UNITED STATESSECURITIES 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, 2010

[X]
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  

(I.R.S. Employer

incorporation or organization)

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  definitions 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, 2010  (based upon the last reported sale price of $21.70 per share) was  approximately $183,325,701 on such date.

 
        The  number of shares of the registrant’s common stock, par value $.10 per share,  outstanding as of February 26, 2011 was 11,831,979 shares.

 
        Documents  incorporated by reference:  Portions of the registrant’s proxy statement  relating to the 2011 Annual Meeting of Stockholders to be held on May 5,  2011, have been incorporated by reference herein in response to Part III.

 

 

 

 

 

 

**ALAMO GROUP INC. AND CONSOLIDATEDSUBSIDIARIES**

FORM 10-K

TABLE OF CONTENTS

                                                                                                                                                 

 

PART I

Page

Item 1.

Item 1A.

Item 1B.

Business

Risk Factors

Unresolved Staff Comments

3

13

19

Item 2.

Properties

20

Item 3.		

Legal Proceedings

21

Item 4.		

[Removed and 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

36

 

Index  to Consolidated Financial Statements 

37

 

 

 

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PART I

Item 1.Business

*Unless the context otherwiserequires, the terms “the Company,”  “we,” “our” and “us” refer to Alamo GroupInc. and its subsidiaries on a consolidated basis.*

** **

**General**

 

The Company is a leader in thedesign, manufacture, distribution and service of high quality equipment forright-of-way maintenance and agriculture. The Company’s products includetractor-mounted mowing and other vegetation maintenance equipment, streetsweepers, excavators, vacuum trucks, snow removal equipment, pothole patchers,zero turn radius mowers, agricultural implements and related aftermarket partsand services. The Company emphasizes high quality, cost-effective products forits customers and strives to develop and market innovative products whileconstantly monitoring and seeking to contain its manufacturing and overheadcosts. The Company has a long-standing strategy of supplementing its internalgrowth through acquisitions of businesses or product lines that currentlycomplement, command, or have the potential to achieve a meaningful share oftheir niche markets. The Company has approximately 2,300 employees and operatesa total of eighteen plants in North America, Europe and Australia. The Companysells its 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 operatesprimarily in the United States, England, France, Canada and Australia. 

 

      The predecessor corporation to Alamo Group Inc. wasincorporated in the State of Texas in 1969, as a successor to a business thatbegan selling mowing equipment in 1955, and Alamo Group Inc. was reincorporatedin the State of Delaware in 1987. 

 

**History**

** **

      Since its founding in 1969, the Company has focused onsatisfying customer needs through geographic market expansion, productdevelopment and refinement, and selected acquisitions. The Company’s firstproducts were based on rotary cutting technology. Through acquisitions, the Companyadded flail cutting technology in 1983 and sickle-bar cutting technology in1984. The Company added to its presence in the industrial and governmentalvegetation markets with the acquisition of TigerCorporation *(“Tiger”)*in late 1994.

      The Company entered the agricultural mowing markets in1986 with the acquisition of Rhino Products Inc.*(“Rhino”)*, a leadingmanufacturer in this field. With this acquisition, the Company embarked on astrategy to increase the *Rhino* dealer distribution network during a periodof industry contraction. The addition of M&W Gear Company*(“M&W”)*in early 1995 allowed the Company to enter into the manufacturing anddistribution 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 began its international expansionwith the acquisition of McConnel Ltd*. (“McConnel”)*, a United Kingdom(“U.K.”) manufacturer of vegetation maintenance equipment, principallyhydraulic boom-mounted hedge and grass cutters and related parts.Bomford-Turner Ltd*. (“Bomford”)*, also a U.K. company, was acquired in1993. *Bomford* is a manufacturer of heavy-duty, tractor-mounted grass andhedge mowing equipment. *McConnel* and *Bomford* sell their productsto dealers and distributors through their respective sales forces.

      In 1994, the Company acquired Signalisation ModerneAutoroutiere S.A*. (“SMA”)* located in Orleans, France. *SMA*manufactures and sells principally a line of heavy-duty, tractor-mounted grassand hedge mowing equipment and associated replacement parts primarily todepartments of the French government. This acquisition, along with theacquisitions of Forges Gorce, a flail blade manufacturer in France, in 1996 andRousseau Holdings S.A. (“*Rousseau*”), a leading French manufacturer ofhedge and verge mowers, in 2004, when combined with *McConnel* and *Bomford,*has made the Company one of the largest manufacturers in the European marketfor the kind of equipment sold by the Company.

       In 1995, the Company expanded its business in theagricultural market with the acquisition of Herschel Corporation*(“Herschel”)*, a leading manufacturer and distributor of aftermarket farmequipment replacement and wear parts.

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      In 2000, the Company acquired Schwarze Industries, Inc*.(“Schwarze”)*. *Schwarze* is a manufacturer of a broad range of streetsweeping equipment which is sold to governmental agencies and contractors. TheCompany believes the *Schwarze* sweeper products fit the Company’sstrategy of identifying product offerings with brand recognition in theindustrial markets the Company serves.  In 2004, the Company purchased thepothole patcher from Wildcat Manufacturing, Inc. The product line was mergedinto the *Schwarze* operation and is complementary to its current productofferings.

      In 2000, the Company purchased the product line andassociated assets of Twose of Tiverton Ltd.*(“Twose”)* in the U.K. andincorporated its production into the existing facilities at *McConnel* and*Bomford* while maintaining its own sales force and dealer distributionnetwork. *Twose* was a small regional manufacturer of power arm flailmowers and parts, as well as harrows and rollers, which strengthened theCompany’s market leadership position in the U.K.

      In 2000, the Company acquired Schulte Industries Ltd.and its related entities *(“Schulte”)*. *Schulte* is a Canadianmanufacturer of mechanical rotary mowers, snow blowers, and rock removalequipment. *Schulte* strengthened the Company’s Canadian presence in bothmarketing and manufacturing. It also expanded the Company’s range of large,heavy-duty rotary mowers.

      In 2001, the Company acquired all of the assets of SMCCorporation *(“SMC”). SMC* manufactures front-end loaders and backhoes principallyfor Original Equipment Manufacturer (“OEM”) customers and its own *SMC*brand. This acquisition expanded the product range of our agricultural divisionby branding a line of loaders for *Rhino*.

      In 2002, the Company purchased inventory, fixed assetsand certain other assets of Valu-Bilt Tractor Parts *(“Valu-Bilt”)*, asubsidiary of Quality Stores, Inc., located in Des Moines, Iowa. *Valu-Bilt*is a distributor of new, used and rebuilt tractor parts and other agriculturalspare and wear parts sold directly to customers through its catalog and theinternet and on a wholesale basis to dealers. Subsequent to the purchase, theoperations of *Valu-Bilt* in Des Moines, Iowa, were consolidated into theCompany’s *Herschel* facility in Indianola, Iowa. 

      In 2002, the Company purchased substantially all ofthe assets of Faucheux Industries S.A. *(“Faucheux”)*, a leading Frenchmanufacturer of front-end loaders and attachments. The Company acquired *Faucheux*out of administration, a form of bankruptcy in France. This acquisitionbroadened the range of our agricultural implements offered in the French.

      In 2005, the Company, through its European subsidiaryAlamo Group (EUR) Ltd., acquired 100% of the issued and outstanding stock ofSpearhead Machinery Limited *(“Spearhead”)*and subsequently merged itsmanufacturing operations into *Bomford*’s facility. *Spearhead*manufactures a range of tractor-mounted vegetation maintenance equipment,including reach mowers, flail mowers and rotary cutters. This acquisitionextended our product lines and market coverage in Europe.

      In early 2006, the Company purchased substantially allof the assets of the Gradall excavator business *(“Gradall”)* of JLGIndustries, Inc. including their manufacturing plant in New Philadelphia, Ohio.*Gradall* is a leading manufacturer of both wheeled and crawler telescopicexcavators in North America. This acquisition enhanced our Industrial Divisionproduct offering sold to governmental buyers and related contractors formaintenance along right-of-ways. 

      In 2006, the Company purchased the vacuum truck andsweeper lines of Clean Earth Environmental Group, LLC and Clean Earth Kentucky,LLC (collectively referred to as *“VacAll”*)*.*This includes theproduct lines, inventory and certain other assets that relate to this business.The production of the vacuum truck line was moved to the *Gradall*facility in New Philadelphia, Ohio.

In, 2006,the Company acquired 100% of the ownership interests in**Nite-HawkSweepers LLC *(“Nite-Hawk”)*, a manufacturer of truck mounted sweeping equipmentprimarily for the contract sweeping market, which expanded its presence in thatmarket and complements its *Schwarze* sweeper line.             

 

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      On March 6, 2007, the Company purchased HenkeManufacturing Corporation *(“Henke”)*, a manufacturer of specialty snowremoval attachments. *Henke*’s products are mounted on both heavyindustrial equipment and medium to heavy-duty trucks. The primary end-users aregovernmental agencies, related contractors and other industrial users. 

      On May 30, 2008, the Company acquired RivardDeveloppement S.A.S. *(“Rivard”)*, a leading French manufacturer of vacuumtrucks, high pressure cleaning systems and trenchers. The acquisition broadenedthe Company’s product offering to its customers in Europe and other markets weserve.

      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 existing range of agricultural mowers, created one of the largestmanufacturers of agricultural mowers in the world.

**Marketingand Marketing Strategy**

** **

      The Company believes that within the U.S. it is aleading supplier to governmental markets, a major supplier in the U.S.agricultural market, and one of the largest suppliers in the European marketfor its niche product offerings. The Company’s products are sold through theCompany’s various marketing organizations and extensive worldwide dealer anddistributor networks under the *Alamo Industrial*®*, TerrainKing*®, *TigerTM, Gradall*®, *VacAllTM, Schwarze*®*,Nite-HawkTM, Henke*®*, Bush Hog*®*, Rhino*®*,Earthmaster*®*, M&W*®*, SMCTM, HerschelTM*, *Valu-Bilt*®, *Fuerst*®,*Schulte*®*, McConnel*®*, Bomford*®*,SpearheadTM, TwoseTM, SMA*®, *Forges GorceTM, FaucheuxTM, RousseauTMand Rivard*®* *trademarks as well as other**trademarksand trade names.

Products and Distribution Channels

North American Industrial Division

      *Alamo Industrial* equipment is principally soldthrough independent dealers to governmental end-users, related independentcontractors and, to a lesser extent, utility and other dealers servingright-of-way maintenance operators and other applications in the U.S. and othercountries. Governmental agencies and contractors that perform services for suchagencies purchase primarily hydraulically-powered, tractor-mounted mowers,including boom-mounted mowers, other types of cutters and replacement parts forheavy-duty, intensive use applications, including maintenance around highway,airport, recreational and other public areas. A portion of *AlamoIndustrial’s* sales includes tractors, which are not manufactured by*AlamoIndustrial.*

      *Tiger* equipment includes heavy-duty, tractor-and truck-mounted mowing and vegetation maintenance equipment and replacementparts. *Tiger* sells to state, county and local governmental entities andrelated contractors, primarily through a network of independent dealers. *Tiger’s*dealer distribution network is independent of *Alamo Industrial’s* dealerdistribution network. A portion of *Tiger’s* sales includes tractors,which are not manufactured by *Tiger.*

      *Schwarze* equipment includes air, mechanicalbroom, and regenerative air sweepers, pothole patchers and replacement parts. *Schwarze*sells its products primarily to governmental agencies and independentcontractors, either directly or through its independent dealer network. Aportion of *Schwarze’s* sales includes chassis which are not manufacturedby *Schwarze*. The Company believes that *Schwarze* complements *Alamo**Industrial* because the dealer and/or end-user for both products in manycases are the same**.**

      *Gradall* produces a range of models based onhigh-pressure hydraulic telescoping booms which are sold through dealersprimarily to governmental agencies, contractors and to a lesser extent themining industry, steel mills and other specialty applications in the U.S. andother countries. Many of these products are designed for excavation, grading, shapingand similar tasks involved in land clearing, road building or maintenance.These products are available mounted on various types of undercarriages: wheelsfor full-speed highway travel, wheels for on/off road use, and crawlers. 

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*      VacAll*produces catch basin cleaners and roadway debris vacuumsystems. These units are powerful and versatile with uses including, but notlimited to, removal of wet and dry debris, spill elimination, and cleaning ofsludge beds. *VacAll* also offers a line of sewer cleaners. *VacAll*products are primarily sold through dealers to industrial and commercialcontractors as well as governmental agencies. A portion of *VacAll’s*sales includes chassis which are not manufactured by the Company.

      *Nite-Hawk* manufactures parking lot sweeperswith its unique and innovative hydraulic design. By eliminating the auxiliaryengine,*Nite-Hawk* sweepers have proven to be fuel-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 andmanufactures snow plows and heavy-duty snow removal equipment, hitches andattachments for trucks, loaders and graders sold primarily through independenttruck and industrial dealers. *Henke’s* primary end-users are governmentalagencies, related contractors and other industrial users.

** **

**North American Agricultural Division**

      *Bush Hog,**Rhino*and*M&W*equipment is generally sold to farmers and ranchers to clear brush, maintainpastures and unused farmland, shred crops and till fields and for haymaking. Itis also sold to other customers, such as mowing contractors and constructioncontractors, 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,posthole diggers, scraper blades and replacement parts. This equipment isprimarily sold through farm equipment dealers, as well as original equipmentmanufacturers (“OEMs”) and other distributors. 

*      SMC* equipment includes a broad line offront-end loaders and backhoes that fit many tractors on the market today. Theproducts are sold to OEMs and, as *Bush Hog* and *Rhino* brandedequipment.

      *Herschel/Valu-Bilt*aftermarket replacementparts are sold for many types of farm equipment and tractors and certain typesof mowing and construction equipment. *Herschel*products include a widerange of cutting parts, plain and hard-faced replacement tillage tools, discblades and fertilizer application components. *Herschel* replacement toolsand parts are sold throughout the United States, Canada and Mexico to fivemajor customer groups: farm equipment dealers; fleet stores; wholesaledistributors; 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 mechanical rotary mowers, snow blowers, rockremoval equipment and related replacement parts. *Schulte*serves both theagricultural and industrial markets primarily in Canada and the U.S. *Schulte*also sells some of the Company’s other product lines in their markets and someof its products through independent distributors throughout the world.

** **

**EuropeanDivision**

** **

      *McConnel*equipment principally includes a broad line of hydraulic, boom-mounted hedgeand grass cutters, as well as other tractor attachments and implements such ashydraulic backhoes, cultivators, subsoilers, buckets and other diggerimplements and related replacement parts. *McConnel* equipment is soldprimarily in the U.K., Ireland and France and in other parts of Europe and, toa lesser extent, throughout the world through independent dealers anddistributors.

 

*      Bomford*equipment includes hydraulic, boom-mounted hedge andhedgerow cutters, industrial grass mowers, agricultural seedbed preparationcultivators and related replacement parts. *Bomford* equipment is sold togovernmental agencies, contractors and agricultural end-users in the U.K.,Ireland and France and, to a lesser extent, other countries in Europe, NorthAmerica, Australia and the Far East. *Bomford’s* sales network is similarto that of *McConnel* in the U.K. *Rhino* sells some of *Bomford’s*product line in the U.S.

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      *SMA* equipment includes hydraulic, boom-mountedhedge and hedgerow cutters and related replacement parts. *SMA’s*principal customers are French local authorities. *SMA’s* productofferings include certain quick-attach boom mowers manufactured by the Companyin the U.K. to expand its presence in agricultural dealerships. During the thirdquarter of 2010, the Company closed and sold its *SMA* facility located inOrleans, France and production was relocated to the Rousseau manufacturingfacility near Lyon, France. *Forges Gorce*manufactures flail blades whichare sold to some of the Company’s subsidiaries as well as to other customers.

      *Twose* equipment includes light-duty power armmowers, agricultural implements and related replacement parts. *Twose*products are manufactured at the Company’s U.K. facilities. These products aresold through *Twose’s* dealer distribution network in the U.K. and through*Faucheux’s* and other independent distributors internationally.

      The addition of *Spearhead* expanded theCompany’s product lines, particularly rotary cutters, and market coverage inEurope and increased utilization of our existing U.K. manufacturing facilities.

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

 

      *Rousseau* sells hydraulic and mechanical boom mowers,primarily in France through its own sales force and dealer distribution networkto mainly agricultural and governmental markets. These products have also beenintroduced into other markets outside of France.

 

      *Rivard*manufactures vacuum trucks, high pressure cleaningsystems and trenchers. *Rivard’s* equipment is primarily sold in Franceand certain other markets, mainly in Europe and North Africa, to governmentalentities and related contractors. It also complements our product offerings inNorth America.

 

**Replacement Parts**

      In addition to the sales of *Herschel*replacement parts, theCompany derives a significant portion of its revenues from sales of replacementparts for each of its wholegoods lines. Replacement parts representedapproximately 23%, 26% and 27% of the Company’s total sales for the years endedDecember 31, 2008, 2009 and 2010, respectively. The percentage increase in2010 was mainly from a change in sales mix between wholegoods and parts.Proprietary replacement parts generally are more profitable and less cyclicalthan wholegoods.

 

      While the Company believes thatthe end-users of its products evaluate their purchases on the basis of price,reputation and product quality, such purchases are also based on a dealer’sservice, support of and loyalty to the dealer based on previous purchaseexperiences, as well as other factors such as product and replacement partavailability.

**Product Development**

      The Company’s ability toprovide innovative responses to customer needs, to develop and manufacture newproducts, and to enhance existing product lines is important to its success.The Company continually conducts research and development activities in aneffort to improve existing products and develop new products. As of December31, 2010, the Company employed 136 people in its various engineeringdepartments, 60 of whom are degreed engineers and the balance of whom aresupport staff. Amounts expended on research and development activities wereapproximately $5,774,000 in 2010, $4,762,000 in 2009 and $5,443,000 in 2008. Asa percentage of sales, research and development was approximately 1.1% in 2010and 1.0% in 2009 and 2008, and is expected to continue at similar levels in 2011.

**Seasonality**

      The Company’s sales, bothproduct and spare parts, are generally higher in the second and third quartersof the year, because a substantial number of the Company’s products are usedfor maintenance activities such as vegetation maintenance, highway right-of-waymaintenance, construction, and street and parking lot sweeping. Usage of thisequipment is lower in harsh weather. The Company utilizes a rollingtwelve-month sales forecast provided by the Company’s marketing departments andorder backlog in order to develop a production plan for its manufacturingfacilities. In addition, many of the Company’s marketing departments attempt toequalize demand for products throughout the calendar year by offering seasonalsales programs which may provide additional incentives, including discounts andextended payment terms, under these programs.

**Competition**

**     **The Company’sproducts are sold in highly competitive markets throughout the world. Theprincipal competitive factors are price, quality, availability, service andreputation. The Company competes with several large national and internationalcompanies that offer a broad range of equipment and replacement parts, as wellas with numerous small, privately-held manufacturers and suppliers of a limitednumber of products, mainly on a regional basis. Some of the Company’scompetitors are significantly larger than the Company and have substantiallygreater financial and other resources at their disposal. The Company believesthat it is able to compete successfully in its markets by effectively managingits manufacturing costs, offering high quality products, developing anddesigning innovative products and, to some extent, avoiding direct competitionwith significantly larger potential competitors. There can be no assurance thatthe Company’s competitors will not substantially increase the resources devotedto the development and marketing of products competitive with the Company’sproducts or that new competitors with greater resources will not enter the Company’smarkets.

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**Unfilled Orders**

**     **As of December 31, 2010, the Company had unfilled customer ordersof $97,616,000 compared to $71,333,000 at December 31, 2009. The 37% increasewas primarily due to the positive impact of improved agricultural market conditionson *Bush Hog* and *Rhino* backlogs. The Company continues to beaffected by soft market conditions in its Industrial and European divisions dueto the downturn in the global economy. Management expects that substantiallyall of the Company’s backlog as of December 31, 2010 will be shippedduring fiscal year 2011. The amount of unfilled orders at a particular time isaffected by a number of factors, including manufacturing and shipping scheduleswhich, in most instances, are dependent on the Company’s**seasonal salesprograms and the requirements of its customers. Certain of the Company’s ordersare subject to cancellation at any time before shipment; therefore, acomparison of unfilled orders from period to period is not necessarilymeaningful and may not be indicative of future actual shipments. No singlecustomer is responsible for 10% or more of the aggregate revenue of theCompany.

**Sources of Supply**

       The principal raw materials used bythe Company include steel, other metal components and hydraulic tubing. During2010, the raw materials needed by the Company were available from a variety ofsources in adequate quantities and at prevailing market prices. No one supplieris responsible for supplying more than 10% of the principal raw materials usedby the Company.

 

       Whilethe Company manufactures many of the parts for its products, a significantpercentage of parts, including most drivelines, gearboxes, 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. U.S.industrial engines over 175 horsepower, which are used in certain of theCompany’s products, manufactured after January 1, 2011 will be required to meetTier 4i federal guidelines for emission controls, which will increase the costof our units and our working capital requirements. Other jurisdictions,particularly in Europe, have already implemented similar requirements. TheCompany sources its purchased goods from international and domestic suppliers. Nosingle supplier is responsible for supplying more than 10% of the purchasedgoods used by the Company.

** **

**Patentsand Trademarks**

** **

      The Company owns variousU.S. and international patents. While the Company considers its patents to beadvantageous to its business, it is not dependent on any single patent or groupof patents. The Company amortized approximately $79,000 in patents andtrademarks relating to the industrial segment. The Company wrote off $224,000in older patents which the Company believes no longer provide a competitiveadvantage. The net book value of the patents and trademarks was $5,500,000 and$5,803,000 as of December 31, 2010 and 2009, respectively. 

 

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      Products manufactured by the Company are advertisedand sold under numerous trademarks. *Alamo Industrial*®, *TerrainKing*®, *Gradall*®*, VacAllTM, Henke*®*,Bush Hog*®,*Rhino*®, *Earthmaster*®,*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.

**Environmental and Other Governmental Regulations**

      Likeother manufacturers, the Company is subject to a broad range of federal, state,local and foreign laws and requirements, including those concerning airemissions, discharges into waterways, and the generation, handling, storage,transportation, treatment and disposal of hazardous substances and wastematerials, as well as the remediation of contamination associated with releasesof hazardous substances at the Company’s facilities and offsite disposallocations, workplace safety and equal employment opportunities. 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 monitoringexisting wells, an unconditional “no further action” letter will be requested.

 

      OnDecember 31, 2010, the Company had an environmental reserve in the amount of$1,495,000 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 $30,000. The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be remediated over time. Thebalance of 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. 

