of $2,243

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,188)

 

 

 

(6,188)

    Total comprehensive (loss)

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(14,110)

    Tax effect of non-qualified stock options

—

 

 

—

 

 

361 

 

 

—

 

 

—

 

 

—

 

 

361 

    Stock-based compensation

—

 

 

—

 

 

563 

 

 

—

 

 

—

 

 

—

 

 

563 

    Exercise of stock options

125 

 

 

12 

 

 

1,149 

 

 

—

 

 

—

 

 

—

 

 

1,161 

    Dividends paid ($.24 per share)

—

 

 

—

 

 

—

 

 

—

 

 

(2,361)

 

 

—

 

 

(2,361)

Balance at December 31, 2008

9,922 

 

$

996 

 

$

55,683 

 

  $

(426)

 

  $

132,064 

 

  $

(4,005)

 

$

184,312 

    Net  income 

—

 

 

—

 

 

—

 

 

—

 

 

17,091 

 

 

—

 

 

17,091 

    Translation  adjustment

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

6,595 

 

 

6,595 

    Unrealized  derivative loss, net of taxes $500

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

816 

 

 

816  

    Net  actuarial gain arising during period net of 

         taxes of $480

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,741 

 

 

 

1,741 

    Total  comprehensive income

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

26,243 

    Tax  effect of non-qualified stock options

—

 

 

—

 

 

122 

 

 

—

 

 

—

 

 

—

 

 

122 

    Stock-based  compensation

—

 

 

—

 

 

543 

 

 

—

 

 

—

 

 

—

 

 

543 

    Issuance  of stock for acquisition 

1,700 

 

 

170

 

 

25,268 

 

 

—

 

 

—

 

 

—

 

 

25,438 

    Exercise  of stock options

125 

 

 

13 

 

 

1,105 

 

 

—

 

 

—

 

 

—

 

 

1,118 

    Dividends  paid ($.24 per share) 

—

 

 

—

 

 

—

 

 

—

 

 

(2,399)

 

 

—

 

 

(2,399)

Balance  at December 31, 2009

11,747 

 

$

1,179 

 

$

82,721 

 

  $

(426)

 

  $

146,756 

 

  $

5,147 

 

$

235,377 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seeaccompanying notes.

 

 

 

-47 -

 

 

 

 

 

**AlamoGroup Inc. and Subsidiaries**

ConsolidatedStatements of Cash Flows

** **

** **

**Year  Ended December 31,**
(in thousands) **2009**  **2008**  **2007** 
**Operating Activities**

** **

** **

** **

** **

 

 

 

 

 
Net income

$

17,091 

** **

$

10,999 

** **

$

12,365 

 
Adjustments to reconcile net income to cash provided by

    operating activities:

 

 

** **

** **

 

** **

** **

 

 
        Provision for doubtful accounts

 

546 

** **

** **

1,043 

** **

** **

454 

 
        Depreciation		

 

8,706 

** **

** **

9,261 

** **

** **

8,912 

 
        Amortization of intangibles

 

79 

** **

** **

99 

** **

** **

106 

 
        Amortization of debt issuance

 

63 

** **

** **

—

** **

** **

—

 
        Gain on bargain purchase		

 

(27,689)

** **

** **

—

** **

** **

—

 
        Goodwill impairment charge

 

14,104 

** **

** **

5,010 

** **

** **

—

 
        Stock-based compensation		

 

543 

** **

** **

563 

** **

** **

650 

 
        Excess tax benefits from stock-based payment  arrangements 

 

(122)

** **

** **

(52)

** **

** **

(84)

 
        Provision for deferred income tax expense (benefit)

 

7,951 

** **

** **

89 

** **

** **

647 

 
        Gain on sale of equipment		

 

(59)

** **

** **

(102)

** **

** **

(16)

 
Changes in operating assets and liabilities, net of effect of  acquisitions:

** **

 

** **

** **

 

** **

** **

 

 
**       **Accounts receivable 

 

40,285 

** **

** **

(14,295)

** **

** **

(8,206)

 
        Inventories		

 

32,432 

** **

** **

(6,694)

** **

** **

1,922 

 
        Prepaid expenses and other		

 

3,176 

** **

** **

(588)

** **

** **

(1,971)

 
        Trade accounts payable and accrued liabilities		

 

(25,408)

** **

** **

5,004 

** **

** **

1,235 

 
        Income taxes payable		

 

3,618 

** **

** **

(217)

** **

** **

3,607 

 
        Other assets and liabilities, net

 

(3,230)

** **

** **

(1,396)

** **

** **

(429)

 
Net cash provided by operating activities 

 

72,086 

** **

** **

8,724 

** **

** **

19,192 

 
** **

 

 

** **

** **

 

** **

** **

 

 
**Investing Activities**

 

 

** **

** **

 

** **

** **

 

 
Acquisitions, net of cash acquired 

 

—

** **

** **

(21,349)

** **

** **

(3,464)

 
Purchase of property, plant and equipment 

 

(3,453)

** **

** **

(6,553)

** **

** **

(10,765)

 
Proceeds from sale of property, plant and equipment		

 

922 

** **

** **

213 

** **

** **

360 

 
Net cash used in investing activities 

 

(2,531)

** **

** **

(27,689)

** **

** **

(13,869)

 
 

 

 

** **

** **

 

** **

** **

 

 
**Financing Activities**

** **

** **

** **

** **

** **

** **

** **

** **

 
Net change in bank revolving credit facility 

 

(54,000)

  

 

20,000 

 

 

—

 
Principal payments on long-term debt and capital leases		

 

(2,255)

 

 

(1,604)

 

 

(1,595)

 
Proceeds from issuance of long term debt

 

1,387 

 

 

1,941 

** **

 

192 

** **

Debt issuance cost

 

(938)

 

 

—

** **

** **

—

 
Dividends paid 

 

(2,399)

 

 

(2,361)

 

 

(2,346)

 
Proceeds from sale of common stock 

 

1,118 

 

 

1,522 

 

 

564 

 
Excess tax benefits from stock-based payment arrangements

 

122 

 

 

52 

 

 

84 

 
Net cash provided by (used in) financing activities		

 

(56,965)

** **

 

19,550 

 

 

(3,101)

 
 

 

 

 

 

 

 

 

 

 
Effect of exchange rate changes on cash 

 

652 

 

 

(512)

 

 

68 

 
Net change in cash and cash equivalents 

 

13,242 

 

 

73 

 

 

2,290 

 
Cash and cash equivalents at beginning of the year 

 

4,532 

 

 

4,459 

 

 

2,169 

 
Cash and cash equivalents at end of the year 

$

17,774 

 

$

4,532 

 

$

4,459 

 
 

 

 

 

 

 

 

 

 

 
Cash paid during the year for:

 

 

 

 

 

 

 

 

 
    Interest		

$

5,179 

 

$

7,579 

 

$

8,997 

 
    Income taxes		

 

5,181 

 

 

6,591 

 

 

3,602 

 
** **

Seeaccompanying notes.

-48 -

 

 

 

 

 

**AlamoGroup Inc.**

**Notes toConsolidated Financial Statements**

** **

**1.SIGNIFICANT ACCOUNTING POLICIES**

**Description of theBusiness and Segments**

      The Company manufactures,distributes and services high quality tractor-mounted mowing and othervegetation maintenance equipment, street sweepers, excavators, vacuum trucks,snow removal equipment, pothole patchers, zero turn radius mowers, agriculturalimplements and related aftermarket parts and services.

      The Company manages its business in three principalreporting segments: North America Agricultural, North American Industrial andEuropean, which are discussed in Footnotes 15 and 16.

 

**Basisof Presentation and Principles of Consolidation**

 

        The accompanyingconsolidated financial statements include the accounts of Alamo Group Inc. andits subsidiaries (the “Company” or “Alamo Group”), all of which are whollyowned.  All significant intercompany accounts and transactions have beeneliminated in consolidation. 

        We have evaluated subsequentevents that occurred after December 31, 2009 through the filing of thisForm 10-K. Any material subsequent events that occurred during this time havebeen properly recognized or disclosed in our financial statements.

Certain reclassifications have been made toprior year balances in order to conform to the current year’s presentation.

 

***FinancialAccounting Standards Board (FASB) “Accounting Standards CodificationTM” (theCodification or ASC)***

 

        The Codificationis the single source of authoritative generally accepted accounting principles(GAAP) recognized by the FASB, to be applied by nongovernmental entitiesin the preparation of financial statements in conformity with GAAP. Rules andinterpretive releases of the Securities and Exchange Commission(SEC) under authority of federal securities laws are also sources ofauthoritative GAAP for SEC registrants. The Codification became effective forinterim and annual periods ending after September 15, 2009 and supersededall previously existing non-SEC accounting and reporting standards. 

        Allother non-grandfathered non-SEC accounting literature not included in theCodification is nonauthoritative. All of our references to GAAP now use thespecific Codification Topic or Section rather than prior accounting andreporting standards. The Codification did not change existing GAAP and,therefore, did not affect our financial position or results of operations. 

 

***Use of Estimates***

** **

      The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Judgments related to asset impairment and certain reserves are particularlysubject to change.  Actual results could differ from those estimates.

***Foreign Currency***

      The Company translates theassets and liabilities of foreign-owned subsidiaries at rates in effect at theend of the year. Revenues and expenses are translated at average rates ineffect during the reporting period. Translation adjustments are included inaccumulated other comprehensive income within the statement of stockholders’equity.

-49 -

 

 

 

 

 

      The Company enters intoforeign currency forward contracts to hedge its exposure to certain foreigncurrency transactions. The Company does not hold or issue financial instrumentsfor trading purposes. Changes in the market value of the foreign currencyinstruments are recognized in the financial statements upon settlement of thehedged transaction. At December 31, 2009, the Company had $2,223,000 inoutstanding forward exchange contracts related to sales. The unrealized gain ofthe December 31, 2009 contracts that the Company expects to incur during thefirst quarter of 2010 is approximately $41,000, net of taxes. Foreign currencytransaction gains or losses are included in Other income (expense), net. For2009, 2008 and 2007, such transactions netted gains of $625,000, $1,513,000,and $703,000, respectively.

***Cash Equivalents***

      Cashequivalents are highly liquid investments with a maturity date no longer than90 days.  

***Concentrations of CreditRisk***

      Financial instruments whichpotentially subject the Company to concentrations of credit risk consist principallyof accounts receivable. The credit risk is limited because of the large numbersand types of customers and their geographic dispersion.

