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PART I
The Company is a global leader in the design manufacture, distribution and servicemanufacture of high quality agricultural equipment and infrastructure maintenance equipment for right-of-way maintenancegovernmental and agriculture.industrial use. The Company’s products include tractor-mounted mowing and other vegetation maintenance equipment, street sweepers, excavators, vacuum trucks, snow removal equipment, pothole patchers, zero turn radius mowers ("ZTR's"), agricultural implements and related aftermarket parts and services. The Company emphasizes high quality, cost-effective products for its customers and strives to develop and market innovative products while constantly monitoring and seeking to contain its manufacturing and overhead costs. The Company has a long-standing strategy of supplementing its internal growth through acquisitions of businesses or product lines that currently complement, command, or have the potential to achieve a meaningful share of their niche markets. The Company has approximately 2,3002,550 employees and operates a total of eighteen plants in North America, Europe and Australia. The Company sells its products primarily through a network of independent dealers and distributors to governmental end-users, related independent contractors, as well as to the agricultural and commercial turf markets. The Company operates primarily in the United States, England, France, Canada and Australia.
Since its founding in 1969, the Company has focused on satisfying customer needs through geographic market expansion, product development and refinement, and selected acquisitions. The Company’s first products were based on rotary cutting technology. Through acquisitions, the Company added flail cutting technology in 1983 and sickle-bar cutting technology in 1984. The Company added to its presence in the industrial and governmental vegetation markets with the acquisition of TigerCorporation (“Tiger”) in late 1994.
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In 2000, the Company acquired Schwarze Industries, Inc. (“Schwarze”). Schwarze is a manufacturer of a broad range of street sweeping equipment which is sold to governmental agencies and contractors. The Company believes the Schwarze sweeper products fit the Company’s strategy of identifying product offerings with brand recognition in the industrial markets the Company serves. In 2004, the Company purchased the pothole patcher product line from Wildcat Manufacturing, Inc. The product line was merged into the Schwarze operation and is complementary to its current product offerings.
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On March 6,In 2007, the Company purchased Henke Manufacturing Corporation (“Henke”), a manufacturer of specialty snow removal attachments. Henke’s products are mounted on both heavy industrial equipment and medium to
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VacAll
VacAll produces catch basin cleaners and roadway debris vacuum systems. These units are powerful and versatile with uses including, but not limited to, removal of wet and dry debris, spill elimination, and cleaning of sludge beds. VacAll also offers a line of sewer cleaners. VacAllIts products are primarily sold through dealers to industrial and commercial contractors as well as governmental agencies. A portion of VacAll’s sales includes truck chassis which are not manufactured by the Company.
were outsourced.
McConnel equipment principally includes a broad line of hydraulic, boom-mounted hedge and grass cutters, as well as other tractor attachments and implements such as hydraulic backhoes, cultivators, subsoilers, buckets and other digger implements and related replacement parts. McConnel equipment is sold primarily in the U.K., Ireland and France and in other parts of Europe and, to a lesser extent, throughout the world, through independent dealers and distributors.
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Twose
equipment includes light-duty power arm mowers, agricultural implements and related replacement parts. Twose products are manufactured at the Company’s U.K. facilities. These products are sold through Twose’s dealer distribution network in the U.K. and through Faucheux’s and other independent distributors internationally.
The addition of Spearhead expanded the Company’s product lines, particularly rotary cutters, and market coverage in Europe 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 In addition, Faucheux sales have been in France, but the Company has expanded also market coverage tocertain agricultural related products from other countries.company units and third party suppliers.
2014.
terms.
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letter. facility. Monitoring of the test wells by the City of New Philadelphia as required by the Ohio EPA has shown no increase in contamination over the past 30 years and the Company was informed in the fourth quarter of 2012 that the wells were plugged during the second half of the year. Based on this information, the Company has determined that a reserve is no longer required. As of December 31, changes in the prices of agricultural commodities, which could affect our customers’ income levels; and outbreaks; resulting impact on the global economy and particularly financial institutions; and President and Chief Executive Officer Dan E. Malone Executive Vice President and Chief Financial Officer Robert H. George Vice President, Secretary and Treasurer Richard J. Wehrle Vice President and Controller Donald C. Duncan Vice President and General Counsel Vice President, Alamo Group Inc. and Managing Director, Alamo Group (EUR) Ltd. Richard D. Pummell Vice President, Alamo Group Inc. and Executive Vice President Alamo Group (USA) Inc., Agricultural Division our business, results of operations and financial condition. changes in laws or policies; shipments. letter. The Company knows that Bush Hog’s main manufacturing property in Selma, Alabama was contaminated with chlorinated volatile organic compounds which most likely resulted from painting and cleaning operations during the equipment repurchase requirements. result thereof. letter. The Company knows that Bush Hog’s main manufacturing property in Selma, Alabama was contaminated with chlorinated volatile organic compounds which most likely resulted from painting and cleaning operations during the PART II 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 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 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 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% 2012 as demand for infrastructure maintenance equipment was strong for most of 2013. economy continued to affect this Division. 2013. Europe. Provision for Income Taxes was our French companies. 2011 pressures at governmental entities. France. initiatives which helped lower manufacturing costs. amount of $1,185,000. European Division. Provision for Income Taxes was 2013. . levels. is March 28, 2016. As of 2013 regulation. 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 2013 Industrial Division. parts, though some components can have warranty for longer terms. difference is recognized as an impairment loss. financial instruments for trading or speculative purposes. To mitigate the short-term effect of changes in currency exchange rates on the Company’s functional currency-based sales, the Company’s U.K. and Canadian subsidiaries regularly enter into foreign exchange The Company currently does not have an Equity Compensation Plan not approved by the Stockholders. 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 available for future under equity 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 Exhibits Exhibit Title Documents 2.1 Asset Purchase Agreement, dated September 4, 2009, between Filed as Exhibit 2.1 to Form 8-K, September 2.2 — Filed as Exhibit 3.1 to Form S-1, February 5, 1993 3.2 — Filed Herewith — Filed as Exhibit 10.1 to Form 10-Q, May 15, 1997 — Filed as Exhibit 10.2 to Form 10-Q, May 15, 1997 * — Filed as Exhibit 10.14 to Form 10-K, March 31, 1998 * — Filed as Exhibit 10.15 to Form 10-K, March 31, 1998 * — Filed as Exhibit B to Schedule 14A, July 30, 1999 * — Filed as Exhibit B to Schedule 14A, May 3, 2001 * — Filed as Appendix E to Schedule 14A, May 4, 2005 * — Filed as Exhibit 10.1 to Form 8-K, May 13, 2009 Filed as Exhibit 10.3 to Form 8-K, February 8, 2006 — Filed as Exhibit 10.1 to Form 8-K, April 5, 2006 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 Filed as Exhibit 10.12 to Form 10K, March 10, 2009 — Filed as Exhibit 10.1 to Form 10 Q, November 9, 2009 — Filed as Exhibit 10.2 to Form 8-K, May 13, 2009 * — Filed as Exhibit 10.3 to Form 8-K, May 13, 2009 * — Filed as Exhibit 10.4 to Form 8-K, May 13, 2009 * — * — Filed as Exhibit 10.6 to Form 8-K, May 13, 2009 * — Filed as Exhibit 10.1 to Form * — Filed as Exhibit 10.1 to Form 21.1 — Filed Herewith 23.1 — Filed Herewith Certification by Ronald A. Robinson under Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herewith 31.2 — Filed Herewith 31.3 — Filed Herewith 32.1 — Filed Herewith 32.2 — Filed Herewith 32.3 — Filed Herewith Signature President, Chief Executive Officer & Director (Principal Executive Officer) Executive Vice President & Chief Financial Officer (Principal Financial Officer) Director Director Director Director San Antonio, Texas San Antonio, Texas Alamo Group Inc. and Subsidiaries 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; 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 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 Common Stock Additional Paid-in Treasury Retained Accumulated Total Stock- (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 Alamo Group Inc. and Subsidiaries 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 Inventories difference is recognized as an impairment loss. $1,900,000. represented by each option for any change in capitalization. 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 2013 and 2012. (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 (in thousands) Balance Beginning of Year Net Charged to Expenses Translations, Reclassifications and Acquisitions Net Write-Offs or 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 Industrial Division. 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 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 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 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 is March 28, 2016. As of 2013 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 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 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% 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) international jurisdictions. The Company adopted the provisions of FASB ASC Section 740-10-25 (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”) on January 1, 2007. 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 $ — There are 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 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 On May 7, 2009, the stockholders of the Company approved the 2009 Equity Incentive Plan and the Company reserved 400,000 shares of common stock for this plan. Options become vested and exercisable for up to 20% of the total optioned shares one year following the grant of the option and for an additional 20% of the total optioned shares after each succeeding year until the option is fully exercisable at the end of the fifth year. 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 Options outstanding and exercisable as of December 31, 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 Shares Price Weighted-average contractual term 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 Year ended December 31, 2010 (in thousands) 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 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 Hourly Employees’ Employees’ 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 Hourly Employees’ Employees’ 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 Year ended December 31, 2010 (in thousands) Hourly Employees’ Employees’ 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’ Employees’ 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 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% (in thousands) December 31, 2010 Quoted (Level 1) Significant (Level 2) Significant (Level 3) 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 common collective trust investments are managed by one custodian. Consistent with our investment (in thousands) Hourly Employees’ Employees’ 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 Three of the Company’s international subsidiaries also participate in a defined contribution and savings plan covering eligible employees. The Company’s international subsidiaries contribute between 3% and 2011: 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 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 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 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) (in thousands) Operating Capitalized 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 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 On (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 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) 2010,2013, the Company had unfilled customer orders of $97,616,000$129,004,000 compared to $71,333,000$124,453,000 at December 31, 2009.2012. The 37%4% increase was primarily from our European Division as new orders increased during the last half of 2013 due to the positive impact of improved agricultural market conditions on Bush Hog and Rhino backlogs. The Company continues to be affected by soft market conditions in its Industrial and European divisions due to the downturn in the global economy.Europe. Management expects that substantially all of the Company’s backlog as of December 31, 20102013 will be shipped during fiscal year 2011.2014. The amount of unfilled orders at a particular time is affected by a number of factors, including manufacturing and shipping schedules which, in most instances, are dependent on the Company’sseasonal sales programs and the requirements of its customers. Certain of the Company’s orders are subject to cancellation at any time before shipment; therefore, a comparison of unfilled orders from period to period is not necessarily meaningful and may not be indicative of future actual shipments. No single customer is responsible for 10% or more of the aggregate revenue of the Company.hydraulic tubing.tires. During 2010,2013, the raw materials needed by the Company were available from a variety of sources in adequate quantities and at prevailing market prices. No one supplier is responsible for supplying more than 10% of the principal raw materials used by the Company.U.S. industrial engines over 175 horsepower, which are used in certain of the Company’s products, manufactured after January 1, 2011 will be required to meet Tier 4i federal guidelines for emission controls, which will increase the cost of our units and our working capital requirements. Other jurisdictions, particularly in Europe, have already implemented similar requirements. The Company sources its purchased goods from international and domestic suppliers. No single supplier is responsible for supplying more than 10% of the purchased goods used by the Company.Company amortized approximately $79,000 in patents and trademarks relating to the industrial segment. The Company wrote off $224,000 in older patents which the Company believes no longer provide a competitive advantage. The net book value of the patents and trademarks was $5,500,000 and $5,803,000$5,500,000 as of December 31, 20102013 and 2009, respectively.- 8 - Products manufactured by the CompanyThe Company’s products are advertised and sold under numerous trademarks. Alamo Industrial®, Terrain King®, Gradall®, VacAll™, Henke®, Bush Hog®,Rhino®, Earthmaster®, McConnel®, Bomford®, SMA®, Schwarze®, Nite-Hawk™, Tiger™, Schulte®, Forges Gorce™, Twose™, Faucheux™, Herschel™,Valu-Bilt®,Rivard®, Rousseau™ and Spearhead™trademarks are the primary marks forthrough the Company’s products. The Company also ownsvarious marketing organizations and extensive worldwide dealer and distributor networks under the Alamo Industrial®, Terrain King®, Tiger®, Gradall®, VacAll®, Schwarze®, Nite-Hawk®, Henke®, Tenco®, Bush Hog®, Rhino®, Earthmaster®, Herschel®, Valu-Bilt®, Schulte®, Superior®, McConnel®, Bomford®, Spearhead™, Twose™, SMA®, Forges Gorce™, Faucheux™, Rousseau™ and Rivard®trademarks (some with related designs) as well as other trademarks which it uses to a lesser extent, such as M&W®, SMC™,Fuerst®, Triumph®, Mott®, Turner®, and Dandl®. Management believes that the Company’s trademarks are well known in its markets and are valuable and that their value is increasing with the development of its business. The Company actively protects its trademarks against infringement and believes it has applied for or registered its trademarks in the appropriate jurisdictions.trade names.letter will be requested. OnPrior to December 31, 2010,2012, the Company had an environmental reserve in the amount of $1,495,000$1,185,000 related to the acquisition of Gradall’s facility in New Philadelphia, Ohio. Three specific remediation projects that were identified prior to the acquisition are in process of remediation with a remainingThe reserve balance of $30,000. The Company has a reserve of $277,000 concerning a potential asbestos issue that is expected to be remediated over time. The balance of the reserve, $1,188,000, is mainlywas for potential ground water contamination/remediation that was identified before the acquisition and believed to have been generated by a third party company located near the Gradall facility.‘70s.1970s. The contaminated areas were primarily in the location of underground storage tanks and underneath the former waste storage area. Under the Asset Purchase Agreement, Bush Hog’s prior owner agreed to and has removed the underground storage tanks at its cost and has remediedremediated the identified contamination in accordance with the regulations of the Alabama Department of Environmental Management. An environmental consulting firm was retained by the prior owner and is administeringto administer the cleanup and will monitor the sitessite on an ongoing basis until the remediation program is complete and approved by the applicable authorities. other assets of the Company contain asbestos that may have to be remediated over time. Management has made its best estimate of the cost to remediate these environmental issues. However, such estimates are difficult to determine, including the timing of such costs. The Company believes that any subsequent change in the liability associated with the asbestos removal will not have a material adverse effect on the Company’s consolidated financial position or results of operations.Employees2010,2013, the Company employed approximately 2,3002,550 employees. In the U.S.North America, the Company has collective bargaining agreements at the Gradall facility which cover 163187 employees and will expire inon March 9, 201412, 2017 and at the SMCTenco facility in Canada covering 4955 employees which will expire on June 30, 2012.December 13, 2015. The Company’s European operations, McConnel,Bomford, Spearhead, Twose, AMS-UK, SMA, SMA, Forges Gorce,Faucheux, RousseauandRivard, also have various collective bargaining agreements covering 848866 employees. The Company considers its employee relations to be satisfactory.