 

      TheCompany knows that *Bush Hog*’s main manufacturing property in Selma,Alabama was contaminated with chlorinated volatile organic compounds which mostlikely resulted from painting and cleaning operations during the 1960s and ‘70s.The contaminated areas were primarily in the location of underground storagetanks and underneath the former waste storage area. Under the Asset PurchaseAgreement, *Bush Hog*’s prior owner agreed to and has removed theunderground storage tanks at its cost and has remedied the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm was retained bythe prior owner and is administering the cleanup and will monitor the sites onan ongoing basis until the remediation program is complete and approved by theapplicable authorities.

 

      Certainother assets of the Company contain asbestos that may have to be remediatedover time. Management has made its best estimate of the cost to remediate theseenvironmental issues. However, such estimates are difficult to determine, 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 is subject to various other federal,state, and local laws affecting its business, as well as a variety ofregulations relating to such matters as working conditions, equal employmentopportunities, and product safety. A variety of state laws regulate theCompany’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, 2010, the Company employedapproximately 2,300 employees. In the U.S. the Company has collectivebargaining agreements at the *Gradall* facility which cover 163 employeesand will expire in March 9, 2014 and at the *SMC* facility covering 49employees which will expire on June 30, 2012. The Company’s Europeanoperations, *McConnel,**Bomford*, *SMA*, *Forges Gorce,**Faucheux,Rousseau*and*Rivard,* also have various collective bargainingagreements covering 848 employees. The Company considers its employee relationsto be satisfactory. 

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**Financial Information about Segments**

      See Note 15 of the accompanying consolidatedfinancial statements.

International Operations and Geographic Information

      See Note 16 of the accompanying consolidatedfinancial statements.

Available Information

The Company files annual,quarterly and current reports, proxy statements and other information with theSecurities and Exchange Commission (the “SEC”). You may read and copy anydocument we file with the SEC at the SEC’s Public Reference Room at 100 FStreet, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 forinformation on the operation of the Public Reference Room. The SEC maintains awebsite that contains annual, quarterly and current reports, proxy and informationstatements and other information that issuers (including the Company) fileelectronically with the SEC. The SEC’s website is http://  www.sec.gov.

The Company’s website is   www.alamo-group.com.The Company makes available free of charge through its website, via a link tothe SEC’s website at   www.sec.gov, its annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and any amendmentsto those reports filed or furnished pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), as soon asreasonably practicable after such material is electronically filed with, orfurnished to, the SEC. The Company also makes available through its website,via a link to the SEC’s website, statements of beneficial ownership of theCompany’s equity securities filed by its directors, officers, 10% or greatershareholders and others required to file under Section 16 of the Exchange Act.

The Company also makes availableon its website its most recent annual report on Form 10-K, its quarterlyreports on Form 10-Q for the current fiscal year, its most recent proxystatement and its most recent annual report to stockholders, although in somecases 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-Looking Information

      Part I of this Annual Report on Form 10‐Kand the “Management’s Discussion and Analysis of Financial Condition andResults of Operations” included in Part II of this Annual Report containforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934. Inaddition, forward-looking statements may be made orally or in press releases,conferences, reports or otherwise, in the future by or on behalf of theCompany.

      Statements that are not historical areforward-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-looking statementsinvolve risks and uncertainties. These uncertainties include factors thataffect all businesses operating in a global market, as well as matters specificto the Company and the markets we serve. Certain particular risks anduncertainties that continually face us include the following:
-  budgetconstraints and revenue shortfalls which could affect the purchases of our typeof equipment by governmental customers and related contractors in both domesticand international markets;
-  marketacceptance of new and existing products;
-  our abilityto maintain good relations with our employees; 
-  our abilityto hire and retain quality employees; 

                                                                                          

 

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-  changes inthe prices of agricultural commodities, which could affect our customers’  income levels; and
-  impairment inthe carrying value of goodwill.

      In addition, we are subject to risks anduncertainties facing the industry in general, including the following:
-  impact oftighter credit markets on the Company, its dealers and end-users; 
-  changes inbusiness and political conditions and the economy in general in both domesticand international markets;
-  increase inunfunded pension plan liability due to financial market deterioration; 
-  price andavailability of critical raw materials, particularly steel and steel products; 
-  increasedcompetition;
-  our abilityto develop and manufacture new and existing products profitably;
-  adverseweather conditions such as droughts, floods, snowstorms, etc., which can affectthe buying patterns of our customers and related contractors;
-  increasedcosts of complying with new regulations;
-  thepotential effects on the buying habits of our customers due to animal diseaseoutbreaks such as mad cow and other epidemics;
-  adversemarket conditions and credit constraints which could affect our customers andend-users, such as cutbacks on dealer stocking levels;
-  changes inmarket demand;
-  financialmarket changes including changes in interest rates and fluctuations in foreignexchange rates;
-  theinability of our suppliers, customers, creditors, public utility providers andfinancial service organizations to deliver or provide their products orservices to us;
-  abnormalseasonal factors in our industry;
-  unforeseenlitigation;
-  changes indomestic and foreign governmental policies and laws, including increased  levels of government regulation and changes in agricultural policies; 
-  governmentactions, including budget levels, regulations and legislation, relating to theenvironment, commerce, infrastructure spending, health and safety; and 
-  amount offarm subsidies and farm payments.

 

      We wishto caution readers not to place undue reliance on any forward-looking statementand to recognize that the statements are not predictions of actual futureresults. Actual results could differ materially from those anticipated in theforward-looking statements and from historical results, due to the risks anduncertainties described above and under “Risk Factors,” as well as others notnow anticipated. The foregoing statements are not exclusive and further informationconcerning us and our businesses, including factors that could potentiallymaterially affect our financial results, may emerge from time to time. It isnot possible for management to predict all risk factors or to assess the impactof such risk factors on the Company’s businesses.

 

 

 

 

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Executive Officers ofthe Company

 

      Certain information is set forth belowconcerning the executive officers of the Company, each of whom has been electedto serve until the 2011 annual meeting of directors or until his successor isduly elected and qualified.

Name

** **

**Age**

** **

Position

Ronald A. Robinson

 

58

 

President and Chief Executive Officer

Dan E. Malone

 

50

 

Executive Vice President and Chief Financial Officer

Robert H. George 

 

64

 

Vice President, Secretary and Treasurer

Richard J. Wehrle

 

54

 

Vice President and Controller

Donald C. Duncan

 

59

 

Vice President and  General Counsel 

Geoff Davies

 

63

 

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

Richard D. Pummell

 

64

 

Vice  President, Alamo Group Inc. and Executive  Vice President Alamo Group  (USA)  Inc., Agricultural  Division
       
        Ronald A. Robinson was appointed President, ChiefExecutive Officer and a director of the Company on July 7, 1999. Mr. Robinsonhad previously been President of Svedala Industries, Inc., the U.S. subsidiaryof Svedala Industries AB of Malmo, Sweden, a leading manufacturer of equipmentand systems 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 was appointed Executive VicePresident, Chief Financial Officer on January 15, 2007. Prior to joining theCompany, Mr. Malone held the position of Executive Vice President, ChiefFinancial Officer & Corporate Secretary at Igloo Products Corporation, from2002 to January 2007. Mr. Malone was Vice President and Chief Financial Officerof The York Group, Inc. from 2000 to 2002, and held various financial positionsfrom 1987 to 2000 with Cooper Industries, Inc. and its various subsidiaries.

      Robert H. George joined the Company in May 1987as Vice President and Secretary/Treasurer and has served the Company in variousexecutive capacities since that time. Prior to joining the Company, Mr. Georgewas Senior Vice President of Frost National Bank from 1978 to 1987.

      Richard J. Wehrle has been Vice President andController of the Company since May 2001. Prior to his appointment, Mr. Wehrleserved in various accounting management capacities within the Company since1988.

      Donald C. Duncan has been General Counsel of theCompany since January 2002 and was elected Vice President in February 2003.Prior to joining the Company, Mr. Duncan was counsel for various publicly heldcompanies in Houston, Texas and most recently was Associate General Counsel forEGL, Inc. from 2000 to 2001 and Senior Counsel for Weatherford InternationalInc. from 1997 to 1999. 

      Geoff Davies, OBE andPhD, has been Managing Director of Alamo Group (EUR) Ltd. since December 1993and was elected Vice President of the Company in February 2003. From 1988 to1993, Dr. Davies served *McConnel* Ltd., a U.K. company acquired byAlamo Group in 1991, in various capacities including serving as its MarketingDirector from February 1992 until December 1993.

 

      Richard D. Pummell waselected Vice President of Alamo Group Inc. in November 2009. Mr. Pummell joinedthe Company in 2005 as Executive Vice President of Alamo Group (USA) Inc. andis in charge of the Agricultural division. Prior to joining the Company, Mr.Pummell was Vice President for Global Supply and General Manager of MetsoMinerals.

 

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**Item 1A.Risk Factors**

      You should carefully consider each of the risksdescribed below, together with all of the other information contained in thisAnnual Report on Form 10-K, before making an investment decision with respectto the Company’s securities. If any of the following risks develop into actualevents, the Company’s business, financial condition or results from operationscould be materially and adversely affected and you could lose all or part ofyour investment. 

**Risks related to our business**

** **

**Deterioration of industry conditionscould harm our business, results of operations and financial condition.**

** **

      Our business depends to a large extent upon theprospects for the mowing, right-of-way maintenance and agricultural markets ingeneral. Future prospects of the industry depend largely on factors outside ofour control. Any of those factors could adversely impact demand for ourproducts, which could adversely impact our business, results of operations andfinancial condition. These factors include the following:
-  weakness inworldwide economy;
-  the price andavailability of raw materials, purchased  components and energy;
-  budgetconstraints and revenue shortfalls for our governmental customers; 
-  changes indomestic and foreign governmental policies and laws, including increased levelsof  governmental regulation; 
-  the levels ofinterest rates; 
-  the value of theU.S. dollar relative to the foreign currencies in countries where we sell our  productsbut don’t have a manufacturing presence;
-  impact oftighter credit markets on the Company, its dealers and end-users; 
-  impairment inthe carrying value of goodwill; and
-  increase inunfunded pension plan liability due to financial market deterioration. 

 

      Inaddition, our business is susceptible to a number of factors that specificallyaffect agricultural customer spending patterns, including the following: 
-  animal diseaseoutbreaks, epidemics and crop pests;
-  weatherconditions, such as droughts, floods and snowstorms;
-  changes in farmincomes;
-  cattle andagricultural commodity prices;
-  changes ingovernmental agricultural policies worldwide;
-  the level of worldwidefarm output and demand for farm products; and
-  limits onagricultural imports.

** **

**A downturn in general economicconditions and outlook in the United States and around the world couldadversely affect our net sales and earnings.**

** **

      The strength and profitability of our business dependson the overall demand for our products and upon economic conditions andoutlook, including but not limited to economic growth rates; consumer spendinglevels; financing availability, pricing and terms for our dealers andend-users; employment rates; interest rates; inflation; consumer confidence andgeneral economic and political conditions and expectations in the United Statesand the foreign economies in which we conduct business. Slow or negative growthrates, inflationary pressures, higher commodity costs and energy prices,reduced credit availability or unfavorable credit terms for our dealers andend-user customers, increased unemployment rates, and continued recessionaryeconomic conditions and outlook could cause consumers to continue to reducespending, which may cause them to delay or forego purchases of our products andcould have an adverse effect on our net sales and earnings.

** **

**We depend on governmental sales anda decrease in such sales could adversely affect us.**

 

A substantial portion of ourrevenues is derived from sales to federal, state and local governmentalentities both in the U.S. and in other countries in which we sell our products.These sales depend primarily on the levels of budgeted and appropriatedexpenditures for highway, airport, roadside and parks maintenance by variousgovernmental entities and are affected by changes in local and nationaleconomic conditions.

** **

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**Our dependence on, and the price andavailability of, raw materials as well as purchased components may adverselyaffect our business, results of operations and financial condition.**

Weare subject to fluctuations in market prices for raw materials such as steeland energy. Additionally, although most of the raw materials and purchase componentswe use are commercially available from a number of sources, we could experiencedisruptions in the availability of such materials. If we are unable to purchasematerials we require or are unable to pass on price increases to our customersor otherwise reduce our cost of goods sold, our business, results of operationsand financial condition may be adversely affected. In addition, higher energycosts may negatively affect spending by farmers, including their purchases ofour products. 

**Impairmentin the carrying value of goodwill could negatively impact our consolidatedresults of operations and net worth.**

      The Company estimates the fair value of its reportingunits using a discounted cash flow analysis. This analysis requires the Companyto make 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, differentassumptions could materially affect the estimated fair value. As of December31, 2010, goodwill was $34,073,000, which represents 9% of total assets. TheCompany recognized no goodwill impairment in 2010. The North AmericanIndustrial segment had a goodwill impairment of $14,104,000 in 2009. During the 2010 impairment analysisreview, it was noted that even though the *Schwarze* reporting unit’s fairvalue was above carrying value it was not materially different. On December 31,2010, there was approximately $6.8 million of goodwill related to the *Schwarze*reporting unit. This reporting unit would be most likely affected by changes inthe Company’s assumptions and estimates. The calculation of fair value couldincrease or decrease depending on changes in the inputs and assumptions used,such as changes in the reporting unit’s future growth rates, discount rates,etc. 

**Weoperate in a highly competitive industry, and some of our competitors andpotential competitors have greater resources than we do.**

Ourproducts are sold in highly competitive markets throughout the world. Wecompete with several large national and international companies that offer abroad range of equipment and replacement parts that compete with our products,as well as with numerous small, privately-held manufacturers and suppliers of alimited number of products mainly on a regional basis. Some of our competitorsare significantly larger than we are and have substantially greater financialand other resources at their disposal. We believe that we are able to competesuccessfully in our markets by, to some extent, avoiding direct competition withsignificantly larger potential competitors. There can be no assurance that ourcompetitors will not substantially increase the resources devoted to thedevelopment and marketing of products competitive with our products or that newcompetitors with greater resources will not enter our markets. Any failure toeffectively compete could have an adverse effect on our business, results ofoperations and financial condition.

**We operate and sourceinternationally, which exposes us to the political, economic and other risks ofdoing business abroad.**

** **

We have operations in a number ofcountries outside of the United States. Our international operations aresubject to the risks normally associated with conducting business in foreigncountries, including but not limited to the following:
-  limitations on ownership and onrepatriation of earnings;
-  import and export restrictions,tariffs and quotas;
-  additional expenses relating tothe difficulties and costs of staffing and managing international operations; 
-  labor disputes and uncertainpolitical and economic environments and the impact of foreign business cycles; 

 

 

- 14 -

 

 

 

 

 

 
-  changes in laws or policies; 
-  delays in obtaining or theinability to obtain necessary governmental permits;
-  potentially adverse consequencesresulting from the applicability of foreign tax laws;
-  cultural differences; 
-  increased expenses due toinflation; 
-  weak economic conditions inforeign markets where our subsidiaries distribute their products; 
-  changes in currency exchangerates;
-  disruptions in transportation andport authorities; and
-  new regulations involvinginternational freight shipments

Our international operations mayalso be adversely affected by laws and policies of the United States and theother countries in which we operate affecting foreign trade, investment andtaxation. 

 

In addition, political developmentsand governmental regulations and policies in the countries in which we operatedirectly affect the demand for our products. For example, decreases or delaysin farm subsidies to our agricultural customers, or changes in environmentalpolicies aimed at limiting mowing activities, could adversely affect ourbusiness, results of operations and financial condition. 

**Ouracquisition strategy may not be successful, which may adversely affect our business,results of operations and financial condition.**

Weintend to grow internally and through the acquisition of businesses and assetsthat will complement our current businesses. To date, a material portion of ourgrowth has come through acquisitions. We cannot be certain that we will be ableto identify attractive acquisition targets, obtain financing for acquisitionson satisfactory terms or successfully acquire identified targets. Competitionfor acquisition opportunities may also increase our costs of makingacquisitions or prevent us from making certain acquisitions. These and otheracquisition-related factors may adversely impact our business, results ofoperations and financial condition.

**Wemay be unable to complete or integrate existing or future acquisitionseffectively, and businesses we have acquired, or may acquire in the future, maynot perform as expected.**

Wemay not be successful in integrating acquired businesses into our existingoperations and achieving projected synergies. We could face many risks inintegrating acquired businesses, but not limited to the following:
-  we may incursubstantial costs, delays or other operational or financial challenges inintegrating acquired businesses, including integrating each company'saccounting, information technology, human resource and other administrativesystems to permit effective management;
-  we may be unableto achieve expected cost reductions, to take advantage of cross-sellingopportunities, or to eliminate redundant operations, facilities and systems; 
-  we may need toimplement or improve controls, procedures and policies appropriate for a publiccompany;
-  acquisitions maydivert our management’s attention from the operation of our businesses; 
-  we may not beable to retain key personnel of acquired businesses; 
-  there may becultural challenges associated with integrating management and employees fromthe acquired businesses into our organization; and
-  we may encounterunanticipated events, circumstances or legal liabilities.

   Ourintegration of acquired businesses requires significant efforts from themanagement of each entity, including coordinating existing business plans andresearch and development efforts. Integrating operations may distractmanagement’s attention from the day-to-day operation of the combined companies.Ultimately, our attempts to integrate the operations, technology and personnelof acquired businesses may not be successful. If we are unable to successfullyintegrate acquired businesses, our future results may be negatively impacted.

   Inaddition, we may be adversely affected if businesses that we have acquired, orthat we acquire in the future, do not perform as expected. An acquired businesscould perform below our expectations for a number of reasons, includinglegislative or regulatory changes that affect the areas in which the acquiredbusiness specializes, the loss of customers and dealers, general economicfactors that directly affect the acquired business, and the culturalincompatibility of its management team. Any or all of these reasons couldadversely affect our business, results of operation and financial condition.

 

- 15 -

 

 

 

 

 

**Theagricultural industry and the mowing and right of way maintenance industry areseasonal and are affected by the weather, and seasonal fluctuations may causeour results of operations and working capital to fluctuate from quarter toquarter.**

Ingeneral, agricultural and governmental end-users typically purchase newequipment during the first and second calendar quarters. Other products such asstreet sweepers, excavators, snow blowers, front-end loaders and potholepatchers have different seasonal patterns, as do replacement parts in general.In attempting to achieve efficient utilization of manpower and facilitiesthroughout the year, we estimate seasonal demand months in advance andmanufacturing capacity is scheduled in anticipation of such demand. We utilizea rolling twelve-month sales forecast provided by our marketing divisions andorder backlog in order to develop a production plan for our manufacturingfacilities. Additionally, many of our marketing departments attempt to equalizedemand for their products throughout the calendar year by offering seasonalsales programs which may provide additional incentives, including discounts andextended payment terms, on equipment that is ordered during off-season periods.Because we spread our production and wholesale shipments throughout the year totake into account the factors described above, sales in any given period maynot reflect the timing of dealer orders and retail demand.

   Weatherconditions and general economic conditions may affect the timing of purchasesand actual industry conditions might differ from our forecasts. Consequently,we cannot assure that sudden or significant declines in industry demand wouldnot adversely affect our working capital or results of operations.

**Ifwe do not retain key personnel and attract and retain other highly skilledemployees, our business may suffer.**

Ourcontinued success will depend on, among other things, the efforts and skills ofour executive officers, including our president and chief executive officer,and our ability to attract and retain additional highly qualified managerial,technical, manufacturing and sales and marketing personnel. We do not maintain“key man” life insurance for any of our employees, and all of our seniormanagement are employed at will. We cannot assure you that we will be able toattract and hire suitable replacements for any of our key employees. We believethe loss of a key executive officer or other key employee could have an adverseeffect on our business, results of operations and financial condition. 

**Weare subject on an ongoing basis to the risk of product liability claims andother litigation arising in the ordinary course of business.**

Likeother manufacturers, we are subject to various claims, including productliability claims, arising in the ordinary course of business, and we are aparty to various legal proceedings that constitute routine litigationincidental to our business. We may be exposed to product liability claims inthe event that the use of our products results, or is alleged to result, inbodily injury, property damage, or both. We cannot assure you that we will notexperience any material product liability losses in the future or that we willnot incur significant costs to defend such claims. While we currently haveproduct liability insurance, we cannot assure you that our product liabilityinsurance coverage will be adequate for any liabilities that may ultimately beincurred or that it will continue to be available on terms acceptable to us. Asuccessful claim brought against us in excess of available insurance coverageor a requirement to participate in a product recall may have a materiallyadverse effect on our business.

**Weare subject to environmental, health and safety and employment laws andregulations and related compliance expenditures and liabilities.**

Likeother manufacturers, the Company is subject to a broad range of federal, state,local and foreign laws and requirements, including those concerning airemissions, discharges into waterways, and the generation, handling, storage,transportation, treatment and disposal of hazardous substances and wastematerials, as well as the remediation of contamination associated with releasesof hazardous substances at our facilities and offsite disposal locations,workplace safety and equal employment opportunities. These laws and regulationsare constantly changing, and it is impossible to predict with accuracy theeffect that changes to such laws and regulations may have on us in the future.Like other industrial concerns, our manufacturing operations entail the risk ofnoncompliance, and there can be no assurance that we will not incur materialcosts or other liabilities as a result thereof. 

- 16 -

 

 

 

 

 

      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.

 

      OnDecember 31, 2010, the Company had an environmental reserve in the amount of$1,495,000 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 $30,000. The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be remediated over time. Thebalance of 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. 

 

      TheCompany knows that *Bush Hog*’s main manufacturing property in Selma,Alabama was contaminated with chlorinated volatile organic compounds which mostlikely resulted from painting and cleaning operations during the 1960’s and‘70s. The contaminated areas were primarily in the location of undergroundstorage tanks and underneath the former waste storage area. Under the Asset PurchaseAgreement, *Bush Hog*’s prior owner agreed to and has removed theunderground storage tanks at its cost and has remedied the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm was retained bythe prior owner and is administering the cleanup and will monitor the sites onan ongoing basis until the remediation program is complete and approved by theapplicable authorities.

 

      Certainother assets of the Company contain asbestos that may have to be remediatedover time. Management has made its best estimate of the cost to remediate theseenvironmental issues. However, such estimates are difficult to estimateincluding the timing of such costs. The Company believes that any subsequentchange in the liability associated with the asbestos removal will not have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

**     **

      Wehave incurred and will continue to incur capital and other expenditures tocomply with the laws andregulations applicable to our operations. In particular, if we fail to complywith any environmental regulations, then we could be subject to futureliabilities, 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.