***Inventories***
      Inventories of U.S. operating subsidiaries are principally stated at the lower of cost (last-in, first-out method) (“LIFO”) or market, and the Company’s international subsidiaries’ inventories are stated at the lower of cost (first-in, first-out) (“FIFO”) or market.
**Property, Plant andEquipment**

      Property, plant, andequipment are stated on the basis of cost. Major renewals and betterments arecharged to the property accounts while replacements, maintenance and repairs,which do not improve or extend the lives of the respective assets, are expensedto the current period. Depreciation is provided at amounts calculated toamortize the cost of the assets over their estimated useful economic livesusing the straight-line method.

**Goodwill**

      Goodwill consists of the excess of the purchase price overthe fair value of identifiable net assets of businesses acquired.  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-stepprocess.  The first step is to identify if a potential impairment exists bycomparing the fair value of a reporting unit with its carrying amount,including goodwill (Step 1).  If the fair value of a reporting unit exceeds itscarrying value amount, goodwill of the reporting unit is not considered to havea potential impairment and the second step is not necessary.  However, if thecarrying amount of the reporting unit exceeds its fair value, the second step(Step 2) is performed to determine if goodwill is impaired and to measure theamount of impairment loss to recognize, if any. Step 2 compares the impliedfair value of goodwill with the carrying amount of goodwill.  If the impliedvalue of goodwill is less than the carrying amount of goodwill, then a chargeis recorded to reduce goodwill to the implied goodwill. The implied goodwill iscalculated based on a hypothetical purchase price allocation, in that it takesthe implied fair value of the reporting unit and allocates such fair value tothe fair value of the assets and liabilities of the reporting unit.  

      

 -50 -

 

 

 

 

 

      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 valuation models and other financial ratios, which requirethe Company to make certain assumptions and estimates regarding theapplicability of those models to its assets and businesses. The Companybelieves that the assumptions and estimates used to determine the estimatedfair values of each of its reporting units are reasonable. However, different assumptions couldmaterially affect the estimated fair value. The Company recognized goodwillimpairment in the North American Industrial segment of $14,104,000 in 2009 and$5,010,000 in the North American Agricultural segment in 2008.  No goodwillimpairment was recorded in 2007.  As of December 31,2009, goodwill was $35,207,000, whichrepresents 9% of total assets.  During the 2009impairment analysis review, it was noted that even though the *Schwarze*reporting unit’s fair value was above carrying value it was not materiallydifferent. At December 31, 2009, there was approximately $6.8 million ofgoodwill related to the *Schwarze* reporting unit. This reporting unitwould be most likely affected by changes in the Company’s assumptions andestimates. The calculation of fair value could increase or decrease dependingon changes in the inputs and assumptions used, such as changes in the reportingunit’s future growth rates, discount rates, etc.   

 

See Note 6 to the Consolidated FinancialStatements for more information regarding goodwill.

 **Intangible Assets                                                                                                                               **

      The Company’s definite-lived intangible assets consistprimarily of patents and trade names. The gross carrying value ofdefinite-lived intangible assets was $1,147,000 at December 31, 2009 and $1,391,000 at December31, 2008 and 2007. Accumulated amortization ofdefinite-lived intangible assets was $1,088,000and $1,009,000 at December 31, 2009 and 2008, respectively. Amortizationexpense of definite-lived intangible assets was $79,000 in 2009, $99,000in 2008, and $104,000 in 2007. Annual amortization expense is expected to be$79,000 in 2010, 2011, 2012; $45,000 in 2013; and$2,000 in 2014.

 

      Intangible assets with indefinite useful lives not subjectto amortization consist of the *Gradall* trade name valued at $3,600,000 and the*Bush Hog* trade name valued at $1,900,000 atDecember 31, 2009.

 

      The Company tests its indefinite-lived intangible assets forimpairment on an annual basis at year-end, or more frequently if an eventoccurs or circumstances change that indicate that the fair value of anindefinite-lived intangible asset could be below its carrying amount. Theimpairment test consists of comparing the fair value of the indefinite-livedintangible asset, determined using the relief from royalty method, with itscarrying amount. An impairment loss would be recognized for the carrying amountin excess of its fair value. 

 

      Identifiable intangible assets are recorded at estimatedcost. Definite-lived intangible assets are amortized over their estimateduseful lives.

 

**Pensions**

In connection with the February3, 2006 purchase of all the net assets of the *Gradall* excavatorbusiness, the Company 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 HourlyEmployees’ Pension Plan covers approximately 310 former employees and 210current employees who (i) were formerly employed by JLG Industries, Inc., (ii)were covered by a collective bargaining agreement and (iii) first participatedin the plan before April 6, 1997. An amendment ceasing all future benefitaccruals was effective April 6, 1997.

 

The *Gradall* CompanyEmployees’ Retirement Plan covers approximately 220 former employees and 120current employees who (i) were formerly employed by JLG Industries, Inc., (ii)were not covered by a collective bargaining agreement, and (iii) firstparticipated in the plan before December 31, 2004. An amendment ceasing futurebenefit accruals for certain participants was effective December 31, 2004. A secondamendment discontinued all future benefit accruals for all participantseffective April 24, 2006.

 

       The Company recognizes thefunded status of the defined benefit pension plans as a liability in itsstatement of financial position and recognizes any changes in that fundedstatus in the year in which the changes occur through other comprehensive income.

-51 -

 

 

 

 

 

***Related Party Transactions***

      There were noreportable relationships or related party transactions for the years endedDecember 31, 2009 and 2008. During 1999, the Company approved a supplementalretirement benefit for Donald J. Douglass which is paid on a quarterly basisover a period of fourteen and one-half years that began in the year 2000. Thebalance at December 31, 2009 and 2008 was $308,000 and $363,000, respectively, and is included in theAccrued liabilities and Other long-term liabilities sections of the Company’sconsolidated balance sheet.

***Revenue Recognition***

      The Company recognizes revenue when each of the followingfour criteria are met: 1) a contract or sales arrangement exists; 2) productshave been shipped per agreed terms and title has been transferred or serviceshave been rendered; 3) the prices of the products or services are fixed ordeterminable; and 4) collectibility is reasonably assured. Pre-season salesorders are solicited in the fall in advance of the dealer’s sales season in thespring and summer. Pre-season sales orders are shipped beginning in the falland continuing through the spring and represent an opportunity for the Company’sfactories to level their production/shipping volumes through the winter months.These pre-season shipments carry descending discounts in conjunction withdelayed payment terms of up to six months from the dealer’s requested deliverydate. Revenue from sales is recorded net of a provision for discounts that areanticipated to be earned and deducted at time of payment by the customer. Theseapproximated discounts represent an average of historical amounts taken and areadjusted as program terms are changed. The reserves for discounts are reviewedand adjusted quarterly.  From time to time, revenue is recognized under a bill and holdarrangement.

 

***Accounting for Internal Use Software***

 

      The Company capitalizes certain costs associated with thedevelopment and installation of internal use software. Internal use softwarecosts are expensed or capitalized depending on whether they are incurred in thepreliminary project stage, application development stage or thepost-implementation stage. Amounts capitalized are amortized over the estimateduseful lives of the software.

 

      The book value of capitalized software net of depreciation is approximately$1,516,000 and $1,911,000 at December 31, 2009 and December 31, 2008,respectively. Software depreciation expense was $721,000, $992,000 and $982,000in 2009, 2008 and 2007, respectively. Internal use software is amortized forfinancial reporting purposes using the straight-linemethod over the estimated life of two to seven years.

 

***Shipping and Handling Costs***

 

      TheCompany’s policy is to include shipping and handling costs in costs of goodssold.

*** ***

***Advertising***

      Wecharge advertising costs to expense as incurred. Advertising and marketingexpense related to operations for fiscal years 2009, 2008 and 2007 was approximately $4,378,000, $5,735,000and $4,871,000, respectively. Advertising and marketing expenses are includedin Selling, General and Administrative expenses(“SG&A”).

***Research and Development***

      Product developmentand engineering costs charged to SG&A amounted to $4,762,000, $5,443,000, and$5,185,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

***Legal Costs***

***     ***The Company’s policy is toaccrue for legal costs expected to be incurred in connection with losscontingencies.

*** ***

-52 -

 

***Federal Income Taxes***

      Deferredtax assets and liabilities are determined based on differences between thefinancial reporting basis and tax basis of assets and liabilities and aremeasured byapplying enacted statutory tax rates applicable to the future years in whichdeferred tax assets or liabilities are expected to be settled or realized. Inassessing the realizability of deferred tax assets, management considerswhether it is more likely than not that some portion or all of the deferred taxassets will be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible. Management considers thescheduled reversals of deferred tax liabilities, projected future taxableincome, and tax planning strategies in making this assessment. Based uponprojections of future taxable income over the periods in which the deferred taxassets are deductible, management believes it is more likely than not that wewill realize the benefits of these deductible differences. 

 

      Wedo not provide for a U.S. income tax liability on undistributed earnings of ourforeign subsidiaries. The earnings of non-U.S. subsidiaries, which reflect fullprovision for non-U.S. income taxes, are currently indefinitely reinvested innon-U.S. operations or will be remitted substantially free of additional tax.

 

***BusinessCombinations***

 

      EffectiveJanuary 1, 2009, we adopted the new provisions of ASC Topic 805, “BusinessCombinations,” which address the recognition and measurement of(i) identifiable assets acquired or liabilities assumed, and anynon-controlling interest in the acquiree, and (ii) goodwill acquired orgain from a bargain purchase. In addition, acquisition-related costs areaccounted for as expenses in the period in which the costs are incurred and theservices are received. These provisions were applied to the acquisition ofcertain assets and liabilities of *Bush Hog* LLC in the fourth quarter of2009, which is discussed in Note 20.

 

***Stock-Based Compensation***

*** ***

  Priorto January 1, 2006, we recognized compensation cost for share-based awardsbased on the minimum value taking into account the exercise price of the optionand the fair market value of our common stock on the date of grant. EffectiveJanuary 1, 2006, we began using the modified-prospective transitionmethod.  However, for unvested equity awards outstanding as of the date ofJanuary 1, 2006, we continue to amortize those awards using the minimum valuemethod.  Beginning January 1, 2006 measurement and recognition of compensationexpense for all share-based payment awards made to employees and directors isrecognized based on estimated fair values.  We use the Black-Scholes pricingmodel to determine the fair value of the stock options on the grant dates forstock awards made on or after January 1, 2006, and we amortize the fairvalue of share-based payments on a straight-line basis over the requisiteservice periods of the award, which is generally the vesting period. 