- 9 -1514 of the accompanying consolidated financial statements.1615 of the accompanying consolidated financial statements.http://www.sec.gov.Reader®Reader® software to view the documents, which are in PDF format. In addition, the Company posts on its website its Charters for its Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee, as well as its Corporate Governance Policies and its Code of Conduct and Ethics for its directors, officers and employees. You can obtain a written copy of these documents, excluding exhibits, at no cost, by sending your request 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. 1670.1621. The information on the Company’s website is not incorporated by reference into this report.10‑K10-K and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II of this Annual Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, forward-looking statements may be made orally or in press releases, conferences, reports or otherwise, in the future by or on behalf of the Company.- 10 -impact of tighter credit markets on the Company, its dealers and end-users;outbreaks such as mad cow and other epidemics;unforeseen- -20112014 annual meeting of directors or until his successor is duly elected and qualified.NameAgePositionName Age Position Ronald A. Robinson 5850645459GeoffGeoffrey Davies6364Jeffery A. Leonard 54 Vice President, Alamo Group Inc. and Executive Vice President Alamo Group (USA) Inc., Industrial Division Geoffdivision.Division. Prior to joining the Company, Mr. Pummell was Vice President for Global Supply and General Manager ofMinerals.- 12 -foreignother economies in which we conduct business. Slow or negative growth rates, inflationary pressures, higher commodity costs and energy prices, reduced credit availability or unfavorable credit terms for our dealers and end-user customers, increased unemployment rates, and continued recessionary economic conditions and outlookforegoforgo purchases of our products and could have an adverse effect on our net sales and earnings.us.- 13 -Additionally,In addition, although most of the raw materials and purchase components we use are commercially available from a number of sources, we could experience disruptions in the availability of such materials. If we are unable to purchase materials we require or are unable to pass on price increases to our customers or otherwise reduce our cost of goods sold, our business, results of operations and financial condition may be adversely affected. In addition, higher energy costs may negatively affect spending by farmers, including their purchases of our products.The Company believes that the assumptions and estimates used to determine the estimated fair values of each of its reporting units are reasonable. However, different assumptions could materially affect the estimated fair value. As of December 31, 2010,2013, goodwill was $34,073,000,$32,073,000, which represents 9%7% of total assets.2010.2013. The North American Industrial segment had aCompany recognized goodwill impairment at one of $14,104,000its French operations, Faucheux, of $656,000 in 2009. 2012 and two of its French operations, SMA and Rousseau, of $1,898,000 in 2011. The primary reason for the goodwill impairment in 2012 and 2011 was the general economic downturn that continues to affect the Company's European operations. This caused the Company to revise its expectations about future revenue, which is a significant factor in the discounted cash flow analysis used to estimate the fair value of the Company's reporting units. During the 20102013 impairment analysis review, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 15% decline in the fair value of each reporting unit as of December 31, 2013 would not result in an impairment of goodwill for any of the reporting units. During the 2012 impairment analysis review, it was noted that even though the Schwarzeand Rivard reporting unit’sunits' fair value was above carrying value, it was not materially different. On December 31, 2010,2013, there was approximately $6.8$6.9 million and $12.3 million of goodwill related to the Schwarze and Rivard reporting unit. Thisunits, respectively. These reporting unitunits would be most likely affected by changes in the Company’s assumptions and estimates. The calculation of fair value could increase 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.States.States and we source raw materials and components globally. Our international operations are subject to the risks normally associated with conducting business in foreign countries, including but not limited to the following:- 14 -shipments- 15 -Additionally,In addition, many of our marketing departments attempt to equalize demand for their products throughout the calendar year by offering seasonal sales programs which may provide additional incentives, including discounts and extended payment terms, on equipment that is ordered during off-season periods. Because we spread our production and wholesale shipments throughout the year to take into account the factors described above, sales in any given period may not reflect the timing of dealer orders and retail demand.we cannot assure that sudden or significant declines in industry demand would notcould adversely affect our working capital or results of operations.ourthe Company’s facilities and offsite disposal locations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on usthe Company in the future. Like other industrial concerns, ourthe Company’s manufacturing operations entail the risk of noncompliance, and there can be no assurance that wethe Company will not incur material costs or other liabilities as a result thereof.- 16 -future monitoring of existing wells, we will request an unconditional “no further action” letter will be requested. On December 31, 2010, the Company had an environmental reserve in the amount of $1,495,000 related to the acquisition of Gradall’s facility in New Philadelphia, Ohio. Three specific remediation projects that were identified prior to the acquisition are in process of remediation with a remaining reserve balance of $30,000. The Company has a reserve of $277,000 concerning a potential asbestos issue that is expected to be remediated over time. The balance of the reserve, $1,188,000, is mainly for potential ground water contamination/remediation that was identified before the acquisition and believed to have been generated by a third party company located near the Gradall facility.1960’s1960s and ‘70s.1970s. The contaminated areas were primarily in the location of underground storage tanks and underneath the former waste storage area. Under the Asset Purchase Agreement, Bush Hog’s prior owner agreed to and has removed the underground storage tanks at its cost and has remediedremediated the identified contamination in accordance with the regulations of the Alabama Department of Environmental Management. An environmental consulting firm was retained by the prior owner and is administeringto administer the cleanup and will monitor the sitessite on an ongoing basis until the remediation program is complete and approved by the applicable authorities.other assetsproperties of the Company contain asbestos that may have to be remediated over time. Management has made its best estimate oftime and it could be additional expense to the cost to remediate these environmental issues. However, such estimates are difficult to estimate including the timing of such costs. Company.believes that any subsequent change inis subject to various other federal, state, and local laws affecting its business, as well as a variety of regulations relating to such matters as working conditions, equal employment opportunities, and product safety. A variety of state laws regulate the liability associatedCompany’s contractual relationships with the asbestos removal will not have a material adverse effectits dealers, some of which impose restrictive standards on the Company’s consolidated financial position or resultsrelationship between the Company and its dealers, including events of operations. We have incurreddefault, grounds for termination, non-renewal of dealer contracts, and will continue to incur capital and other expenditures to comply with the laws and regulations applicable to our operations. In particular, if we fail to comply with any environmental regulations, then we could be subject to future liabilities, fines or penalties or the suspension of production at our manufacturing facilities. If unexpected obligations at these or other sites or more stringent environmental laws are imposed in the future, our business, results of operations and financial condition may be adversely affected.- 17 -NYSENew York Stock Exchange during 20102013 ranged from $27.82$60.69 to $17.02$33.89 per share, and during 20092012 from $17.15$34.07 to $9.37$26.20 per share. Our stock price may fluctuate in response to the risk factors set forth herein and to a number of events and factors, such as quarterly variations in operating and financial results, litigation, changes in financial estimates and recommendations by securities analysts, the operating and stock performance of other companies that investors may deem comparable to us, news reports relating to us or trends in our industry or general economic conditions. Furthermore, the trading volume of our common stock has generally been low, which may increase the volatility of the market price for our stock. The stock price volatility and low trading volume may make it difficult for you to resell your shares of our common stock when desired or at attractive prices.2010, 11,829,8792013, 12,123,083 shares of our common stock were issued and outstanding, and there were outstanding options to purchaseand restricted stock awards totaling an additional 471,530417,774 shares of our common stock. We also have additional shares available for grant under our 2005 Incentive Stock Option Plan and our 2009 Equity Incentive Plan. Additional stock option or other compensation plans or amendments to existing plans for employees and directors may be adopted. Issuance of these shares of common stock may dilute the ownership interests of our then existing stockholders. We may also issue additional shares of our common stock in connection with the hiring of personnel, future acquisitions, such as the 1,700,000 shares issued as consideration for the acquisition of Bush Hog,in 2009, future private placements of our securities for capital raising purposes or for other business purposes. This would further dilute the interests of our existing stockholders.Future sales, or the possibility of future sales, of a substantial amount of our common stock may depress the price of the shares of our common stock.Future sales, or the availability for sale in the public market, of substantial amounts of our common stock could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through future sales of equity securities. If we or our existing stockholders sell substantial amounts of our common stock in the public market, or if there is a perception that these sales may occur, the market price of our common stock could decline.of $0.06 per share in each quarter since the third quarter of 1999,becoming a public company in 1993, there can be no assurance that we will continue to declare dividends or that funds will continue to be available for this purpose in the future. The declaration and payment of dividends are restricted by the terms of our amended and restated revolving credit agreement, and are subject to the discretion of our Board of Directors, are not cumulative, and will depend upon our profitability, financial condition, capital needs, future prospects, and other factors deemed relevant by our Board of Directors.- 18 -2010,2013, Capital Southwest Corporation, and its subsidiary Capital Southwest Venture Corporation, a subsidiary of Capital Southwest Corporation, beneficially owned approximately 24%23% of our outstanding common stock and, threefour other investors Duroc,- Bgear LLC, Henry Crown and Company, Royce & Associates, LLC, and Dimensional Fund Advisors LP and Third Avenue Management LLC- beneficially own approximately 29%32% of our outstanding common stock. As a result, either Capital Southwest or the other major stockholders combined could be able to significantly influence the direction of the Company, the election of our Board of Directors and the outcome of any other matter requiring stockholder approval, including mergers, consolidations and the sale of all or substantially all of our assets, and together with other beneficially owned investors, to prevent or cause a change in control of the Company. In addition,Also, pursuant to contractual obligations, each of Capital Southwest Venture Corporation, Capital Southwest Corporation and Duroc LLC, an affiliate of Bgear LLC and Henry Crown and Company, was entitled to certain rights with respect to the registration of the common stock owned by them under the Securities Act. Pursuantto such registration rights, on March 12, 2012 we filed a registration statement related to the common stock owned by such entities and such registration statement was declared effective by the SEC. The interests of Capital Southwest and other major stockholders may conflict with the interests of our other stockholders.- -2010,2013, the Company utilized tennine principal manufacturing plants located in the United States, six in Europe, onetwo in Canada, and one in Australia. The facilities are listed below: Approximately 89% of the manufacturing, warehouse and office space is owned. During the third quarterIn July of 2010 the Company closed and sold its SMA facility in Orleans, France. During 2009,2012, the Company closed its warehouseMemphis, Tennessee and this 15,000 sq. ft. facility is for sale or lease.the second quarter of 2014. The Company considers each of its facilitiesthis facility to be well maintained, in good operating condition and adequate for its present level of operations.- 20 -Thevarious legal actions whicha broad range of federal, state, local and foreign laws and requirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposal locations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have arisenon the Company in the ordinary coursefuture. Like other industrial concerns, the Company’s manufacturing operations entail the risk of its business. The most prevalent of such actions relate to product liability, which is generally covered by insurance after various self-insured retention amounts. While amounts claimed mightnoncompliance, and there can be substantial and the ultimate liability with respect to such litigation cannot be determined at this time,no assurance that the Company believes that the ultimate outcome of these matters will not haveincur material costs or other liabilities as a material adverse effect on the Company’s consolidated financial position or results of operations; however, the ultimate resolutions cannot be determined at this time.future monitoring of existing wells, we will request an unconditional “no further action” letter will be requested. On December 31, 2010, the Company had an environmental reserve in the amount of $1,495,000 related to the acquisition of Gradall’s facility in New Philadelphia, Ohio. Three specific remediation projects that were identified prior to the acquisition are in process of remediation with a remaining reserve balance of $30,000. The Company has a reserve of $277,000 concerning a potential asbestos issue that is expected to be remediated over time. The balance of the reserve, $1,188,000, is mainly for potential ground water contamination/remediation that was identified before the acquisition and believed to have been generated by a third party company located near the Gradall facility.1960’s1960s and ‘70s.1970s. The contaminated areas were primarily in the location of underground storage tanks and underneath the former waste storage area. Under the Asset Purchase Agreement, Bush Hog’s prior owner agreed to and has removed the underground storage tanks at its cost and has remediedremediated the identified contamination in accordance with the regulations of the Alabama Department of Environmental Management. An environmental consulting firm was retained by the prior owner and is administeringto administer the cleanup and will monitor the sitessite on an ongoing basis until the remediation program is complete and approved by the applicable authorities.other assetsproperties of the Company contain asbestos that may have to be remediated over time. Management has made its best estimate of the cost to remediate these environmental issues. However, such estimates are difficult to estimate including the timing of such costs. The Company believes that any subsequent change in the liability associated with the asbestos removal will not have a material adverse effect on the Company’s consolidated financial position or results of operations.[Mine Safety DisclosuresRemove and Reserved]- 21 -, Related Stockholder Matters and Issuer Purchases of Equity Securities25, 2011,28, 2014, there were 11,831,97912,126,783 shares of common stock outstanding, held by approximately 11679 holders of record, but the total number of beneficial owners of the Company’s common stock exceeds this number. On February 25, 2011,28, 2014, the closing price of the common stock on the New York Stock Exchange was $28.03$52.58 per share. On January 5, 2011, the Board of Directors of the Company declared a quarterly dividend of $.06 per share which was paid on February 2, 2011, to holders of record as of January 19, 2011. 2013 2012 Cash Cash Sales Price Dividends Sales Price Dividends Quarter Ended High Low Declared Quarter Ended High Low Declared March 31, 2013 $ 40.64 $ 33.12 $ .07 March 31, 2012 $ 30.93 $ 25.51 $ .06 June 30, 2013 44.13 37.39 .07 June 30, 2012 34.23 29.40 .06 September 30, 2013 49.45 40.48 .07 September 30, 2012 34.00 27.07 .06 December 31, 2013 61.27 45.51 .07 December 31, 2012 34.63 29.66 .06 20092012 or in 2010.2013. The authorization to repurchase up to 1,000,000 shares remains available, less 42,600 shares previously purchased.1312 of this Annual Report on Form 10-K.2010,2013, as well as the performance of an overall stock market index (the S&P 500 Index) and the Company's selected peer group index (the Russell 2000 Index).- 22 -