 

**If we are unable to comply with theterms of our credit arrangements, especially the financial covenants, ourcredit arrangements could be terminated.**

** **

We cannot assure you that we will be able to complywith all of the terms of our credit arrangements, especially the financialcovenants. Our ability to comply with such terms depends on the success of ourbusiness and our operating results. Various risks, uncertainties, and eventsbeyond our control could affect our ability to comply with the terms of ourcredit arrangements. If we were out of compliance with any covenant required byour credit arrangements following any applicable cure periods, the banks couldterminate their commitments unless we could negotiate a covenant waiver. Thebanks could condition such waiver on amendments to the terms of our creditarrangements that may be unfavorable to us including, the interest rate wecurrently pay on outstanding debt under our credit arrangements could increase,which could adversely affect our operating results. 

 

**Fluctuations in currency exchangerates may adversely affect our financial results.**

 

Our earnings are affected byfluctuations in the value of the U.S. dollar as compared to foreign currencies,predominantly in European countries, Canada and Australia, as a result of thesale of our products in international markets. While we do hedge against suchfluctuations to an extent (primarily in the U.K. market), we cannot assure youthat we will be able to effectively manage these risks. Significant long-termfluctuations in relative currency values, such as a devaluation of the Euroagainst the U.S. dollar, could have an adverse effect on our future results ofoperations or financial condition.

 

 

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** **

**Risks related to investing in ourcommon stock**

** **

**Because the price of our commonstock may fluctuate significantly and its trading volume has generally beenlow, it may be difficult for you to resell our common stock when desired or atattractive prices.**

 

The trading price of our commonstock has and may continue to fluctuate. The closing prices of our common stockon the NYSE during 2010 ranged from $27.82 to $17.02 per share, and during 2009from $17.15 to $9.37 per share. Our stock price may fluctuate in response tothe risk factors set forth herein and to a number of events and factors, suchas quarterly variations in operating and financial results, litigation, changesin financial estimates and recommendations by securities analysts, theoperating and stock performance of other companies that investors may deemcomparable to us, news reports relating to us or trends in our industry orgeneral economic conditions. Furthermore, the trading volume of our commonstock has generally been low, which may increase the volatility of the marketprice for our stock. The stock price volatility and low trading volume may makeit difficult for you to resell your shares of our common stock when desired orat attractive prices.

**Youmay experience dilution of your ownership interests due to the future issuanceof additional shares of our common stock.**

Wemay issue shares of our previously authorized and unissued securities whichwill result in the dilution of the ownership interests of our presentstockholders. We are currently authorized to issue 20,000,000 shares of commonstock. On December 31, 2010, 11,829,879 shares of our common stock were issuedand outstanding, and there were outstanding options to purchase an additional471,530 shares of our common stock. We also have additional shares availablefor grant under our 2005 Incentive Stock Option Plan and our 2009 EquityIncentive Plan. Additional stock option or other compensation plans oramendments to existing plans for employees and directors may be adopted.Issuance of these shares of common stock may dilute the ownership interests ofour then existing stockholders. We may also issue additional shares of ourcommon stock in connection with the hiring of personnel, future acquisitions,such as the 1,700,000 shares issued as consideration for the acquisition of *BushHog*, future private placements of our securities for capital raisingpurposes or for other business purposes. This would further dilute theinterests of our existing stockholders. 

**Future sales, or the possibility offuture sales, of a substantial amount of our common stock may depress the priceof the shares of our common stock.**

 

Future sales, or the availabilityfor sale in the public market, of substantial amounts of our common stock couldadversely affect the prevailing market price of our common stock and couldimpair our ability to raise capital through future sales of equity securities.If we or our existing stockholders sell substantial amounts of our common stockin the public market, or if there is a perception that these sales may occur,the market price of our common stock could decline. 

 

**There is no assurance that we willcontinue declaring dividends or have the available cash to make dividendpayments.**

 

Although we have paid a cashdividend of $0.06 per share in each quarter since the third quarter of1999, there can be no assurance that we will continue to declare dividends orthat funds will continue to be available for this purpose in the future. Thedeclaration and payment of dividends are restricted by the terms of our amendedand restated revolving credit agreement and are subject to the discretion ofour Board of Directors, are not cumulative, and will depend upon ourprofitability, financial condition, capital needs, future prospects, and otherfactors deemed relevant by our Board of Directors. 

 

**Provisions of our corporate documents may have anti-takeovereffects that could prevent a change in control.**

 

Provisions of our charter, bylaws and Delaware law couldmake it more difficult for a third party to acquire us, even if doing so wouldbe beneficial to our stockholders. These provisions include supermajorityvoting requirements, prohibiting the stockholder from calling stockholdermeetings, removal of directors for cause only and prohibiting shareholderactions by written consent. Our Certificate of Incorporation and By-laws statethat any amendment to certain provisions, including those provisions regardingthe removal of directors and limitations on action by written consent discussedabove, be approved by the holders of at least two-thirds of our common stock.We are also afforded the protections of Section 203 of the Delaware GeneralCorporation Law, which would prevent us from engaging in a business combinationwith a person who becomes a 15% or greater shareholder for a period of threeyears from the date such person acquired such status unless certain board orshareholder approvals were obtained. 

** **

- 18 -

 

 

 

 

 

 

** **

**      Certain stockholders own a significant amount of ourcommon stock, and their interests may conflict with those of our otherstockholders.**

 

As of December 31, 2010, Capital Southwest VentureCorporation, a subsidiary of Capital Southwest Corporation, beneficially ownedapproximately 24% of our outstanding common stock and three other investors,Duroc, LLC, Dimensional Fund Advisors LP and Third Avenue Management LLCbeneficially own approximately 29% of our outstanding common stock. As aresult, either Capital Southwest or the other major stockholders combined couldbe able to significantly influence the direction of the Company, the electionof our Board of Directors and the outcome of any other matter requiringstockholder approval, including mergers, consolidations and the sale of all orsubstantially all of our assets, and together with other beneficially ownedinvestors, to prevent or cause a change in control of the Company. In addition,the interests of Capital Southwest and other major stockholders may conflictwith the interests of our other stockholders.

 

**Item 1B.Unresolved Staff Comments **

      The Company has no unresolved staff comments toreport pursuant to Item 1B.

                                                                                          

 

 

 

 

 

 

 

- 19 -

 

 

 

 

 

**Item 2. Properties**

**     **As of December 31, 2010, theCompany utilized ten principal manufacturing plants located in the UnitedStates, six in Europe, one in Canada, and one in Australia. The facilities arelisted below:

 

 

Facility

 

**SquareFootage**

 

**Principal Types of Products**

**Manufactured And Assembled**

Selma, Alabama

767,700 

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*and*SMA*

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, Rhino*and Front-end Loaders for *Bush Hog*

Kent, Washington

       42,800 

Leased

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

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 

1,000 

Owned

Owned

Leased

Service Parts Distribution and Sales Office 

Corporate Office 

 

Total

 

3,133,900 

 

 

     

      Approximately 89% of the manufacturing,warehouse and office space is owned. During the third quarter of 2010 theCompany closed and sold its SMA facility in Orleans, France. During 2009, theCompany closed its warehouse operations in Memphis, Tennessee and this 15,000sq. ft. facility is for sale or lease. The Company considers each of itsfacilities to be well maintained, in good operating condition and adequate forits present level of operations.

- 20 -

 

 

**Item 3. Legal Proceedings**

**     **The Company is subject to variouslegal actions which have arisen in the ordinary course of its business. Themost prevalent of such actions relate to product liability, which is generallycovered by insurance after various self-insured retention amounts. Whileamounts claimed might be substantial and the ultimate liability with respect tosuch litigation cannot be determined at this time, the Company believes thatthe ultimate outcome of these matters will not have a material adverse effecton the Company’s consolidated financial position or results of operations;however, the ultimate resolutions cannot be determined at this time. 

 

      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.

 

      OnDecember 31, 2010, the Company had an environmental reserve in the amount of$1,495,000 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 $30,000. The Company has a reserve of $277,000 concerning apotential asbestos issue that is expected to be remediated over time. Thebalance of 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. 

 

      TheCompany knows that *Bush Hog*’s main manufacturing property in Selma,Alabama was contaminated with chlorinated volatile organic compounds which mostlikely resulted from painting and cleaning operations during the 1960’s and‘70s. The contaminated areas were primarily in the location of undergroundstorage tanks and underneath the former waste storage area. Under the AssetPurchase Agreement, *Bush Hog*’s prior owner agreed to and has removed theunderground storage tanks at its cost and has remedied the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm was retained bythe prior owner and is administering the cleanup and will monitor the sites onan ongoing basis until the remediation program is complete and approved by theapplicable authorities.

 

      Certainother assets of the Company contain asbestos that may have to be remediatedover time. Management has made its best estimate of the cost to remediate theseenvironmental issues. However, such estimates are difficult to estimateincluding the timing of such costs. The Company believes that any subsequentchange in the liability associated with the asbestos removal will not have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

**     **

 

**Item 4. [Remove and Reserved]**

- 21 -

 

 

 

 

 

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer    Purchasesof Equity Securities

      The Company’s common stock trades on the New YorkStock Exchange under the symbol: ALG. On February 25, 2011, there were11,831,979 shares of common stock outstanding, held by approximately 116holders of record, but the total number of beneficial owners of the Company’s commonstock exceeds this number. On February 25, 2011, the closing price of thecommon stock on the New York Stock Exchange was $28.03 per share.

      The following table sets forth, for the periodindicated, on a per share basis, the range of high and low sales prices for theCompany’s common stock as quoted by the New York Stock Exchange. These pricequotations reflect inter-dealer prices, without adjustment for retail markups,markdowns or commissions, and may not necessarily represent actualtransactions.

**2010**

 

**2009**

 

 

 

 

 

 

**Cash**

 

 

 

 

 

 

 

**    Cash**

 

 

**Sales Price**

 

**Dividends**

 

 

 

**Sales Price**

 

**Dividends**

Quarter Ended

 

**High**

 

**Low**

 

**Declared**

 

**Quarter Ended**

 

**High**

** **

**Low**

** **

** Declared**

March 31, 2010

$

20.36

      $

16.62

 

$   .06    

 

March 31, 2009

$

18.04

 $			

9.22

 

$    .06    

June 30, 2010

 

27.00

 

19.58

 

 .06    

 

June 30, 2009

 

13.25

 

9.90

 

 .06    

September  30, 2010

 

25.41

 

18.68

 

 .06    

 

September  30, 2009

 

17.16

 

9.98

 

 .06    

December 31,  2010

 

28.19

 

21.55

 

 .06    

 

December 31,  2009

 

17.33

 

13.10  

 

 .06    

 

      On January 5, 2011, theBoard of Directors of the Company declared a quarterly dividend of $.06 pershare which was paid on February 2, 2011, to holders of record as ofJanuary 19, 2011. The Company expects to continue its policy of payingregular cash dividends, although there is no assurance as to future dividendsas 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.

 

      The Company wasauthorized by its Board of Directors in 1997 to repurchase up to 1,000,000shares of the Company’s common stock to be funded through working capital andcredit facility borrowings. There were no shares repurchased in 2009 or in2010. The authorization to repurchase up to 1,000,000 shares remains available,less 42,600 shares previously purchased. 

      Information relating to compensation plansunder which equity securities of the Company are authorized for issuance is setforth in Part III, Item 13 of this Annual Report on Form 10-K.

StockPrice Performance Graph

      The informationcontained in this Stock Performance Graph section shall not be deemed to be“soliciting material” or “filed” with the SEC or subject to the liabilities ofSection 18 of the Exchange Act except to the extent that Alamo Group Inc.specifically incorporates it by reference into a document filed under theSecurities Act or the Exchange Act.

 

      The following graph andtable set forth the cumulative total return to the Company's stockholders ofour Common Stock  during a five-year period ended December 31, 2010, as well asthe performance of an overall stock market index (the S&P 500 Index) andthe Company's selected peer group index (the Russell 2000 Index).

 

      The Company believes arepresentative industry peer group of companies with a similar business segmentprofile does not exist. The SEC has indicated that companies may use a baseother than industry or line of business for determining its peer group index,such as an index of companies with similar market capitalization. Accordingly,the Company has selected the Russell 2000 Index, a widely used small marketcapitalization index, to use as a representative peer group.

 

 

 

 

- 22 -

 

 

 

 

 

 

 

 

** **

** **

**12/05**

**12/06**

**12/07**

**12/08**

**12/09**

**12/10**

** **

** **

** **

** **

** **

** **

** **

** **

**Alamo  Group Inc.**

** **

**100.00**

**115.69**

**90.24**

**75.42**

**88.16**

**144.61**

**S&P  500**

** **

**100.00**

**115.80**

**122.16**

**76.96**

**97.33**

**111.99**

**Russell  2000**

** **

**100.00**

**118.37**

**116.51**

**77.15**

**98.11**

**124.46**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 23 -

 

 

 

**Item 6. Selected FinancialData**

** **

      The following selected financial data isderived from the consolidated financial statements of Alamo Group Inc. and itssubsidiaries. The data should be read in conjunction with the consolidatedfinancial statements, related notes and other financial information includedherein.

** **

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

** **

(in  thousands, except per share amounts)

** **

**2010**  

 

** **

**2009**  

 

** **

**2008**  

 

** **

**2007**  

 

** **

**2006**  

**Operations:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales 

$

524,540 

 

$

446,487

 

$

557,135 

 

$

504,386 

 

$

456,494 

Income before income  taxes

 

29,032 

 

 

     31,106

 

 

17,226 

 

 

18,035 

 

 

16,975 

Net income 

 

21,117 

 

 

     18,633

 

 

10,999 

 

 

12,365 

 

 

11,488 

Percent of sales

 

4.0%

 

 

4.2%

 

 

2.0%

 

 

2.5%

 

 

2.5%

Earnings per share		

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

1.79 

 

 

         1.80

 

 

1.12 

 

 

1.26 

 

 

1.18 

   Diluted 

 

1.78 

 

  

1.80

 

 

1.11 

 

 

1.24 

 

 

1.16 

Dividends per share

 

0.24 

 

 

0.24

 

 

0.24 

 

 

0.24 

 

 

0.24 

Average common shares  		

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

11,782 

 

 

10,330

 

 

9,847 

 

 

9,781 

 

 

9,756 

   Diluted 

 

11,893 

 

 

10,363

 

 

9,950 

 

 

9,953 

 

 

9,925 

**Financial Position:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

370,983 

 

$

379,957

 

$

386,132 

 

$

350,630 

 

$

326,634 

Short-term debt and  current maturities 

 

2,319 

 

 

5,453

 

 

4,186 

 

 

3,368 

 

 

3,339 

Long-term debt,  excluding current maturities

 

23,106 

 

 

44,336

 

 

99,884 

 

 

78,527 

 

 

78,526 

Stockholders’ equity		

$

253,260 

 

$

236,919

 

$

184,312 

 

$

198,698 

 

$

181,734 

 

(1)  Includes theresults of operations of companies acquired from the effective dates ofacquisitions.

** **

** **

**Item 7. Management’s Discussion and Analysisof FinancialCondition**

**            And Results ofOperations**

*      The following discussion should be read in conjunctionwith the consolidated financial statements of the Company and the notes theretoincluded elsewhere in this Annual Report on Form 10-K.*

      The following tables set forth, for the periodsindicated, certain financial data:

 

**                  Fiscal  Year Ended December 31,**

 

Net sales  (data in thousands):

** **

**2010**  

 

** **

**2009**  

 

** **

**2008**  

                                        		

 

 

 

 

 

    North  American

 

 

 

 

 

        Industrial

$      192,379

 

$      173,905

 

$      254,787

        Agricultural  		

173,464

 

92,415

 

120,232

    European

158,697

 

180,167

 

182,116

    Total  net sales

$      524,540

 

$      446,487

 

$      557,135

 

 

 

 

 

 

Cost and  profit margins, as percentages of net sales:

 

 

 

 

 

 

 

 

 

 

 

        Cost  of sales

77.7%

 

78.8%

 

80.4%

        Gross  profit

22.3%

 

21.2%

 

19.6%

        Selling,  general and administrative expenses

16.4%

 

17.0%

 

14.9%

        Income  from operations

5.9%

 

7.7%

 

3.8%

        Income  before income taxes

5.5%

 

7.0%

 

3.1%

        Net  income

4.0%

 

4.2%

 

2.0%

                                                                                          

 

- 24 -

 

 

 

 

 

**Resultsof Operations**

** **

***Fiscal 2010 compared to Fiscal 2009***

*** ***

The Company’s net sales in the fiscal year ended December31, 2010 (“2010”) were $524,540,000, an increase of $78,053,000 or 17.5%compared to $446,487,000 for the fiscal year ended December 31, 2009 (“2009”).The increase was primarily due to the inclusion of a full year of the resultsof *Bush Hog*which was acquired in October 2009. 

 

North American Industrial sales (net) were $192,379,000 in 2010 comparedto $173,905,000 in 2009, an increase of $18,474,000 or 10.6%. The increaseresulted from higher sales of replacement parts and, to a lesser extent, aslight improvement in sales of excavator, vacuum truck, sweeper and mowingequipment products. Governmental entities continue to be affected by budgetconstraints and revenue shortfalls. Compared to 2009, sales to state agenciesremained steadier than those to cities and counties. 

North American Agricultural sales (net) were $173,464,000 in2010 compared to $92,415,000 in 2009, representing an increase of $81,049,000or 87.7%. The increase was primarily due to the acquisition of *Bush Hog,*whichcontributed $78,030,000 of the increase. The agricultural market was softduring the first six months of 2010 due to the weakness in the overall economy,leading to dealer reluctance to stock farm equipment. During the third quarterof 2010, market conditions reflected some improvement due to increases incommodity prices and growth in farm income.

 

European sales (net) decreased $21,470,000 or 11.9%to $158,697,000 in 2010 compared to $180,167,000 in 2009. This decrease wasmainly due to soft market conditions caused by the slowdown in the Europeaneconomy. Specifically, our U.K. units held up better than our French operations,which were responsible for the majority of the decrease. The agriculturalmarket in Europe showed more improvement in 2010 than the governmental market. TheEuropean sales in 2010 had a lagging effect from what we saw in the Company’sNorth American markets. 

 

Grossmargins for 2010 were $116,914,000 (22.3% of net sales) compared to $94,561,000(21.2% of net sales) in 2009, an increase of $22,353,000. The majority of theincrease was due to the acquisition of *Bush Hog*, which accounts for$20,271,000 of the increase. Increases in the Company’s replacement part businesssupported higher margins as well as improved margin percentages. Marginpercentages also improved over 2009 as a result of ongoing cost savingsinitiatives which helped lower manufacturing costs.

 

      Selling, general andadministrative expenses (“SG&A”) were $86,041,000 (16.4% of net sales) in2010 compared to $76,100,000 (17.0% of net sales) in 2009. The increase of$9,941,000 in SG&A in 2010 was due to the acquisition of *Bush Hog*which added a net increase of $11,799,000. Without *Bush Hog* expenses in 2010and 2009 along with acquisition costs related to *Bush Hog* in 2009,SG&A expenses were relatively flat year over year.

 

      The Company recorded a$27,689,000 bargain purchase gain during the fourth quarter of 2009 which hassince been adjusted to $30,177,000 as a result of retrospective adjustments tothe fair value of assets acquired and liabilities assumed since the date ofacquisition. The purchase price consideration was 1,700,000 unregistered sharesof Alamo Group stock at a closing price of $16.09 per share plus the assumptionof certain liabilities and other considerations.

 

      There was no goodwillimpairment for 2010 compared to non-cash $14,104,000 impairment  in 2009.  In2009, the Company wrote off the goodwill at *Gradall/VacAll* and just over75% of the goodwill at *Nite-Hawk* in its Industrial Division afterperforming its required impairment test. 

 

      Interest expense for 2010 was $3,664,000compared to $4,766,000 in 2009, a $1,102,000 or a 23.1% decrease. The decreasewas due to reduced borrowings in 2010 compared to 2009. The 2010 interestexpense includes $375,000 in amortization of bank fees from the amendment tothe Company’s revolving credit agreement in November 2009. In 2009, the Companyamortized $63,000 in bank fees relating to the same amendment. 

      Other income net, was $290,000 during 2010compared to income of $625,000 in 2009. The gains in both 2010 and 2009 areentirely from changes in exchange rates.

 

- 25 -

 

 

 

 

 

      Provision for Income Taxes was $7,915,000(27.3% of income before income taxes) for 2010 compared to $12,473,000 (40.1%of income before income taxes) in 2009. Included in the 2010 tax provision isan $898,000 tax credit related to prior years’ research and developmentexpenses. The increase in the effective tax rate for 2009 was from increasedstate taxes in the United States and from the non-deductible tax write-off ofgoodwill in the Industrial Division.

      Net Income for 2010 was$21,117,000 compared to $18,633,000 in 2009 due to the factors described above.

 

***Fiscal 2009 compared to Fiscal 2008***

*** ***

The Company’s net sales in the fiscal year ended December31, 2009 (“2009”) were $446,487,000, a decrease of $110,648,000 or 19.9%compared to $557,135,000 for the fiscal year ended December 31, 2008 (“2008”).The decrease was primarily attributable to the general weakness in theworldwide economy which began in the fourth quarter of 2008 and continues toaffect the markets the Company serves. The acquisitions of *Rivard* and *BushHog* were accretive to the Company’s sales for 2009.

 

North American Industrial sales (net) were $173,905,000 in 2009 comparedto $254,787,000 in 2008, an $80,882,000 or 31.7% decrease. The decrease camefrom lower 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 in2009 compared to $120,232,000 in 2008, representing a decrease of $27,817,000or 23.1%. The decrease was due to market uncertainty and tighter credit asdealers were reluctant to stock inventory at historical levels. The acquisitionof *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 mainlydue to changes in the exchange rates and softness in the French markets and toa lesser extent was offset by higher export sales outside our core markets. The*Rivard* acquisition added $23,858,000 to sales for 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 andadministrative expenses (“SG&A”) were $76,100,000 (17.0% of net sales) in2009 compared to $83,059,000 (14.9% of net sales) in 2008. The decrease of$6,959,000 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.

 

      The Company recorded a$27,689,000 bargain purchase gain during the fourth quarter of 2009 which hassince been adjusted to $30,177,000 as a result of retrospective adjustments tothe fair value of assets acquired and liabilities assumed since the date ofacquisition. The purchase price consideration was 1,700,000 unregistered sharesof Alamo Group stock at a closing price of $16.09 per share plus the assumptionof certain liabilities and other considerations.

 

      Goodwill impairment for2009 was non-cash $14,104,000 compared to non-cash $5,010,000 in 2008. In 2009,the Company wrote off the goodwill at *Gradall/VacAll* and just over 75%of the 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 $4,766,000compared to $7,450,000 in 2008, a $2,684,000 or a 36% decrease. The decreasewas due primarily to reduced borrowings along with lower interest rates in2009. 