 

      TheBlack-Scholes valuation model requires us to make assumptions and judgmentsabout the variables used in the calculation. These variables and assumptionsinclude the fair value of our common stock, expected term, the expectedvolatility, the risk-free interest rate, expected dividends, and the estimatedrate of forfeitures of unvested stock options. 

 

       TheCompany calculated the fair value for options using a Black-Scholesoption-pricing model with the following weighted-average assumptions for 2009,2008, and 2007:

 

**December 31,**

 

**2009**  

** **

**2008**  

** **

**2007**  

 

 

 

 

 

 

 

 

 

Risk-free  interest rate

 

2.67%

 

 

3.13%

 

 

5.00%

Dividend  yield

 

1.20%

 

 

1.20%

 

 

0.96%

Volatility  factors

 

42.8%

 

 

43.6%

 

 

34.5%

Weighted-average  expected life

 

7.5 years

 

 

9.0  years

 

 

5.0  years

 

 

-53 -

 

 

 

 

***Recent Accounting Pronouncements***

 

***Subsequent Events***

 

      InMay 2009, ASC Topic 855, “Subsequent Events,” was issued, whichestablished general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. In particular, guidance was provided regarding(i) the period after the balance sheet date during which management of areporting entity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements, (ii) thecircumstances under which an entity should recognize events or transactionsoccurring after the balance sheet date in its financial statements, and(iii) the disclosures that an entity should make about events ortransactions that occur after the balance sheet date. The provisions of Topic855 are to be applied prospectively and are effective for interim or annualfinancial periods ending after June 15, 2009. The adoption of the provisionsof Topic 855 in the second quarter of 2009 did not affect our financialposition or results of operations but did result in additional disclosures,which are provided above under “*Basis of Presentation and Principles ofConsolidation.”*

 

***FairValue Measurements and Disclosures***

 

      InJanuary 2010, the provisions of ASC Topic 820 were modified to requireadditional disclosures, including transfers in and out of Level 1 and 2 fairvalue measurements and the gross basis presentation of the reconciliation ofLevel 3 fair value measurements. This guidance is effective for interim andannual reporting periods beginning after December 15, 2009, except fordisclosures related to Level 3 fair value measurements, which are effective forfiscal years beginning after December 15, 2010 (including interimperiods). Early adoption is permitted. We have adopted all of these provisionsof ASC Topic 820 effective December 31, 2009. Since only disclosures areaffected by these requirements, the adoption of these provisions did not affectour financial position or results of operations.

 

**2.EARNINGS PER SHARE**

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

(in  thousands, except per share amounts)

**2009**  

** **

**2008** 

** **

**2007**  

 

 

 

 

 

 

 

 

 

Net  income

$

17,091

 

$

10,999

 

$

12,365

 

 

 

 

 

 

 

 

 

Average  common shares:

 

 

 

 

 

 

 

 

    Basic  (weighted-average outstanding shares)

 

10,330

 

 

9,847

 

 

9,781

 

 

 

 

 

 

 

 

 

    Dilutive  potential common shares from stock   options 

 

33

 

 

103

 

 

172

   			

Diluted  (weighted-average outstanding shares) 

 

 

 

10,363

 

 

 

 

9,950

 

 

 

 

9,953

 

 

 

 

 

 

 

 

 

Basic  earnings per share 

$

1.65

 

$

1.12

 

$

1.26

 

 

 

 

 

 

 

 

 

Diluted  earnings per share 

$

1.65

 

$

1.11

 

$

1.24

 

      Stock options totaling 304,533shares in 2009, 188,523 shares in 2008, and 56,988 shares in 2007 werenot included in the diluted earnings per share calculation because the effectwould have been anti-dilutive.

 

-54 -

 
** **
**3. VALUATION AND QUALIFYING ACCOUNTS**

Valuation and qualifyingaccounts included the following:

 

 

 

(in thousands)

** **

**Balance**

**Beginning  of**

**Year**

**Net**

**Charged  to**

**Costs and**

**Expenses**

** **

**Translations,**

**Reclassifications**

**and  Acquisitions**

** **

** **

**Net  Write-Offs or Discounts Taken**

** **

**Balance**

**End  of**

**Year**

**2009**

 

 

 

 

Allowance  for doubtful accounts

 $    2,430 

$         546 

$               114 

$          (543)

$  2,548 

Reserve  for sales discounts

6,849 

25,514 

5 

(28,565)

3,803 

Reserve  for inventory obsolescence

8,978 

1,515 

163 

(1,596)

9,060 

Reserve  for warranty

4,764 

6,609 

1,615 

(6,651)

6,337 

**2008**

 

 

 

 

 

Allowance for doubtful accounts

 $     1,922 

$           948 

$               18 

$           (458)

$   2,430 

Reserve for sales discounts

6,338 

36,311 

(16)

(35,784)

6,849 

Reserve for inventory obsolescence

8,526 

570 

452 

(570)

8,978 

Reserve  for warranty

4,093 

7,554 

286 

(7,169)

4,764 

**2007**

 

 

 

 

 

Allowance for doubtful accounts

 $     1,889 

$           470 

$               70 

$           (507)

$   1,922 

Reserve for sales discounts

6,849 

30,385 

1 

(30,897)

6,338 

Reserve for inventory obsolescence

7,594 

1,157 

170 

(395)

8,526 

Reserve  for warranty

4,084 

6,476 

102 

(6,569)

4,093 

** **

***Allowance for Doubtful Accounts***

 

TheCompany evaluates the collectibility of its accounts receivable based on acombination of factors. In circumstances where it is aware of a specificcustomer’s inability to meet its financial obligations, the Company records aspecific reserve to reduce the amounts recorded to what it believes will becollected. For all other customers, it recognizes reserves for bad debt basedon historical experience of bad debts as a percent of revenues for eachbusiness unit, adjusted for relative improvements or deteriorations in theaging and changes in current economic conditions.

 

      TheCompany evaluates all receivables that are over 60 days old and will reservespecifically on a 90-day basis. The Companyhas a secured or insured interest on most of its wholegoods that each customerpurchases. This allows the Company, in times of a difficult economy when thecustomer is unable to pay or has filed for bankruptcy (usually Chapter 11), torepossess the customer’s inventory. This also allows Alamo Group to maintainonly a reserve over its cost, which usually represents the margin on theoriginal sales price.

 

      Theallowance for doubtful accounts balance was $2,548,000 at December 31, 2009,and $2,430,000 at December 31, 2008.  The increase was mainly from theCompany’s European operations.

 

***SalesDiscounts***

* *

      AtDecember 31, 2009, the Company had $3,803,000 in reserves for sales discountscompared to $6,849,000 at December 31, 2008 on product shipped to our customers under various promotional programs. The decreasewas due primarily to lower sales activity of the Company’s agriculturalproducts during the preseason, which runs from September to December of eachyear with orders shipped through the first quarter of 2010.  The Companyreviews the reserve quarterly based on analysis made on each programoutstanding at the time. 

 

The Company bases its reserves onhistorical data relating to discounts taken by the customer under each program.Historically, between85% and 95% of the Company’s customers who qualifyfor each program actually take the discount that is available.

 

-55 -

 

 

 

***Inventories – Obsolete and Slow Moving***

* *

      The Company had a reserve of $9,060,000 at December 31, 2009and $8,978,000 at December 31, 2008 to cover obsolete and slow movinginventory.  The increase in the reserve was mainly from the Company’s U.S.operations.  The obsolete and slow moving inventory policy states that thereserve is to be calculated as follows: 1) no inventory usage over a three-year period is deemed obsolete and reserved at 100percent; and 2) slow moving inventory with little usage requires a 100 percentreserve on items that have a quantity greater than a three-year supply.  Thereare exceptions to the obsolete and slow moving classifications if approved byan officer of the Company, based on specific identification of an item or itemsthat are deemed to be either included or excluded from this classification.  Incases where there is no historical data, management makes a judgment based on aspecific review of the inventory in question to determine what reserves, ifany, are appropriate.  New products or parts are generally excluded from thereserve policy until a three year history has been established.

 

***Warranty***

 

*     *The Company’s warranty policy is generally to provide itscustomers warranty for up to one year on all wholegood units and 90 days onparts.

 

      Warranty reserve, as a percentage of sales, is generallycalculated by looking at the current twelve months’ expenses and prorating thatamount based on twelve months’ sales with a ninety-day to six-month lag period.The Company’s historical experience is that an end-user takes approximately 90days to six months from the receipt of the unit to file a warranty claim. Awarranty reserve is established for each different marketing group. Reservebalances are evaluated on a quarterly basis and adjustments made when required.

 

      Thecurrent liability warranty reserve balance was $6,337,000 at December 31, 2009and $4,764,000 at December 31, 2008.  The increase came mainly from theacquisition of Bush Hog.

** **

**4.INVENTORIES**

** **

**     **Inventoriesvalued at LIFO represented63% and 57% of total inventory for the years ended December 31, 2009 and2008, respectively. The excess of current costs over LIFO-valued inventorieswas $9,106,000 and $12,791,000 at December 31, 2009 and December 31,2008, respectively.  The $3,685,000 decrease in LIFO reserve during 2009 camefrom reductions in inventory levels within U.S. operations.  The impact of theapplication of the LIFO method on the Statement ofIncome for the years ended December 31, 2009, was a decrease to cost of salesof $3,685,000, and an increase in 2008 and2007 of $3,729,000 and $413,000, respectively. Inventories consisted of thefollowing on a cost basis, net of reserves:

 

**December  31,**

(in thousands)

**2009**  

 

**2008**  

Finished goods and parts 

$

102,681

 

$

104,819

Work in process 

 

10,611

 

 

16,247

Raw materials 

 

11,030

 

 

11,182

 

$

124,322

 

$

132,248

** **

 

 

-56 -

 

 

 

 

 

** **

**5.PROPERTY, PLANT AND EQUIPMENT**

**     **Property,plant and equipment consist of the following:

 

**December  31,**

 

 

(in thousands)

** **

**2009**   

 

** **

**2008   **

Useful		

Lives

Land

$

9,226 

 

$

8,572 

 

Buildings and improvements 

 

58,862 

 

 

52,261 

10-20  yrs.