*$100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Copyright© 2014 Russell Investment Group. All rights reserved. December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 Alamo Group Inc. 100.00 116.89 191.74 187.42 228.94 428.69 S&P 500 100.00 126.46 145.51 148.59 172.37 228.19 Russell 2000 100.00 127.17 161.32 154.59 179.86 249.69 
- 23 - Fiscal Year Ended December 31, (1) 2013 2012 2011 2010 2009 Operations: Net sales $ 676,836 $ 628,402 $ 603,593 $ 538,548 $ 454,825 Income before income taxes 51,388 43,446 48,129 29,032 31,106 Net income 36,094 28,903 32,687 21,117 18,633 Percent of sales 5.3 % 4.6 % 5.4 % 3.9 % 4.1 % Earnings per share Basic 3.00 2.43 2.76 1.79 1.80 Diluted 2.96 2.40 2.73 1.78 1.80 Dividends per share 0.28 0.24 0.24 0.24 0.24 Average common shares Basic 12,050 11,899 11,848 11,782 10,330 Diluted 12,212 12,058 11,966 11,893 10,363 Financial Position: Total assets $ 438,476 $ 404,339 $ 381,665 $ 370,983 $ 379,957 Short-term debt and current maturities 420 588 1,190 2,319 5,453 Long-term debt, excluding current maturities 8 118 8,621 23,106 44,336 Stockholders’ equity $ 350,465 $ 310,286 $ 277,276 $ 253,260 $ 236,919 - 24 - Fiscal Year Ended December 31, 2013 2012 2011 North American Industrial $ 296,617 $ 263,353 $ 229,594 Agricultural 215,340 200,467 203,993 European 164,879 164,582 170,006 Total net sales $ 676,836 $ 628,402 $ 603,593 Cost and profit margins, as percentages of net sales: Cost of sales 76.6 % 77.2 % 77.6 % Gross profit 23.4 % 22.8 % 22.4 % Selling, general and administrative expenses 15.9 % 15.5 % 15.3 % Income from operations 7.5 % 7.2 % 8.2 % Income before income taxes 7.6 % 6.9 % 8.0 % Net income 5.3 % 4.6 % 5.4 % 20102013 compared to Fiscal 200920102013 (“2010”2013”) were $524,540,000,$676,836,000, an increase of $78,053,000$48,434,000 or 17.5%7.7% compared to $446,487,000$628,402,000 for the fiscal year ended December 31, 20092012 (“2009”2012”). The increase was primarily duemainly from improved sales in the Company's North American and Agricultural Divisions. The Industrial Division was up 12.6% as sales of all product lines increased over 2012. Likewise, sales in the Agricultural Division were up 7.4% over last year as mowing products for all three major brands showed improvement. Sales in the European Division were slightly up compared to 2012 as markets for our products showed increases in the inclusionsecond half of a full year of2013 for the results of Bush Hog which was acquiredfirst time in October 2009.several years.$192,379,000$296,617,000 in 20102013 compared to $173,905,000$263,353,000 in 2009,2012, an increase of $18,474,000$33,264,000 or 10.6%12.6%. The increase resultedwas primarily from higher sales of replacement parts and, to a lesser extent, a slight improvement in sales ofsweepers, excavator, vacuum truck, sweepertrucks and mowingsnow equipment products. Governmental entities continue to be affected by budget constraints and revenue shortfalls. Compared to 2009, sales to state agencies remained steadier than those to cities and counties.$173,464,000$215,340,000 in 20102013 compared to $92,415,000$200,467,000 in 2009,2012, representing an increase of $81,049,000$14,873,000 or 87.7%7.4%. The increase in sales compared to 2012 was primarily due to the acquisition of from improved demand for Bush Hog, which contributed $78,030,000 ofSchulte and Rhino products in the increase. The agricultural market was softin North America. Favorable weather conditions during the first six monthsmiddle of 2010 due2013 helped improve sales to both row crop and hobby farmers. Commodity prices retreated somewhat during the weakness in the overall economy, leading to dealer reluctance to stock farm equipment. During the third quarter of 2010, market conditions reflected some improvement due to increases in commodity prices and growth in farm income.year from levels experienced over prior years, but still remain strong.decreased $21,470,000increased $297,000 or 11.9%0.2% to $158,697,000$164,879,000 in 20102013 compared to $180,167,000$164,582,000 in 2009.2012. This decreaseslight increase was mainly due to softfrom improved sales during the last half of 2013 as European markets showed some signs of improvement after being in decline for the last several years. However, challenging market conditions caused by the slowdownand uncertainty in the European economy. Specifically, our U.K. units held up better than our French operations, which were responsible for the majority of the decrease. The agricultural market in Europe showed more improvement in 2010 than the governmental market. The European sales in 2010 had a lagging effect from what we saw in the Company’s North American markets.20102013 were $116,914,000 (22.3%$158,510,000 (23.4% of net sales) compared to $94,561,000 (21.2%$143,512,000 (22.8% of net sales) in 2009,2012, an increase of $22,353,000.$14,998,000. The majority of the increase was duefrom higher sales volume during 2013 which led to favorable production efficiencies. Increased lower margin tractor and chassis sales combined with lower sales of higher margin replacement parts negatively affecting the acquisition of Bush Hog, which accounts for $20,271,000 of the increase. Increasesgross profit in the Company’s replacement part business supported higher margins as well as improved margin percentages. Margin percentages also improved over 2009 as a result of ongoing cost savings initiatives which helped lower manufacturing costs.$86,041,000 (16.4%$107,773,000 (15.9% of net sales) in 20102013 compared to $76,100,000 (17.0%$97,507,000 (15.5% of net sales) in 2009.2012. The increase of $9,941,000$10,266,000 in SG&A in 20102013 was dueprimarily litigation expenses from a patent infringement lawsuit, which we were successful in defending, in the amount of $2,137,000, $972,000 of acquisition related expenses and $586,000 of additional stock option expense related to the acquisitionaccelerated vesting of Bush Hog which added a net increaseoptions to retirement eligible recipients. Also during 2013, the Company had restructuring costs at one of $11,799,000. Without Bush Hogits French operations, higher performance based incentive compensation expense, increased sales commissions on higher sales and increased trade show expenses in 2010both North America and 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 has since been adjusted to $30,177,000 as a result of retrospective adjustments to the fair value of assets acquired and liabilities assumed since the date of acquisition. The purchase price consideration was 1,700,000 unregistered shares of Alamo Group stock at a closing price of $16.09 per share plus the assumption of certain liabilities and other considerations. There was no goodwill impairment for 2010 compared to non-cash $14,104,000 impairment in 2009. 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 performing its required impairment test.20102013 was $3,664,000$1,161,000 compared to $4,766,000$1,620,000 in 2009,2012, a $1,102,000decrease of $459,000 or a 23.1% decrease.28.3%. The decrease was due tocame from reduced borrowings in 20102013 compared to 2009.2012.2010 interest expense includes $375,000income in amortization2013 included a grant of bank fees$475,000 from the amendmentUK government related to R&D training and employment, a $70,000 gain realized from the Company’s revolving credit agreementsale of the Company's Memphis warehouse in November 2009. In 2009, the Company amortized $63,000first quarter of 2013 and fluctuations in bank fees relating to the same amendment. Other income net, was $290,000 during 2010 compared to income of $625,000 in 2009. The gains in both 2010 and 2009 are entirely from changes inforeign exchange rates.- 25 -$7,915,000 (27.3%$15,294,000 (29.8% of income before income taxes) for 20102013 compared to $12,473,000 (40.1%$14,543,000 (33.5% of income before income taxes) in 2009. Included2012. Due to the delay in signing the American Taxpayer Relief Act of 2012 which extended the research and development tax credits, the Company was not able to include $350,000 of tax credits in its 2012 financial statements but instead recognized this tax benefit in the 2010 taxfirst quarter of 2013. Also included in the 2013 provision is an $898,000 taxa credit related to prior years’ researchthe reversal of reserves for uncertain tax positions and development expenses. The increasea tax benefit relating to current losses in the effective tax rate for 2009 was from increased state taxes in the United States and from the non-deductible tax write-offone of goodwill in the Industrial Division.20102013 was $21,117,000$36,094,000 compared to $18,633,000$28,903,000 in 20092012 due to the factors described above.20092012 compared to Fiscal 200820092012 (“2009”2012”) were $446,487,000, a decrease$628,402,000, an increase of $110,648,000$24,809,000 or 19.9%4.1% compared to $557,135,000$603,593,000 for the fiscal year ended December 31, 20082011 (“2008”2011”). The decreaseincrease was primarily attributablemainly due to the general weaknessacquisition of Tenco in October of 2011 and improved sales of mowing and vacuum truck equipment in the worldwide economy which beganIndustrial Division. The Company's Agricultural Division was slightly down as agricultural markets experienced slower growth as farmers remained cautious about the weak U.S. economy. Sales in the fourth quarter of 2008 and continuesEuropean Division were also down in 2012 compared to 2011 as governmental markets remained soft due to the economic slowdown that has continued to affect the markets the Company serves. The acquisitions of Rivard and Bush Hog were accretive to the Company’s sales for 2009.Europe.$173,905,000$263,353,000 in 20092012 compared to $254,787,000$229,594,000 in 2008,2011, an $80,882,000increase of $33,759,000 or 31.7% decrease.14.7%. The decrease cameincrease was from lowerthe acquisition of Tenco which contributed $21,444,000 of sales of excavator,in 2012 compared to $6,950,000 in 2011, and improved sales from VacAll vacuum truck, sweepertrucks and mowing equipment as governmental entities continue to befrom both the Alamo Industrial and Tiger branded products. Sales of excavators and street sweepers were negatively affected by slower markets resulting from continued budget constraints and revenue shortfalls. Sales to cities and counties remained steadier than those to state agencies.$92,415,000$200,467,000 in 20092012 compared to $120,232,000$203,993,000 in 2008,2011, representing a decrease of $27,817,000$3,526,000 or 23.1%1.7%. The decrease was duefrom market conditions and the summer drought that affected the Midwest part of the U.S. during the first nine months of 2012.However, preseason orders during the last quarter of 2012 for both Bush Hog and Rhino products were up compared to market uncertainty2011. This improvement reflected strengthening in the agricultural sector by increases in commodity prices and tighter credit as dealers were reluctant to stock inventory at historical levels. The acquisition of Bush Hog on October 22, 2009 added $10,863,000 in sales.farm incomes.$1,949,000$5,424,000 or 1.1%3.2% to $180,167,000$164,582,000 in 20092012 compared to $182,116,000$170,006,000 in 2008.2011. This decrease was mainly due to changesreflected soft governmental market conditions that affected this Division for all of 2012. French markets in particular were down as economic uncertainty in the exchange rates and softnessEuropean economy negatively affected product sales in the French markets and to a lesser extent was offset by higher export sales outside our core markets. The Rivard acquisition added $23,858,000 to sales for 2009.20092012 were $94,561,000 (21.2%$143,512,000 (22.8% of net sales) compared to $109,414,000 (19.6%$135,085,000 (22.4% of net sales) in 2008, a decrease2011, an increase of $14,853,000.$8,427,000. The decreaseincrease was due to reducedfrom the acquisition of Tenco in the amount of $4,378,000 and improved vacuum trucks and mowers sales during 2009, which was somewhat offset byin the Rivard acquisition.Company's Industrial Division. Gross margin percentages also improved over 2008last year as a result of favorable pricing in both raw and purchase components and continued improvement inimprovements from efficiency initiatives.$76,100,000 (17.0%$97,507,000 (15.5% of net sales) in 20092012 compared to $83,059,000 (14.9%$92,347,000 (15.3% of net sales) in 2008.2011. The decreaseincrease of $6,959,000$5,160,000 in SG&A in 20092012 was primarily came from reductionsthe acquisition of Tenco in workforce netthe amount of $1,158,000 in severance costs, lower insurance premiums and professional fees, and reduced commissions from lower sales volumes. Bush Hog acquisition costs were $828,000 in 2009 and, during$3,515,000. During the fourth quarter of 2009,2012, the Company also incurred $1,383,000 at Bush Hog$2,420,000 in expenses relating to severance and restructuring costs. The acquisitionsvarious litigation matters. These additional SG&A expenses were partially offset by the reversal of Rivard and Bush Hog added $3,230,000 and $2,204,000 respectively toan environmental reserve at Gradall in the SG&A expense for 2009.recorded a $27,689,000 bargain purchase gain during the fourth quarterincurred goodwill impairment non-cash charges of 2009 which has since been adjusted to $30,177,000 as a result of retrospective adjustments to the fair value of assets acquired$656,000 in 2012 and liabilities assumed since the date of acquisition. The purchase price consideration was 1,700,000 unregistered shares of Alamo Group stock at a closing price of $16.09 per share plus the assumption of certain liabilities and other considerations. Goodwill impairment for 2009 was non-cash $14,104,000 compared to non-cash $5,010,000$1,898,000 in 2008.2011. In 2009,2012, the Company wrote off all the goodwill at Gradall/VacAll and just over 75%its French company at Nite-Hawkpertaining to two of its French companies, SMA and Rousseau. The primary reason for the goodwill impairment in 2012 and 2011 was the general economic downturn that continues to affect the Company's European operations.All three companies are part of its Industrial Division after performing its required impairment test review. The Company wrote off the entire goodwill relating to its Agricultural Division in 2008.20092012 was $4,766,000$1,620,000 compared to $7,450,000$2,422,000 in 2008,2011, a $2,684,000decrease of $802,000 or a 36% decrease.33.1% . The decrease was due primarily tocame from reduced borrowings along with lower interest rates in 2009.2012 compared to 2011.$625,000an expense of $517,000 during 20092012 compared to income of $1,513,000$848,000 in 2008.2011. The gainsloss and gain in both 20092012 and 2008 are2011 were entirely from changes in exchange rates.- 26 -$12,473,000 (40.1%$20092012 compared to $6,227,000 (36.1%$15,442,000 (32.1% of income before income taxes) in 2008. The increase2011. Due to the delay in signing the American Taxpayer Relief Act of 2012 which extended the research and development tax credits, the Company was not able to include these tax credits in its 2012 financial statements.This benefit will be recognized in the effective tax rate for 2009 was from increased state taxes in the United States and from the non-deductible tax write-offfirst quarter of goodwill in the Industrial Division.20092012 was $18,633,000$28,903,000 compared to $10,999,000$32,687,000 in 20082011 due to the factors described above.2010,2013, the Company had working capital of $185,871,000,$256,332,000, which represents an increase of $1,960,000$27,660,000 from working capital of $183,911,000$228,672,000 as of December 31, 2009.2012. The increase in working capital was primarily from higher accounts receivable incash and cash equivalents as the Company’s North American and EuropeanCompany experienced solid cash flow from its operations offset by decreases in inventory from reduced levels of activity.$4,980,000$13,639,000 for 2010,2013, compared to $3,453,000$4,654,000 for 2009. For 2011, capital expenditures are expected2012. The increase in 2013 was primarily related to be higher compared to 2010 though still below depreciation levels.plant expansions at both the Bomford facility in the U.K. and the Schulte facility in Canada. The Company expects to fund capital expenditures from operating cash flows or through its revolving credit facility, described below.20092012 or in 2010.2013. The authorization to repurchase up to 1,000,000 shares remains available less 42,600 shares previously purchased.thirdfourth quarter of 2010,2011, the Company closedannounced its plans to close the SMC manufacturing facility located in Orleans, FranceSioux Falls, South Dakota and incurred $924,000consolidate the operations into the Company's Gibson City, Illinois facility. The closure resulted in a pretax charge of $867,000 in redundancy costs. The Company also soldcompleted the Orleansconsolidation in July of 2012 with no additional costs. The Company has entered into a contract to sell the SMC plant for $900,000 and anticipates a gain on the sale of the facility and recorded a capital gainwhich is expected to close in the second quarter of $885,000. Production was relocated to the Rousseau manufacturing facility near Lyon, France.2014.$41,877,000$31,627,000 for 2010,2013, compared to $72,086,000$51,263,000 for 2009.2012. The decrease of cash from operating activities resulted primarily from increasedsales driven increases in accounts receivable levels specifically in the Company’s North American operations. The higher levels in 2009 were a result of greater inventory and accounts receivable reductions due to the market decline.$26,013,000$2,484,000 for 2010,2013, compared to net cash used of $56,965,000$9,942,000 for 2009.2012. The decreasenet cash used in financing activities in 2010both years was from repaymentsrepayment of amounts borrowed from our bank credit facility due to cash provided by operating activities. On August 25, 2004, theentered intomaintains a five-year $70 million Amended and Restated Revolving Credit Agreementrevolving credit facility with itscertain lenders Bank of America, JPMorgan Chase Bank, and Guaranty Bank. This contractually-committed, unsecured facility allows the Company to borrow and repay amounts drawn at floating or fixed interest rates based upon Prime or LIBOR rates. Proceeds may be used for general corporate purposes or, subject to certain limitations, acquisitions. The loan agreement contains among other things the following financial covenants: Minimum Fixed Charge Coverage Ratios, Minimum Consolidated Tangible Net Worth, Consolidated Funded Debt to EBITDA Ratio and Minimum Asset Coverage Ratio, along with limitations on dividends, other indebtedness, liens, investments and capital expenditures.