      Other income net, was $625,000 during 2009compared to income of $1,513,000 in 2008. The gains in both 2009 and 2008 areentirely from changes in exchange rates.

- 26 -

 

 

 

 

 

      Provision for Income Taxes was $12,473,000(40.1% of income before income taxes) for 2009 compared to $6,227,000 (36.1% ofincome before income taxes) in 2008. The increase in the effective tax rate for2009 was from increased state taxes in the United States and from thenon-deductible tax write-off of goodwill in the Industrial Division.

      Net Income for 2009 was$18,633,000 compared to $10,999,000 in 2008 due to the factors described above.

 

**Liquidityand Capital Resources**

** **

      In addition to normaloperating expenses, the Company has ongoing cash requirements which arenecessary to conduct the Company’s business, including inventory purchases andcapital expenditures. The Company’s inventory and accounts payable levels,particularly in its North American Agricultural Division, build in the firstquarter and early spring and, to a lesser extent, in the fourth quarter inanticipation of the spring and fall selling seasons. Accounts receivablehistorically build in the first and fourth quarters of each year as a result ofpre-season sales. These sales help balance the Company’s production during thefirst and fourth quarters. Some of the Company’s recent acquisitions which arenot involved in vegetation maintenance have helped to soften this seasonalitypattern.

 

        As of December 31,2010, the Company had working capital of $185,871,000, which represents anincrease of $1,960,000 from working capital of $183,911,000 as of December 31,2009. The increase in working capital was primarily from higher accountsreceivable in the Company’s North American and European operations offset bydecreases in inventory from reduced levels of activity. 

 

      Capitalexpenditures were $4,980,000 for 2010, compared to $3,453,000 for 2009. For2011, capital expenditures are expected to be higher compared to 2010 thoughstill below depreciation levels. The Company expects to fund capitalexpenditures from operating cash flows or through its revolving creditfacility, described below.

 

      TheCompany was authorized by its Board of Directors in 1997 to repurchase up to1,000,000 shares of the Company’s common stock to be funded through workingcapital and credit facility borrowings. There were no shares repurchased in2009 or in 2010. The authorization to repurchase up to 1,000,000 shares remainsavailable less 42,600 shares previously purchased. 

 

      Duringthe third quarter of 2010, the Company closed its manufacturing facilitylocated in Orleans, France and incurred $924,000 in redundancy costs. TheCompany also sold the Orleans facility and recorded a capital gain of $885,000.Production was relocated to the *Rousseau* manufacturing facility nearLyon, France.

 

      Net cash provided byoperating activities was $41,877,000 for 2010, compared to $72,086,000 for2009. The decrease of cash from operating activities resulted primarily fromincreased accounts receivable levels specifically in the Company’s NorthAmerican operations. The higher levels in 2009 were a result of greaterinventory and accounts receivable reductions due to the market decline.

 

      Netcash used by financing activities was $26,013,000 for 2010, compared to netcash used of $56,965,000 for 2009. The decrease in financing activities in 2010was from repayments of amounts borrowed from our bank credit facility due tocash provided by operating activities.

 

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

 

- 27 -

 

 

 

 

 

 

      OnOctober 14, 2008, the Company entered into the Sixth Amendment and Waiver underthe Amended and Restated Revolving Credit Agreement. The purpose of theamendment and waiver was to clarify company names within the Obligated Groupafter merging or dissolving some subsidiaries, to define operating cash flowand defining quarterly operating cash flow for *Rivard* through March 31,2010. Beginning June 30, 2009, *Rivard*’s actual operating cash flow wasused 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. The revolvingcredit line remained at $125.0 million. Prior to the execution of thisAmendment, BBVA Compass Bank acquired certain assets of Guaranty Bank whichincluded this credit facility, and JPMorgan Chase Bank assigned its interest toWell Fargo Bank, N.A. The purpose of the amendment was to add *Bush Hog*as a member of the Obligated Group and pledge a first priority securityinterest in certain U.S. assets (accounts receivable, inventory, equipment,trademarks and trade names) of the Borrower and each member of the ObligatedGroup. The Lenders agreed to increase the operating leverage ratio during thenext three quarters and to add a new EBIT to Interest Expense covenant inexchange for a commitment fee and an increase in the Applicable Interest Marginover LIBOR or Prime Rate advances. 

 

      As ofDecember 31, 2010, there was $21,000,000 borrowed under the revolving creditfacility. On December 31, 2010, $833,000 of the revolver capacity was committedto irrevocable standby letters of credit issued in the ordinary course ofbusiness as required by vendors’ contracts resulting in approximately$103,000,000 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 effective October 29, 2010 and outstandingscurrently bear interest at Lloyd’s Base Rate plus 1.4% per annum. The facilityis unsecured but guaranteed by the U.K. subsidiaries of Alamo Group EuropeLimited. As of December 31, 2010, there were no outstanding balances in Britishpounds borrowed against the U.K. overdraft facility.

 

      Thereare additional lines of credit: for the Company’s French operations in theamount of 7,300,000 Euros, which includes the *Rivard*credit facilities; for our Canadian operation in the amount of 3,500,000Canadian dollars; and for our Australian operation in the amount of 800,000Australian dollars. As of December 31, 2010, no Euros were borrowed against theFrench line of credit; no Canadian dollars were outstanding on the Canadianline of credit; and 600,000 Australian dollars were outstanding under itsfacility. The Canadian and Australian revolving credit facilities areguaranteed by the Company. 

 

      As of December 31, 2010, the Company is in compliancewith the terms and conditions of its credit facilities.

 

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

** **

**Inflation**

** **

      The Company believes that inflation generally has not had amaterial impact on its operations or liquidity. The Company is exposed to therisk that the price of energy, steel and other purchased components may increaseand the Company may not be able to increase the price of its productscorrespondingly. If this occurs, the Company’s results of operations would beadversely impacted.

** **

**Recent AccountingPronouncements and Legislative Changes**

** **

      InMarch 2010, President Obama signed into law the Patient Protection andAffordable Care Act (the “Act”), which is a comprehensive health care reformbill for the United States. In addition, on March 30, 2010, PresidentObama signed into law the reconciliation measure (“Heath Care and EducationReconciliation Act of 2010”), which modifies certain provisions of the Act.Although the new legislation did not have an impact on our consolidatedfinancial position, results of operation or cash flows in 2010, the Company iscontinuing to assess the potential impacts on our future obligations, costs andcash flows related to our health care benefits. 

 

- 28 -

 

 

 

 

 

      InApril 2010, the FASB issued ASU No. 2010-17, “Revenue Recognition (ASCTopic 605): Milestone Method” (“ASU No. 2010-17”). ASU No. 2010-17recognizes the milestone method as an acceptable revenue recognition method forsubstantive milestones in research or development transactions. A milestone issubstantive when the consideration earned from achievement of the milestone iscommensurate with either (a) the vendor’s performance to achieve themilestone or (b) the enhancement of the value of the delivered item(s) asa result of a specific outcome resulting from the vendor’s performance toachieve the milestone and the consideration earned from the achievement of amilestone relates solely to past performance and is reasonable relative to allof the deliverables and payment terms (including other potential milestoneconsideration) within the arrangement. This new guidance will be effective forour fiscal year 2011 and its interim periods, with early adoption permitted.This guidance will not have a material impact on our consolidated financialposition, results of operations or cash flows. 

 

      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 and annualreporting 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 will notaffect our financial position or results of operations.

 

      InOctober 2009, the FASB issued ASU No. 2009-14 “Software (ASC Topic 985):Certain Revenue Arrangements That Include Software Elements” (“ASUNo. 2009-14”). ASU No. 2009-14 modifies the scope of the softwarerevenue recognition guidance to exclude (i) non-software components oftangible products and (ii) software components of tangible products thatare sold, licensed or leased with tangible products when the softwarecomponents and non-software components of the tangible product functiontogether to deliver the tangible product’s essential functionality. ASUNo. 2009-14 is effective for fiscal years beginning on or afterJune 15, 2010 with early adoption permitted. The guidance may be appliedretrospectively or prospectively for new or materially modified arrangements.This guidance will not have a material impact on our consolidated financialposition, results of operations or cash flows. 

 

      InOctober 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (ASCTopic 605): Multiple-Deliverable Revenue Arrangements” (“ASUNo. 2009-13”). ASU No. 2009-13 addresses how to determine whether anarrangement involving multiple deliverables contains more than one unit ofaccounting and how the arrangement consideration should be allocated among theseparate units of accounting. ASU No. 2009-13 is effective for fiscalyears beginning on or after June 15, 2010 with early adoption permitted.The guidance may be applied retrospectively or prospectively for new ormaterially modified arrangements. This guidance will not have a material impacton our consolidated financial position, results of operations or cash flows.

 

Off-BalanceSheet Arrangements

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

 

 

 

 

 

- 29 -

 

 

 

 

 

** **

Contractualand Other Obligations

      The following table shows the Company’s approximateobligations and commitments to make future payments under contractualobligations as of December 31, 2010:

 

**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

$

23,662 

 $

1,217 

 

    $

21,433 

       $

460     

   $

552 

Capital lease obligations

 

1,763 

 

1,102 

 

 

543 

 

118     

 

— 

Interest obligations

 

2,271 

 

1,091 

 

 

1,062 

 

79     

 

39 

Operating lease obligations

 

2,421 

 

1,102 

 

 

1,034 

 

254     

 

31 

Purchase obligations

 

69,148 

 

69,148 

 

 

— 

 

—     

 

— 

 

    Total

 

$

 

99,265 

 

 $

 

73,660 

 

 

    $

 

24,072 

 

       $

 

911     

 

   $

 

622 

 

Definitions:
(A)
*Long-term debtobligation* means aprincipal payment obligation under long-term borrowings.
(B)
*Capital leaseobligation* means aprincipal payment obligation under a lease classified as a capital lease.
(C)
*Interestobligation*represents interest due on long-term debt and capital lease obligations.Interest on long-term debt assumes all floating rates of interest remain thesame as those in effect at December 31, 2010 and include the effect of theCompany’s interest rate derivative arrangements on future cash payments for theremaining period of those derivatives.
(D)
*Operatinglease obligation*means a payment obligation under a lease classified as an operating lease.
(E)
*Purchaseobligation* means anagreement to purchase goods or services that is enforceable and legally bindingon the registrant that specifies all significant terms, including:  fixed orminimum quantities to be purchased; fixed, minimum or variable price provisions;and the approximate timing of the transactions.
 
 

In addition, the Company sponsors various pension plans thatmay obligate it to make contributions from time to time. We expect to make acash contribution to our pension plans in 2011 in the amount of $1.1 million.

 

CriticalAccounting Estimates

Management’s Discussion and Analysis of Financial Conditionand Results of Operations are based upon our Consolidated Financial Statements,which have been prepared in accordance with U.S. Generally Accepted AccountingPrinciples (“GAAP”). The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenue and expenses, and related disclosure ofcontingent assets and liabilities. Management bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

CriticalAccounting Policies 

An accounting policy is deemed to be critical if it requiresan accounting estimate to be made based on assumptions about matters that arehighly uncertain at the time the estimate is made, and if different estimatesthat reasonably could have been used, or changes in the accounting estimatesthat are reasonably likely to occur periodically, could materially impact thefinancial statements. Management believes the following critical accountingpolicies reflect its more significant estimates and assumptions used in thepreparation of the Consolidated Financial Statements. For further informationon the critical accounting policies, see Note 1 of our Notes to ConsolidatedFinancial Statements.

*** ***

***Allowancefor Doubtful Accounts***

 

The Companyevaluates the collectability of its accounts receivable based on a combinationof factors. In circumstances where it is aware of a specific customer’sinability to meet its financial obligations, the Company records a specificreserve to reduce the amounts recorded to what it believes will be collected.For all other customers, it recognizes reserves for bad debt based onhistorical experience of bad debts as a percent of revenues for each businessunit, adjusted for relative improvements or deteriorations in the aging andchanges in current economic conditions.

 

- 30 -

 

 

 

 

 

      TheCompany evaluates all receivables that are over 60 days old and will reservespecifically on a 90-day basis. The Company has a secured interest on most ofits wholegoods that each customer purchases. This allows the Company, in timesof a difficult economy when the customer is unable to pay or has filed forbankruptcy (usually Chapter 11), to repossess the customer’s inventory. Thisalso allows Alamo Group to maintain only a reserve over its cost, which usuallyrepresents the margin on the original sales price.

 

      Theallowance for doubtful accounts balance was $2,852,000 on December 31, 2010,and $2,548,000 on December 31, 2009. The increase was mainly from the Company’sAgricultural operations.

 

***SalesDiscounts***

* *

      OnDecember 31, 2010, the Company had $11,903,000 in reserves for sales discountscompared to $3,803,000 on December 31, 2009 on product shipped to our customersunder various promotional programs. The increase was due primarily to increasedsales volume of the Company’s agricultural products during the pre-season,which runs from September to December of each year with orders shipped throughthe first quarter of 2011. The Company reviews the reserve quarterly based onanalysis made on each program outstanding at the time. 

 

The Company bases its reserves on historical data relatingto 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***

* *

      TheCompany had a reserve of $7,506,000 on December 31, 2010 and $9,060,000 onDecember 31, 2009 to cover obsolete and slow moving inventory. The decrease inthe reserve was mainly from the Company’s U.S. operations, specifically itsfacilities in Gibson City and Indianola as a result of greater disposals andsales of slow moving and obsolete inventory. The obsolete and slow movinginventory policy states that the reserve is to be calculated as follows: 1) noinventory 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, if necessary, adjustments aremade on a quarterly basis. The Company relies on historical information whenavailable to support its reserve. The Company does not adjust the reservebalance until the inventory is liquidated.

*** ***

***Warranty***

* *

*     *The Company’s warranty policy isgenerally to provide its customers warranty for up to one year on all wholegoodunits and 90 days on parts.

 

      Warrantyreserve, as a percentage of sales, is generally calculated by looking at thecurrent twelve months’ expenses and prorating that amount based on twelvemonths’ sales with a ninety-day to six-month lag period. The Company’shistorical experience is that an end-user takes approximately 90 days to sixmonths from the receipt of the unit to file a warranty claim. A warrantyreserve is established for each different marketing group. Reserve balances areevaluated on a quarterly basis and adjustments made when required.

 

      Thecurrent liability warranty reserve balance was $5,554,000 on December 31, 2010and $5,972,000 on December 31, 2009. The increase came mainly from theacquisition of Bush Hog.

 

- 31 -

 

 

 

***Goodwill***

 

      Goodwill must be tested for impairment at leastannually. In the fourth quarter of each year, or when events and circumstanceswarrant such a review, the Company tests the goodwill of all of its reportingunits for impairment. The goodwill impairment test is determined using atwo-step process. The first step is to identify if a potential impairmentexists by comparing the fair value of a reporting unit with its carryingamount, including goodwill (Step 1). If the fair value of a reporting unitexceeds its carrying value amount, goodwill of the reporting unit is notconsidered to have a potential impairment and the second step is not necessary.However, if the carrying amount of the reporting unit exceeds its fair value,the second step (Step 2) is performed to determine if goodwill is impaired andto measure the amount of impairment loss to recognize, if any. Step 2 comparesthe implied fair value of goodwill with the carrying amount of goodwill. If theimplied value of goodwill is less than the carrying amount of goodwill, then acharge is recorded to reduce goodwill to the implied goodwill. The impliedgoodwill is calculated based on a hypothetical purchase price allocation, inthat it takes the implied fair value of the reporting unit and allocates suchfair value to the fair value of the assets and liabilities of the reportingunit. 

      The Company estimates the fair value of its reportingunits using a discounted cash flow analysis. This analysis requires the Companyto make 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, differentassumptions could materially affect the estimated fair value. As of December31, 2010, goodwill was $34,073,000, which represents 9% of total assets. TheCompany recognized no goodwill impairment in 2010. The North AmericanIndustrial segment had a goodwill impairment of $14,104,000 in 2009. During the 2010 impairment analysisreview, it was noted that even though the *Schwarze* reporting unit’s fairvalue was above carrying value it was not materially different. On December 31,2010, there was approximately $6.8 million of goodwill related to the *Schwarze*reporting unit. This reporting unit would be most likely affected by changes inthe Company’s assumptions and estimates. The calculation of fair value couldincrease or decrease depending on changes in the inputs and assumptions used,such as changes in the reporting unit’s future growth rates, discount rates,etc. 

 

See Note 6to the Consolidated Financial Statements for more information regardinggoodwill. 

 

**Item 7A.Quantitative and Qualitative Disclosures about Market Risk**

** **

      TheCompany is exposed to various financial market risks. Market risk is thepotential loss arising from adverse changes in market prices and rates. TheCompany does not enter into derivative orother

financialinstruments for trading or speculative purposes.

** **

**ForeignCurrency Risk**

** **

**International Sales**

      A portion of the Company’s operations consistsof manufacturing and sales activities in international jurisdictions. TheCompany primarily manufactures its products in the United States, the U.K.,France, Canada and Australia. The Company sells its products primarily withinthe markets where the products are produced, but certain of the Company’s salesfrom its U.K. operations are denominated in other European currencies. As aresult, the Company’s financials, specifically the value of its foreign assets,could be affected by factors such as changes in foreign currency exchange ratesor weak economic conditions in the other markets in which the subsidiaries ofthe Company distribute their products.

- 32 -

 

 

 

 

 

      To mitigate the short-term effect of changes incurrency exchange rates on the Company’s functional currency-based sales, theCompany’s U.K. subsidiaries regularly enter into foreign exchange forwardcontracts to hedge over 90% of its future net foreign currency cash receiptsover a period of six months. As of December 31, 2010, the Company had$2,664,000 outstanding in forward exchange contracts related to accountsreceivable. A 15% fluctuation in exchange rates for these currencies wouldchange the fair value by approximately $400,000. However, since these contractshedge foreign currency denominated transactions, any change in the fair valueof the contracts should be offset by changes in the underlying value of thetransaction being hedged.

On December 31, 2010, the fair value of these agreements wasin an unfavorable position; therefore, the derivative financial instrumentswere recorded as a loss of $43,000, which has been recognized in other income(expense), net. 

** **

**Exposure to Exchange Rates**

      TheCompany’s earnings are affected by fluctuations in the value of the U.S. dollaras compared to foreign currencies, predominantly in European countries, Canadaand 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. On December 31, 2010, 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 $4,435,000 for the year ended December 31, 2010.Comparatively, on December 31, 2009, 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 $4,891,000 for the year ended December 31, 2009. 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 currencyexchange rates does not factor in a potential change in sales levels or localcurrency prices. The translation adjustment during 2010 was a loss of$3,659,000. On December 31, 2010, the British pound closed at .6411 relative tothe U.S. dollar, and the Euro closed at .7479 relative to the U.S. dollar. Bycomparison, on December 31, 2009, the British pound closed at .6187relative to the U.S. dollar, and the Euro closed at .6985 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

      Themajority of the Company’s long-term debt bears interest at variable rates.Accordingly, the Company’s net income is affected by changes in interest rates.Assuming the current level of borrowings at variable rates and a two hundredbasis point change in the 2010 average interest rate under these borrowings, theCompany’s 2010 interest expense would have changed by approximately $420,000. In the event of an adverse change in interest rates,management could take actions to mitigate its exposure. Further, this analysisdoes not consider the effects of the change in the level of overall economicactivity that could exist in such an environment. However, the challengesaffecting the banking industry and credit markets in general can potentiallycause changes to credit availability which creates a level of uncertainty.

** **

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

** **

      The financial statements and supplementary datadescribed in Item 15 of this report and included on pages 44 through 74 of thisreport are incorporated herein by reference.

**Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure**

None

 

 

 

 

- 33 -

 

 

 

 

 

 

**Item 9A. Controls and Procedures**

      **DisclosureControls and Procedures**. An evaluation was carried out, under thesupervision and with the participation of Alamo’s management, including ourPresident and Chief Executive Officer, Executive Vice President and ChiefFinancial Officer (Principal Financial Officer), and Vice President andCorporate Controller (Principal Accounting Officer), of the effectiveness ofthe design and operation of our disclosure controls and procedures (as definedin Rule 13a-15(e) under the Securities Exchange Act of 1933). Based upon theevaluation, the President & Chief Executive Officer, Executive VicePresident & Chief Financial Officer (Principal Financial Officer), and VicePresident & Corporate Controller (Principal Accounting Officer) concludedthat the Company’s disclosure controls and procedures were effective at the endof the period covered by this report.

 

      **Management’s Annual Report on Internal Control OverFinancial Reporting**. Management’s report on the Company’s internal controlover financial reporting is included on page 40 of this Annual Report on Form10-K and incorporated by reference herein. The Company’s independent publicaccounting firm has audited and issued a report on the Company’s internalcontrol over financial reporting which is included on page 41 of this AnnualReport on Form 10-K and incorporated by reference herein.

 

      **Changes in Internal Controls over FinancialReporting.**There have not been any changes in Alamo’s internal control overfinancial reporting (as such term is defined by paragraph (d) of Rule 13-a-15)under the Securities Exchange Act during the fourth fiscal quarter that havematerially affected, or are reasonably likely to materially affect, Alamo’sinternal control over financial reporting.

 

**Item 9B. Other Information**

      None.

 

PART III

 

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

** **

      There is incorporated in this Item 10, by reference,that portion of the Company’s definitive proxy statement for the 2011 AnnualMeeting of Stockholders, which appears therein under the captions “Proposal 1-  Election of Directors,” “Nominees for Election to the Board of Directors,”“Information Concerning Directors,” “Meetings and Committees of the Board,”“The Audit Committee,” and “The Nominating/Corporate Governance Committee,” and“Section 16(a) Beneficial Ownership Reporting Compliance.”  See also theinformation under the caption “Executive Officers of the Company” in Part I ofthis Report.

      The Board of Directors has delegated certainresponsibilities to three Committees of the Board. The Committees are the AuditCommittee, Compensation Committee and Nominating/Corporate GovernanceCommittee. The Board of Directors has also adopted Corporate Governanceguidelines and a Code of Conduct and Ethics for all employees, including theChief Executive Officer, Principal Financial Officer, Principal AccountingOfficer and those individuals performing similar functions.

      The Committee Charters, Code of Conduct andEthics, and Corporate Governance Guidelines may be found on the Company’swebsite **(**  www.alamo-group.com**)** underthe “Our Commitment” tab and are also available without charge in print bysending a request to the Corporate Secretary, Alamo Group Inc., 1627 E. WalnutStreet, Seguin, Texas, 78155, which is the principal executive office of theCompany. The telephone number is 830-379-1480. The Company will post anyamendments to the Code of Conduct and Ethics, and any waivers that are requiredto be disclosed by the rules of either the SEC or the New York Stock Exchange(“NYSE”), on the Company’s website.