Machinery and equipment

 

54,478 

 

 

47,304 

3-15  yrs.

Office furniture and equipment 

 

6,065 

 

 

5,340 

3-7 yrs.

Computer software

 

9,078 

 

 

8,785 

2-7 yrs.

Transportation equipment 

 

4,367 

 

 

3,690 

3 yrs.

 

 

142,076 

 

 

125,952 

 

 

 

 

 

 

 

 

Accumulated depreciation 

 

(72,215)

 

 

(64,168)

 

 

$

69,861 

 

$

61,784 

 

 

      

      Property, Plant and Equipment net, increased $8,077,000 in2009 mainly from the *Bush Hog* acquisition.  Property, plant andequipment at December 31, 2009 and December 31, 2008 include $18,364,000and $18,037,000, respectively, for items listed above that are held undercapital leases. Accumulated depreciation relating to the capital leases atDecember 31, 2009 and 2008 was $7,233,000 and$6,335,000, respectively. Amortization related to the capital lease is includedin depreciation expense.

 

**6.GOODWILL**

 

      The changes in the carrying amount of goodwill for thetwelve months ended December 31, 2007, 2008 and 2009 are as follows: 

 

 

(in thousands)

** **

Balance at December 31, 2006

$

42,336 

Translation adjustment

 

1,610 

Balance at December 31, 2007

$

43,946 

 

 

 

Acquisition (*Rivard*)

 

12,787 

Translation adjustment

 

(3,616)

Goodwill impairment

 

(5,010)

Balance  at December 31, 2008

$

48,107 

 

 

 

Translation  adjustment

 

1,204 

Goodwill  impairment

 

(14,104)

Balance  at December 31, 2009

$

35,207 

 

**7.ACCRUED LIABILITIES**

      Accrued liabilities consistof the following balances:

 

**December  31,**

(in thousands)

**2009** 

** **

**2008** 

Salaries,  wages and bonuses

$

13,391

 

$

9,311

Warranty  

 

6,337

 

 

5,409

State  taxes

 

5,463

 

 

5,599

Retirement

 

2,313

 

 

2,373

Accrued  interest

 

176

 

 

521

Other

 

4,333

 

 

2,846

 

$

32,013

 

$

26,059

** **

-57 -

 

 

 

 

 

 

**8.LONG-TERM DEBT**

      The components of long-termdebt are as follows:

 

**December  31,**

(in thousands)

**2009** 

** **

**2008** 

Bank revolving credit facility			

$

41,000

 

$

95,000

Capital lease obligations 

 

3,233

 

 

4,594

Other notes payable 

 

5,556

 

 

4,476

Total debt 

 

49,789

 

 

104,070

Less current maturities 

 

5,453

 

 

4,186

Total long-term debt

$

44,336

 

$

99,884

 

      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, investmentsand 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 Companyentered into the Fourth Amendment of theAmendedand Restated Revolving Credit Agreement, (the “Amended and Restated RevolvingCredit Agreement”), between the Company and Bank of America, N.A., JPMorganChase Bank and Guaranty Bank, as its lenders. Pursuant to the terms of theAmended and Restated Revolving Credit Agreement, the Company added *Gradall*Industries, Inc., formerly Alamo Group (OH) Inc., and N.P. Real Estate Inc. asmembers of the Obligated Group. The Amendment also allows for capitalexpenditures not to exceed $14.0 million for the fiscal year ending 2006 and$10.0 million in the aggregate during each fiscal year thereafter.

      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, other major changes wereimprovements in the leverage ratio, minimum asset coverage ratio and increasein annual allowable capital expenditures. The banks agreed to eliminate thefixed charge coverage ratio and minimum net worth requirement. The applicableinterest margin fluctuates quarterly either up or down based upon the Company’sleverage ratio.

 

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

 

-58 -

 

 

 

 

 

      OnNovember 6, 2009, the Company entered into the Seventh Amendment of the Amendedand Restated Revolving Credit Agreement with Bank of America, N.A., Wells FargoBank, N.A., BBVA Compass Bank, and Rabobank, as its lenders.  Prior to theexecution of this Amendment, BBVA Compass Bank acquired certain assets ofGuaranty Bank which included this credit facility and JPMorgan Chase Bankassigned its interest to Well Fargo Bank, N.A.  The purpose of the amendmentwas to add *Bush Hog* as a member of the Obligated Group and pledge afirst priority security interest in certain U.S. assets (accounts receivable,inventory, equipment, trademarks and trade names) of the Borrower and eachmember of the Obligated Group.  The Lenders agreed to increase the operatingleverage ratio during the next three quarters and to add a new EBIT to InterestExpense covenant in exchange for a commitment fee and an increase in theApplicable Interest Margin over LIBOR or Prime Rate advances.  

 

      Asof December 31, 2009, there was $41,000,000 borrowed under the revolving creditfacility.  At December 31, 2009, $877,000 of the revolver capacity wascommitted to irrevocable standby letters of credit issued in the ordinarycourse of business as required by vendors’ contracts resulting in approximately$81,000,000 in available borrowings.

 

      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 theU.K. subsidiaries of Alamo Group Europe Limited.  As of December 31, 2009,there were no outstanding balances in British pounds borrowed against the U.K.overdraft facility.

 

      Thereare additional lines of credit: for the Company’s French operations in theamount of 8,200,000Euros,which includes the *Rivard* credit facilities; for our Canadian operationin the amount of 3,500,000 Canadian dollars; and for our Australian operationin the amount of 800,000 Australian dollars.  As of December 31, 2009, no Euroswere borrowed against the French line of credit; 2,706,000 Canadian dollarswere outstanding on the Canadian line of credit; and 200,000 Australian dollarswere outstanding under its facility.  The Canadian and Australian revolvingcredit facilities are guaranteed by the Company.  The Company’s borrowinglevels for working capital are seasonal with the greatest utilization generally occurringin the first quarter and early spring.

 

      Asof December 31, 2009, the Company is in compliance with the terms andconditions of its credit facilities.

 

      Theaggregate maturities of long-term debt, as of December 31, 2009, are asfollows: $5,453,000 in 2010; $1,341,000 in 2011; $41,448,000 in 2012; $470,000in 2013; $292,000 in 2014; and $785,000 thereafter.

 

      Thefair value of the Company’s debt is based on secondary market indicators. Sincethe Company’s debt is not quoted, estimates are based on each obligation’scharacteristics, including remaining maturities, interest rate, credit rating,collateral, amortization schedule and liquidity. The carrying amountapproximates fair value.

 

**9.DERIVATIVES AND HEDGING**

      Most of the Company’s outstanding debtis advanced from a revolving credit facility that accrues interest at a contractual margin overcurrent market interest rates.  The Company’s financing costs associated withthis credit facility can materially change with market increases and decreasesof short-term borrowing rates, specifically London Inter Bank Operating Rate(“LIBOR”).  During the second quarter of 2007, the Company entered into twointerest rate swap agreements with JPMorgan that hedge future cash flows relatedto its outstanding debt obligations.  One swap has a three-year term and fixedthe LIBOR base rate at 4.910% covering $20 million of this debt.  The other hasa four-year term and fixed the LIBOR base rate at 4.935% covering an additional$20 million of these variable rate borrowings.  On November 5, 2009, JPMorgantransferred the swap transactions to Bank of America.  The terms of the hedginginstrument remain the same.  As of December 31, 2009, the Company had $41million outstanding under its revolving credit facility and the two interestrate swap contracts designated as cash flow hedges which are effectivelyhedging $40 million of these borrowings from changes in underlying LIBOR baserates.  The fair market value of these hedges, which is the amount that wouldhave been paid or received by the Company had it prematurely terminated theseswap contracts at December 31, 2009, was a $1,266,000 liability.  This isincluded in Other long-term liabilities with an offset in Accumulated othercomprehensive income, net of taxes.  At December 31, 2009, ineffectivenessrelated to the interest rate swap agreements was not material.

 

 

 

 -59 -

 

 

 

 

 

 

**10. FAIRVALUE MEASUREMENTS**

Fair value is defined as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants.  There is a three-tier fair valuehierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independentsources, while unobservable inputs (lowest level) reflect internally developedmarket assumptions.  In Fair value measurements are classified under thefollowing hierarchy:

 

**Level 1**– Quoted prices foridentical instruments in active markets.

**Level 2** – Quoted prices forsimilar instruments 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 in activemarkets.

**Level 3** – Model-derivedvaluations in which one or more significant inputs or significant value-driversare unobservable

 

When available, the Company uses quoted market prices to determinefair value, and the Company classifies such measurements within Level 1.  Insome cases where market prices are not available, the Company makes use ofobservable market-based inputs to calculate fair value, in which case themeasurements are classified with Level 2.  If quoted or observable marketprices are not available, fair value is based upon internally developed modelsthat use, where possible, current market-based parameters such as interestrates, yield curves, currency rates, etc.  These measurements are classifiedwithin Level 3.

 

Fair value measurements are classified to the lowest level inputor value-driver that is significant to the valuation.  A measurement maytherefore be classified within Level 3 even though there may be significantinputs that are readily observable.

 

**Derivative financial instruments**

 

The fair value of interest rate swap derivatives is primarilybased on third-party pricing service models.  These models use discounted cashflows that utilize the appropriate market-based forward swap curves andzero-coupon interest rates.  Interest rate swap derivatives are Level 2measurements and have a fair value of $1,266,000in a liability position as of December 31, 2009.

 

The fair value of foreign currency forward contracts is based on avaluation model that discounts cash flows resulting from the differentialbetween the contract price and the market-based forward rate and is a Level 2measurement and has a fair value of$66,000 in an asset position as of December 31, 2009.