- 27 - On October 14, 2008, the Company entered into the Sixth Amendment and Waiver under theits Amended and Restated Revolving Credit Agreement. The purpose of the amendmentaggregate commitments from lenders under such revolving credit facility is $100,000,000 and, waiver wassubject to clarify company names within the Obligated Group after merging or dissolving some subsidiaries, to define operating cash flow and defining quarterly operating cash flow for Rivard through March 31, 2010. Beginning June 30, 2009, Rivard’s actual operating cash flow was used in the calculation of consolidated operating flow. On November 6, 2009,certain conditions, the Company entered intohas the Seventh Amendmentoption to request an increase in aggregate commitments of the Amended and Restated Revolving Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A., BBVA Compass Bank, and Rabobank, as its lenders.up to an additional $50,000,000. The revolving credit line remained at $125.0 million. Prioragreement requires us to maintain various financial covenants including a minimum EBIT to interest expense ratio, a minimum leverage ratio and a minimum asset coverage ratio. The agreement also contains various covenants relating to limitations on indebtedness, limitations on investments and acquisitions, limitations on sale of properties and limitations on liens and capital expenditures. The revolving credit agreement also contains other customary covenants, representations and events of defaults. As of December 31, 2013, the executionCompany was in compliance with the covenants under the revolving credit facility. The expiration date of this Amendment, BBVA Compass Bank acquired certain assets of Guaranty Bank which included thisthe revolving credit facility and JPMorgan Chase Bank assigned its interest to Well 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 security interest in certain U.S. assets (accounts receivable, inventory, equipment, trademarks and trade names) of the Borrower and each member of the Obligated Group. The Lenders agreed to increase the operating leverage ratio during the next three quarters and to add a new EBIT to Interest Expense covenant in exchange for a commitment fee and an increase in the Applicable Interest Margin over LIBOR or Prime Rate advances.2010, there was $21,000,000 borrowed2013, no amounts were outstanding under the revolving credit facility. On December 31, 2010, $833,0002013, $722,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors’vendors' contracts resulting in approximately $103,000,000$99,278,000 in available borrowings. On May 13, 2008, Alamo Group Europe Limited expanded its overdraft facility with Lloyd’s TSB Bank plc from £ 1.0 million to £ 5.5 million. The facility was renewed effective October 29, 2010 and outstandings currently bear interest at Lloyd’s Base Rate plus 1.4% per annum. The facility is unsecured but guaranteed by the U.K. subsidiaries of Alamo Group Europe Limited. As of 2010, there were no outstanding balances in British pounds borrowed against the U.K. overdraft facility. There are additional lines of credit: for the Company’s French operations in the amount of 7,300,000 Euros, which includes the Rivard credit facilities; for our Canadian operation in the amount of 3,500,000 Canadian dollars; and for our Australian operation in the amount of 800,000 Australian dollars. As of December 31, 2010, no Euros were borrowed against the French line of credit; no Canadian dollars were outstanding on the Canadian line of credit; and 600,000 Australian dollars were outstanding under its facility. The Canadian and Australian revolving credit facilities are guaranteed by the Company. As of December 31, 2010,, the Company is in compliance with the terms and conditions of its credit facilities.facilitiesfacility and the Company’s ability to internally generate funds from operations should be sufficient to meet the Company’s cash requirements for the foreseeable future. However, the challenges affecting the banking industry and credit markets in general can potentially cause changes to credit availability, which creates a level of uncertainty.March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “Act”), which is a comprehensive health care reform bill for the United States. In addition, on March 30, 2010, President Obama signed into law the reconciliation measure (“Heath Care and Education Reconciliation Act of 2010”), which modifies certain provisions of the Act. Although the new legislation did not have an impact on our consolidated financial position, results of operation or cash flows in 2010, the Company is continuing to assess the potential impacts on our future obligations, costs and cash flows related to our health care benefits.- 28 - In April 2010, the FASB issued ASU No. 2010-17, “Revenue Recognition (ASC Topic 605): Milestone Method” (“ASU No. 2010-17”). ASU No. 2010-17 recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development transactions. A milestone is substantive when the consideration earned from achievement of the milestone is commensurate with either (a) the vendor’s performance to achieve the milestone or (b) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone and the consideration earned from the achievement of a milestone relates solely to past performance and is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. This new guidance will be effective for our fiscal year 2011 and its interim periods, with early adoption permitted. This guidance will not have a material impact on our consolidated financial position, results of operations or cash flows. In January 2010,July 2013, the provisions of ASCAccounting Standards Codification Topic 820740, “Income Taxes,” were modifiedamended to require additional disclosures, including transfers in and out of Level 1 and 2 fair value measurements andprovide specific guidance on the gross basisfinancial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reconciliation of Level 3 fair value measurements. This guidance isreporting date. The amendment requires entities to present an unrecognized tax benefit as a reduction to the deferred tax asset generated by the net operating loss carryforward, similar tax loss, or tax credit carryforward, if such items are available to be used to offset the unrecognized tax benefit. These provisions are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures related2013 and should be applied prospectively to Level 3 fair value measurements,all unrecognized tax benefits that exist at the effective date, with retrospective application permitted.effective for fiscal yearsrecognized in 2013. after December 15, 2010 (including interim periods). Early adoption is permitted.with calendar year 2013. We have adopted all of these provisions of ASC Topic 820 effective December 31, 2009. Since only disclosuresdetermined that we are affected by these requirements,subject to the adoption of these provisions will not affectrules and are evaluating our financial position or results of operations. In October 2009,supply chain and continue to develop processes to assess the FASB issued ASU No. 2009-14 “Software (ASC Topic 985): Certain Revenue Arrangements That Include Software Elements” (“ASU No. 2009-14”). ASU No. 2009-14 modifiesimpacts and comply with the scope of the software revenue recognition guidance to exclude (i) non-software components of tangible products and (ii) software components of tangible products that are sold, licensed or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. ASU No. 2009-14 is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. This guidance will not have a material impact on our consolidated financial position, results of operations or cash flows. In October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (ASC Topic 605): Multiple-Deliverable Revenue Arrangements” (“ASU No. 2009-13”). ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. ASU No. 2009-13 is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. This guidance will not have a material impact on our consolidated financial position, results of operations or cash flows.- 29 -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 $ 308 $ 308 $ — $ — $ — Capital lease obligations 120 112 8 — — Interest obligations 13 13 — — — Operating lease obligations 3,346 1,507 1,442 397 — Purchase obligations 83,105 83,105 — — — $ 86,892 $ 85,045 $ 1,450 $ 397 $ — (A) (B) (C) 2010 and include the effect of the Company’s interest rate derivative arrangements on future cash payments for the remaining period of those derivatives.2013.(D) (E) In addition, the Company sponsors various pension plans that may obligate it to make contributions from time to time. We expect to make a cash contribution to our pension plans in 2011 in the amount of $1.1 million.- 30 -(usually Chapter 11), to repossess the customer’sits inventory. This also allows Alamo Group to maintain only a reserve over its cost, which usually represents the margin on the original sales price.$2,852,000$2,738,000 on December 31, 2010,2013, and $2,548,000$3,077,000 on December 31, 2009.2012. The increasedecrease was mainly from the Company’s Agricultural operations.2010,2013, the Company had $11,903,000$16,724,000 in reserves for sales discounts compared to $3,803,000$15,005,000 on December 31, 20092012 on product shipped to our customers under various promotional programs. The increase was due primarily to increased sales volume of the Company’s agricultural products during the 2013 pre-season, which runs from September to Decemberduring the third and fourth quarters of each year with orders shipped through the firstsecond quarter of 2011.2014. The Company reviews the reserve quarterly based on analysis made on each program outstanding at the time.$7,506,000$8,596,000 on December 31, 20102013 and $9,060,000$9,099,000 on December 31, 20092012 to cover obsolete and slow moving inventory. The decrease in the reserve was mainly from the Company’s U.S. operations, specifically its facilities in Gibson CityIndustrial Division and Indianola asto a result of greater disposals and sales of slow moving and obsolete inventory.lesser extent the Company's Agricultural Division. The obsolete and slow moving inventory policy states that the reserve is to be calculated as follows: 1) no inventory usage over a three-year period is deemed obsolete and reserved at 100 percent; and 2) slow moving inventory with little usage requires a 100 percent reserve on items that have a quantity greater than a three-year supply. There are exceptions to the obsolete and slow moving classifications if approved by an officer of the Company, based on specific identification of an item or items that are deemed to be either included or excluded from this classification. In cases where there is no historical data, management makes a judgment based on a specific review of the inventory in question to determine what reserves, if any, are appropriate. New products or parts are generally excluded from the reserve policy until a three-year history has been established.parts.$5,554,000$4,994,000 on December 31, 20102013 and $5,972,000$5,007,000 on December 31, 2009. The increase came mainly from the acquisition of Bush Hog.- 31 - Goodwill must be testedleast annually. In the fourth quarterreporting unit level, and whenever events or circumstances make it likely that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of each year, or when events and circumstances warrant such a review, the Company tests the goodwill of all of its reporting units for impairment. Theunit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is determined usingreviewed for impairment utilizing a qualitative assessment or a two-step process. TheWe have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is to identify if a potentialnot considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment exists by comparingmay exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit withover the fair values assigned to its carrying amount, including goodwill (Step 1).assets and liabilities. If the fair value of a reporting unit exceeds its carrying value amount, goodwill of the reporting unit is not considered to have a potential 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 and to measure the amount of impairment loss to recognize, if any. Step 2 compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied value of goodwill is less than the carrying amount of goodwill, then a charge is recorded to reduce goodwill to the implied goodwill. The implied goodwill is calculated based on a hypothetical purchase price allocation, in that it takes the implied fair value of the reporting unit and allocates such fair value tounit's goodwill, the fair value of the assets and liabilities of the reporting unit.The Company believes that the assumptions and estimates used to determine the estimated fair values of each of its reporting units are reasonable. However, different assumptions could materially affect the estimated fair value. As of December 31, 2010,2013, goodwill was $34,073,000,$32,073,000, which represents 9%7% of total assets.2010.2013. The North American Industrial segment had aCompany recognized goodwill impairment at one of $14,104,000its French operations, Faucheux of $ 656,000 in 2009.2012 and at two of its French operations, SMA and Rousseau of$1,898,000 in 2011. The primary reason for the goodwill impairment in 2012 and 2011 was the general economic downturn that continues to affect the Company's European operations. This caused the Company to revise its expectations about future revenue, which is a significant factor in the discounted cash flow analysis used to estimate the fair value of the Company's reporting units. During the 20102013 impairment analysis review, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 15% decline in the fair value of each reporting unit as of December 31, 2013 would not result in an impairment of goodwill for any of the reporting units. During the 2012 impairment analysis review, it was noted that even though the Schwarzeand Rivard reporting unit’sunits' fair value was above carrying value, it was not materially different. On December 31, 2010,2013, there was approximately $6.8$6.9 million and $12.3 million of goodwill related to the Schwarze and Rivard reporting unit. Thisunits, respectively. These reporting unitunits would be most likely affected by changes in the Company’s assumptions and estimates. The calculation of fair value could increase 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.primarily manufactures its products primarily in the United States, the U.K., France, Canada and Australia. The Company sells its products primarily within the markets where the products are produced, but certain of the Company’s sales from its U.K. and Canadian operations are denominated in other European currencies. As a result, the Company’s financials, specifically the value of its foreign assets, could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the other markets in which the subsidiaries of the Company distribute their products.- - forward contracts to hedge over 90% of its future net foreign currency cash receipts over a period of six months. As of 2010,2013, the Company had $2,664,000$2,884,000 outstanding in forward exchange contracts related to accounts receivable. A 15% fluctuation in exchange rates for these currencies would change the fair value by approximately $400,000.$433,000. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts should be offset by changes in the underlying value of the transaction being hedged.2010,2013, the fair value of these agreements was in an unfavorable position; therefore, the derivative financial instruments were recorded as a lossgain of $43,000,$17,000, which has been recognized in other income (expense), net.2010,2013, the result of a uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which the Company’s sales are denominated would resulthave resulted in a decrease in gross profit of $4,435,000 for the year ended $5,475,000. Comparatively, on December 31, 2010. Comparatively, on December 31, 2009,2012, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company’s sales are denominated would have resulted in a decrease in gross profit of approximately $4,891,000 for the year ended December 31, 2009.$5,275,000. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates may also affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. The Company’s sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. The translation adjustment during 20102013 was a loss of $3,659,000.$479,000 . On December 31, 2010,2013, the British pound closed at .64110.6040 relative to the U.S. dollar, and the Euro closed at .74790.7275 relative to the U.S. dollar. By comparison, on December 31, 2009,2012, the British pound closed at .61870.6155 relative to the U.S. dollar, and the Euro closed at .69850.7579 relative to the U.S. dollar. No assurance can be given as to future valuation of the British pound or Euro or how further movements in those or other currencies could affect future earnings or the financial position of the Company.currentaverage level of borrowings at variable rates and a two hundred basis point change in the 20102013 average interest rate under these borrowings, the Company’s 20102013 interest expense would have changed by approximately $420,000.$50,000. In the event of an adverse change in interest rates, management could take actions to mitigate its exposure. Further, this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. However, the challenges affecting the banking industry and credit markets in general can potentially cause changes to credit availability and cost of borrowing which creates a level of uncertainty.4445 through 7476 of this report are incorporated herein by reference.None- 33 -4042 of this Annual Report on Form 10-K and incorporated by reference herein. The Company’s independent public accounting firm has audited and issued a report on the Company’s internal control over financial reporting which is included on page 4143 of this Annual Report on Form 10-K and incorporated by reference herein.13-a-15)13a-15) under the Securities Exchange Act during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, Alamo’s internal control over financial reporting. None.isare incorporated in this Item 10, by reference, thatthose portion of the Company’s definitive proxy statement for the 20112014 Annual Meeting of Stockholders, which appearsappear 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,”Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance.” See also the information under the caption “Executive Officers of the Company” in Part I of this Report.(“NYSE”), on the Company’s website.isare incorporated in this Item 11, by reference, that portionthose portions of the Company’s definitive proxy statement for the 20112014 Annual Meeting of Stockholders which appearsappear therein under the captioncaptions “Executive Compensation,” “The Compensation Committee,” “Compensation Discussion and Analysis,” Compensation Committee Report” and “Director Compensation during 2010.2013.”- 34 -20112014 Annual Meeting of Stockholders which appears under the caption “Beneficial Ownership of Common Stock.”2010,2013, the last day of Alamo Group Inc.’s 20102013 fiscal year.