**Item 11. Executive Compensation**

      There is incorporated in this Item 11, by reference,that portion of the Company’s definitive proxy statement for the 2011 AnnualMeeting of Stockholders which appears under the caption “ExecutiveCompensation,” “The Compensation Committee,” “Compensation Discussion andAnalysis,” Compensation Committee Report” and “Director Compensation during2010.”

- 34 -

 

 

 

 

 

 

**Item 12. Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters**

      There is incorporated in this Item 12, by reference,that portion of the Company’s definitive proxy statement for the 2011 AnnualMeeting of Stockholders which appears under the caption “Beneficial Ownershipof Common Stock.”

**Information on Alamo Group Inc.’s Equity Compensation Plans**

** **

      Thefollowing table provides information on the shares that are available under theCompany’s stock compensation plans and, in the case of plans where stockoptions may be granted, the number of shares of common stock issuable uponexercise of those stock options. 

 

      Thenumbers in the table are as of December 31, 2010, the last day of Alamo GroupInc.’s 2010 fiscal year.

 
 
**A**
**B**
**C**
** **

** **

** **

**                **

** **

** **

**Equity Compensation**

**Plan  Category**

 

** **

** **

**Number of Securities to be issued upon**

**exercise of outstanding**

**options, warrants and rights**

 

** **

** **

**Weighted-average exercise**

**price of outstanding**

**options, warrants and**

**rights**

 

**Number of Securities that remain**

**available for future issuance**

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

** **

** **

** **

** **

**Plans approved by stockholders**

 

 

 

*                                    *

 

 

 

*Amended and Restated 1994 Incentive Stock Option Plan*

  58,030

$13.54

—

                                    		

 

 

 

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

82,400

$16.63

—

 

** **

** **

** **

*2005 Incentive Stock Option Plan*

302,100

$19.20

195,500     

* *
   
*2009 Equity Incentive Plan*

  29,000

$12.82

364,000     

 

** **

** **

** **

 

     		**Total                     **

** **

**471,530**

** **

** **

**559,500**  

** **

 

 

 

- 35 -

 

 

 

 

 

 

**Item 13. Certain Relationships, Related Transactions andDirector Independence**

      Informationregarding certain relationships and related transactions is set forth under thecaption “Certain Relationships and Related Transactions” in the Company’sdefinitive proxy statement for the 2011 Annual Meeting of Stockholders and suchinformation is incorporated by reference herein. There were no such reportable relationships orrelated party transactions in the fiscal year ended December 31, 2010. In 1999,the Company approved a supplemental retirement benefit for Donald J. Douglasswhich is paid on a quarterly basis over a period of fourteen and one-half yearsthat began in the year 2000. The remaining balances on December 31, 2010 and2009 were $248,000 and $308,000, respectively, and are included in the Accruedliabilities and Other long-term liabilities sections of the Company’s balance sheets.

      Information regarding director independence is setforth under the caption “Information Concerning Directors” in the Company’sdefinitive proxy statement for the 2011 Annual Meeting of Stockholders and suchinformation is incorporated by reference herein.

**Item 14. Principal AccountantFees and Services**

**     **Information regarding principal accountant fees and services is setforth under the caption “Proposal 2 – Ratification of Appointment ofIndependent Auditors” in the Company’s definitive proxy statement for the 2011Annual Meeting of Stockholders and such information is incorporated byreference herein.

PARTIV

**Item 15. Exhibits and Financial Statement Schedules**

**Financial Statements**

 

 

**Page**

 

 

 

 

Report of Management on Internal Control Over Financial Reporting

40

 

Reports of Independent Registered Public Accounting Firm (KPMG LLP)

41-42

 

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

43

 

Consolidated Balance Sheets

44

 

Consolidated Statements of Income

45

 

Consolidated Statements of Stockholders’ Equity

46

 

Consolidated Statements of Cash Flows

47

 

Notes to Consolidated Financial Statements

48

 

**FinancialStatement Schedules**

      All schedules for which a provision is made in theapplicable accounting regulation of the Securities and Exchange Commission areomitted because they are not required or because the required information isincluded in the consolidated financial statements or notes thereto.

 

 - 36 -

 

 

**Exhibits**

      Exhibits – The followingexhibits are incorporated by reference to the filing indicated or are includedfollowing 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

 

- 37 -

 

 
*10.20

 

Supplemental  Executive Retirement Plan

 

Filed as  Exhibit 10.1 to Form 8K, January 18, 2011

*10.21

 

Amended  Incentive Compensation Plan

 

Filed as  Exhibit 10.1 to Form 8K, March 11, 2011

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

 

 

 

 

 

 

 

 

 

 

 - 38 -

 

 

 

 

 

** **

**SIGNATURES**

      Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

** **

                                                                                               
 
ALAMO GROUP INC.
Date: March 14, 2011
 
 
 
 
By: */s/*RONALD A. ROBINSON
 
President & Chief Executive Officer  

 

      Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in their capacities and on 15thday of March, 2011.

**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  & 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)

 

 

 

 

 

 

Helen W.  Cornell

 

 

Director

 

 

 

 

 

*/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/*JAMES B. SKAGGS

James B. Skaggs

 

Director

 

 

 

 

 

 

 

- 39 -

 

 

 

 

 

 

**Reportof Management on Internal Control over Financial Reporting**

 

      TheCompany’s management is responsible for establishing and maintaining adequateinternal control over financial reporting, as such term is defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. TheCompany’s internal control over financial reporting is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withU.S. generally accepted accounting principles.

 

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

 

      TheCompany’s management assessed the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2010 using the framework inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, the Company’smanagement concludes that, as of December 31, 2010, the Company’s internalcontrols over financial reporting were effective based on the framework inInternal Control – Integrated Framework.

 

      KPMGLLP, an independent registered public accounting firm, has issued anattestation report on the effectiveness of internal control over financialreporting, which is included herein.

 

 

Date:   March 14, 2011

*/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

 

 

 

 

 

 

- 40 -

 

 

 

 

 

Report of Independent RegisteredPublic Accounting Firm

 

 

The Boardof Directors and Stockholders Alamo Group Inc:

 

We haveaudited Alamo Group Inc.’s internal control over financial reporting as ofDecember 31, 2010, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Alamo Group Inc.’s management is responsible formaintaining 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 CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.

 

A company’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control overfinancial 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 arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because ofits 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.

 

In ouropinion, Alamo Group Inc. maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2010, basedon criteria established in Internal Control – Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission.

 

We alsohave audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated balance sheets of Alamo GroupInc. and subsidiaries as of December 31, 2010 and 2009, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for theyears ended December 31, 2010 and 2009, and our report dated March 14, 2011expressed an unqualified opinion on those consolidated financial statements.

 

 
		 /s/KPMG  LLP
San  Antonio, Texas		March 14,  2011

		 

 

 

- 41 -

 

 

 

Reportof Independent Registered Public Accounting Firm

The Boardof Directors and Stockholders Alamo Group Inc: 

 

We haveaudited the accompanying consolidated balance sheets of Alamo Group Inc.and subsidiaries as of December 31, 2010 and 2009, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for theyears ended December 31, 2010 and 2009. These consolidated financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

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 ouraudits provide a reasonable basis for our opinion.

 

In ouropinion, 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, 2010 and 2009, and the results oftheir operations and their cash flows for the years ended December 31, 2010 and2009, in conformity with U.S. generally accepted accounting principles.

 

We alsohave audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), Alamo Group Inc.’s internal control overfinancial reporting as of December 31, 2010, based on criteria establishedin Internal Control – Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO), and our reportdated March 14, 2011, expressed an unqualified opinion on the effectiveness ofthe Company’s internal control over financial reporting.

 

Asdiscussed in Note 1 to the consolidated financial statements, the Company haschanged its method of accounting for business combinations in 2009 due to theadoption of FASB ASC Topic 805, Business Combinations.

 

 
		 /s/KPMG  LLP
San  Antonio, Texas		March 14,  2011

		 

 

- 42 -

 

 

 

 

 

**Report of Independent Registered Public AccountingFirm**

 

The Board of Directors and Stockholders of Alamo GroupInc.

  

We have audited the accompanying consolidatedstatements of income, stockholders' equity, and cash flows of Alamo Group Inc.and subsidiaries (the Company) as of and for the year ended December 31, 2008.  These financial statements are the responsibility of the Company'smanagement.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

  

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  

  

Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

  

In our opinion, the financial statementsreferred to above present fairly, in all material respects, theconsolidated results of operations and cash flows of Alamo Group Inc. andsubsidiaries for the year ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

  

Ernst & Young LLP

San Antonio, Texas

March 6, 2009

 

 

 

 

- 43 -

 

 

 

 

 

**Alamo Group Inc. and Subsidiaries**

Consolidated BalanceSheets

** **

 

** **

**December 31,**

 

(in   thousands, except per share amounts)

** **

** **

**2010** 

** **

** **

**2009**  

**ASSETS**

** **

** **

** **

** **

** **

** **

Current  assets:

 

 

 

 

 

 

Cash and  cash equivalents 

 

$

30,243 

 

$

17,774 

Accounts  receivable, net

 

 

127,388 

 

 

113,718 

Inventories		

 

 

99,304 

 

 

124,775 

Deferred  income taxes

 

 

3,813 

 

 

3,118 

Prepaid  expenses 

 

 

3,864 

 

 

3,147 

Income tax  receivable  

 

 

448 

 

 

1,195 

Total current assets		

 

 

265,060 

 

 

263,727 

 

 

 

 

 

 

 

Property,  plant and equipment 

 

 

139,674 

 

 

142,076 

Less:   Accumulated depreciation 

 

 

(78,490)

 

 

(72,215)

 

 

 

61,184 

 

 

69,861 

 

 

 

 

 

 

 

Goodwill		

 

 

34,073 

 

 

35,207 

Intangible  assets

 

 

5,500 

 

 

5,803 

Deferred  income taxes

 

 

4,311 

 

 

4,158 

Other assets  		

 

 

855 

 

 

1,201 

 

 

 

 

 

 

 

Total assets		

 

$

370,983 

 

$

379,957 

 

 

 

 

 

 

 

**LIABILITIES  AND STOCKHOLDERS’ EQUITY**

 

 

 

 

 

 

Current  liabilities:

 

 

 

 

 

 

Trade  accounts payable

 

$

45,152 

 

$

36,005 

Income taxes  payable

 

 

1,567 

 

 

2,688 

Accrued  liabilities

 

 

29,813 

 

 

31,561 

Current  maturities of long-term debt and capital lease obligations

 

 

2,319 

 

 

5,453 

Deferred  income taxes

 

 

338 

 

 

4,109 

Total current liabilities		

 

 

79,189

 

 

79,816

 

 

 

 

 

 

 

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

 

 

23,106 

 

 

44,336 

Accrued  pension liabilities

 

 

7,151 

 

 

7,640 

Other  long-term liabilities

 

 

2,109 

 

 

3,665 

Deferred  income taxes

 

 

6,168 

 

 

7,581 

Stockholders’  equity:

 

 

 

 

 

 

Common stock,  $.10 par value, 20,000,000 shares authorized; 11,872,479 and 11,789,529 issued and outstanding at December 31, 2010  and December 31, 2009, respectively 

 

 

1,187 

 

 

1,179 

Additional  paid-in capital 

 

 

84,377 

 

 

82,721 

Treasury  stock, at cost: 42,600 shares at December 31, 2010 and December 31,  2009

 

 

(426)

 

 

(426)

Retained  earnings 

 

 

166,589 

 

 

148,298 

Accumulated  other comprehensive income (loss)

 

 

1,533 

 

 

5,147 

Total stockholders’ equity		

 

 

253,260

 

 

236,919

 		

 

 

 

 

 

 

Total  liabilities and stockholders’ equity 

 

$

370,983 

 

$

379,957 

See accompanying notes. 

 

** **

** **

** **

** **

- 44 -

 

 

 

 

 

** **

**Alamo Group Inc. and Subsidiaries**

**Consolidated Statements of Income**

** **

** **

 

**                 Year  Ended December 31,**

 

(in  thousands, except per share amounts)

** **

**2010**  

 

 

** **

**2009**  

 

** **

**2008  **

Net  sales:

 

 

 

 

 

 

 

 

North  American

 

 

 

 

 

 

 

 

    Industrial  

$

192,379 

 

$

173,905 

 

$

254,787 

    Agricultural  		

 

173,464 

 

 

92,415 

 

 

120,232 

European 

 

158,697 

 

 

180,167 

 

 

182,116 

Total net  sales

 

524,540 

 

 

446,487 

 

 

557,135 

 		

 

 

 

 

 

 

 

 

Cost of  sales 

 

407,626 

 

 

351,926 

 

 

447,721 

    Gross  profit 

 

116,914 

 

 

94,561 

 

 

109,414 

 		

 

 

 

 

 

 

 

 

Selling,  general and administrative expenses

 

86,041

 

 

76,100 

 

 

83,059 

Gain on  bargain purchase

 

— 

 

 

(30,177)

 

 

— 

Goodwill  impairment

 

— 

 

 

14,104 

 

 

5,010 

    Income  from operations 

** **

30,873 

 

 

34,534 

 

 

21,345 

 		

** **

 

 

 

 

 

 

 

Interest  expense 

** **

(3,664)

 

 

(4,766)

 

 

(7,450)

Interest  income

** **

1,533 

 

 

713 

 

 

1,818 

Other  income (expense), net

 

290 

 

 

625 

 

 

1,513 

    Income  before income taxes

** **

29,032 

 

 

31,106 

 

 

17,226 

 		

 

 

 

 

 

 

 

 

Provision  for income taxes 

 

7,915 

 

 

      12,473 

 

 

6,227 

    Net  income

$

21,117 

 

$

      18,633 

 

$

10,999 

 		

 

 

 

 

 

 

 

 

Net income  per common share:

 

 

 

 

 

 

 

 

    Basic

$

1.79 

 

$

          1.80 

 

$

1.12 

    Diluted

$

1.78 

 

$

          1.80 

 

$

1.11 

Average  common shares:

 

 

 

 

 

 

 

 

    Basic

 

11,782 

 

 

10,330 

 

 

9,847 

    Diluted

 

11,893 

 

 

10,363 

 

 

9,950 

 

See accompanying notes.

 

 

- 45 -

 

 

 

 

 

**Alamo Group Inc. and Subsidiaries**

**Consolidated Statements ofStockholders’ 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, 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 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(800)

 

 

(800)

    Net actuarial  (loss) arising during period net of taxes 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(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		

—

 

 

—

 

—

 

 

—

 

 

    18,633 

 

 

—

 

 

       18,633 

    Translation  adjustment

—

 

 

—

 

—

 

 

—

 

 

—

 

 

6,595 

 

 

6,595 

    Unrealized  derivative gain, net of taxes 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

816 

 

 

  816 

    Net actuarial  gain arising during period net of taxes 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

1,741 

 

 

1,741 

    Total  comprehensive income

—

 

 

—

 

—

 

 

—

 

 

—

 

 

—

 

 

27,785

    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)

 

  $

148,298 

 

  $

5,147 

 

$

236,919

    Net income		

—

 

 

—

 

—

 

 

—

 

 

21,117 

 

 

—

 

 

21,117 

    Translation  adjustment

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(3,659)

 

 

(3,659)

    Unrealized  derivative gain, net of taxes

—

 

 

—

 

—

 

 

—

 

 

—

 

 

573 

 

 

  573 

    Net actuarial  (loss) arising during period net of taxes 

—

 

 

—

 

—

 

 

—

 

 

—

 

 

(528)

 

 

(528)

    Total  comprehensive income

—

 

 

—

 

—

 

 

—

 

 

—

 

 

—

 

 

17,503 

    Stock-based  compensation

—

 

 

—

 

674 

 

 

—

 

 

—

 

 

—

 

 

674 

    Exercise of stock  options

83 

 

 

8 

 

982 

 

 

—

 

 

—

 

 

—

 

 

990

    Dividends paid  ($.24 per share) 

—

 

 

—

 

—

 

 

—

 

 

(2,826)

 

 

—

 

 

(2,826)

Balance at  December 31, 2010

11,830 

 

$

1,187 

$

84,377 

 

  $

(426)

 

  $

166,589

 

  $

1,533 

 

$

253,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

- 46 -

 

 

 

 

 

 

**Alamo Group Inc. and Subsidiaries**

Consolidated Statements ofCash Flows

** **

** **

**Year Ended December 31,**

 
** **

(in  thousands)

** **

**2010**   

** **

**2009**  

** **

**2008**   

 
**Operating  Activities**

** **

** **

** **
 
 

 

 

 

 
Net income

$

21,117 

** **

$

18,633

** **

$

10,999 

 
Adjustments  to reconcile net income to cash provided by

    operating  activities:

 

 

** **

** **

 

** **

** **

 

 
        Provision  for doubtful accounts

 

1,112 

** **

** **

546 

** **

** **

1,043 

 
        Depreciation  		

 

10,558 

** **

** **

8,706 

** **

** **

9,261 

 
        Amortization  of intangibles

 

342 

** **

** **

79 

** **

** **

99 

 
        Amortization  of debt issuance

 

375 

** **

** **

63 

** **

** **

— 

 
        Gain  on bargain purchase 

 

— 

** **

** **

(30,177)

** **

** **

— 

 
        Goodwill  impairment charge

 

— 

** **

** **

14,104 

** **

** **

5,010 

 
        Stock-based  compensation 

 

674 

** **

** **

543 

** **

** **

563 

 
        Excess  tax benefits from stock-based payment arrangements 

 

— 

** **

** **

(122)

** **

** **

(52)

 
        Provision  for deferred income tax expense (benefit)

 

(6,384)

** **

** **

8,896 

** **

** **

89 

 
        Gain  on sale of equipment 

 

(833)

** **

** **

(59)

** **

** **

(102)

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

** **

 

** **

** **

 

** **

** **

 

 
**       **Accounts receivable 

 

(16,615)

** **

** **

40,285 

** **

** **

(14,295)

 
        Inventories  		

 

24,603 

** **

** **

32,432 

** **

** **

(6,694)

 
        Prepaid  expenses and other 

 

(1,061)

** **

** **

3,177 

** **

** **

(588)

 
        Trade  accounts payable and accrued liabilities 

 

9,133 

** **

** **

(25,408)

** **

** **

5,004 

 
        Income  taxes payable 

 

(268)

** **

** **

2,423 

** **

** **

(217)

 
        Other  assets and liabilities, net

 

(876)

** **

** **

(2,035)

** **

** **

(1,396)

 
Net cash  provided by operating activities 

 

41,877

** **

** **

72,086 

** **

** **

8,724 

 
** **

 

 

** **

** **

 

** **

** **

 

 
**Investing  Activities**

 

 

** **

** **

 

** **

** **

 

 
Acquisitions,  net of cash acquired 

 

— 

** **

** **

— 

** **

** **

(21,349)

 
Purchase  of property, plant and equipment 

 

(4,980)

** **

** **

(3,453)

** **

** **

(6,553)

 
Proceeds  from sale of property, plant and equipment 

 

2,014 

** **

** **

922 

** **

** **

213 

 
Net cash  used in investing activities 

 

(2,966)

** **

** **

(2,531)

** **

** **

(27,689)

 
 		

 

 

** **

** **

 

** **

** **

 

 
**Financing  Activities**

** **

** **

** **

** **

** **

** **

** **

** **

 
Net change  in bank revolving credit facility 

 

(20,000)

  

 

(54,000)

 

 

20,000 

 
Principal  payments on long-term debt and capital leases 

 

(4,545)

 

 

(2,255)

 

 

(1,604)

 
Proceeds  from issuance of long-term debt

 

368 

 

 

1,387 

** **

 

1,941 

** **

Debt  issuance cost

 

— 

 

 

(938)

** **

** **

— 

 
Dividends  paid 

 

(2,826)

 

 

(2,399)

 

 

(2,361)

 
Proceeds  from sale of common stock 

 

990 

 

 

1,118 

 

 

1,522 

 
Excess tax  benefits from stock-based payment arrangements

 

— 

 

 

122 

 

 

52 

 
Net cash  provided by (used in) financing activities 

 

(26,013)

** **

 

(56,965)

 

 

19,550 

 
 

 

 

 

 

 

 

 

 

 
Effect of  exchange rate changes on cash 

 

(429)

 

 

652 

 

 

(512)

 
Net change  in cash and cash equivalents 

 

12,469 

 

 

13,242 

 

 

73 

 
Cash and  cash equivalents at beginning of the year 

 

17,774 

 

 

4,532 

 

 

4,459 

 
Cash and  cash equivalents at end of the year 

$

30,243 

 

$

17,774 

 

$

4,532 

 
 		

 

 

 

 

 

 

 

 

 
Cash paid  during the year for:

 

 

 

 

 

 

 

 

 
    Interest  		

$

3,597 

 

$

5,179 

 

$

7,579 

 
    Income  taxes 

 

12,999 

 

 

5,181 

 

 

6,591 

 
** **

See accompanying notes.

 

 

 - 47 -

 

 

 

 

 

**Alamo Group Inc.**

**Notes to Consolidated FinancialStatements**

** **

**1. SIGNIFICANT ACCOUNTING POLICIES**

**Description of the Business and Segments**

      The Company manufactures, distributes and serviceshigh quality tractor-mountedmowing and other vegetation maintenance equipment, street sweepers, excavators,vacuum trucks, snow removal equipment, pothole patchers, zero turn radiusmowers, agricultural implements and related aftermarket parts and services.

      TheCompany manages its business in three principal reporting segments: NorthAmerica Agricultural, North American Industrial and European, which arediscussed in Notes 15 and 16.

 

**Basis of Presentation andPrinciples of Consolidation**

 

        The accompanying consolidated financialstatements include the accounts of Alamo Group Inc. and its subsidiaries (the“Company” or “Alamo Group”), all of which are wholly owned. All significantintercompany accounts and transactions have been eliminated in consolidation.

        We have evaluated subsequent events thatoccurred after December 31, 2010 through the filing of this Form 10-K. Anymaterial subsequent events that occurred during this time have been properlyrecognized or disclosed in our financial statements.

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

 

***Useof Estimates***

** **

      The preparation of financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Judgments related to asset impairment andcertain reserves are particularly subject to change. Actual results coulddiffer from those estimates.