 

 

 

 

 

-60 -

 

 

 

 

 

** **

**11.INCOME TAXES**

** **

      Thejurisdictional components of income before taxes consist of the following:

 

** **

**December  31,**

(in thousands)

** **

**2009**

** **

** **

**2008**

** **

** **

**2007**

Income before income taxes:

** **

 

** **

** **

 

** **

** **

 

    Domestic

$

10,894 

 

$

2,176 

 

$

4,023 

    Foreign 

 

17,725 

 

 

15,050 

 

 

14,012 

 

$

28,619 

** **

$

17,226 

 

$

18,035 

 

      The components of incometax expense (benefit) consist of the following:

 

 

**December  31,**

(in thousands)

 

**2009**

 

 

**2008**

 

 

**2007**

Current:

 

 

 

 

 

 

 

 

    Domestic  			

$

(1,059)

 

$

891 

 

$

943 

    Foreign  

 

5,017 

 

 

4,789 

 

 

3,703 

    State  

 

(381)

 

 

458 

 

 

377 

 

 

3,577 

 

 

6,138 

 

 

5,023 

Deferred:

 

  

 

 

  

 

 

  

    Domestic  			

 

7,221 

 

 

(242)

 

 

414 

    Foreign  			

 

(641)

 

 

331 

 

 

233 

    State  			

 

1,371 

 

 

— 

 

 

— 

 

 

7,951 

 

 

89 

 

 

647 

          Total  income taxes

$

11,528 

 

$

6,227 

 

$

5,670 

      

      Thedifference between income tax expense (benefit) for financial statementpurposes and the amount of income tax expense computed by applying the domesticstatutory income tax rate of 34% to income loss before income taxes consist ofthe following:

 

 

 

**December  31,**

(in thousands)

 

**2009**

 

 

**2008**

 

 

**2007**

 

Domestic statutory rate at 34%

 

$

 

9,730 

 

 

$

 

5,857 

 

 

$

 

6,132 

    Increase (reduction) from:

 

 

 

 

 

 

 

 

        Jurisdictional rate differences

 

(581)

 

 

(634)

 

 

(827)

        Goodwill impairment

 

2,686 

 

 

424 

 

 

— 

        Valuation allowance

 

(793)

 

 

— 

 

 

— 

        Stock based compensation

 

138 

 

 

144 

 

 

148 

        U.S. state taxes

 

647 

 

 

324 

 

 

247 

        Other, net			

 

(299)

 

 

112 

 

 

(30) 

Provision for income taxes

$

11,528 

 

$

6,227 

 

$

5,670 

Effective tax rate

 

40%

 

 

36%

 

 

31%

 

 

 

-61 -

 

 

 

 

 

 

      Deferred income taxesarise from temporary differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax basis.  Thecomponents of the Company’s deferred income tax assets and liabilities consistof the following:

 

**December  31,**

(in thousands)

**2009**  

** **

**2008**  

Current:

 

 

 

 

 

      Deferred  tax assets:

 

 

 

 

 

      Inventory  basis differences

$

— 

 

$

1,062 

      Accounts  receivable reserve

 

283 

 

 

281 

      Employee  benefit accruals

 

413 

 

 

712 

      Product  liability and warranty reserves

 

935 

 

 

751 

      Expenses  not deductible for tax purposes

 

433 

 

 

— 

      Foreign  net operating loss

 

630 

 

 

— 

      Other

 

424 

 

 

83 

 

 

3,118 

 

 

2,889 

      Deferred  tax liabilities:

 

 

 

 

 

      Inventory  basis differences

 

(2,431)

 

 

— 

      Expenses  deductible for tax purposes

 

(733)

 

 

(240)

 

 

(3,164)

 

 

(240)

 

 

 

 

 

 

Net  current deferred tax asset

$

(46)

 

$

2,649 

Non-Current:

 

 

 

 

 

      Deferred  tax assets:

 

 

 

 

 

      Environmental  reserve

$

611 

 

$

611 

      Pension  liability

 

2,845 

 

 

3,229 

      Derivative  liability

 

481 

 

 

927 

      Stock  based compensation

 

221 

 

 

168 

      Foreign  net operating loss

 

— 

 

 

791 

      Valuation  allowance

 

— 

 

 

(1,703)

 

 

4,158 

 

 

4,023 

 

 

 

 

 

 

      Deferred  tax liabilities:

 

 

 

 

 

      Depreciation

 

(6,949)

 

 

(252)

      Intangible  assets

 

(277)

 

 

(1,442)

      Deferred  revenue

 

(355)

 

 

(497)

 

 

(7,581)

 

 

(2,191)

 

 

 

 

 

 

Net non-current tax asset (liability)

$

(3,423) 

 

$

1,832 

** **

 

      As of December 31, 2009,the Company had foreign deferred tax assets consisting of foreign net operatinglosses and other tax benefits available to reduce future taxable income in aforeign jurisdiction.  The net operating loss (“NOL”) has an unlimited carry-forward.

 

In assessing therealizablity of deferred tax assets, the Company considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized.  Based on the expectation of future taxable income and that the deductibletemporary differences will offset existing taxable temporary differences, theCompany believes it is more likely than not that it will realize the benefitsof these deductible differences.

 

Deferred income taxeshave not been provided on the future tax consequences attributable todifferences between the financial statements carrying amounts of existingassets and liabilities and the respective tax bases of the Company’s foreignsubsidiaries, based on the determination that such differences are essentiallypermanent in duration in that the earnings of the subsidiaries are expected tobe indefinitely reinvested in foreign operations.  As of December 31, 2009, thecumulative undistributed earnings of these subsidiaries approximated $92,397,000. If these earnings were not considered indefinitely reinvested, deferred incometaxes would have been recorded after the consideration of foreign tax credits. At this time, it is not practicable to estimate the amount of additional incometaxes that might be payable on those earnings, if distributed.

 

 

-62 -

 

 

 

 

 

 

The Company adoptedthe provisions of FASB ASC Section 740-10-25 (formerly FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes”) on January 1, 2007.  AtJanuary 1, 2007, the Company recognized a liability approximating $379,000 forunrecognized tax positions, which included penalty and interest of $134,000.  During2008, the Company recognized an additional liability of $120,000 related tostate income tax exposures.  During 2009, the Company reduced their liabilityfor unrecognized tax positions after a reevaluation of these liabilities underthe measurement criteria of ASC 740.

 

      TheCompany adopted the policy to include interest and penalty expense related toincome taxes as interest and other expense, respectively.  At December 31, 2009,no interest or penalties has been or is required to be accrued.  The Company’sopen tax years for its federal income tax returns are for the years endedDecember 31, 2007, 2008 and 2009.  The Company’s open tax years for its stateincome tax returns range from December 31, 2006 to December 31, 2009

** **

**12.COMMON STOCK**

** **

      The Company was authorizedby its Board of Directors in 1997 to repurchase up to 1,000,000 shares of theCompany’s common stock to be funded through working capital and credit facilityborrowings. No shares were repurchased in 2008 or 2009. The authorization torepurchase up to 1,000,000 shares remains available less 42,600 shares,previously purchased.

      Subsequent to December 31, 2009, the Company declared andpaid a dividend of $.06 per share.

 

**13.  STOCKOPTIONS**

** **

**Incentive Options**

 

      On April 28, 1994, thestockholders approved the 1994 Incentive Stock Option Plan (“1994 ISO Plan”)for key employees. Each option becomes vested and exercisable for up to 20% ofthe total optioned shares each year after grant. Under the terms of this plan,the exercise price of the shares subject to each option granted would not beless than the fair market value of the common stock at the date the option is granted.

       There are 59,980 shares outstanding under this option plan. No furtheroption grants can be made under this plan.

      On May 3, 2005, the stockholders of theCompany approved the 2005 Incentive Stock Option Plan (“2005 ISO Plan”) and theCompany reserved 500,000 shares of common stock for options to be issued underthe 2005 ISO Plan . During the years ended December 31, 2009, 2008 and 2007,options to purchase 99,000 shares, 39,000 shares and 74,000 shares,respectively, were granted under this plan. Each option becomes vested andexercisable for up to 20% of the total optioned shares one year following thegrant of the option and for an additional 20% of the total optioned sharesafter each succeeding year until the option is fully exercisable at the end of the fifth year.

      Following is a summary of activity in the Incentive StockOption Plans for the periods indicated:

 

 

 

    **2009**

       **2008**

     **2007**

 

 

    Shares

 

 

   Exercise

   Price*

     Shares

 

   Exercise

   Price*

     Shares

      Exercise

       Price*

Options  outstanding at beginning of year

 

253,980 

 

 

$ 20.44 

277,080 

 

$ 18.26 

211,400 

$ 15.63 

      Granted  

 

99,000 

 

 

11.45 

39,000 

 

22.55 

74,000 

24.83 

      Exercised  

 

— 

 

 

— 

(49,100)

 

9.76 

(8,320)

9.71 

      Cancelled  

 

(7,500)

 

 

20.04 

(13,000)

 

20.71 

— 

— 

Options  outstanding at end of year 

 

345,480 

 

 

18.73 

253,980 

 

20.44 

277,080 

18.26 

Options  exercisable at end of year 

 

156,780 

 

 

$ 18.74 

118,180 

 

$ 17.55 

124,680 

$ 13.72 

Options  available for grant at end of year

 

214,500 

 

 

 

307,000 

 

 

338,000 

 

**Weighted Averages*

-63 -

 

* *

      Options outstanding and exercisable at December 31, 2009were 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 

 

157,480 

 

 

7.76

$ 12.26 

 

 

59,980   

$  13.58 

$19.79  - $25.18

 

188,000 

 

 

7.43

22.57 

 

 

96,800   

21.92 

      Total  

 

345,480 

 

 

 

 

 

 

156,780   

 

**Weighted Averages*

* *

Theweighted-average grant-date fair values of options granted during 2009, 2008,and 2007 were $5.08,$10.72 and $8.76, respectively. As of December 31, 2009, there was $1,105,000of total unrecognized compensation cost related tonon-vested share-based compensation arrangements granted under the plans. Thatcost is expected to be recognized over a period of five years.

***Non-qualified Options***

*** ***

       On May 4, 2005, theCompany granted additional options under the FAR 1999 NQSO Plan to purchase5,000 shares of the Company’s Common Stock each to Messrs. Goldress, Morris,Skaggs and Thomas, at an exercise price of $19.79 per share, being the closingprice of the Company’s Common Stock on the grant date.  Each option becomesvested and exercisable for up to 20% of the total optioned shares one yearfollowing the grant of the option and for an additional 20% of the total optionedshares after each succeeding year until the option is fully exercisable. During2006, 2008 and 2009, no options were exercised. During 2007, 5,000 of theseshares were exercised.

      On August 8, 2006, the Company granted additional optionsunder the FAR 1999 NQSO Plan to purchase 2,500 shares of the Company’s CommonStock to Mr. Grzelak, at an exercise price of $25.02 per share, being theclosing price of the Company’s Common Stock on the grant date. The optionbecomes vested and exercisable for up to 20% of the total optioned shares oneyear following the grant of the option and for an additional 20% of the totaloptioned shares after each succeeding year until the option is fullyexercisable. No options have been exercised.