that remain
issuance
compensation plans
(excluding securities
reflected in column A) - 35 - A B C Plans approved by stockholders Amended and Restated 1994 Incentive Stock Option Plan 3,000 $17.85 — First Amended and Restated 1999 Non-Qualified Stock Option Plan 49,700 $17.66 — 2005 Incentive Stock Option Plan 289,350 $26.78 66,100 2009 Equity Incentive Plan 75,724 $30.69 293,526 Plans not approved by stockholders — — — 417,774 359,626 20112014 Annual Meeting of Stockholders and such information is incorporated by reference herein. There were no such reportable relationships or related party transactions in the fiscal year ended December 31, 2010.2013. In 1999, the Company approved a supplemental retirement benefit for Donald J. Douglass which is paid on a quarterly basis over a period of fourteen and one-half years that began in the year 2000. The remaining balances on December 31, 20102013 and 20092012 were $248,000$40,000 and $308,000,$115,000, respectively, and are included in the Accrued liabilities and Other long-term liabilities sections of the Company’s balance sheets.20112014 Annual Meeting of Stockholders and such information is incorporated by reference herein.23 – Ratification of Appointment of Independent Auditors” in the Company’s definitive proxy statement for the 20112014 Annual Meeting of Stockholders and such information is incorporated by reference herein.PagePage 4041-42Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP)434445464748 - 36 -Exhibits Incorporated by Reference From the Following —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, 20062.2 —the CompanyAlamo Group Inc. and Bush Hog,4,10, 2009, as amended by Form 8-K/A, November 9, 2009— Membership Interests and Partnership Interests Purchase Agreement by and between Alamo Group (USA) Inc., as Purchaser, and Specialized Industries LP, as Seller Dated as of February 24, 2014 Filed as Exhibit 10.1 to Form 8-K, February 28, 2014 3.1 —Certificate of Incorporation, as amended, of Alamo Group Inc. —By-Laws of Alamo Group Inc. as amended 10.1 — Loan Agreement, dated April 30, 1969, between Douglass Industries, Inc. and Capital Southwest Corporation Filed as Exhibit 3.210.6 to Form 10K, March 10, 2009S-1, February 5, 1993 10.1 —First Amendment to Loan Agreement, dated February 12, 1970, between Engler Manufacturing Corporation (formerly known as Douglass Industries, Inc.) and Capital Southwest Corporation Filed as Exhibit 10.7 to Form S-1, February 5, 1993 10.3 — Second Amendment to Loan Agreement, dated December 21, 1972, between Terrain King Corporation (formerly known as Engler Manufacturing Corporation and Douglass Industries, Inc.) and Capital Southwest Corporation Filed as Exhibit 10.8 to Form S-1, February 5, 1993 10.4 — Note and Warrant Purchase Agreement, dated October 15, 1971, among Terrain King Corporation and CSC Capital Corporation, First Dallas Capital Corporation and possibly an additional purchaser or purchasers Filed as Exhibit 10.9 to Form S-1, February 5, 1993 10.5 — Warrant Agreement, dated November 25, 1991, between Alamo Group Inc. and Capital Southwest Corporation Filed as Exhibit 10.11 to Form S-1, February 5, 1993 10.6 — Form of indemnification agreements with Directors of Alamo Group Inc. 10.2 —Form of indemnification agreements with certain executive officers of Alamo Group Inc. 10.3 —Incentive Compensation Plan, adopted on December 9, 1997 10.4 —401(k) Restoration Plan for Highly Compensated Employees, adopted on December 9, 1997 10.5 —Amended and Restated 1994 Incentive Stock Option Plan adopted by the Board of Directors on July 7, 1999 10.6 —First Amended and Restated 1999 Non-Qualified Stock Option Plan, adopted by the Board of Directors on February 13, 2001 10.7 —2005 Incentive Stock Option Plan, adopted by the Board of Directors on May 4, 2005 10.8 —2009 Equity Incentive Plan, adopted by the Board of Directors on May 7, 2009 10.9 —Amended and Restated Revolving Credit Agreement, among Alamo Group Inc.dated August 25, 2004, between the Company and Bank of America, N.A., JPMorgan Chase Bank and Guaranty BankFiled as Exhibit 10.3 to Form 8-K, August 25, 2004 10.15 — Third Amendment of the Guarantors,Amended and Restated Revolving Credit Agreement, dated February 3, 2006 between the Company and Bank of America, N.A., Chase Manhattan Bank, and Guaranty Bank dated February 3, 200610.10 —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 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 GroupFiled Form S-3, July 27, 200610.12 —10.13 —10.18 — 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 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 *10.15 —Eighth Amendment of the Amended and Restated Revolving Credit Agreement, dated March 28, 2011, 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 8K, March 28, 2011 *10.21 — Form of Restricted Stock Award Agreement under the 2009 Equity Incentive Plan 10.16 —Form of Restricted Stock Unit Award Agreement under the 2009 Equity Incentive Plan 10.17 —Form of Nonqualified Stock Option Agreement under the 2009 Equity Incentive Plan 10.18 —Form of Nonqualified Stock Option Agreement under the First Amended and Restated 1999 Nonqualified Stock Option Plan 10.19 —Form of Stock Option Agreement under the 2005 Stock Option Plan - 37 -— Investor Rights Agreement, dated October 22, 2009, between Alamo Group Inc. and Bush Hog, LLC Filed as Exhibit 10.25 to Form 10-K, March 12, 2011 10.20Supplemental Executive Retirement Plan 8K,8-K, January 18, 201110.21Amended Incentive Compensation Plan 8K,8-K, March 11, 2011— Subsidiaries of the Registrant —Consent of KPMG LLP 23.2 —Consent of Ernst & Young LLPFiled Herewith31.1 ——Certification by Dan E. Malone under Section 302 of the Sarbanes-Oxley Act of 2002 —Certification by Richard J. Wehrle under Section 302 of the Sarbanes-Oxley Act of 2002 —Certification by Ronald A. Robinson under Section 906 of the Sarbanes-Oxley Act of 2002 —Certification by Dan E. Malone under Section 906 of the Sarbanes-Oxley Act of 2002 —Certification by Richard J. Wehrle under Section 906 of the Sarbanes-Oxley Act of 2002 101.INS — XBRL Instance Document Filed Herewith 101.SCH — XBRL Taxonomy Extension Schema Document Filed Herewith 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith 101.LAB — XBRL Taxonomy Extension Label Linkbase Document Filed Herewith 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith 101.DEF — XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith - 38 -ALAMO GROUP INC.Date: March 14, 2011 ALAMO GROUP INC. Date: March 11, 2014 By: /s/ RONALDRonald A. ROBINSONRobinson Ronald A. Robinson President & Chief Executive Officer 1511th day of March, 2011.2014.SignatureTitleTitle DONALD J. DOUGLASSJAMES B. SKAGGSDonald J. DouglassDirector /s/JAMES B. SKAGGSJames B. SkaggsDirector- 39 -20102013 using the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management concludes that, as of December 31, 2010,2013, the Company’s internal controls over financial reporting were effective based on the framework in Internal Control – Integrated Framework.Date: March 14, 201111, 2014President & Chief Executive Officer Executive Vice President & Chief Financial Officer Vice President & Corporate Controller Principal Accounting Officer - 40 -2010,2013, based on criteria established in Internal Control –- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Alamo Group Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.2010,2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010 and 2009,2013, and our report dated March 14, 201111, 2014 expressed an unqualified opinion on those consolidated financial statements. /s/KPMG LLP March 14, 201111, 2014- 41 -20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010 and 2009.2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.20102013 and 2009,2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010 and 2009,2013, in conformity with U.S. generally accepted accounting principles.2010,2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2011,11, 2014, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for business combinations in 2009 due to the adoption of FASB ASC Topic 805, Business Combinations. /s/KPMG LLP March 14, 201111, 2014- 42 -Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Alamo Group Inc.We have audited the accompanying consolidated statements 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's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Alamo Group Inc. and subsidiaries for the year ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.Ernst & Young LLPSan Antonio, TexasMarch 6, 2009- 43 -
11,872,479 and 11,789,529 issued and outstanding at December 31, 2010 and December 31, 2009, respectively December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $ 63,960 $ 48,291 Accounts receivable, net 151,396 140,268 Inventories 109,104 108,758 Deferred income taxes 5,741 3,824 Prepaid expenses 5,129 5,659 Income tax receivable 1,623 — Total current assets 336,953 306,800 Property, plant and equipment 158,376 146,454 Less: Accumulated depreciation (96,472 ) (89,653 ) 61,904 56,801 Goodwill 32,073 31,648 Intangible assets 5,500 5,500 Deferred income taxes 457 2,593 Other assets 1,589 997 Total assets $ 438,476 $ 404,339 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable $ 45,593 $ 41,641 Income taxes payable 1,126 4,045 Accrued liabilities 33,482 31,601 Current maturities of long-term debt and capital lease obligations 420 588 Deferred income taxes — 253 Total current liabilities 80,621 78,128 Long-term debt and capital lease obligation, net of current maturities 8 118 Accrued pension liabilities 2,538 9,871 Other long-term liabilities 3,494 3,646 Deferred income taxes 1,350 2,290 Stockholders’ equity: Common stock, $.10 par value, 20,000,000 shares authorized;12,113,109 and 12,028,354 issued at December 31, 2013 and December 31, 2012, respectively 1,211 1,203 Additional paid-in capital 91,439 88,660 Treasury stock, at cost: 42,600 shares at December 31, 2013 and December 31, 2012 (426 ) (426 ) Retained earnings 255,203 222,480 Accumulated other comprehensive income (loss) 3,038 (1,631 ) Total stockholders’ equity 350,465 310,286 Total liabilities and stockholders’ equity $ 438,476 $ 404,339 - 44 - Year Ended December 31, 2013 2012 2011 Net sales: North American Industrial $ 296,617 $ 263,353 $ 229,594 Agricultural 215,340 200,467 203,993 European 164,879 164,582 170,006 Total net sales 676,836 628,402 603,593 Cost of sales 518,326 484,890 468,508 Gross profit 158,510 143,512 135,085 Selling, general and administrative expenses 107,773 97,507 92,347 Gain on bargain purchase — — (8,616 ) Goodwill impairment — 656 1,898 Income from operations 50,737 45,349 49,456 Interest expense (1,161 ) (1,620 ) (2,422 ) Interest income 186 234 247 Other income (expense), net 1,626 (517 ) 848 Income before income taxes 51,388 43,446 48,129 Provision for income taxes 15,294 14,543 15,442 Net income $ 36,094 $ 28,903 $ 32,687 Net income per common share: Basic $ 3.00 $ 2.43 $ 2.76 Diluted $ 2.96 $ 2.40 $ 2.73 Average common shares: Basic 12,050 11,899 11,848 Diluted 12,212 12,058 11,966 - 45 - Year Ended December 31, (in thousands, except per share amounts) 2013 2012 2011 Net income $ 36,094 $ 28,903 $ 32,687 Other comprehensive income (loss): Foreign currency translation adjustment 479 4,445 (2,788 ) Unrealized gains on derivative instruments — — 144 Net gain (loss) on pension and other postretirement benefits 6,706 (574 ) (6,533 ) Other comprehensive income (loss) before income tax expense (benefit) 7,185 3,871 (9,177 ) Income tax expense (benefit) related to items of other comprehensive income (loss) (2,516 ) 121 2,021 Other comprehensive income (loss) 4,669 $ 3,992 $ (7,156 ) Comprehensive income $ 40,763 $ 32,895 $ 25,531
Other
Comprehensive
holders’ Common Stock Treasury Stock Retained Earnings (in thousands) Shares Amount Balance at December 31, 2010 11,830 $ 1,187 $ 84,377 $ (426 ) $ 166,589 $ 1,533 $ 253,260 Net income — — — — 32,687 — 32,687 Translation adjustment — — — — — (2,788 ) (2,788 ) Unrealized derivative gain, net of taxes — — — — — 144 144 Net actuarial loss arising during period net of taxes — — — — — (4,512 ) (4,512 ) Tax effect of non-qualified stock options — — 63 — — — 63 Stock-based compensation — — 986 — — — 986 Exercise of stock options 30 3 278 — — — 281 Dividends paid ($.24 per share) — — — — (2,845 ) — (2,845 ) Balance at December 31, 2011 11,860 $ 1,190 $ 85,704 $ (426 ) $ 196,431 $ (5,623 ) $ 277,276 Net income — — — — 28,903 — 28,903 Translation adjustment — — — — — 4,445 4,445 Net actuarial loss arising during period net of taxes — — — — — (453 ) (453 ) Tax effect of non-qualified stock options — — (102 ) — — — (102 ) Stock-based compensation — — 940 — — — 940 Exercise of stock options 126 13 2,118 — — — 2,131 Dividends paid ($.24 per share) — — — — (2,854 ) — (2,854 ) Balance at December 31, 2012 11,986 $ 1,203 $ 88,660 $ (426 ) $ 222,480 $ (1,631 ) $ 310,286 Net income — — — — 36,094 — 36,094 Translation adjustment — — — — — 479 479 Net actuarial gain arising during period net of taxes — — — — — 4,190 4,190 Tax effect of non-qualified stock options — — — — — — — Stock-based compensation — — 1,501 — — — 1,501 Exercise of stock options 85 8 1,278 — — — 1,286 Dividends paid ($.24 per share) — — — — (3,371 ) — (3,371 ) Balance at December 31, 2013 12,071 $ 1,211 $ 91,439 $ (426 ) $ 255,203 $ 3,038 $ 350,465 - 46 - Year Ended December 31, (in thousands) 2013 2012 2011 Operating Activities Net income $ 36,094 $ 28,903 $ 32,687 Provision for doubtful accounts 31 253 992 Depreciation 8,898 9,948 10,418 Amortization of debt issuance 126 126 188 Gain on bargain purchase — — (8,616 ) Goodwill impairment charge — 656 1,898 Stock-based compensation 1,501 940 985 Excess tax benefits from stock-based payment arrangements — 102 (63 ) Provision for deferred income tax expense (benefit) (877 ) (405 ) 850 Gain (Loss) on sale of equipment (237 ) 155 (263 ) Changes in operating assets and liabilities, net of effect of acquisitions: (10,515 ) 4,770 (15,152 ) Inventories 776 6,932 (8,680 ) Prepaid expenses and other (925 ) (2,376 ) (72 ) Trade accounts payable and accrued liabilities 4,420 960 (4,162 ) Income taxes payable (4,565 ) 2,338 397 Other assets and liabilities, net (3,100 ) (2,039 ) (740 ) Net cash provided by operating activities 31,627 51,263 10,667 Investing Activities Acquisitions, net of cash acquired (1,002 ) — (6,536 ) Purchase of property, plant and equipment (13,639 ) (4,654 ) (5,766 ) Proceeds from sale of property, plant and equipment 475 564 440 Net cash used in investing activities (14,166 ) (4,090 ) (11,862 ) Financing Activities Net change in bank revolving credit facility — (7,000 ) (14,000 ) Principal payments on long-term debt and capital leases (399 ) (2,117 ) (2,570 ) Dividends paid (3,371 ) (2,854 ) (2,845 ) Proceeds from sale of common stock 1,286 2,131 281 Excess tax benefits from stock-based payment arrangements — (102 ) 63 Net cash provided by (used in) financing activities (2,484 ) (9,942 ) (19,071 ) Effect of exchange rate changes on cash 692 772 311 Net change in cash and cash equivalents 15,669 38,003 (19,955 ) Cash and cash equivalents at beginning of the year 48,291 10,288 30,243 Cash and cash equivalents at end of the year $ 63,960 $ 48,291 $ 10,288 Cash paid during the year for: Interest $ 1,118 $ 1,837 $ 2,295 Income taxes 21,580 13,533 15,247 - 47 -AmericaAmerican Agricultural, North American Industrial and European, which are discussed in Notes 15 and 16. We have evaluated subsequent events that occurred after December 31, 2010 through the filing of this Form 10-K. Any material subsequent events that occurred during this time have been properly recognized or disclosed in our financial statements.Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation.2010,2013, the Company had $2,664,000$2,884,000 in outstanding forward exchange contracts related to sales. The unrealized loss of the December 31, 20102013 contracts that the Company expects to incur during the first quarter of 20112014 is approximately $27,000,$11,000, net of taxes. Foreign currency transaction gains or losses are included in Other income (expense), net. For 2010, 20092013, 2012 and 2008,2011, such transactions netted gains (losses) of $265,000, $625,000,$921,000, $(476,000), and $1,513,000,$816,000, respectively.- 48 -In the fourth quarter of each year, or when events and circumstances warrant such a review, the Company tests the goodwill of all of its reporting units for impairment. TheWe perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is determined usingreviewed for impairment utilizing a qualitative assessment or a two-step process. TheWe have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is to identify if a potentialnot considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment exists by comparingmay exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit withover the fair values assigned to its carrying amount, including goodwill (Step 1).assets and liabilities. If the fair value of a reporting unit exceeds its carrying value amount, goodwill of the reporting unit is not considered to have a potential 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 and to measure the amount of impairment loss to recognize, if any. Step 2 compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied value of goodwill is less than the carrying amount of goodwill, then a charge is recorded to reduce goodwill to the implied goodwill. The implied goodwill is calculated based on a hypothetical purchase price allocation, in that it takes the implied fair value of the reporting unit and allocates such fair value tounit's goodwill, the fair value of the assets and liabilities of the reporting unit.The Company believes that the assumptions and estimates used to determine the estimated fair values of each of its reporting units are reasonable. However, different assumptions could materially affect the estimated fair value. As of December 31, 2010,2013, goodwill was $34,073,000,$32,073,000, which represents 9%7% of total assets.2010.2013. The North American Industrial segment had aCompany recognized goodwill impairment at one of $14,104,000its French operations, Faucheux, of $656,000 in 2009.2012 and two of its French operations, SMA and Rousseau, of $1,898,000 in 2011. The primary reason for the goodwill impairment in 2012 and 2011 was the general economic downturn that continues to affect the Company's European operations. This caused the Company to revise its expectations about future revenue, which is a significant factor in the discounted cash flow analysis used to estimate the fair value of the Company's reporting units. During the 20102013 impairment analysis review, we performed a sensitivity analysis for goodwill impairment with respect to each of our reporting units and determined that a hypothetical 15% decline in the fair value of each reporting unit as of December 31, 2013 would not result in an impairment of goodwill for any of the reporting units. During the 2012 impairment analysis review, it was noted that even though the Schwarzeand Rivard reporting unit’sunits' fair value was above carrying value, it was not materially different. On December 31, 2010,2013, there was approximately $6.8$6.9 million and $12.3 million of goodwill related to the Schwarze and Rivard reporting unit. Thisunits, respectively. These reporting unitunits would be most likely affected by changes in the Company’s assumptions and estimates. The calculation of fair value could increase 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.Company’s definite-livedCompany's intangible assets consist primarily of patents and trade names. The gross carrying value of definite-lived intangible assets was zero on December 31, 2010 and $1,147,000 on December 31, 2009 and $1,391,000 on December 31, 2008. Accumulated amortization of definite-lived intangible assets was $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, the Company wrote off $224,000 in older patents which the Company believes no longer provide a competitive advantage. 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.- 49 - Intangible assets with indefinite useful lives not subject to amortization consistconsists of trade names. The net book value of these trade names was $5,500,000 as of December 31, 2013 and 2012 . This consisted of the Gradall trade name valued at $3,600,000$3,600,000 and the Bush Hog trade name valued at $1,900,000 on December 31, 2010.310330 former employees and 210133 current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were covered by a collective bargaining agreement and (iii) first participated in the plan before April 6, 1997. An amendment ceasing all future benefit accruals was effective April 6, 1997.220239 former employees and 12087 current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were not covered by a collective bargaining agreement, and (iii) first participated in the plan before December 31, 2004. An amendment ceasing future benefit accruals for certain participants was effective December 31, 2004. A second amendment discontinued all future benefit accruals for all participants effective April 24, 2006.20102013 and 2009. During 1999,2012. In1999, the Company approved a supplemental retirement benefit for Donald J. Douglass which is paid on a quarterly basis over a period of fourteen and one-half years that began in the year 2000. The balance on December 31, 20102013 and 20092012 was $248,000$40,000 and $308,000,$115,000, respectively, and is included in the Accrued liabilities and Other long-term liabilities sections of the Company’s consolidated balance sheet.- 50 -iswas approximately $1,779,000$944,000 and $1,516,000$1,092,000 on December 31, 20102013 and December 31, 2009,2012, respectively. Software depreciation expense was $749,000, $721,000$488,000, $676,000 and $992,000$822,000 in 2010, 20092013, 2012 and 2008,2011, respectively. Internal use software is amortized for financial reporting purposes using the straight-line method over the estimated life of two to seven years.2010, 20092013, 2012 and 20082011 was approximately $5,135,000, $4,378,000$6,646,000, $6,353,000 and $5,735,000,$6,441,000, respectively. Advertising and marketing expenses are included in Selling, General and Administrative expenses (“SG&A”).$5,774,000, $4,762,000,$7,164,000, $5,686,000, and $5,443,000$6,017,000 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively.Business Combinations Effective January 1, 2009, we adoptedThe Company has granted options to purchase its common stock to certain employees and directors of the new provisionsCompany and its affiliates under various stock option plans at no less than the fair market value of ASC Topic 805, “Business Combinations,” which address the recognition and measurement of (i) identifiable assets acquired or liabilities assumed, and any non-controlling interest in the acquiree, and (ii) goodwill acquired or gain from a bargain purchase. In addition, acquisition-related costs are accounted for as expenses in the period in which the costs are incurred and the services are received. These provisions were applied to the acquisition of certain assets and liabilities of Bush Hog LLC in the fourth quarter of 2009, which is discussed in Note 20.- 51 -Stock-Based Compensation Effective January 1, 2006, we began using the modified-prospective transition method. However, for unvested equity awards outstanding as ofunderlying stock on the date of January 1, 2006, we continue to amortize those awards usinggrant. These options are granted for a term not exceeding ten years and are forfeited in the minimum value method. Beginning January 1, 2006 measurement and recognitionevent the employee or director terminates his or her employment or relationship with the Company or one of compensation expense for all share-based payment awards made to employees and directors is recognized based on estimated fair values. We use the Black-Scholes pricing model to determine the fair valueits affiliates other than by retirement or death. These options generally vest over five years. All option plans contain anti-dilutive provisions that permit an adjustment of the stock options on the grant dates for stock awards made on or after January 1, 2006, and we amortize the fair valuenumber of share-based payments on a straight-line basis over the requisite service periodsshares of the award, which is generally the vesting period. The Black-Scholes valuation model requires us to make assumptions and judgments about the variables used in the calculation. These variables and assumptions include the fair value of ourCompany’s common stock expected term, the expected volatility, the risk-free interest rate, expected dividends, and the estimated rate of forfeitures of unvested stock options. using a Black-Scholes option-pricing model with the following weighted-average assumptions for 2010, 2009,2013, 2012, and 2008:
2011: December 31, 2013 2012 2011 Risk-free interest rate 1.38 % 1.44 % 2.64 % Dividend yield 0.8 % 1.2 % 1.2 % Volatility factors 47.9 % 46.7 % 46.7 % Weighted-average expected life 8.0 years 8.0 years 8.0 years Measurementsof Financial InstrumentsDisclosures In January 2010, the provisions of ASC Topic 820 were modified to require additional disclosures, including transfers incash equivalents, accounts receivable, accounts payable, and out of Level 1 and 2accrued expenses, approximate fair value measurements and the gross basis presentationbecause of the reconciliationshort-term nature of Level 3these items. The carrying value of our debt approximates the fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures related to Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 (including interim periods). Early adoption is permitted. We have adopted allas of these provisions of ASC Topic 820 effective December 31, 2009. Since only disclosures are affected by these requirements, the adoption of these provisions did not affect our financial position or results of operations.(in thousands, except per share amounts) 2013 2012 2011 Net income $ 36,094 $ 28,903 $ 32,687 Average common shares: Basic (weighted-average outstanding shares) 12,050 11,899 11,848 Dilutive potential common shares from stock options 162 159 118 12,212 12,058 11,966 Basic earnings per share $ 3.00 $ 2.43 $ 2.76 Diluted earnings per share $ 2.96 $ 2.40 $ 2.73 133,7003,831 shares in 2010, 304,5332013, 38,954 shares in 2009,2012, and 188,52378,337 shares in 20082011 were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive.- 52 -
Costs and