***Foreign Currency***

      The Company translates the assets and liabilities offoreign-owned subsidiaries at rates in effect at the end of the year. Revenuesand expenses are translated at average rates in effect during the reportingperiod. Translation adjustments are included in accumulated other comprehensiveincome within the statement of stockholders’ equity.

      The Company enters into foreign currency forwardcontracts to hedge its exposure to certain foreign currency transactions. TheCompany does not hold or issue financial instruments for trading purposes.Changes in the market value of the foreign currency instruments are recognizedin the financial statements upon settlement of the hedged transaction. OnDecember 31, 2010, the Company had $2,664,000 in outstanding forward exchangecontracts related to sales. The unrealized loss of the December 31, 2010contracts that the Company expects to incur during the first quarter of 2011 isapproximately $27,000, net of taxes. Foreign currency transaction gains orlosses are included in Other income (expense), net. For 2010, 2009 and 2008,such transactions netted gains of $265,000, $625,000, and $1,513,000,respectively.

***Cash Equivalents***

      The Company considers all highly liquid investmentswith original maturities of three months or less to be cash equivalents. 

***Concentrations of Credit Risk***

Financialinstruments which potentially subject the Company to concentrations of creditrisk consist principally of accounts receivable. The credit risk is limitedbecause of the large numbers and types of customers and their geographicdispersion.

 

- 48 -

 

 

 

 

 

***Inventories***

      Inventories of U.S. operating subsidiaries are 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 and Equipment**

      Property, plant, and equipment are stated on the basisof cost. Major renewals and betterments are charged to the property accountswhile replacements, maintenance and repairs, which do not improve or extend thelives of the respective assets, are expensed to the current period.Depreciation is provided at amounts calculated to amortize the cost of theassets over their estimated useful economic lives using the straight-linemethod.

**Goodwill**

      Goodwillconsists of the excess of the purchase price over the fair value ofidentifiable net assets of businesses acquired. In the fourth quarter of eachyear, or when events and circumstances warrant such a review, the Company teststhe goodwill of all of its reporting units for impairment. The goodwillimpairment test is determined using a two-step process. The first step is toidentify if a potential impairment exists by comparing the fair value of areporting unit with its carrying amount, including goodwill (Step 1). If thefair value of a reporting unit exceeds its carrying value amount, goodwill ofthe reporting unit is not considered to have a potential impairment and thesecond step is not necessary. However, if the carrying amount of the reportingunit exceeds its fair value, the second step (Step 2) is performed to determineif goodwill is impaired and to measure the amount of impairment loss torecognize, if any. Step 2 compares the implied fair value of goodwill with thecarrying amount of goodwill. If the implied value of goodwill is less than thecarrying amount of goodwill, then a charge is recorded to reduce goodwill tothe implied goodwill. The implied goodwill is calculated based on ahypothetical purchase price allocation, in that it takes the implied fair valueof the reporting unit and allocates such fair value to the fair value of theassets and liabilities of the reporting unit. 

      

      The Company estimates the fair value of its reportingunits using a discounted cash flow analysis. This analysis requires the Companyto make 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, differentassumptions could materially affect the estimated fair value. As of December31, 2010, goodwill was $34,073,000, which represents 9% of total assets. TheCompany recognized no goodwill impairment in 2010. The North AmericanIndustrial segment had a goodwill impairment of $14,104,000 in 2009. During the 2010 impairment analysisreview, it was noted that even though the *Schwarze* reporting unit’s fairvalue was above carrying value it was not materially different. On December 31,2010, there was approximately $6.8 million of goodwill related to the *Schwarze*reporting unit. This reporting unit would be most likely affected by changes inthe Company’s assumptions and estimates. The calculation of fair value couldincrease or decrease depending on changes in the inputs and assumptions used,such as changes in the reporting unit’s future growth rates, discount rates,etc. 

 

See Note 6to the Consolidated Financial Statements for more information regardinggoodwill.

 

 **Intangible Assets                                                                                                                                **

      TheCompany’s definite-lived intangible assets consist primarily of patents andtrade names. The gross carrying value of definite-lived intangible assets waszero on December 31, 2010 and $1,147,000 on December 31, 2009 and $1,391,000 onDecember 31, 2008. Accumulated amortization of definite-lived intangible assetswas $1,147,000 and $1,088,000 on December 31, 2010 and 2009, respectively.Amortization expense of definite-lived intangible assets was $79,000 in 2010,$79,000 in 2009, and $99,000 in 2008. During the fourth quarter of 2010, theCompany wrote off $224,000 in older patents which the Company believes nolonger provide a competitive advantage. The net book value of the patents andtrademarks was $5,500,000 and $5,803,000 as of December 31, 2010 and 2009,respectively. 

 

 

- 49 -

 

 

 

 

 

 

 

      Intangibleassets with indefinite useful lives not subject to amortization consist of the*Gradall*trade name valued at $3,600,000 and the *Bush Hog* trade name valued at$1,900,000 on December 31, 2010.

 

      TheCompany tests its indefinite-lived intangible assets for impairment on anannual basis at year-end, or more frequently if an event occurs orcircumstances change that indicate that the fair value of an indefinite-livedintangible asset could be below its carrying amount. The impairment testconsists of comparing the fair value of the indefinite-lived intangible asset,determined using the relief from royalty method, with its carrying amount. Animpairment loss would be recognized for the carrying amount in excess of itsfair value. 

 

      Identifiableintangible assets are recorded at estimated cost. Definite-lived intangibleassets are amortized over their estimated useful lives.

 

**Pensions**

In connection with the February 3, 2006 purchase of all thenet assets of the *Gradall* excavator business, the Company assumedsponsorship of two *Gradall* non-contributory defined benefit pensionplans, both of which were frozen with respect to both future benefit accrualsand future new entrants. 

 

The *Gradall* Company Hourly Employees’ Pension Plancovers approximately 310 former employees and 210 current employees who (i)were formerly employed by JLG Industries, Inc., (ii) were covered by acollective bargaining agreement and (iii) first participated in the plan beforeApril 6, 1997. An amendment ceasing all future benefit accruals was effectiveApril 6, 1997.

 

The *Gradall* Company Employees’ Retirement Plan coversapproximately 220 former employees and 120 current employees who (i) wereformerly employed by JLG Industries, Inc., (ii) were not covered by acollective bargaining agreement, and (iii) first participated in the planbefore December 31, 2004. An amendment ceasing future benefit accruals forcertain participants was effective December 31, 2004. A second amendmentdiscontinued all future benefit accruals for all participants effective April24, 2006.

 

       The Company recognizes the funded status of thedefined benefit pension plans as a liability in its statement of financialposition and recognizes any changes in that funded status in the year in whichthe changes occur through other comprehensive income.

***Related Party Transactions***

      There were no reportable relationships orrelated party transactions for the years ended December 31, 2010 and 2009.During 1999, the Company approved a supplemental retirement benefit for DonaldJ. Douglass which is paid on a quarterly basis over a period of fourteen andone-half years that began in the year 2000. The balance on December 31, 2010and 2009 was $248,000 and $308,000, respectively, and is included in theAccrued liabilities and Other long-term liabilities sections of the Company’sconsolidated balance sheet.

***Revenue Recognition***

      The Companyrecognizes revenue when each of the following four criteria are met: 1) acontract or sales arrangement exists; 2) products have been shipped per agreedterms and title has been transferred or services have been rendered; 3) theprices of the products or services are fixed or determinable; and 4)collectability is reasonably assured. Pre-season sales orders are solicited inthe fall in advance of the dealer’s sales season in the spring and summer.Pre-season sales orders are shipped beginning in the fall and continuingthrough the spring and represent an opportunity for the Company’s factories tolevel their production/shipping volumes through the winter months. Thesepre-season shipments carry descending discounts in conjunction with delayed paymentterms of up to six months from the dealer’s requested delivery date. Revenuefrom sales is recorded net of a provision for discounts that are anticipated tobe earned and deducted at time of payment by the customer. These approximateddiscounts represent an average of historical amounts taken and are adjusted asprogram terms are changed. The reserves for discounts are reviewed and adjustedquarterly. From time to time, revenue isrecognized under a bill and hold arrangement.

 

 

- 50 -

 

 

 

 

 

 

***Accountingfor Internal Use Software***

 

      The Companycapitalizes certain costs associated with the development and installation ofinternal use software. Internal use software costs are expensed or capitalizeddepending on whether they are incurred in the preliminary project stage, applicationdevelopment stage or the post-implementation stage. Amounts capitalized areamortized over the estimated useful lives of the software.

 

      Thebook value of capitalized software net of depreciation is approximately$1,779,000 and $1,516,000 on December 31, 2010 and December 31, 2009,respectively. Software depreciation expense was $749,000, $721,000 and $992,000in 2010, 2009 and 2008, respectively. Internal use software is amortized forfinancial reporting purposes using the straight-line method over the estimatedlife of two to seven years.

 

***Shippingand Handling Costs***

 

      The Company’s policy isto include shipping and handling costs in costs of goods sold.

*** ***

***Advertising***

      We chargeadvertising costs to expense as incurred. Advertising and marketing expenserelated to operations for fiscal years 2010, 2009 and 2008 was approximately$5,135,000, $4,378,000 and $5,735,000, respectively. Advertising and marketingexpenses are included in Selling, General and Administrative expenses(“SG&A”).

***Research and Development***

      Product development and engineering costscharged to SG&A amounted to $5,774,000, $4,762,000, and $5,443,000 for theyears ended December 31, 2010, 2009 and 2008, respectively. 

***Legal Costs***

      The Company’spolicy is to accrue for legal costs expected to be incurred in connection withloss contingencies.

 

***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 by applyingenacted statutory tax rates applicable to the future years in which deferredtax assets or liabilities are expected to be settled or realized. In assessingthe realizability of deferred tax assets, management considers whether it ismore likely than not that some portion or all of the deferred tax assets willbe realized. The ultimate realization of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which thosetemporary differences become deductible. Management considers the scheduledreversals of deferred tax liabilities, projected future taxable income, and taxplanning strategies in making this assessment. Based upon projections of futuretaxable income over the periods in which the deferred tax assets aredeductible, management believes it is more likely than not that we will realizethe benefits of these deductible differences. 

 

      We donot 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.

 

***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 of 2009,which is discussed in Note 20.

 

 

- 51 -

 

 

 

 

 

 

 

***Stock-BasedCompensation***

*** ***

       EffectiveJanuary 1, 2006, we began using the modified-prospective transition method.However, for unvested equity awards outstanding as of the date of January 1,2006, we continue to amortize those awards using the minimum value method. BeginningJanuary 1, 2006 measurement and recognition of compensation expense for allshare-based payment awards made to employees and directors is recognized basedon estimated fair values. We use the Black-Scholes pricing model to determinethe fair value of the stock options on the grant dates for stock awards made onor after January 1, 2006, and we amortize the fair value of share-basedpayments on a straight-line basis over the requisite service periods of the award,which is generally the vesting period. 

 

      The Black-Scholesvaluation model requires us to make assumptions and judgments about thevariables used in the calculation. These variables and assumptions include thefair value of our common stock, expected term, the expected volatility, therisk-free interest rate, expected dividends, and the estimated rate offorfeitures of unvested stock options. 

 

       The Company calculatedthe fair value for options using a Black-Scholes option-pricing model with thefollowing weighted-average assumptions for 2010, 2009, and 2008:

 
 
**December 31,**

 

**2010**  

** **

**2009**  

** **

**2008**  

 

 

 

 

 

 

 

 

 

 
Risk-free interest rate

 

3.04%

 

 

2.67%

 

 

3.13%

 
Dividend yield

 

1.20%

 

 

1.20%

 

 

1.20%

 
Volatility factors

 

44.3%

 

 

42.8%

 

 

43.6%

 
Weighted-average expected life

 

8.0 years

 

 

7.5 years

 

 

9.0 years

 
 

***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**

** **

      Thefollowing table sets forth the reconciliation from basic to diluted averagecommon shares and the calculations of net income per common share. Net incomefor basic and diluted calculations does not differ. 

 

(in   thousands, except per share amounts)

**2010**  

** **

**2009** 

** **

**2008**  

 

 

 

 

 

 

 

 

 

 
Net  income

$

21,117

 

$

18,633

 

$

10,999

 
 

 

 

 

 

 

 

 

 

 
Average  common shares:

 

 

 

 

 

 

 

 

 
    Basic  (weighted-average outstanding shares)

 

11,782

 

 

10,330

 

 

9,847

 
 

 

 

 

 

 

 

 

 

 
    Dilutive  potential common shares from stock   options 

 

111

 

 

33

 

 

103

 
 

Diluted  (weighted-average outstanding shares) 

 

11,893

 

 

10,363

 

 

9,950

 
 

 

 

 

 

 

 

 

 

 
Basic  earnings per share 

$

1.79

 

$

1.80

 

$

1.12

 
 

 

 

 

 

 

 

 

 

 
Diluted  earnings per share 

$

1.78

 

$

1.80

 

$

1.11

 
 

      Stockoptions totaling 133,700 shares in 2010, 304,533 shares in 2009, and 188,523shares in 2008 were not included in the diluted earnings per share calculationbecause the effect would have been anti-dilutive.

                                                                                          

 

- 52 -

 

**3.VALUATION AND QUALIFYING ACCOUNTS**

Valuation and qualifying accounts included thefollowing:

 

 

 

(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**

 
**2010**

 

 

 

 

 

 

 

 

 

 

 

 

Allowance  for doubtful accounts

 

 $    2,548 

 

$      1,112 

 

$          (81)

 

$          (727)

 

 

$  2,852 

 
Reserve  for sales discounts

 

3,803 

 

51,813 

 

(2)

 

(43,711)

 

 

11,903 

 
Reserve  for inventory obsolescence

 

9,060 

 

2,811 

 

(230)

 

(4,135)

 

 

7,506 

 
Reserve  for warranty

 

5,972 

 

7,225 

 

(173)

 

(7,470)

 

 

5,554 

 
**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 

 

1,250 

 

(6,651)

 

 

5,972 

 
**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 

 
** **

***Allowancefor Doubtful Accounts***

 

The Companyevaluates the collectability of its accounts receivable based on a combinationof factors. In circumstances where it is aware of a specific customer’sinability to meet its financial obligations, the Company records a specificreserve to reduce the amounts recorded to what it believes will be collected.For all other customers, it recognizes reserves for bad debt based onhistorical experience of bad debts as a percent of revenues for each businessunit, adjusted for relative improvements or deteriorations in the aging andchanges 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 $2,852,000 on December 31, 2010,and $2,548,000 on December 31, 2009. The increase was mainly from the Company’sAgricultural operations.

 

***SalesDiscounts***

* *

      OnDecember 31, 2010, the Company had $11,903,000 in reserves for sales discountscompared to $3,803,000 on December 31, 2009 on product shipped to our customersunder various promotional programs. The increase was due primarily to highersales activity of the Company’s agricultural products during the pre-season,which runs from September to December of each year with orders shipped throughthe first quarter of 2011. The Company reviews the reserve quarterly based onanalysis made on each program outstanding at the time. 

 

The Company bases its reserves on historical data relatingto 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.

 

- 53 -

 

 

 

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

* *

      TheCompany had a reserve of $7,506,000 on December 31, 2010 and $9,060,000 onDecember 31, 2009 to cover obsolete and slow moving inventory. The decrease inthe reserve was mainly from the Company’s U.S. operations, specifically itsfacilities in Gibson City and Indianola as a result of greater disposals andsales of slow moving and obsolete inventory. The obsolete and slow movinginventory policy states that the reserve is to be calculated as follows: 1) noinventory 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 isgenerally to provide its customers warranty for up to one year on all wholegoodunits and 90 days on parts.

 

      Warrantyreserve, as a percentage of sales, is generally calculated by looking at thecurrent twelve months’ expenses and prorating that amount based on twelvemonths’ sales with a ninety-day to six-month lag period. The Company’shistorical experience is that an end-user takes approximately 90 days to sixmonths from the receipt of the unit to file a warranty claim. A warrantyreserve is established for each different marketing group. Reserve balances areevaluated on a quarterly basis and adjustments made when required.

 

      Thecurrent liability warranty reserve balance was $5,554,000 on December 31, 2010and $5,972,000 on December 31, 2009. The decrease came mainly from theacquisition of *Bush Hog*.

** **

**4. INVENTORIES**

** **

**     **Inventories valued at LIFO represented 63% of total inventory for theyears ended December 31, 2010 and 2009, respectively. The excess ofcurrent costs over LIFO-valued inventories was $7,654,000 and $9,106,000 onDecember 31, 2010 and December 31, 2009, respectively. The $1,452,000decrease in LIFO reserve during 2010 came from reductions in inventory levelswithin U.S. operations. The impact of the application of the LIFO method on theStatement of Income for the years ended December 31, 2010, was a decrease tocost of sales of $1,452,000, and a decrease in 2009 of $3,685,000 and anincrease in 2008 of $3,729,000. Inventories consisted of the following on acost basis, net of reserves:

 

**December 31,**

(in  thousands)

**2010**  

 

**2009**  

Finished  goods and parts 

$

80,102

 

$

103,134

Work in  process 

 

9,857

 

 

10,611

Raw  materials 

 

9,345

 

 

11,030

 

$

99,304

 

$

124,775

 

 

 

**   **

- 54 -

 

 

 

 

 

**5. PROPERTY, PLANT AND EQUIPMENT**

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

 

**December 31,**

 

 

(in  thousands)

**2010**   

 

**2009**   

Useful		

Lives

Land

$

8,656 

 

$

9,226 

 

 

Buildings  and improvements 

 

55,237 

 

 

58,862 

 

10-20 yrs.

Machinery  and equipment

 

55,438 

 

 

54,478 

 

3-15 yrs.

Office  furniture and equipment 

 

5,769 

 

 

6,065 

 

3-7 yrs.

Computer  software

 

10,111 

 

 

9,078 

 

2-7 yrs.

Transportation  equipment 

 

4,463 

 

 

4,367 

 

3 yrs.

 

 

139,674 

 

 

142,076 

 

 

 

 

 

 

 

 

 

 

Accumulated  depreciation 

 

(78,490)

 

 

(72,215)

 

 

 

$

61,184 

 

$

69,861 

 

 

 

      

      Property,plant and equipment on December 31, 2010 and December 31, 2009include $16,955,000 and $18,364,000, respectively, for items listed above thatare held under capital leases. Accumulated depreciation relating to the capitalleases on December 31, 2010 and 2009 was $7,428,000 and $7,233,000,respectively. Amortization related to the capital lease is included indepreciation expense.

 

**6. GOODWILL**

 

      Thechanges in the carrying amount of goodwill for the twelve months ended December31, 2008, 2009 and 2010 are as follows: 

 

(in  thousands)

** **

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 

Translation  adjustment

 

(1,134)

Balance at  December 31, 2010

$

34,073 

 

 

 

 

**7. ACCRUED LIABILITIES**

      Accrued liabilities consist of the following balances:

 

**December 31,**

(in  thousands)

**2010** 

** **

**2009** 

Salaries,  wages and bonuses

$

12,605

 

$

12,696

Warranty 

 

5,554

 

 

5,972

State  taxes

 

5,323

 

 

5,463

Retirement

 

2,210

 

 

2,313

Other

 

4,121

 

 

5,117

 

$

29,813

 

$

31,561

** **

** **

** **

** **

** **

** **- 55 -

 

 

 

 

 

** **

**8. LONG-TERM DEBT**

      The components of long-term debt are as follows:

 

**December 31,**

(in  thousands)

**2010** 

** **

**2009** 

Bank  revolving credit facility 

$

21,000

 

$

41,000

Capital  lease obligations 

 

1,763

 

 

3,233

Other  notes payable 

 

2,662

 

 

5,556

Total debt  

 

25,425

 

 

49,789

Less  current maturities 

 

2,319

 

 

5,453

Total  long-term debt

$

23,106

 

$

44,336

 

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

 

      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.

 

      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. The revolvingcredit line remained at $125.0 million. Prior to the execution of thisAmendment, BBVA Compass Bank acquired certain assets of Guaranty Bank whichincluded this credit facility, and JPMorgan Chase Bank assigned its interest toWell Fargo Bank, N.A. The purpose of the amendment was to add *Bush Hog*as a member of the Obligated Group and pledge a first priority securityinterest in certain U.S. assets (accounts receivable, inventory, equipment,trademarks and trade names) of the Borrower and each member of the ObligatedGroup. The Lenders agreed to increase the operating leverage ratio during thenext three quarters and to add a new EBIT to Interest Expense covenant inexchange for a commitment fee and an increase in the Applicable Interest Marginover LIBOR or Prime Rate advances. 

 

      As ofDecember 31, 2010, there was $21,000,000 borrowed under the revolving creditfacility. On December 31, 2010, $833,000 of the revolver capacity was committedto irrevocable standby letters of credit issued in the ordinary course ofbusiness as required by vendors’ contracts resulting in approximately$103,000,000 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 October 29, 2010 and outstandingscurrently bear interest at Lloyd’s Base Rate plus 1.4% per annum. The facilityis unsecured but guaranteed by the U.K. subsidiaries of Alamo Group EuropeLimited. As of December 31, 2010, there were no outstanding balances in Britishpounds borrowed against the U.K. overdraft facility.

 

      Thereare additional lines of credit: for the Company’s French operations in theamount of 7,300,000 Euros, which includes the *Rivard*credit facilities; for our Canadian operation in the amount of 3,500,000Canadian dollars; and for our Australian operation in the amount of 800,000Australian dollars. As of December 31, 2010, no Euros were borrowed against theFrench line of credit; no Canadian dollars were outstanding on the Canadianline of credit; and 600,000 Australian dollars were outstanding under itsfacility. The Canadian and Australian revolving credit facilities areguaranteed by the Company. The Company’s borrowing levels for working capitalare seasonal with thegreatest utilization generally occurring in the first quarter and early spring.

 

- 56 -

 

 

 

 

 

      As of December 31,2010, the Company is in compliance with the terms and conditions of its creditfacilities.

 

      Theaggregate maturities of long-term debt, as of December 31, 2010, are asfollows: $2,319,000 in 2011; $21,477,000 in 2012; $499,000 in 2013; $336,000 in2014; $242,000 in 2015; and $552,000 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 debt is advancedfrom a revolving credit facility that accrues interest at a contractual margin over current market interest rates. TheCompany’s financing costs associated with this credit facility can materiallychange with market increases and decreases of short-term borrowing rates,specifically London Inter Bank Operating Rate (“LIBOR”). During the secondquarter of 2007, the Company entered into two interest rate swap agreementswith JPMorgan that hedge future cash flows related to its outstanding debtobligations. One swap had a three-year term and fixed the LIBOR base rate at4.910% covering $20 million of this debt which expired on March 31, 2010. Theother swap has a four-year term and fixed the LIBOR base rate at 4.935%covering an additional $20 million of these variable rate borrowings andexpires on March 31, 2011. On November 5, 2009, JPMorgan transferred the swaptransactions to Bank of America. The terms of the hedging instrument remain thesame. As of December 31, 2010, the Company had $21 million outstanding underits revolving credit facility and one interest rate swap contract designated ascash flow hedge which is effectively hedging $20 million of these borrowingsfrom changes in underlying LIBOR base rates. The fair market value of thishedge, which is the amount that would have been paid or received by the Companyhad it prematurely terminated this swap contract at December 31, 2010, was a$231,000 liability. This is included in Accrued liabilities with an offset inAccumulated other comprehensive income, net of taxes. At December 31, 2010,ineffectiveness related to the interest rate swap agreement was not material.