 

      On May 7, 2007, the Company granted additional options underthe FAR 1999 NQSO Plan to purchase 5,000 shares of the Company’s Common Stockto each Messrs. Douglass, Goldress, Grzelak, Martin, Morris and Skaggs, at anexercise price of $25.18 per share, being the closing price of the Company’sCommon Stock on the grant date.  Each option becomes vested and exercisable forup to 20% of the total optioned shares one year following the grant of theoption and for an additional 20% of the total optioned shares after eachsucceeding year until the option is fully exercisable.  No options wereexercised in 2008 or 2009.

 

      On May 11, 2009, the Company granted additional optionsunder the FAR 1999 NQSO Plan to purchase 8,000 shares of the Company’s CommonStock to each Messrs. Douglass, Goldress, Grzelak, Martin, Morris and Skaggs, and12,000 shares to Mr. Malone at an exercise price of $11.45 per share, being theclosing price of the Company’s Common Stock on the grant date.  Each optionbecomes vested and exercisable for up to 20% of the total optioned shares one yearfollowing the grant of the option and for an additional 20% of the totaloptioned shares after each succeeding year until the option is fullyexercisable.  

 

      OnMay 7, 2009, the stockholders of the Company approved the 2009 Equity IncentivePlan and the Company reserved 400,000 shares of common stock for this plan. OnMay 11, 2009, the Company granted options under this plan to purchase 25,000shares to Mr. Robinson at an exercise price of $11.45per share.  This option becomes vested and exercisable for up to 20% ofthe total optioned shares one year following the grant of the option and for anadditional 20% of the total optioned shares after each succeeding year untilthe option is fully exercisable at the end of thefifth year.  Also on May 11, 2009, the Company granted Restricted Stock Unitsof 8,000 shares to certain employees.  These shares vest for 25% of the totalaward one year following the award date and for an additional 25% of totalawarded shares each succeeding year until fully vested.

 

 

-64 -

 

 

 

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

 

 

 

    **2009**

** **      **2008**

** **      **2007**

 

 

       Shares

 

 

 Exercise

  Price*

            Shares

 

   Exercise

    Price*

       Shares

   Exercise

     Price*

Options  outstanding at beginning of year

 

226,000 

 

 

$ 12.62 

302,000 

 

$ 11.71 

305,000 

$ 10.72 

      Granted  

 

85,000 

 

 

11.45 

— 

 

— 

30,000 

25.18 

      Exercised  

 

(125,000)

 

 

8.94 

(76,000)

 

8.98 

(27,000)

14.28 

      Cancelled  

 

— 

 

 

— 

— 

 

— 

(6,000)

17.23 

Options  outstanding at end of year 

 

186,000 

 

 

14.57 

226,000 

 

12.62 

302,000 

11.71 

Options  exercisable at end of year 

 

79,000 

 

 

$  15.17 

194,500 

 

$  10.76 

248,000 

$  9.66 

Options  available for grant at end of year

 

367,000 

 

 

 

63,500 

 

 

63,500 

 

**WeightedAverages*

* *

* *

      Options outstanding andexercisable at December 31, 2009 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

 

 

 

 

 

 

 

 

 

 

$8.9375  - $12.10 

 

140,000 

 

 

7.64

$11.71 

 

 

55,000   

$12.10 

$13.96  - $19.79

 

13,500 

 

 

5.26

18.71 

 

 

10,500   

18.40 

$25.02  - $25.18 

 

32,500 

 

 

7.92

$25.17 

 

 

13,500   

$25.16 

      Total  

 

186,000 

 

 

 

 

 

 

79,000   

 

**Weighted Averages*

The weighted-averagegrant-date fair values of options granted during 2009 and 2007 were $5.08 and $8.88,respectively. There were no options granted in 2008.  As of December 31, 2009,there was $247,000 of total unrecognized compensation cost related tonon-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period offive years.

During2009, 2008 and 2007, 125,000, 76,000, and 27,000 non-qualified options,respectively, were exercised, $1,117,188, $682,413, and $385,610 of cashreceipts were received, respectively, and tax deductions of $289,000, $951,000,and $294,000 were realized, respectively, for the tax deductions from optionexercises. 

 

***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

 

— 

 

 

— 

 

      Granted  

 

8,000 

 

$

11.45 

3.35

      Vested  

 

— 

 

 

— 

—

      Forfeited  or Cancelled 

 

— 

 

 

— 

—

Options  outstanding at end of year 

 

8,000 

 

$

11.45 

 

 

During fiscal 2009, the Companyissued restricted stock units covering 8,000 shares of common stock with avalue at the date of grant of $91,600.  The 8,000 restricted stock units vest25% after one year following the award date and for an additional 25% of totalawarded shares each succeeding year until fully vested.  The expense related tothe restricted stock unitswas $6,300 in 2009.

 

 

-65 -

 

 

 

 

 

 

**14.RETIREMENT BENEFIT PLANS**

***Defined Benefit Plans***

 

In connection with the February3, 2006 purchase of all the net assets of the *Gradall* excavatorbusiness, the Company assumed sponsorship of two *Gradall*non-contributory defined benefit pension plans, both of which are frozen withrespect to both future benefit accruals and future new entrants. 

 

The *Gradall* Company HourlyEmployees’ Pension Plan covers approximately 310 former employees and 210current employees who (i) were formerly employed by JLG Industries, Inc., (ii)were covered by a collective bargaining agreement and (iii) first participatedin the plan before April 6, 1997. An amendment ceasing all future benefitaccruals was effective April 6, 1997.

 

The *Gradall* CompanyEmployees’ Retirement Plan covers approximately 220 former employees and 120current employees who (i) were formerly employed by JLG Industries, Inc., (ii)were not covered by a collective bargaining agreement and (iii) firstparticipated in the plan before December 31, 2004. An amendment ceasing futurebenefit accruals for certain participants was effective December 31, 2004. Asecond amendment discontinued all future benefit accruals for all participantseffective April 24, 2006.

 

 

 

 

 

 

 

 

 

 

 -66 -

 

 

The following tables set forththe change in plan assets, change in projected benefit obligation, rateassumptions and components of net periodic benefit cost as of December 31 withrespect to these plans. The measurement dates of the assets and liabilities ofboth plans were December 31 of the respective years presented.

 
 
**Year  ended December 31, 2009**(in thousands)  
**Hourly   Employees’			Pension Plan**
**Employees’  Retirement Plan**
**Total**
** **

** **

** **

** **

Change in projected benefit obligation  

** **

** **

** **

Benefit  obligation at beginning of year

$      8,848 

$      14,254 

$      23,102 

Service  cost

8 

4 

12 

Interest  cost

518 

863 

1,381 

Liability  actuarial (gain)/loss

309 

497 

806 

Benefits  paid

(616)

(562)

(1,178)

Benefit  obligation at end of year

9,067 

15,056 

24,123 

 

 

 

 

Change in fair value of plan  assets   

** **

** **

** **

Fair value of plan assets at  beginning of year

4,961 

9,460 

14,421 

Return on plan assets

967 

1,939 

2,906 

Employer contributions

249 

85 

334 

Benefits paid

(616)

(562)

(1,178)

Fair value of plan assets at  end of year

5,561 

10,922 

16,483 

 

 

 

 

Underfunded status – December  31, 2009

$     (3,506)

$      (4,134)

$      (7,640)

 

 

 

 

Accumulated benefit obligation – December 31, 2009

$      9,067 

$     15,056 

$     24,123 

 

 

 

**Year  ended December 31, 2008**

 

 

(in thousands)

**Hourly  Employees’ Pension Plan**

**Employees’  Retirement Plan**

**   Total**

** **

** **

** **

** **

Change in projected benefit obligation  

** **

** **

** **

Benefit  obligation at beginning of year

$      7,556 

$      13,128 

$      20,684 

Service  cost

8 

4 

12 

Interest  cost

492 

830 

1,322 

Liability  actuarial (gain)/loss

1,398 

834 

2,232 

Benefits  paid

(606)

(541)

(1,147)

Benefit  obligation at end of year

8,848 

14,255 

23,103 

 

 

 

 

Change in fair value of plan  assets   

** **

** **

** **

Fair value of plan assets at beginning  of year

7,272 

12,372 

19,644 

Return on plan assets

(1,706)

(2,867)

(4,573)

Employer contributions

— 

497 

497 

Benefits paid

(606)

(541)

(1,147)

Fair value of plan assets at  end of year

4,960 

9,460 

14,421 

 

 

 

 

Underfunded status – December  31, 2008

$     (3,888)

$      (4,794)

$      (8,682)

 

 

 

 

Accumulated benefit obligation – December 31, 2008

$      8,848 

$     14,255 

$     23,103 

 

 -67 -

 

 

 

 

 

 

      The Company recognizes theoverfunded or underfunded status (i.e., the difference between the fair valueof plan assets and the projected benefit obligations) of defined benefitpostretirement plans as an asset or liability in its statement of financialposition and recognize changes in the funded status in the year in which thechanges occur. The Company measures the funded status of a plan as of the dateof its year-end statement of financial position. 

 

      The underfunded status of the plan of $7,640,000 and$8,682,000 at December 31, 2009 and 2008, respectively, is recognized in theaccompanying consolidated balance sheets as long-termaccrued pension liability because plan assets are less than the value ofbenefit obligations expected to be paid. 

 

      The accumulated benefit obligation for our pension plansrepresents the actuarial present value of benefits based on employee serviceand compensation as of a certain date and does not include an assumption aboutfuture compensation levels. 