Discounts Taken 2013 Allowance for doubtful accounts $ 3,077 $ 31 $ 62 $ (432 ) $ 2,738 Reserve for sales discounts 15,005 76,184 — (74,465 ) 16,724 Reserve for inventory obsolescence 9,099 2,586 (157 ) (2,932 ) 8,596 Reserve for warranty 5,007 6,410 80 (6,503 ) 4,994 2012 Allowance for doubtful accounts $ 3,215 $ 253 $ 113 $ (504 ) $ 3,077 Reserve for sales discounts 14,567 65,481 (16 ) (65,027 ) 15,005 Reserve for inventory obsolescence 7,630 2,998 79 (1,608 ) 9,099 Reserve for warranty 5,083 6,646 82 (6,804 ) 5,007 2011 Allowance for doubtful accounts $ 2,852 $ 995 $ (65 ) $ (567 ) $ 3,215 Reserve for sales discounts 11,903 62,935 9 (60,280 ) 14,567 Reserve for inventory obsolescence 7,506 3,403 (123 ) (3,156 ) 7,630 Reserve for warranty 5,554 6,070 17 (6,558 ) 5,083 90-day90-day basis. The Company has a secured or insured interest on most of its wholegoods that each customer purchases. This allows the Company, in times of a difficult economy when the customer is unable to pay or has filed for bankruptcy, (usually Chapter 11), to repossess the customer’sits inventory. This also allows Alamo Group to maintain only a reserve over its cost, which usually represents the margin on the original sales price.$2,852,000$2,738,000 on December 31, 2010,2013, and $2,548,000$3,077,000 on December 31, 2009.2012. The increasedecrease was mainly from the Company’s Agricultural operations.2010,2013, the Company had $11,903,000$16,724,000 in reserves for sales discounts compared to $3,803,000$15,005,000 on December 31, 20092012 on product shipped to our customers under various promotional programs. The increase was due primarily to higherincreased sales activityvolume of the Company’s agricultural products during the 2013 pre-season, which runs from September to Decemberduring the third and fourth quarters of each year with orders shipped through the firstsecond quarter of 2011.2014. The Company reviews the reserve quarterly based on analysis made on each program outstanding at the time.- 53 -$7,506,000$8,596,000 on December 31, 20102013 and $9,060,000$9,099,000 on December 31, 20092012 to cover obsolete and slow moving inventory. The decrease in the reserve was mainly from the Company’s U.S. operations, specifically its facilities in Gibson CityIndustrial Division and Indianola asto a result of greater disposals and sales of slow moving and obsolete inventory.lesser extent the Company's Agricultural Division. The obsolete and slow moving inventory policy states that the reserve is to be calculated as follows: 1) no inventory usage over a three-yearthree-year period is deemed obsolete and reserved at 100 percent;percent; and 2) slow moving inventory with little usage requires a 100 percent reserve on items that have a quantity greater than a three-yearthree-year supply. There are exceptions to the obsolete and slow moving classifications if approved by an officer of the Company, based on specific identification of an item or items that are deemed to be either included or excluded from this classification. In cases where there is no historical data, management makes a judgment based on a specific review of the inventory in question to determine what reserves, if any, are appropriate. New products or parts are generally excluded from the reserve policy until a three-yearthree-year history has been established.parts.parts though some components can have warranty for longer terms.ninety-dayninety-day to six-monthsix-month lag period. The Company’s historical experience is that an end-user takes approximately 90 days to six months from the receipt of the unit to file a warranty claim. A warranty reserve is established for each different marketing group. Reserve balances are evaluated on a quarterly basis and adjustments made when required.$5,554,000$4,994,000 on December 31, 20102013 and $5,972,000$5,007,000 on December 31, 2009. The decrease came mainly from the acquisition of Bush Hog2012.63%55% and 56% of total inventory for the years ended December 31, 20102013 and 2009,2012, respectively. The excess of current costs over LIFO-valued inventories was $7,654,000$9,483,000 and $9,106,000$8,975,000 on December 31, 20102013 and December 31, 2009,2012, respectively. The $1,452,000 decrease(The $508,000 increase in LIFO reserve during 20102013 came from reductions in inventory levels within U.S. operations. The impact of the application of the LIFO method on the Statement of Income for the years ended December 31, 2010,2013, was a decrease to cost of sales of $1,452,000,$508,000, and aan decrease in 20092012 of $3,685,000$484,000 and an increase in 20082011 of $3,729,000.$1,805,000.) Inventories consisted of the following on a cost basis, net of reserves:- 54 - December 31, (in thousands) 2013 2012 Finished goods and parts $ 84,548 $ 93,095 Work in process 9,906 7,922 Raw materials 14,650 7,741 $ 109,104 $ 108,758 December 31, 2013 2012 Land $ 8,708 $ 8,576 Buildings and improvements 62,169 59,309 10-20 yrs. Machinery and equipment 65,451 57,320 3-15 yrs. Office furniture and equipment 6,705 5,984 3-7 yrs. Computer software 10,557 10,602 2-7 yrs. Transportation equipment 4,786 4,663 3 yrs. 158,376 146,454 Accumulated depreciation (96,472 ) (89,653 ) $ 61,904 $ 56,801 20102013 and December 31, 20092012 include $16,955,000capital leases in the amount of $7,246,000 and $18,364,000,$6,944,000, respectively, for items listed above thatwhich are held under capital leases.included in the listings above. Accumulated depreciation relating to the capital leases on December 31, 20102013 and 20092012 was $7,428,000$4,749,000 and $7,233,000,$4,132,000, respectively. Amortization related to the capital lease is included in depreciation expense. 2008, 20092011, 2012 and 20102013 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 adjustment1,204 Goodwill impairment(14,104)Balance at December 31, 2009$35,207 Translation adjustment(1,134)Balance at December 31, 2010$34,073 (in thousands) Balance at December 31, 2010 $ 34,073 Translation adjustment (424 ) Goodwill impairment (1,898 ) Balance at December 31, 2011 $ 31,751 Translation adjustment 553 Goodwill impairment $ (656 ) Balance at December 31, 2012 $ 31,648 Translation adjustment 425 Goodwill impairment — Balance at December 31, 2013 $ 32,073 - 55 - December 31, (in thousands) 2013 2012 Salaries, wages and bonuses $ 15,509 $ 12,433 Warranty 4,994 5,007 State taxes 5,217 4,922 Other 7,762 9,239 $ 33,482 $ 31,601 On August 25, 2004, the December 31, (in thousands) 2013 2012 Bank revolving credit facility $ — $ — Capital lease obligations 120 394 Other notes payable 308 312 Total debt 428 706 Less current maturities 420 588 Total long-term debt $ 8 $ 118 entered intomaintains a five-year $70 million Amended and Restated Revolving Credit Agreementrevolving credit facility with itscertain lenders Bank of America, JPMorgan Chase Bank, and Guaranty Bank. This contractually-committed, unsecured facility allows the Company to borrow and repay amounts drawn at floating or fixed interest rates based upon Prime or LIBOR rates. Proceeds may be used for general corporate purposes or, subject to certain limitations, acquisitions. The loan agreement contains among other things the following financial covenants: Minimum Fixed Charge Coverage Ratios, Minimum Consolidated Tangible Net Worth, Consolidated Funded Debt to EBITDA Ratio and Minimum Asset Coverage Ratio, along with limitations on dividends, other indebtedness, liens, investments and capital expenditures. On October 14, 2008, the Company entered into the Sixth Amendment and Waiver under theits Amended and Restated Revolving Credit Agreement. The purpose of the amendmentaggregate commitments from lenders under such revolving credit facility total$100,000,000 and, waiver wassubject to clarify company names within the Obligated Group after merging or dissolving some subsidiaries, to define operating cash flow and defining quarterly operating cash flow for Rivard through March 31, 2009. Beginning June 30, 2009, Rivard’s actual operating cash flow will be used in the calculation of consolidated operating cash flow. On November 6, 2009,certain conditions, the Company entered intohas the Seventh Amendmentoption to request an increase in aggregate commitments of the Amended and Restated Revolving Credit Agreement with Bank of America, N.A., Wells Fargo Bank, N.A., BBVA Compass Bank, and Rabobank, as its lenders.up to an additional $50,000,000. The revolving credit line remained at $125.0 million. Prioragreement requires us to maintain various financial covenants including a minimum EBIT to interest expense ratio, a minimum leverage ratio and a minimum asset coverage ratio. The agreement also contains various covenants relating to limitations on indebtedness, limitations on investments and acquisitions, limitations on sale of properties and limitations on liens and capital expenditures. The revolving credit agreement also contains other customary covenants, representations and events of defaults. As of December 31, 2013, the executionCompany was in compliance with the covenants under the revolving credit facility. The termination date of this Amendment, BBVA Compass Bank acquired certain assets of Guaranty Bank which included thisthe revolving credit facility and JPMorgan Chase Bank assigned its interest to Well 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 security interest in certain U.S. assets (accounts receivable, inventory, equipment, trademarks and trade names) of the Borrower and each member of the Obligated Group. The Lenders agreed to increase the operating leverage ratio during the next three quarters and to add a new EBIT to Interest Expense covenant in exchange for a commitment fee and an increase in the Applicable Interest Margin over LIBOR or Prime Rate advances.2010, there was $21,000,000 borrowed2013, no amounts were outstanding under the revolving credit facility. On December 31, 2010, $833,0002013, $722,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors’ contracts resulting in approximately $103,000,000$99,278,000 in available borrowings. On May 13, 2008, Alamo Group Europe Limited expanded its overdraft facility with Lloyd’s TSB Bank plc from £ 1.0 million to £ 5.5 million. The facility was renewed on October 29, 2010 and outstandings currently bear interest at Lloyd’s Base Rate plus 1.4% per annum. The facility is unsecured but guaranteed by the U.K. subsidiaries of Alamo Group Europe Limited. As of 2010, there were no outstanding balances in British pounds borrowed against the U.K. overdraft facility. There are additional lines of credit: for the Company’s French operations in the amount of 7,300,000 Euros, which includes the Rivard credit facilities; for our Canadian operation in the amount of 3,500,000 Canadian dollars; and for our Australian operation in the amount of 800,000 Australian dollars. As of December 31, 2010, no Euros were borrowed against the French line of credit; no Canadian dollars were outstanding on the Canadian line of credit; and 600,000 Australian dollars were outstanding under its facility. The Canadian and Australian revolving credit facilities are guaranteed by the Company. The Company’s borrowing levels for working capital are seasonal with the greatest 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 credit facilities.2010,2013, are as follows: $2,319,000$420,000 in 2011; $21,477,0002014; $8,000 in 2012; $499,000 in 2013; $336,000 in 2014; $242,000 in 2015;2015; and $552,000zero thereafter. DERIVATIVES AND HEDGING Most of the Company’s outstanding debt is advanced from a revolving credit facility that accrues interest at a contractual margin over current market interest rates. The Company’s financing costs associated with this credit facility can materially change with market increases and decreases of short-term borrowing rates, specifically London Inter Bank Operating Rate (“LIBOR”). During the second quarter of 2007, the Company entered into two interest rate swap agreements with JPMorgan that hedge future cash flows related to its outstanding debt obligations. One swap had a three-year term and fixed the LIBOR base rate at 4.910% covering $20 million of this debt which expired on March 31, 2010. The other 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 and expires on March 31, 2011. On November 5, 2009, JPMorgan transferred the swap transactions to Bank of America. The terms of the hedging instrument remain the same. As of December 31, 2010, the Company had $21 million outstanding under its revolving credit facility and one interest rate swap contract designated as cash flow hedge which is effectively hedging $20 million of these borrowings from changes in underlying LIBOR base rates. The fair market value of this hedge, which is the amount that would have been paid or received by the Company had it prematurely terminated this swap contract at December 31, 2010, was a $231,000 liability. This is included in Accrued liabilities with an offset in Accumulated other comprehensive income, net of taxes. At December 31, 2010, ineffectiveness related to the interest rate swap agreement was not material.10. FAIR VALUE MEASUREMENTSFairfair value measurements are classified under the following hierarchy:When available, theDerivative financial instruments- 57 -The fair value of interest rate swap derivatives is primarily based on third-party pricing service models. These models use discounted cash flows that utilize the appropriate market-based forward swap curves and zero-coupon interest rates. Interest rate swap derivatives are Level 2 measurements and have a fair value of $231,000 in a liability position as of December 31, 2010.The fair value of foreign currency forward contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-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. December 31, (in thousands) 2013 2012 2011 Income before income taxes: Domestic $ 35,146 $ 29,390 $ 28,109 Foreign 16,242 14,056 20,020 $ 51,388 $ 43,446 $ 48,129 December 31, (in thousands) 2013 2012 2011 Current: Domestic $ 10,605 $ 9,273 $ 7,771 Foreign 3,200 4,919 5,682 State 2,366 756 1,139 16,171 14,948 14,592 Deferred: Domestic (1,074 ) (192 ) 397 Foreign 249 (363 ) 331 State (52 ) 150 122 (877 ) (405 ) 850 Total income taxes $ 15,294 $ 14,543 $ 15,442 34%35% to income loss before income taxes consist of the following:- 58 - December 31, (in thousands) 2013 2012 2011 Domestic statutory rate at 35% (34% for 2011 and 2010) $ 17,985 $ 15,206 $ 16,364 Increase (reduction) from: Jurisdictional rate differences (1,959 ) (1,477 ) (1,315 ) Goodwill impairment — 157 633 Valuation allowance (114 ) 825 — Stock based compensation 136 214 161 U.S. state taxes 1,496 589 740 Domestic Production Deduction (1,162 ) (948 ) (796 ) R&E Credit Reserve (856 ) (130 ) (252 ) Other, net (232 ) 107 (93 ) Provision for income taxes $ 15,294 $ 14,543 $ 15,442 Effective tax rate 30 % 33 % 32 % December 31, (in thousands) 2013 2012 Deferred income tax assets: Inventory basis difference $ 1,576 $ 1,475 Accounts receivable reserve 201 299 Stock based compensation 904 614 Pension liability 1,604 3,595 Employee benefit accrual 601 459 Product liability and warranty reserves 1,417 1,120 Expenses not deductible for tax purposes 1,064 487 Foreign net operating loss 2,954 1,608 State net operating loss 76 82 Other 34 3 Total deferred income tax assets $ 10,431 $ 9,742 Less: Valuation allowance (711 ) (825 ) Net deferred income tax assets $ 9,720 $ 8,917 Deferred income tax liabilities: Inventory basis differences $ — $ (253 ) Depreciation (3,068 ) (2,867 ) Intangible assets (1,277 ) (1,011 ) Deferred revenue (66 ) (135 ) Expenses not deductible for tax purposes (461 ) (777 ) Total deferred income tax liabilities $ (4,872 ) $ (5,043 ) Net deferred income tax assets $ 4,848 $ 3,874 2010,2013, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. TheThese foreign jurisdictions' net operating loss (“NOL”) hascarryforwards are in the approximate amount of $10.6 million with an unlimited carry-forward.In assessingcarryforward period. The Company also has state net operating loss carryforwards in the realizabilityU.S. of deferred tax assets,approximately Company considers whether it is more likely than not thatability to utilize some portion or all of the deferred income tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, and international NOLs, before they expire. The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will not be realized. Based onrecoverable. The realization of net deferred income tax assets recorded as of December 31, 2013 is primarily dependent upon the expectation ofability to generate future taxable income in certain U.S. states and that the deductible temporary differences will offset existing taxable temporary differences, the Company believes it is more likely than not that it will realize the benefits of these deductible differences.2010,2013, the cumulative undistributed earnings of these subsidiaries approximated $102,223,000.