 

**10. FAIR VALUE MEASUREMENTS**

Fair value isdefined as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants. There is a three-tier fair value hierarchy based upon theobservability of inputs used in valuation techniques. Observable inputs(highest level) reflect market data obtained from independent sources, whileunobservable inputs (lowest level) reflect internally developed marketassumptions. In Fair value measurements are classified under the followinghierarchy:

 

**Level 1**–Quoted prices for identical instruments in active markets.

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

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

 

When available, theCompany uses quoted market prices to determine fair value, and the Companyclassifies such measurements within Level 1. In some cases where market pricesare not available, the Company makes use of observable market-based inputs tocalculate fair value, in which case the measurements are classified with Level2. If quoted or observable market prices are not available, fair value is basedupon internally developed models that use, where possible, current market-basedparameters such as interest rates, yield curves, currency rates, etc. Thesemeasurements are classified within Level 3.

 

Fair valuemeasurements are classified to the lowest level input or value-driver that issignificant to the valuation. A measurement may therefore be classified withinLevel 3 even though there may be significant inputs that are readilyobservable.

 

**Derivativefinancial instruments**

 

- 57 -

 

 

 

 

 

The fair value ofinterest rate swap derivatives is primarily based on third-party pricingservice models. These models use discounted cash flows that utilize theappropriate market-based forward swap curves and zero-coupon interest rates. Interestrate swap derivatives are Level 2 measurements and have a fair value of $231,000in a liability position as of December 31, 2010.

 

The fair value offoreign currency forward contracts is based on a valuation model that discountscash flows resulting from the differential between the contract price and themarket-based forward rate and is a Level 2 measurement and has a fair value of$43,000 in a liability position as of December 31, 2010.

 

** **

**11. INCOME TAXES**

** **

      Thejurisdictional components of income before taxes consist of the following:

 

** **

**December 31,**

(in  thousands)

** **

**2010**

** **

** **

**2009**

** **

** **

**2008**

Income  before income taxes:

** **

 

** **

** **

 

** **

** **

 

    Domestic

$

  15,639 

 

$

13,381 

 

$

2,176 

    Foreign  

 

13,393 

 

 

17,725 

 

 

15,050 

 

$

29,032 

** **

$

31,106 

 

$

17,226 

 

      The components of income tax expense (benefit) consistof the following:

 

 

**December 31,**

(in  thousands)

 

**2010**

 

 

**2009**

 

 

**2008**

Current:

 

 

 

 

 

 

 

 

    Domestic  			

$

 8,995 

 

$

(1,059)

 

$

891 

    Foreign  

 

3,851 

 

 

5,017 

 

 

4,789 

    State 

 

       1,453 

 

 

(381)

 

 

458 

 

 

14,299 

 

 

3,577 

 

 

6,138 

Deferred:

 

  

 

 

  

 

 

  

    Domestic  			

 

    (5,308)

 

 

8,017 

 

 

(242)

    Foreign  			

 

        (284) 

 

 

(641)

 

 

331 

    State  			

 

(792)

 

 

1,520 

 

 

— 

 

 

  (6,384)

 

 

8,896 

 

 

89 

          Total  income taxes

$

7,915 

 

$

12,473 

 

$

6,227 

      

      The difference between income taxexpense (benefit) for financial statement purposes and the amount of income taxexpense computed by applying the domestic statutory income tax rate of 34% toincome loss before income taxes consist of the following:

 

 

 

**December 31,**

(in  thousands)

 

**2010**

 

 

**2009**

 

 

**2008**

 

Domestic  statutory rate at 34%

$

9,871 

 

 

$

10,576 

 

 

$

5,857 

    Increase  (reduction) from:

 

 

 

 

 

 

 

 

        Jurisdictional  rate differences

 

(986)

 

 

(581)

 

 

(634)

        Goodwill  impairment

 

— 

 

 

2,686 

 

 

424 

        Valuation  allowance

 

— 

 

 

(793)

 

 

— 

        Stock  based compensation

 

135 

 

 

138 

 

 

144 

        U.S.  state taxes

 

436 

 

 

745 

 

 

324 

        Domestic  Production Deduction

 

(744) 

 

 

  (50) 

 

 

— 

        R&E  Credit Reserve

 

(1,068) 

 

 

— 

 

 

— 

        Other,  net 

 

271 

 

 

(248)

 

 

112 

Provision  for income taxes

$

7,915 

 

$

12,473

 

$

6,227 

Effective  tax rate

 

27%

 

 

40%

 

 

36%

 

- 58 -

 

 

      Deferredincome taxes arise from temporary differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbasis. The components of the Company’s deferred income tax assets andliabilities consist of the following:

 

**December 31,**

(in  thousands)

**2010**  

** **

**2009**  

Current:

 

 

 

 

 

      Deferred  tax assets:

 

 

 

 

 

      Inventory  basis differences

$

1,219 

 

$

— 

      Accounts  receivable reserve

 

665 

 

 

283 

      Employee  benefit accruals

 

347 

 

 

413 

      Product  liability and warranty reserves

 

1,035 

 

 

935 

      Expenses  not deductible for tax purposes

 

547 

 

 

433 

      Foreign  net operating loss

 

— 

 

 

630 

      Other

 

— 

 

 

424 

 		

 

3,813 

 

 

3,118 

      Deferred  tax liabilities:

 

 

 

 

 

      Inventory  basis differences

 

         —

 

 

(3,376)

      Expenses  deductible for tax purposes

 

(338)

 

 

(733)

 

 

(338)

 

 

(4,109)

 

 

 

 

 

 

Net  current deferred tax asset

$

    3,475

 

$

    (991)

Non-Current:

 

 

 

 

 

      Deferred  tax assets:

 

 

 

 

 

      Environmental  reserve

$

568 

 

$

611 

      Pension  liability

 

2,717 

 

 

2,845 

      Derivative  liability

 

88 

 

 

481 

      Stock  based compensation

 

325 

 

 

221 

      Foreign  net operating loss

 

613 

 

 

— 

      Valuation  allowance

 

— 

 

 

— 

 

 

4,311 

 

 

4,158 

 

 

 

 

 

 

      Deferred  tax liabilities:

 

 

 

 

 

      Depreciation

 

(5,444)

 

 

(6,949)

      Intangible  assets

 

(277)

 

 

(277)

      Deferred  revenue

 

(355)

 

 

(355)

 		

 

(6,168)

 

 

(7,581)

 		

 

 

 

 

 

Net non-current tax asset (liability)

$

  (1,857) 

 

$

(3,423) 

** **

** **

** **

      As of December 31, 2010, the Company had foreigndeferred tax assets consisting of foreign net operating losses and other taxbenefits available to reduce future taxable income in a foreign jurisdiction. Thenet operating loss (“NOL”) has an unlimited carry-forward. 

 

In assessing the realizability ofdeferred tax assets, the Company considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Basedon the expectation of future taxable income and that the deductible temporarydifferences will offset existing taxable temporary differences, the Companybelieves it is more likely than not that it will realize the benefits of thesedeductible differences.

 

Deferred income taxes have not beenprovided on the future tax consequences attributable to differences between thefinancial statements carrying amounts of existing assets and liabilities andthe respective tax bases of the Company’s foreign subsidiaries, based on thedetermination that such differences are essentially permanent in duration inthat the earnings of the subsidiaries are expected to be indefinitelyreinvested in foreign operations. As of December 31, 2010, the cumulativeundistributed earnings of these subsidiaries approximated $102,223,000. Ifthese earnings were not considered indefinitely reinvested, deferred incometaxes would have been recorded after the consideration of foreign tax credits. Atthis time, it is not practicable to estimate the amount of additional incometaxes that might be payable on those earnings, if distributed.

 

 

- 59 -

 

 

 

 

 

 

 

The Company adopted the provisionsof FASB ASC Section 740-10-25 (formerly FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes”) on January 1, 2007. During 2009, the Companyremoved their liability for unrecognized tax positions after a reevaluation ofthe liabilities under the measurement criteria of ASC 740.  During the thirdquarter of 2010, the Company completed a research and development credit study(R&D study) related to prior year tax returns. The R&D study resultedin tax credits of approximately $1,100,000. The Company has recorded anunrecognized tax benefit in the amount of $193,000 that if recognized would affect ourannual effective tax rate.We do not expect ourunrecognized tax benefits to change significantly over the next 12 months.

 

 

**December 31,**

(in  thousands)

**2010** 

** **

**2009** 

Balance  as of beginning of year 

$

— 

 

$

465,000 

   Additions for tax positions related to prior years 

 

193,000

 

 

— 

   Reductions for tax positions related to prior years 

 

— 

 

 

(465,000)

Balance as  of end of year

$

193,000

 

$

— 

 

 

      TheCompany adopted the policy to include interest and penalty expense related toincome taxes as interest and other expense, respectively. As of December 31,2010, no interest or penalties has been or is required to be accrued. TheCompany’s open tax years for its federal and state income tax returns are forthe tax years ended 2006 through 2010.

** **

**12. COMMON STOCK**

** **

      The Company was authorized by its Board of Directorsin 1997 to repurchase up to 1,000,000 shares of the Company’s common stock tobe funded through working capital and credit facility borrowings. No shareswere repurchased in 2009 or 2010. The authorization to repurchase up to1,000,000 shares remains available less 42,600 shares, previously purchased.

      Subsequentto December 31, 2010, the Company declared and paid a dividend of $.06 pershare.

** **

**13. STOCK OPTIONS**

** **

**IncentiveOptions**

 

      On April 28, 1994, the stockholders approved the 1994Incentive Stock Option Plan (“1994 ISO Plan”) for key employees. Each optionbecomes vested and exercisable for up to 20% of the total optioned shares eachyear after grant. Under the terms of this plan, the exercise price of theshares subject to each option granted would not be less than the fair marketvalue of the common stock at the date the option is granted. 

       There are 58,030 shares outstanding under this optionplan. No further option grants can be made under this plan.

On May 3,2005, the stockholders of the Company approved the 2005 Incentive Stock OptionPlan (“2005 ISO Plan”) and the Company reserved 500,000 shares of common stockfor options to be issued under the 2005 ISO Plan . During the years endedDecember 31, 2010, 2009 and 2008, options to purchase 19,000 shares, 99,000shares and 39,000 shares, respectively, were granted under this plan. Eachoption becomes vested and exercisable for up to 20% of the total optionedshares one year following the grant of the option and for an additional 20% ofthe total optioned shares after each succeeding year until the option is fullyexercisable at the end of the fifth year.

 

- 60 -

 

 

 

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

 

 

 

    **2010**

       **2009**

     **2008**

 

 

    Shares

 

 

   Exercise

   Price*

     Shares

 

   Exercise

   Price*

     Shares

      Exercise

       Price*

Options  outstanding at beginning of year

 

345,480 

 

 

$ 18.73 

253,980 

 

$ 20.44 

277,080 

$ 18.26 

      Granted  

 

19,000 

 

 

24.69 

99,000 

 

11.45 

39,000 

22.55 

      Exercised  

 

(4,350)

 

 

12.98 

— 

 

— 

(49,100)

9.76 

      Cancelled  

 

— 

 

 

— 

(7,500)

 

20.04 

(13,000)

20.71 

Options  outstanding at end of year 

 

360,130 

 

 

18.29 

345,480 

 

18.73 

253,980 

20.44 

Options  exercisable at end of year 

 

209,530 

 

 

$ 18.86 

156,780 

 

$ 18.74 

118,180 

$ 17.55 

Options  available for grant at end of year

 

195,500 

 

 

 

214,500 

 

 

307,000 

 

**WeightedAverages*

* *

* *

      Optionsoutstanding and exercisable at December 31, 2010 were as follows:

 

**Qualified  Stock Options**

 

**Options Outstanding**

 

 

**Options Exercisable**

 

 

 

 

      Shares

 

 

Remaining

Contractual

Life (yrs)*

 

        Exercise

         Price*

 

 

 

 

        Shares

 

    Exercise

     Price*

Range  of Exercise Price

 

 

 

 

 

 

 

 

 

 

$11.45 -  $17.85 

 

153,130 

 

 

6.80

$ 12.24 

 

 

75,130   

$  13.06 

$19.79 -  $25.18

 

207,000 

 

 

6.75

22.77 

 

 

134,400   

22.10 

      Total  

 

360,130 

 

 

 

 

 

 

209,530   

 

**WeightedAverages*

* *

The weighted-average grant-date fairvalues of options granted during 2010, 2009, and 2008 were $11.40, $5.08 and$10.72, respectively. As of December 31, 2010, there was $859,000 of totalunrecognized compensation cost related to non-vested share-based compensationarrangements granted under the plans. That cost is expected to be recognizedover a period of five years.

***Non-qualifiedOptions***

*** ***

      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. Optionsbecome 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 at the end of the fifth year. 

 

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

 

 

 

    **2010**

** **      **2009**

** **      **2008**

 

 

       Shares

 

 

 Exercise

  Price*

           Shares

 

   Exercise

    Price*

       Shares

   Exercise

     Price*

Options  outstanding at beginning of year

 

186,000 

 

 

$ 14.57 

226,000 

 

$ 12.62 

302,000 

$ 11.71 

      Granted  

 

— 

 

 

— 

85,000 

 

11.45 

— 

— 

      Exercised  

 

(78,600)

 

 

12.52 

(125,000)

 

8.94 

(76,000)

8.98 

      Cancelled  

 

(5,000) 

 

 

25.18 

— 

 

— 

— 

— 

Options  outstanding at end of year 

 

102,400 

 

 

15.62 

186,000 

 

14.57 

226,000 

12.62 

Options  exercisable at end of year 

 

30,300 

 

 

$  20.79 

79,000 

 

$  15.17 

194,500 

$  10.76 

Options  available for grant at end of year

 

364,000 

 

 

 

367,000 

 

 

63,500 

 

**WeightedAverages*

* *

- 61 -

 

* *

      Options outstanding and exercisable as of December 31,2010 were as follows:

**Non-Qualified  Stock Options**

 

**Options Outstanding**

 

 

**Options Exercisable**

 

 

 

 

      Shares

 

 

   Remaining

   Contractual

   Life(yrs)*

 

        Exercise

          Price*

 

 

 

 

          Shares

 

   Exercise

     Price*

Range  of Exercise Price

 

 

 

 

 

 

 

 

 

 

$11.45 -  $12.10 

 

68,900 

 

 

9.00

$11.45 

 

 

7,300   

$11.45 

$13.96 -  $19.79

 

6,000 

 

 

5.00

19.79 

 

 

6,000   

19.79 

$25.02 -  $25.18 

 

27,500 

 

 

6.91

$25.17 

 

 

17,000   

$25.16 

      Total  

 

102,400 

 

 

 

 

 

 

30,300   

 

**Weighted Averages*

The weighted-average grant-date fairvalues of options granted during 2009 were $5.08. There were no options grantedin 2010. As of December 31, 2010, there was $326,000 of total unrecognizedcompensation cost related to non-vested share-based compensation arrangementsgranted under the plans. That cost is expected to be recognized over a periodof five years.

During 2010, 2009and 2008, 78,600, 125,000, and 76,000 non-qualified options, respectively, wereexercised, $984,000, $1,117,000, and $682,000 of cash receipts were received, respectively,and tax deductions of $796,000, $289,000, and $951,000 were realized,respectively, for the tax deductions from option exercises. 

 

***RestrictedStock Units***

 

Following is a summary of activity in the Restricted StockUnits for the periods indicated:

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

Price

 

Weighted-average remaining

contractual term (in years)

Options  outstanding at beginning of year

 

8,000 

 

 

11.45 

 

      Granted  

 

3,000 

 

$

24.69 

3.33

      Vested  

 

(2,000)

 

 

11.45 

—

      Forfeited  or Cancelled 

 

— 

 

 

— 

—

Options  outstanding at end of year 

 

9,000 

 

$

15.86 

 

 

Restricted stock units vest 25% after one year following theaward date and for an additional 25% of total awarded shares each succeedingyear until fully vested. As of December 31, 2010, there was $198,000 of totalunrecognized compensation cost related to non-vested share-based compensationarrangements granted under the plans. That cost is expected to be recognizedover a period of four years.

 

**14. RETIREMENT BENEFIT PLANS**

***Defined Benefit Plans***

 

In connection with the February 3, 2006 purchase of all thenet assets of the *Gradall* excavator business, the Company assumedsponsorship of two *Gradall* non-contributory defined benefit pensionplans, both of which are frozen with respect to both future benefit accrualsand future new entrants. 

 

The *Gradall* Company Hourly Employees’ Pension Plancovers approximately 310 former employees and 210 current employees who (i)were formerly employed by JLG Industries, Inc., (ii) were covered by acollective bargaining agreement and (iii) first participated in the plan beforeApril 6, 1997. An amendment ceasing all future benefit accruals was effectiveApril 6, 1997.

 

- 62 -

 

 

The *Gradall* Company Employees’ Retirement Plan coversapproximately 220 former employees and 120 current employees who (i) wereformerly employed by JLG Industries, Inc., (ii) were not covered by acollective bargaining agreement and (iii) first participated in the plan beforeDecember 31, 2004. An amendment ceasing future benefit accruals for certain participantswas effective December 31, 2004. A second amendment discontinued all futurebenefit accruals for all participants effective April 24, 2006.

 

The following tables set forth the change in plan assets,change in projected benefit obligation, rate assumptions and components of netperiodic benefit cost as of December 31 with respect to these plans. Themeasurement dates of the assets and liabilities of both plans were December 31of the respective years presented.

 

 

**Year ended December 31, 2010**

(in thousands)     			**Hourly   Employees’			Pension Plan****Employees’ Retirement Plan****Total**
** **

** **

** **

** **

Change in  projected benefit obligation  

** **

** **

** **

Benefit obligation at beginning of  year

$      9,067 

$      15,056 

$      24,123 

Service cost

6 

3 

9 

Interest cost

498 

864 

1,362 

Liability actuarial (gain)/loss

578 

1,119 

1,697 

Benefits paid

(638)

(615)

(1,253)

Benefit obligation at end of year

9,511 

16,427 

25,938 

 

 

 

 

Change in fair value of plan assets  			

** **

** **

** **

Fair value of plan assets at beginning of year

5,560 

10,922 

16,482 

Return on plan assets

678 

1,319 

1,997 

Employer contributions

702 

859 

1,561 

Benefits paid

(638)

(615)

(1,253)

Fair value of plan assets at end of year

6,302 

12,485 

18,787 

 

 

 

 

Underfunded status – December 31, 2010

$     (3,209)

$      (3,942)

$      (7,151)

 

 

 

 

Accumulated  benefit obligation – December 31, 2010

$      9,511 

$      16,427 

$      25,938 

 

 

 

**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 

                                                                                          

 

- 63 -

 

 

 

 

 

 

      The Company recognizes the overfunded or underfundedstatus (i.e., the difference between the fair value of plan assets and theprojected benefit obligations) of defined benefit postretirement plans as anasset or liability in its statement of financial position and recognizedchanges in the funded status in the year in which the changes occur. TheCompany measures the funded status of a plan as of the date of its year-endstatement of financial position. 

 

      Theunderfunded status of the plan of $7,151,000 and $7,640,000 as of December 31,2010 and 2009, respectively, is recognized in the accompanying consolidatedbalance sheets as long-term accrued pension liability because plan assets areless than the value of benefit obligations expected to be paid. 

 

      Theaccumulated benefit obligation for our pension plans represents the actuarialpresent value of benefits based on employee service and compensation as of acertain date and does not include an assumption about future compensationlevels. 

 

      Indetermining the projected benefit obligation and the net pension cost, we usedthe following significant weighted-average assumptions:

 

Assumptionsused to determine benefit obligations at December 31:

 

** **

**Hourly Employees’ Pension Plan**

** **

**Employees’ Retirement Plan**

** **

**2010**

**2009**

** **

**2010**

**2009**

Discount rate

5.12%

5.67%

 

5.30%

5.83%

Composite rate of compensation increase

N/A

N/A

 

N/A

N/A

 

Assumptions used to determine net periodic benefit cost forthe years ended December 31:

 

** **

**Hourly Employees’ Pension Plan**

** **

**Employees’ Retirement Plan**

** **

**2010**

**2009**

** **

**2010**

**2009**

Discount  rate

5.67%

6.15%

 

5.83%

6.14%

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-termrate on return on plan assets. Historical markets are studied and long-termhistorical relationships between equities and fixed income are preservedconsistent with the widely accepted capital market principle that assets withhigher volatility generate a greater return over the long run. Current marketfactors such as inflation and interest rates are evaluated before long-termmarket assumptions are determined. The long-term portfolio return isestablished via a building block approach with proper consideration ofdiversification and rebalancing. Peer data and historical returns are reviewedto check for reasonability and appropriateness.

 

 

- 64 -

 

 

      The following tables present the components of netperiodic benefit cost (gains are denoted with parentheses and losses are not):

 

** **

**Year ended December 31, 2010**

** **

(in thousands)

**Hourly Employees’ Pension Plan**

**Employees’ Retirement Plan**

**Total**

Service  cost

$        6

$         3

$         9

Interest  cost

        499

        864

      1,363

Expected  return on plan assets

       (431)

        (850)

     (1,281)

Amortization  of prior service cost

            — 

             — 

             —

Amortization  of net (gain)/loss

         96

          33

        129

Net periodic benefit cost

 $    170 

 $      50

 $    220

 

 

** **

**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

 

 

      TheCompany estimates that $194,000 of unrecognized actuarial expense will beamortized from accumulated other comprehensive income into net periodic benefitcosts during 2011. 