 

      In determining the projected benefit obligation and the netpension cost, we used the following significant weighted-average assumptions:

 

Assumptions used to determine benefit obligations at December 31:

 

** **

**Hourly  Employees’ Pension Plan**

** **

**Employees’  Retirement Plan**

** **

**2009**

**2008**

** **

**2009**

**2008**

Discount rate

5.67%

6.15%

 

5.83%

6.14%

Composite rate of compensation  increase

N/A

N/A

 

N/A

N/A

 

Assumptions used to determine netperiodic benefit cost for the years ended December 31:

 

** **

**Hourly  Employees’ Pension Plan**

** **

**Employees’  Retirement Plan**

** **

**2009**

**2008**

** **

**2009**

**2008**

Discount  rate

6.15%

6.20%

 

6.14%

6.30%

Long-term  rate of return on plan assets

7.75%

7.75%

 

7.75%

7.75%

Composite  rate of compensation increase

N/A

N/A

 

N/A

N/A

 

 

      TheCompany employs a building block approach in determining the expected long-term rate on return on plan assets. Historical markets arestudied and long-term historical relationships between equities andfixed-income are preserved consistent with the widely accepted capital marketprinciple that assets with higher volatility generate a greater return over thelong run. Current market factors such as inflation and interest rates areevaluated before long-term market assumptions are determined. The long-termportfolio return is established via a building block approach with properconsideration of diversification and rebalancing. Peer data and historicalreturns are reviewed to check for reasonability and appropriateness.

 

 

 

-68 -

 

 

 

 

 

 

      The following tablepresents the components of net periodic benefit cost (gains are denoted withparentheses and losses are not):

 

** **

**Year  ended December 31, 2009**

** **

(in thousands)

**Hourly  Employees’ Pension Plan**

**Employees’  Retirement Plan**

**Total**

Service  cost

$          8 

$          4 

$         12   		

Interest  cost

        518 

        863 

      1,381  

Expected  return on plan assets

       (372)

        (715)

     (1,087)

Amortization  of prior service cost

            — 

             — 

             —   		

Amortization  of net (gain)/loss

         130 

          117 

        247 

Net periodic benefit cost

 $    284 

 $      269

 $     553  

 

 

** **

**Year  ended December 31, 2008**

** **

(in thousands)

**Hourly  Employees’ Pension Plan**

**Employees’  Retirement Plan**

**Total**

Service cost

$          8 

$          4 

$         12   		

Interest cost

        492 

        830 

      1,322   

Expected return on plan assets

       (540)

        (958)

     (1,498)

Amortization of prior service cost

             — 

             — 

              —  

Amortization of net (gain)/loss

          (70)

          (58)

        (128)

Net periodic benefit cost

 $    (110)

 $      (182) 

 $     (292)  

 

 

      The Company estimates that $119,000 ofunrecognized actuarial expense will be amortized from accumulated othercomprehensive income into net periodic benefit costs during 2010. 

 

      The Company employs a total return investment approachwhereby a mix of equities and fixed income investments are used to maximize thelong-term return of plan assets for a prudent level of risk. Risk tolerance isestablished through careful consideration of plan liabilities, plan fundedstatus, and corporate financial condition. The investment portfolio contains adiversified blend of equity and fixed income investments. Furthermore, equityinvestments are diversified across U.S. and non-U.S. stocks, as well as growth,value, and small and large capitalizations. Other assets such as real estate,private equity, and hedge funds are used judiciously to enhance long-termreturns while improving portfolio diversification. Derivatives may be used togain market exposure in an efficient and timely manner; however, derivativesmay not be used to leverage the portfolio beyond the market value of theunderlying investments. Investment risk is measured and monitored on an ongoingbasis through quarterly investment portfolio reviews, annual liabilitymeasurements, and periodic asset/liability studies.

 

      The pension plans' weighted-average asset allocations as apercentage of plan assets at December 31 are as follows:

 

 

**Hourly Employees’**

**Pension Plan**

** **

**Employees’  Retirement**

**Plan**

 

**2009**

**2008**

** **

**2009**

**2008**

Equity securities

60%

53%

 

57%

52%

Debt securities

37%

41%

 

42%

43%

Short-term investments

2%

5%

 

0%

4%

Other

1%

1%

 

1%

1%

Total

100%

100%

 

100%

100%

 

-69 -

 

 

 

 

 

 

As of December 31, 2009, we used thefollowing valuation techniques to measure fair value for assets. There were nochanges to these methodologies during 2009: Level 1 - Assets were valued usingthe closing price reported in the active market in which the individualsecurity was traded. Level 2 - Assets were valued using quoted prices inmarkets that are not active, broker dealer quotations, net asset value ofshares held by the plans, and other methods by which all significant input wereobservable at the measurement date. Level 3 - Assets were valued usingvaluation reports from the respective institutions at the measurement date. Thefollowing table presents the hierarchy levels for our postretirement benefitplan investments as of December 31, 2009:

 

 

 

 

 

 

(in thousands)

 

** **

** **

** **

** **

**December  31, 			2009**

 

** **

**Quoted  Prices in Active 			Markets for 			Identical 			Assets**

**(Level  1)**

** **

** **

** **

**Significant  			Other Observable 			Inputs**

**(Level  2)**

** **

** **

** **

**Significant  Unobservable 			Inputs**

**(Level  3)**

Equity  securities

$

9,548 

 

$

9,548      

 

$

- 

       $

- 

Debt  securities 

 

6,619 

 

 

6,619      

 

 

- 

 

- 

Other  

 

316 

 

 

316      

 

 

- 

 

- 

Total  

$

16,483 

 

$

16,483      

 

$

- 

        $

- 

                          

 

 

      Expected benefit payments are estimated using the sameassumptions used in determining our benefit obligation at December 31, 2009.The following table illustrates the estimated pension benefit payments whichreflect expected future service, as appropriate, that are projected to be paid:

 

** **

(in thousands)

**Hourly  Employees’ Pension Plan**

**Employees’  Retirement Plan**

** **

**Total**

2010

$     652

$     644

$     1,296

2011

       654

       717

       1,371

2012

       652

       748

       1,400

2013

       648

       784

       1,432

2014

       647

       863

       1,510

Years  2015 through 2019

$  3,219

 $ 5,033

   $    8,252

* *

***Defined Contribution Plans***

*** ***

      The Company has three defined contribution plans, The*Gradall*Salaried Employees’ Savings and Investment Plan (“Salary Plan”), The*Gradall*Hourly Employees’ Savings and Investment Plan (“Hourly Plan”) and TheInternational Association of Machinist and Aerospace Retirement Plan (“IAMPlan”). The Company contributed$254,000 and $484,000 to the IAM Plan for the planyears ended December 31, 2009 and 2008, respectively. The Company converted theSalary Plan into its 401(k) retirement and savings plan and put the Hourly Planinto a separate 401(k) retirement and savings plan.

 

      The Company provides a defined contribution 401(k)retirement and savings plan for eligible U.S. employees. Company matchingcontributions are based on a percentage of employee contributions. Companycontributions to the plan during 2009, 2008 and 2007 were $1,330,000, $1,520,000, and $1,194,000, respectively. A U.S.subsidiary of the Company had an Hourly Employee Pension Plan of Trust coveringcollective bargaining which was terminated on December 31, 2006. As of January1, 2006 the employees were added to the existing 401(k) retirement and salaryplan.

 

      Three of the Company’s international subsidiaries alsoparticipate in a defined contribution and savings plan covering eligibleemployees. The Company’s international subsidiaries contribute between 3% and7.5% of the participant’s salary up to a specific limit. Total contributionsmade to the above plan were $537,000, $620,000, and $596,000for the year ended December 31, 2009, 2008 and 2007, respectively.

 

 

-70 -

 

 

 

**15.  SEGMENT     REPORTING**

** **

      The Company reports three business segments: Industrial,Agricultural and European. The Company’s sales are principally within theUnited States, United Kingdom, France, Canada and Australia. The Company sellsits products primarily through a network of independent dealers anddistributors, governmental end-users, related independent contractors, as wellas to the agricultural and commercial turf markets. 

 

      The Company has included a summary of the financialinformation by reporting segment. The following table presents the revenues,income from operations (loss), goodwill and total identifiable assets byreporting segment for the years ended December 31, 2009, 2008 and 2007:

** **

 

 

**December  31,**

(in thousands)

** **

**2009**  

 

**2008**  

 

**2007**  

**Net Revenue**

** **

 

 

 

 

 

        Industrial

$

173,905 

$

254,787 

$

253,203 

        Agricultural

 

92,415 

 

120,232 

 

117,652 

        European

 

180,167 

 

182,116 

 

133,531 

Consolidated

$

446,487 

$

557,135 

$

504,386 

** **

 

 

 

 

 

 

**Income from Operations**

 

 

 

 

 

 

        Industrial

$

(12,441)

$

9,716 

$

12,236 

        Agricultural

 

28,734 

 

(3,400)

 

1,800 

        European

 

15,754 

 

15,029 

 

9,801 

Consolidated

$

32,047 

$

21,345 

$

23,837 

** **

 

 

 

 

 

 

**Goodwill**

 

 

 

 

 

 

        Industrial

$

13,128 

$

26,755 

$

27,424 

        Agricultural

 

— 

 

— 

 

5,874 

        European

 

22,079 

 

21,352 

 

10,648 

Consolidated

$

35,207 

$

48,107 

$

43,946 

** **

 

 

 

 

 

 

**Total Identifiable Assets**

 

 

 

 

 

 

        Industrial

$

126,630 

$

179,000 

$

170,510 

        Agricultural

 

122,094 

 

78,793 

 

84,210 

        European

 

129,239 

 

128,339 

 

95,910 

Consolidated

$

377,963 

$

386,132 

$

350,630 

** **

** **

**16.INTERNATIONAL OPERATIONS AND GEOGRAPHIC INFORMATION**

** **

Following is selected financialinformation on the Company’s international operations which include Europe,Canada and Australia:

 

**December  31,**

(in thousands)

 

**2009**  

 

 

**2008**  

 

 

**2007**  

Net sales

$

209,721

 

$

215,733

 

$

166,340

Income from operations 

 

17,776

 

 

13,898

 

 

13,382

Income before income taxes and allocated interest expense			

 

17,740

 

 

15,077

 

 

14,076

Identifiable assets 

 

153,968

 

 

148,706

 

 

123,855

 

-71 -

 

 

 

 

 

Following is other selectedgeographic financial information on the Company’s operations:

 

**December  31,**

(in thousands)

 

**2009**  

 

 

**2008**  

 

 

**2007**  

**Geographic net sales:**

 

 

 

 

 

 

 

 

       United States

$

231,981

 

$

331,671

 

$

329,120

       United Kingdom

 

38,332

 

 

44,306

 

 

42,486

       France

 

115,395

 

 

99,685

 

 

65,764

       Canada

 

17,756

 

 

22,255

 

 

19,018

       Australia

 

11,400

 

 

11,175

 

 

12,046

       Mexico

 

1,337

 

 

2,187

 

 

2,436

       Other

 

30,286

 

 

45,856

 

 

33,516

Total net sales

$

446,487

 

$

557,135

 

$

504,386

 

**Geographic location of long-lived assets:**

 

 

 

 

 

 

 

 

       United  States

$

59,094

 

$

63,449

 

$

66,075

       United  Kingdom

 

14,483

 

 

13,335

 

 

17,920

       France

 

33,588

 

 

34,383

 

 

17,404

       Canada

 

6,542

 

 

5,824

 

 

11,400

       Australia

 

265

 

 

45

 

 

88

Total  long-lived assets

$

113,972

 

$

117,036

 

$

112,887

      

      Netsales are attributed to countries based on the locationof customers.