 

      The Companyemploys a total return investment approach whereby a mix of equities and fixedincome investments are used to maximize the long-term return of plan assets fora prudent level of risk. Risk tolerance is established through carefulconsideration of plan liabilities, plan funded status, and corporate financialcondition. The investment portfolio contains a diversified blend of equity andfixed income investments. Furthermore, equity investments are diversifiedacross U.S. and non-U.S. stocks, as well as growth, value, and small and largecapitalizations. Other assets such as real estate, private equity, and hedgefunds are used judiciously to enhance long-term returns while improvingportfolio diversification. Derivatives may be used to gain market exposure inan efficient and timely manner; however, derivatives may not be used toleverage the portfolio beyond the market value of the underlying investments.Investment risk is measured and monitored on an ongoing basis through quarterlyinvestment portfolio reviews, annual liability measurements, and periodicasset/liability studies.

 

      Thepension plans' weighted-average asset allocations as a percentage of planassets at December 31 are as follows:

 

 

**Hourly Employees’**

**Pension Plan**

** **

**Employees’ Retirement**

**Plan**

 

**2010**

**2009**

** **

**2010**

**2009**

Equity securities

47%

60%

 

47%

57%

Debt securities

45%

37%

 

45%

42%

Short-term investments

3%

2%

 

3%

0%

Other

5%

1%

 

5%

1%

Total

100%

100%

 

100%

100%

 

 

As of December 31, 2010, we used the following valuationtechniques to measure fair value for assets. There were no changes to thesemethodologies during 2010: Level 1 - Assets were valued using the closing pricereported in the active market in which the individual security was traded.Level 2 - Assets were valued using quoted prices in markets that are notactive, broker dealer quotations, net asset value of shares held by the plans,and other methods by which all significant input were observable at themeasurement date. Level 3 - Assets were valued using valuation reports from therespective institutions at the measurement date. The following table presentsthe hierarchy levels for our postretirement benefit plan investments as ofDecember 31, 2010:

 

 

- 65 -

 

 

 

 

 

 

(in thousands)

 

** **

** **

** **

** **

**December 31, 2010**

 

** **

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

**(Level 1)**

** **

** **

** **

**Significant Other Observable Inputs**

**(Level 2)**

			 

** **

** **

**Significant Unobservable Inputs**

**(Level 3)**
Mutual  Funds:			 			 			 			 			 			 			 			 			 			 
Small Cap

Mid Cap

Large Cap

$

1,418

1,737

6,567

 

 

$

1,418

1,737

6,567

      

 

$

- 

$

- 

Common/Collective:

Liability Driven Solution

Wells Fargo International Equity Index Fund

Wells Fargo Large Cap Growth Index Fund

Wells Fargo Large Cap Value Index Fund

Wells Fargo Russell 2000 Index Fund

Wells Fargo S&P Mid Cap Index Fund

 

 

 

4,266

703

1,273

1,223

466

483

 

 

 

 

 

 

- 

4,266

   703

1,273

1,223

   466

   483

 

 

- 

Cash &  Short-term

Investments 

 

 

 

652

 

 

 

652

 

 

- 

 

- 

Total 

$

18,788

 

$

10,374

 

$

8,414

$

- 

                          

Our interests in the commoncollective trust investments are managed by one custodian. Consistent with ourinvestment strategy, the custodian has invested the assets across a widelydiversified portfolio of U.S. and international equity and fixed incomesecurities. Fair values of each security within the collective trust as ofDecember 31, 2010 were obtained from the custodian and are based on quotedmarket prices of individual investments; however, since the fund itself doesnot have immediate liquidity or a quoted market price, these assets areconsidered Level 2. 

 

      Expectedbenefit payments are estimated using the same assumptions used in determiningour benefit obligation as of December 31, 2010. The following table illustratesthe estimated pension benefit payments which reflect expected future service,as appropriate, that are projected to be paid:

 

** **

(in thousands)

**Hourly Employees’ Pension Plan**

**Employees’ Retirement Plan**

** **

**Total**

2011

$     664

$     731

$     1,395

2012

       663

       748

       1,411

2013

       658

       784

       1,442

2014

       658

       861

       1,519

2015

       650

       887

       1,537

Years 2016  through 2020

$  3,273

       $  5,299

    $     8,572

* *

***Defined Contribution Plans***

*** ***

      TheCompany has three defined contribution plans, The *Gradall* SalariedEmployees’ 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 $269,000 and $254,000 to the IAM Plan for theplan years ended December 31, 2010 and 2009, respectively. The Companyconverted the Salary Plan into its 401(k) retirement and savings plan and putthe Hourly Plan into a separate 401(k) retirement and savings plan.

 

      TheCompany provides a defined contribution 401(k) retirement and savings plan foreligible U.S. employees. Company matching contributions are based on apercentage of employee contributions. Company contributions to the plan during2010, 2009 and 2008 were $481,000, $1,330,000, and $1,520,000, respectively. AU.S. subsidiary of the Company had an Hourly Employee Pension Plan of Trustcovering collective bargaining which was terminated on December 31, 2006. As ofJanuary 1, 2006 the employees were added to the existing 401(k) retirement andsalary plan.

 

 - 66 -

 

 

 

 

 

      Threeof the Company’s international subsidiaries also participate in a definedcontribution and savings plan covering eligible employees. The Company’sinternational subsidiaries contribute between 3% and 7.5% of the participant’ssalary up to a specific limit. Total contributions made to the above plan were$607,000, $537,000, and $620,000 for the year ended December 31, 2010, 2009 and2008, respectively.

 

**15.  SEGMENT REPORTING**

** **

      TheCompany reports three business segments: Industrial, Agricultural and European.The Company’s sales are principally within the United States, United Kingdom,France, Canada 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. 

 

      TheCompany has included a summary of the financial information by reportingsegment. The following table presents the revenues, income from operations(loss), goodwill and total identifiable assets by reporting segment for theyears ended December 31, 2010, 2009 and 2008:

** **

 

 

**December 31,**

(in  thousands)

** **

**2010**  

 

**2009**  

 

**2008**  

**Net  Revenue**

** **

 

 

 

 

 

        Industrial

$

192,379 

$

173,905 

$

254,787 

        Agricultural

 

173,464 

 

92,415 

 

120,232 

        European

 

158,697 

 

180,167 

 

182,116 

Consolidated

$

524,540 

$

446,487 

$

557,135 

** **

 

 

 

 

 

 

**Income  from Operations**

 

 

 

 

 

 

        Industrial

$

8,513 

$

(12,426)

$

9,716 

        Agricultural

 

10,073 

 

31,206 

 

(3,400)

        European

 

12,287 

 

15,754 

 

15,029 

Consolidated

$

30,873 

$

34,534 

$

21,345 

** **

 

 

 

 

 

 

**Goodwill**

 

 

 

 

 

 

        Industrial

$

13,316 

$

13,128 

$

26,755 

        Agricultural

 

— 

 

— 

 

— 

        European

 

20,757 

 

22,079 

 

21,352 

Consolidated

$

34,073 

$

35,207 

$

48,107 

** **

 

 

 

 

 

 

**Total  Identifiable Assets**

 

 

 

 

 

 

        Industrial

$

120,293 

$

126,553 

$

179,000 

        Agricultural

 

116,575 

 

124,165 

 

78,793 

        European

 

134,115 

 

129,239 

 

128,339 

Consolidated

$

370,983 

$

379,957 

$

386,132 

** **

- 67 -

 

 

 

 

 

** **

** **

**16. INTERNATIONAL OPERATIONS ANDGEOGRAPHIC INFORMATION**

** **

Following is selected financial information on the Company’sinternational operations which include Europe, Canada and Australia:

 

**December 31,**

 
(in  thousands)

 

**2010**  

 

 

**2009**  

 

 

**2008**  

Net sales

$

190,336

 

$

209,721

 

$

215,733

Income  from operations 

 

13,476

 

 

17,776

 

 

13,898

Income  before income taxes and allocated interest expense 

 

13,429

 

 

17,740

 

 

15,077

Identifiable  assets 

 

160,966

 

 

153,968

 

 

148,706

 

Following is other selected geographic financial informationon the Company’s operations:

 

**December 31,**

(in  thousands)

 

**2010**  

 

 

**2009**  

 

 

**2008**  

**Geographic  net sales:**

 

 

 

 

 

 

 

 

       United  States

$

322,253

 

$

231,981

 

$

331,671

       United  Kingdom

 

36,685

 

 

38,332

 

 

44,306

       France

 

93,130

 

 

115,395

 

 

99,685

       Canada

 

15,325

 

 

17,756

 

 

22,255

       Australia

 

11,765

 

 

11,400

 

 

11,175

       Mexico

 

— 

 

 

1,337

 

 

2,187

       Other

 

45,382

 

 

30,286

 

 

45,856

Total net  sales

$

524,540

 

$

446,487

 

$

557,135

 

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

 

 

 

 

 

 

 

 

       United  States

$

55,448

 

$

59,094

 

$

63,449

       United  Kingdom

 

13,757

 

 

14,483

 

 

13,335

       France

 

29,165

 

 

33,588

 

 

34,383

       Canada

 

6,776

 

 

6,542

 

 

5,824

       Australia

 

84

 

 

265

 

 

45

Total  long-lived assets

$

105,230

 

$

113,972

 

$

117,036

      

      Netsales are attributed to countries based on the location of customers.

** **

**17.  COMPREHENSIVE INCOME (LOSS)**

** **

      For 2010, 2009 and 2008 the Company’s ComprehensiveIncome was $17,503,000, $27,785,000, and ($14,110,000), respectively.

The components of Accumulated Other Comprehensive Income(Loss) are as follows:

 

**December 31,**

(in thousands)

 

**2010**  

** **

**      2009** 

** **

**2008**  

Foreign currency translation adjustments

$

    4,489 

$

   8,148 

$

   1,553 

Derivatives net of taxes

 

(171)

 

(744)

 

(1,560)

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

 

(2,785)

 

(2,257)

 

(3,998)

Accumulated other comprehensive income (loss)

$

1,533 

$

5,147 

$

(4,005)

                                                                                          

 

- 68 -

 

**18. COMMITMENTS AND CONTINGENCIES**

***Leases***

*** ***

*     *The Company leases office space and equipment under various operatingleases, which generally are expected to be renewed or replaced by other leases.The Company has certain capitalized leases consisting principally of leases ofbuildings. As of December 31, 2010, future minimum lease paymentsunder these non-cancelable leases and the present value of the net minimumlease payments for the capitalized leases are:

   

(in  thousands)

**Operating Leases**

** **

**Capitalized Leases**

2011

$

1,102

 

$

1,187

2012

 

673

 

 

300

2013

 

361

 

 

298

2014

 

158

 

 

113

2015

 

96

 

 

9

Thereafter  

 

31

 

 

— 

Total  minimum lease payments 

$

2,421

 

$

1,907

Less  amount representing interest 

 

 

 

 

144

Present  value of net minimum lease payments 

 

 

 

$

1,763

Less  current portion 

 

 

 

 

1,102

Long-term  portion

 

 

 

$

661

      

      Rental expense for operating leases was $1,632,000 for2010, $1,693,000 for 2009, and $1,787,000 for 2008.

      Purchase obligations of $69,148,000 represent anestimate of goods and services to be purchased under outstanding purchaseorders not reflected on the Company’s balance sheet. New purchase obligationsshould be received and paid for during the current fiscal year.

**Other**

*     *The Company is subject to various unresolved legal actions that arise inthe ordinary course of its business. The most significant of such actionsrelates to product liability, which is generally covered by insurance aftervarious self-insured retention (“SIR”) amounts. While amounts claimed might besubstantial and the liability with respect to such litigation cannot bedetermined at this time, the Company believes that the outcome of these matterswill not have a material adverse effect on the Company’s consolidated financialposition or results of operations; however, the ultimate resolution cannot bedetermined at this time.

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

 

 - 69 -

 

 

 

 

 

      OnDecember 31, 2010, the Company had an environmental reserve in the amount of$1,495,000 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 $30,000. 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 ground watercontamination/remediation that was identified before the acquisition andbelieved to have been generated by a third party company located near the *Gradall*facility.

 

      Thecompany knows that *Bush Hog*’s main manufacturing property in Selma,Alabama was contaminated with chlorinated volatile organic compounds which mostlikely resulted from painting and cleaning operations during the 1960s and’70s. The contaminated areas were primarily in the location of undergroundstorage tanks and underneath the former waste storage area. Under the AssetPurchase Agreement, *Bush Hog*’s prior owner agreed to and has removed theunderground storage tanks at its cost and has remedied the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm was retained bythe prior owner and is administering the cleanup and will monitor the sites onan ongoing basis until the remediation program is complete and approved by theapplicable authorities.

 

      Certainother assets of the Company contain asbestos that may have to be remediatedover time. Management has made its best estimate of the cost to remediate theseenvironmental issues. However, such estimates are difficult to estimateincluding the timing of such costs. The Company believes that any subsequentchange in the liability associated with the asbestos removal will not have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

 

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

      

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

      Summarized quarterly financial data for 2010 and 2009is presented below. Seasonal influences affect the Company’s sales and profits,with peak business occurring in May through August. 

(inthousands, except per share amounts)

 

**2010**

** **

**2009**

 
 

**First**

** **

**Second**

** **

**Third**

** **

**Fourth**

** **

**First**

** **

**Second**

** **

**Third**

** **

**Fourth**

 
Sales

$

128,389

 

$

134,334

 

$

132,298

 

$

129,519

 

$

110,143

 

$

113,243

 

$

110,318

 

$

112,783

Gross  profit

 

28,135

 

 

28,681

 

 

32,390

 

 

27,708

 

 

21,727

 

 

24,329

 

 

25,649

 

 

22,856

Net income  

 

3,993

 

 

4,870

 

 

8,150

 

 

4,104

 

 

1,543

 

 

2,992

 

 

4,583

 

 

9,515

Earnings  per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Diluted

$

0.34

 

$

0.41

 

$

0.68

 

$

0.34

 

$

0.15

 

$

0.30

 

$

0.46

 

$

0.83

Average  shares 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Diluted

 

11,833

 

 

11,882

 

 

11,906

 

 

11,952

 

 

9,963

 

 

9,986

 

 

10,086

 

 

11,417

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

$

20.36

 

$

27.00

 

$

25.41

 

$

28.19

 

$

18.04

 

$

13.25

 

$

17.16

 

$

17.33

    Low

$

16.62

 

$

19.58

 

$

18.68

 

$

21.55

 

$

9.22

 

$

9.90

 

$

9.98

 

$

13.10

 

 

      Thesum of quarterly earnings per share may not equal total year earnings per sharedue to rounding of earnings per share amounts, and differences inweighted-average shares and equivalent shares outstanding for each of theperiods presented.

 

The third quarter of 2010 resultsinclude a tax credit of $0.9 million relating to prior years research anddevelopment expenses. The fourth quarter 2009 results include the followingitems: (1) a pre-tax charge of $14.1 million related to goodwill impairment,(2) a pre-tax benefit of $3.7 million related to LIFO liquidation, and (3) a $30.2 million gain on bargain purchase of *Bush Hog*.

 

** **

 

 

- 70 -

 
 
**20. ACQUISITIONS AND INVESTMENTS**

***Bush Hog***

 

 

 

 

On October 22, 2009 (“Closing Date”), the Company acquiredthe majority of the assets and assumed certain liabilities of Bush Hog locatedin Selma, Alabama. The purchase included substantially all of the ongoingbusiness of Bush Hog, including the Bush Hog brand name and all related productnames and trademarks (the “Acquisition”). The purchase price consideration was1.7 million unregistered shares of Alamo Group common stock which representedapproximately 14.5% of the outstanding stock of Alamo Group. Because therestricted stock was issued in an unregistered private transaction, resale ofthe shares is restricted and the shares may be resold only if registered orsold in a transaction exempt from the registration requirements of the SecuritiesAct, including pursuant to Rule 144 under the Securities Act. Under Rule 144,the restricted stock is subject to, among other things, an initial 6-monthholding period before any of the shares can be sold in the public market. Accordingly,the fair value of the 1.7 million shares was based on the public market priceof Alamo common stock less a discount for lack of marketability associated withthe 6-month holding period. We utilized an Asian put option model to measurethe discount for lack of marketability. An Asian put option is an option thatentitles the holder to a payoff based on the average price of an underlyingasset, over a predetermined period. The closing price of our common stock onOctober 22, 2009 was $16.09 per share.

The Acquisition was accounted for inaccordance with ASC Topic 805, *Business Combinations*(“ASC Topic 805”). Accordingly,the total purchase price was allocated on a provisional basis to assetsacquired and net liabilities assumed in connection with the Acquisition basedon their estimated fair values as of the completion of the Acquisition. Theseallocations reflected various provisional estimates that were available at thetime and were subject to change during the purchase price allocation period asvaluations are finalized. All valuations are now final.

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

The primary reason for the *BushHog* acquisition was to help the Company further the goal of becoming thelargest manufacturer of agricultural mowers in the world. This acquisitionenabled the Company to expand its market presence, expand its product offeringsand enter new markets. 

The fairvalue of the net assets acquired was approximately $53.1 million, which exceedsthe preliminary 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 was shown separately within incomefrom operations in the Consolidated Statements of Income in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2009. The recordedamount was provisional and subject to change. The Company evaluated thepurchase price allocation during 2010, including the opening fair value ofinventory, accounts receivable, property, plant & equipment, accruedliabilities and deferred taxes, which required the Company to adjust therecorded gain.

 

 

 

 - 71 -

 

 

 

 

 

 

The following table summarizes thefair value of assets acquired and liabilities assumed as of the Closing Date.Since the acquisition, net adjustments of $2,488,000 were made to the fairvalue of the assets acquired and liabilities assumed with a correspondingadjustment to the bargain purchase gain. 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. The December 31, 2009 financialstatement balances and disclosures impacted by these adjustments have beenretrospectively adjusted. The adjustments were due to the final valuation ofproperty, plant and equipment, accounts receivable, other liabilities anddeferred taxes.

 

 

(in  thousands)

 

**Initial**

**Valuation**

 

 

 

**Adjustments**

 

 

**Adjusted**

**Values**

 

 

 

 

 

 

 

 

 

Accounts  receivable 

$

25,571 

 

$

1,974   

 

$

27,545       

Inventory

 

21,875 

 

 

453   

 

 

22,328       

Prepaid  expenses

 

395 

 

 

— 

 

 

395       

Property,  plant & equipment 

 

12,743 

 

 

(432)  

 

 

12,311       

Other  Liabilities 

 

(9,357) 

 

 

493   

 

 

(8,864)      

    Net  Assets acquired

 

51,227 

 

 

2,488   

 

 

53,715       

Intangible  asset:

 

  

 

 

  

 

 

 

    Bush  Hog trade name 

 

1,900 

 

 

— 

 

 

1,900       

Total  assets acquired

 

53,127 

 

 

2,488   

 

 

55,615       

 

 

 

 

 

 

 

 

 

Less:  Fair value of 1.7 million unregistered shares

 

25,438 

 

 

— 

 

 

25,438      

Gain  on Bargain purchase

$

27,689 

 

$

2,488   

 

$

30,177      

 

In accordance with the closingdocuments, the Company received a 50% undivided interest in the Accounts Receivableof *Bush Hog*, subject to any net working capital adjustment. The postclosing net working capital adjustment was $3.8 million which increasedaccounts receivable and the gain on bargain purchase. The Company will collectpayments on the acquired accounts receivable and remit 50% of the collectionsto the seller less the $3.8 million. The *Bush Hog* accounts receivablewere recorded at 50% of the fair value, plus the working capital adjustment.

The intangible asset relates to theappraised value of the *Bush Hog* name at closing and has an indefinitelife.

Under 805-10, acquisition relatedcosts (i.e., advisory, legal, valuation and other professional fees) are notincluded as a component of consideration transferred, but are accounted for asexpenses in the periods in which the costs are incurred. The Company incurred$828,000 of acquisition related costs. 

 

In 2010 *Bush Hog*’s net revenue was $88.9 million andnet profit was $4.3 million. 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 table presentsunaudited supplemental pro forma information as if the acquisition of *BushHog* had occurred on January 1, 2009 for the year ended December 31, 2010and for the year ended December 31, 2009:

 

** **

** **

** **

 
(in thousands, except per share amounts)

 

**2010**  

** **

**2009** 

Net sales

$

524,540 

$

561,740 

Net gain (loss)

$

21,117 

$

(10,516)

Diluted gain (loss) per share

$

			1.78 

$

			(0.92)

 

- 72 -

 

 

 

 

 

      The unaudited pro forma financial informationis presented for informational purposes only and is not intended to representor be indicative of the consolidated results of operations of the Company thatwould have been reported had the acquisition been completed as of the beginningof the periods presented, and should not be taken as being representative ofthe future consolidated results of operations of the Company. 

      Thecompany knows that *Bush Hog*’s main manufacturing property in Selma,Alabama was contaminated with chlorinated volatile organic compounds which mostlikely resulted from painting and cleaning operations during the 1960’s and‘70s. The contaminated areas were primarily in the location of undergroundstorage tanks and underneath the former waste storage area. Under the AssetPurchase Agreement, *Bush Hog*’s prior owner agreed to and has removed theunderground storage tanks at its cost and has remedied the identifiedcontamination in accordance with the regulations of the Alabama Department ofEnvironmental Management. An environmental consulting firm was retained bythe prior owner and is administering the cleanup and will monitor the sites on anongoing basis until the remediation program is complete and approved by theapplicable authorities.

 

     **Rivard Developpement**

      On May 30, 2008, theCompany purchased Rivard Developpement S.A.S. *(“Rivard”)*, a leadingFrench manufacturer of vacuum trucks, high-pressure cleaning systems andtrenchers. The purchase price was approximately €15 million (approximately U.S.$23 million) plus the assumption of certain liabilities. The Company hasallocated the purchase price to the acquired assets and liabilities assumed andrecorded goodwill of approximately €9 million (approximately U.S. $15 million)related to this acquisition. We finalized the purchase price allocation duringthe second quarter of 2009. The majority of the purchase price was fundedutilizing the Company’s cash reserves in Europe, with the balance from bankcredit facilities. *Rivard’s* sales in 2007 were €40 million(approximately U.S. $62 million), and the company has 275 full-time employees.*Rivard*is located in Daumeray, France and was founded in 1952.

 

**21. SUBSEQUENT EVENTS**

 

      TheBoard of Directors of the Company adopted the Alamo Group Inc. SupplementalExecutive Retirement Plan (the “Plan”), effective as of January 3, 2011. ThePlan will benefit certain key management or other highly compensated employeesof the Company and/or certain subsidiaries who are selected by the Board toparticipate. The Plan is also intended to provide a benefit from the Companyupon retirement, death or disability or a change in control of the Company. Accordingly,the Plan obligates the Company to pay to a participant a Retirement Benefit (asdefined in the Plan) upon the occurrence of certain payment events to theextent a participant has a vested right thereto. 

 

 

 

 

 

- 73 -

 

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