** **

**17. COMPREHENSIVE     INCOME (LOSS)**

** **

      For 2009, 2008 and 2007 theCompany’s Comprehensive Income was $26,243,000,($14,110,000), and $18,096,000, respectively.

The components of AccumulatedOther Comprehensive Income are as follows:

 

**December  31,**

(in thousands)

 

**2009**  

** **

**2008** 

** **

**2007**  

Foreign currency translation  adjustments

$

   8,148 

$

    1,553 

$

   19,674 

Derivatives net of taxes

 

(744)

 

(1,560)

 

(760)

Actuarial (loss) gain on  defined benefit pension plan,      net of taxes

 

(2,257)

 

(3,998)

 

2,190 

Accumulated other comprehensive  income (loss)

$

5,147

$

(4,005)

$

21,104 

** **

**18.COMMITMENTS AND CONTINGENCIES**

***Leases***

*** ***

*     *TheCompany leases office space and equipment under various operating leases, whichgenerally are expected to be renewed or replaced by other leases. The Companyhas certain capitalized leases consisting principally of leases of buildings. AtDecember 31, 2009, future minimum lease payments under these non-cancelableleases and the present value of the net minimum lease payments for thecapitalized leases are:

    

(in  thousands)

**Operating  Leases**

** **

**Capitalized  Leases**

2010

$

1,487

 

$

1,727

2011  

 

900

 

 

1,209

2012  

 

429

 

 

265

2013  

 

187

 

 

265

2014  

 

67

 

 

66

Thereafter  

 

15

 

 

— 

Total  minimum lease payments 

$

3,085

 

$

3,532

Less  amount representing interest 

 

 

 

 

299

Present  value of net minimum lease payments 

 

 

 

$

3,233

Less  current portion 

 

 

 

 

1,552

Long-term  portion

 

 

 

$

1,681

      

      Rental expense foroperating leases was$1,693,000 for 2009, $1,787,000 for 2008, and $1,625,000 for 2007.

-72 -

 

 

 

 

 

      Purchase obligations of $60,292,000represent an estimate of goods and services to bepurchased under outstanding purchase orders not reflected on the Company’sbalance sheet. New purchase obligations should be received and paid for duringthe current fiscal year.

**Other**

*     *The Company is subject to various unresolvedlegal actions that arise in the ordinary course of its business.  The mostsignificant of such actions relates 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.  The Company’spolicy is to comply with all applicable environmental, health and safety lawsand regulations, and the Company believes it is currently in materialcompliance with all such applicable laws and regulations.  These laws andregulations 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 thereof.  

 

      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 issuesand believes 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.

 

      AtDecember 31, 2009, the Company had an environmental reserve in the amount of$1,608,000 related to the acquisition of *Gradall’s* facility in Ohio. Three specific remediation projects that were identified prior to theacquisition are in process of remediation with a remaining reserve balance of$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.  

 

      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.

 

      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.

** **

-73 -

 

 

 

 

 

      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 repurchase requirements. The Company believes it is currently in material compliance with all suchapplicable laws and regulations.

      

**19.QUARTERLY FINANCIAL DATA (Unaudited)**

      Summarized quarterlyfinancial data for 2009 and 2008 is presented below. Seasonal influences affectthe Company’s sales and profits, with peak business occurring in May throughAugust. 

(in thousands, except per share amounts) 

 

**2009**

** **

**2008**

 

**First**

** **

**Second**

** **

**Third**

** **

**Fourth**

** **

**First**

** **

**Second**

** **

**Third**

** **

**Fourth**

Sales

$

110,143

 

$

113,243

 

$

110,318

 

$

112,783

 

$

133,781

 

$

152,160

 

$

148,707

 

$

122,487 

Gross  profit

 

21,727

 

 

24,329

 

 

25,649

 

 

22,856

 

 

24,981

 

 

30,504

 

 

29,610

 

 

24,319 

Net  income 

 

1,543

 

 

2,992

 

 

4,583

 

 

7,973

 

 

2,832

 

 

5,565

 

 

4,453

 

 

(1,851)

Earnings  per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Diluted

$

0.15

 

$

0.30

 

$

0.46

 

$

0.70

 

$

0.29

 

$

0.56

 

$

0.45

 

$

(0.19)

Average  shares 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Diluted

 

9,963

 

 

9,986

 

 

10,086

 

 

11,417

 

 

9,921

 

 

9,957

 

 

9,970

 

 

9,921 

Dividends  per share

$

0.06

 

$

0.06

 

$

0.06

 

$

0.06

 

$

0.06

 

$

0.06

 

$

0.06

 

$

0.06 

Market  price of 

     common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    High

$

18.04

 

$

13.25

 

$

17.16

 

$

17.33

 

$

21.40

 

$

26.46

 

$

23.46

 

$

17.22 

    Low

$

9.22

 

$

9.90

 

$

9.98

 

$

13.10

 

$

17.34

 

$

19.27

 

$

15.84

 

$

10.69 

 

 

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

 

The fourth quarter2009 results include the following items: (1) a pre-tax charge of $14.1 millionrelated to goodwill impairment, (2) a pre-tax benefit of $3.7 million relatedto LIFO liquidation, and (3) a $27.7 million gain on bargain purchase of *BushHog*. The fourth quarter 2008 results include a pre-tax charge of $5.0million related to goodwill impairment.

 

**20.ACQUISITIONS AND INVESTMENTS**

** **

***Bush Hog***

 

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 thepreliminary estimated purchase price of $25.4 million.  Accordingly, theCompany recognized the excess of the fair value of the net assets over thepurchase price of approximately $27.7 million as a gain on bargain purchase. Thegain on bargain purchase of $27.7 million is shownseparately within income from operations in the Consolidated Statements ofIncome. The recorded amounts are provisional and subject to change. The Companycontinues to evaluate the purchase price allocation, including the opening fairvalue of inventory, accounts receivable, property, plant & equipment,accrued liabilities and deferred taxes, which may require the Company to adjustthe recorded gain. 

 

 -74 -

 

 

 

 

 

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 seller approachedthe Company in an effort to sell *Bush Hog* and exit the agriculturalequipment manufacturing business that no longer fit its strategy. With theseller's intent to exit the agricultural manufacturing business segment and theCompany’s position as a market leader, the Company was able to agree on afavorable purchase price.

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. TheCompany will collect payments on the acquired accounts receivable and remit 50%of the collections to the seller less the $3.8 million. The *Bush Hog*accounts receivable were recorded at 50% of the fair value, plus the workingcapital adjustment.

 

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.

The following tablepresents unaudited supplemental pro forma information as if the acquisition of*BushHog* had occurred on January 1, 2009 for the year ended December 31, 2009and January 1, 2008 for the year ended December 31, 2008:

 

(in thousands, except per share amounts)

 

**2009**  

** **

**2008** 

Net sales

$

			561,740 

     $

708,412 

Net loss

$

(10,516)

$

(10,771)

Diluted loss per share

$

    			(0.92)

$

     (0.93)

 

 

-75 -

 

 

      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. 

The company knows that*Bush Hog*’smain manufacturing property in Selma, Alabama is contaminated with chlorinatedvolatile compounds which most likely resulted from painting and cleaningoperations during the 1960’s and ‘70s.  Thecontaminated areas are primarily in the location of underground storage tanksand underneath the former waste storage area. Under the Asset PurchaseAgreement, *Bush Hog*’s prior owner agreed to remove the undergroundstorage tanks at its cost and is liable for remediating the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm has beenretained by the prior owner and is administering the cleanup.

***Rivard* Developpement**

On May 30, 2008 (“Closing Date”), the Company purchased RivardDeveloppement S.A.S. (“*Rivard*”), a leading French manufacturer of vacuumtrucks, high-pressure cleaning systems and trenchers.  The purchase price wasapproximately €15 million (approximately U.S. $23 million) plus the assumptionof certain liabilities.  The Company has allocated the purchase price to theacquired assets and liabilities assumed and recorded goodwill of approximately€9 million (approximately U.S. $15 million) related to this acquisition.  Wefinalized the purchase price allocation during the second quarter of 2009.  Themajority of the purchase price was funded utilizing the Company’s cash reservesin Europe, with the balance from bank credit facilities.  *Rivard’s* salesin 2007 were €40 million (approximately U.S. $62 million), and the company has275 full-time employees.  *Rivard* is located in Daumeray, France and wasfounded in 1952.

 

      The following tablesummarizes the estimated fair value of the assets acquired and liabilitiesassumed at the Closing Date:

** **

*** Rivard***

 

** **

(in  thousands)

			 

**2008**  

 

Current  assets 

$

24,203 

 

Property,  plant and equipment

 

5,905 

 

Intangible  assets 

 

14,119 

 

   Total  assets acquired

 

44,227 

 

Current  liabilities 

 

19,985 

 

Deferred pension liability

 

— 

 

Other liabilities

 

1,657 

 

Deferred income taxes

 

— 

 

   Total liabilities assumed 

 

21,642 

 

   Net  assets acquired

$

22,585 

 

 

The Company has included the operatingresults of *Rivard* in its consolidated financial statements since theClosing Date.

 

Theunaudited pro forma statement of income of the Company assuming thetransactions were completed at January 1, 2008 is as follows:

 

 

** **

**December  31,         **

 

 

** **

(in thousands, except per share  amounts)

 

**2008**             

Net sales

 

582,968           

Net income

 

11,138           

Diluted earnings per share

$

1.12           

 

-76 -

 

 

 

 

 

      Theunaudited pro forma financial information is presented for informationalpurposes only and is not intended to represent or be indicative of theconsolidated results of operations of the Company that would have been reportedhad the acquisition been completed as of the beginning of the period presented,and should not be taken as being representative of the future consolidatedresults of operations of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-77 - |
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