$138,531,000. If these earnings were not considered indefinitely reinvested, deferred income taxes would have been recorded after the consideration of foreign tax credits. At this time, it is not practicable to estimate the amount of additional income taxes that might be payable on those earnings, if distributed.- 59 -During 2009, the Company removed their liability for unrecognizedUnrecognized tax positions after a reevaluation of the liabilities under the measurement criteria of ASC 740. During the third quarter of 2010, the Company completed a research and development credit study (R&D study) related to prior year tax returns. The R&D study resulted in tax credits of approximately $1,100,000. The Company has recorded an unrecognized tax benefitbenefits in the amount of $193,000 that$257,000 and $146,000 for 2012 and 2013, respectively, are included in other noncurrent liabilities on the balance sheet. The unrecognized tax benefits, if recognized, would affectfavorably impact our annual effective tax rate.rate in a future period. We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months. December 31, 2013 2012 Balance as of beginning of year $ 257,000 $ 235,000 Additions for tax positions related to the current year 56,000 — Additions for tax positions related to prior years 27,000 22,000 Reduction due to lapse of statute of limitations (194,000 ) — Balance as of end of year $ 146,000 $ 257,000 Company adopted theCompany's policy is to include interest and penalty expense related to income taxes as interest and other expense, respectively. As of December 31, 2010,2013, no interest or penalties has been or is required to be accrued. The Company’s open tax years for its federal and state income tax returns are for the tax years ended 20062009 through 2010.12.2013. The Company's open tax years for its foreign income tax returns are for the tax years ended 2009 through 2013.20092012 or 2010.2013. The authorization to repurchase up to 1,000,000 shares remains available less 42,600 shares, previously purchased.2010,2013, the Company declared and paid a dividend of $.06$0.07 per share.13.58,0302010, 20092013, 2012 and 2008,2011, options to purchase 19,00049,000 shares, 99,00061,000 shares and 39,00035,000 shares, respectively, were granted under this plan. Each option becomes vested and exercisable for up to 20% of the total optioned shares one year following the grant of the option and for an- 60 - 2013 2012 2011 Shares Shares Shares Options outstanding at beginning of year 330,730 $ 21.82 377,480 $ 19.27 360,130 $ 18.29 Granted 49,000 42.70 61,000 32.76 35,000 26.45 Exercised (81,880 ) 16.77 (99,650 ) 19.26 (15,650 ) 12.03 Canceled (5,500 ) 24.24 (8,100 ) 17.20 (2,000 ) 24.69 Options outstanding at end of year 292,350 26.68 330,730 21.82 377,480 19.27 Options exercisable at end of year 154,950 $ 21.57 192,830 $ 19.48 243,180 $ 19.32 Options available for grant at end of year 66,100 109,600 162,500 20102013 were as follows:Qualified Stock Options Options Outstanding Options Exercisable Range of Exercise Price $11.45 - $17.85 54,550 5.07 $ 11.80 38,350 $ 11.95 $19.79 - $32.76 188,800 5.77 $ 26.83 116,600 $ 24.73 $42.70 - $42.70 49,000 9.35 $ 42.70 — $ — Total 292,350 154,950 2010, 2009,2013, 2012, and 20082011 were $11.40, $5.08$20.56, $14.76 and $10.72,$12.50, respectively. As of December 31, 2010,2013, there was $859,000$1,322,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period of five years.Non-qualified Options 2013 2012 2011 Shares Shares Shares Options outstanding at beginning of year 89,700 $ 19.91 112,800 $ 18.62 102,400 $ 15.62 Granted 25,000 42.70 — — 30,000 26.45 Exercised — — (23,100 ) 13.62 (14,600 ) 11.45 Cancelled — — — — (5,000 ) 25.18 Options outstanding at end of year 114,700 24.87 89,700 19.91 112,800 18.62 Options exercisable at end of year 57,900 $ 19.89 38,100 $ 21.91 37,400 $ 19.57 Options available for grant at end of year 293,526 322,750 32,500 - 61 -20102013 were as follows:Non-Qualified Stock Options Options Outstanding Options Exercisable Range of Exercise Price $11.45 - $17.85 37,200 5.36 $ 11.45 23,400 $ 11.45 $19.79 - $32.76 52,500 5.61 25.90 34,500 25.61 $42.70 - $42.70 25,000 9.35 $ 42.70 — $ — Total 114,700 57,900 20092013 and 2011 were $5.08.$20.56 and $12.50, respectively. There were no options granted in 2010.2012. As of December 31, 2010,2013, there was $326,000$213,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period of five years.2010, 20092013, 2012 and 2008, 78,600, 125,000,2011, 0, 23,100, and 76,00014,600 non-qualified options were exercised, respectively, were exercised, $984,000, $1,117,000,$0, $315,000, and $682,000$167,000 of cash receipts were received, respectively, and tax deductions of $796,000, $289,000,$0, $284,000, and $951,000$178,000 were realized, respectively, for the tax deductions from option exercises.
remaining
(in years) 2013 2012 2011 Shares Shares Shares Options outstanding at beginning of year 11,375 $ 24.24 19,750 $ 22.96 9,000 $ 15.86 Granted 4,224 42.70 — — 13,500 26.08 Exercised (4,875 ) 22.07 (6,125 ) 21.13 (2,750 ) 15.06 Cancelled — — (2,250 ) 21.45 — — Options outstanding at end of year 10,724 32.49 11,375 24.24 19,750 22.96 2010,2013, there was $198,000$90,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a period of four years.14.310330 former employees and 210133 current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were covered by a collective bargaining agreement and (iii) first participated in the plan before April 6, 1997. An amendment ceasing all future benefit accruals was effective April 6, 1997.- 62 -220239 former employees and 12087 current employees who (i) were formerly employed by JLG Industries, Inc., (ii) were not covered by a collective bargaining agreement and (iii) first participated in the plan before December 31, 2004. An amendment ceasing future benefit accruals for certain participants was effective December 31, 2004. A second amendment discontinued all future benefit accruals for all participants effective April 24, 2006.Hourly
Employees’
Pension PlanEmployees’
Retirement
PlanTotal (in thousands) Hourly
Employees’
Pension PlanEmployees’
Retirement
PlanTotal - 63 - Year Ended December 31, 2013 (in thousands) Hourly
Employees’
Pension Plan Total Change in projected benefit obligation Benefit obligation at beginning of year $ 10,786 $ 20,923 $ 31,709 Service cost 11 5 16 Interest cost 371 760 1,131 Liability actuarial (gain)/loss (1,060 ) (2,620 ) (3,680 ) Benefits paid (631 ) (733 ) (1,364 ) Benefit obligation at end of year 9,477 18,335 27,812 Change in fair value of plan assets Fair value of plan assets at beginning of year 7,690 14,148 21,838 Return on plan assets 1,136 2,090 3,226 Employer contributions 678 896 1,574 Benefits paid (631 ) (733 ) (1,364 ) Fair value of plan assets at end of year 8,873 16,401 25,274 Underfunded status – December 31, 2012 $ (604 ) $ (1,934 ) $ (2,538 ) Accumulated benefit obligation – December 31, 2013 $ 9,477 $ 18,335 $ 27,812 Year Ended December 31, 2012 (in thousands) Total Change in projected benefit obligation Benefit obligation at beginning of year $ 10,454 $ 19,238 $ 29,692 Service cost 10 4 14 Interest cost 411 788 1,199 Liability actuarial (gain)/loss 549 1,619 2,168 Benefits paid (638 ) (726 ) (1,364 ) Benefit obligation at end of year 10,786 20,923 31,709 Change in fair value of plan assets Fair value of plan assets at beginning of year 6,663 12,237 18,900 Return on plan assets 937 1,722 2,659 Employer contributions 728 915 1,643 Benefits paid (638 ) (726 ) (1,364 ) Fair value of plan assets at end of year 7,690 14,148 21,838 Underfunded status – December 31, 2011 $ (3,096 ) $ (6,775 ) $ (9,871 ) Accumulated benefit obligation – December 31, 2012 $ 10,786 $ 20,923 $ 31,709 recognizedrecognizes changes in the funded status in the year in which the changes occur. The Company measures the funded status of a plan as of the date of its year-end statement of financial position.planplans of $7,151,000$2,538,000 and $7,640,000$9,871,000 as of December 31, 20102013 and 2009,2012, respectively, is recognized in the accompanying consolidated balance sheets as long-term accrued pension liability because plan assets are less than the value of benefit obligations expected to be paid.
Pension Plan
Retirement Plan 2013 2012 2013 2012 Discount rate 4.60% 3.55% 4.75% 3.70% Composite rate of compensation increase N/A N/A N/A N/A
Pension Plan
Retirement Plan 2013 2012 2013 2012 Discount rate 3.55% 4.06% 3.70% 4.18% Long-term rate of return on plan assets 7.25% 7.75% 7.25% 7.75% Composite rate of compensation increase N/A N/A N/A N/A - 64 -
Pension Plan
Retirement Plan
Pension Plan
Retirement Plan Year Ended December 31, 2013 Total Service cost $ 11 $ 5 $ 16 Interest cost 371 760 1,131 Expected return on plan assets (549 ) (1,018 ) (1,567 ) Amortization of prior service cost — — — Amortization of net (gain)/loss 285 418 703 Net periodic benefit cost $ 118 $ 165 $ 283 Year Ended December 31, 2012 Total Service cost $ 10 $ 4 $ 14 Interest cost 411 788 1,199 Expected return on plan assets (520 ) (951 ) (1,471 ) Amortization of prior service cost — — — Amortization of net (gain)/loss 280 379 659 Net periodic benefit cost $ 181 $ 220 $ 401 $194,000$132,000 of unrecognized actuarial expense will be amortized from accumulated other comprehensive income into net periodic benefit costs during 2011.2014. 2013 2012 2013 2012 Equity securities 55% 55% 55% 55% Debt securities 38% 38% 38% 38% Short-term investments 2% 2% 2% 2% Other 5% 5% 5% 5% Total 100% 100% 100% 100% 2010,2013, we used the following valuation techniques to measure fair value for assets. There were no changes to these methodologies during 2010:2013: Level 1 - Assets were valued using the closing price reported in the active market in which the individual security was traded. Level 2 - Assets were valued using quoted prices in markets that are not active, broker dealer quotations, net asset value of shares held by the plans, and other methods by which all significant input were observable at the measurement date. Level 3 - Assets were valued using valuation reports from the respective institutions at the measurement date. The following table presents the hierarchy levels for our postretirement benefit plan investments as of December 31, 2010:- 65 -December 31, 2013 Mutual Funds: Small Cap $ — $ — $ — $ — Mid Cap 1,577 1,577 Large Cap 6,826 6,826 International 2,531 2,531 Common/Collective: Wells Fargo Liability Driven Solution 3,521 3,521 Wells Fargo International Equity Index Fund 1,286 1,286 Wells Fargo Thornburg International 1,273 1,273 Wells Fargo Large Cap Growth Index Fund 1,423 1,423 Wells Fargo Large Cap Value Index Fund 1,427 1,427 Wells Fargo Multi-Manager Small Cap 1,683 1,683 Wells Fargo Russell 2000 Index Fund 841 841 Wells Fargo S&P Mid Cap Index Fund 950 950 T Rowe Price Equity Income 1,424 1,424 Cash & Short-term Investments 512 512 Total $ 25,274 $ 11,446 $ 13,828 $ — December 31, 2012 Mutual Funds: Small Cap $ — $ — $ — $ — Mid Cap 1,376 1,376 Large Cap 7,126 7,126 International 2,201 2,201 Common/Collective: Wells Fargo Liability Driven Solution Fund 3,074 — 3,074 — Wells Fargo International Equity Index Fund 1,097 1,097 Wells Fargo Thornburg International 1,103 1,103 Wells Fargo Large Cap Growth Index Fund 1,216 1,216 Wells Fargo Large Cap Value Index Fund 1,210 1,210 Wells Fargo Multi-Manager Small Cap 1,481 1,481 Wells Fargo Russell 2000 Index Fund 708 708 Wells Fargo S&P Mid Cap Index Fund 825 825 Cash & Short-term Investments 421 421 Total $ 21,838 $ 11,124 $ 10,714 $ —
Prices in Active
Markets for
Identical Assets
Other
Observable
Inputs
Unobservable
InputsMutual Funds: strategy,policy, the custodian has invested the assets across a widely diversified portfolio of U.S. and international equity and fixed income securities. Fair values of each security within the collective trust as of December 31, 20102013 were obtained from the custodian and are based on quoted market prices of individual investments; however, since the fund itself does not have immediate liquidity or a quoted market price, these assets are considered Level 2.2010.2013. The following table illustrates the estimated pension benefit payments which reflect expected future service, as appropriate, that are projected to be paid:
Pension Plan
Retirement PlanHourly Employees’
Pension Plan 2014 $ 643 $ 862 $ 1,505 2015 634 896 1,530 2016 635 932 1,567 2017 644 1,021 1,665 2018 651 1,112 1,763 Years 2019 through 2023 $ 3,231 $ 6,096 $ 9,327 Year Ended December 31, (in thousands) 2013 2012 Benefit obligation at January 1, $ 3,057 $ 2,584 Service cost 114 101 Interest cost 102 104 Liability actuarial (gain)/loss (252 ) 268 Plan Amendments — — Benefit obligation at December 31, $ 3,021 $ 3,057 Year Ended December 31, (in thousands) 2013 2012 Service Cost $ 114 $ 101 Interest Cost 102 104 Amortization of Prior Service Cost 327 287 Net Periodic Benefit Cost $ 543 $ 492 2013 2012 Discount rate 4.60% 3.37% Composite rate of compensation increase 3.00% 3.00% 2013 2012 Discount rate 3.37% 4.04% Composite rate of compensation increase 3.00% 3.00% Long-term rate of return on plan assets N/A N/A 2014 $ 44 2015 51 2016 101 2017 140 2018 241 Years 2019 through 2023 $ 1,305 $269,000$422,000 and $254,000$388,000 to the IAM Plan for the plan years ended December 31, 20102013 and 2009,2012, respectively. The Company converted the Salary Plan into its 401(k) retirement and savings plan and put the Hourly Plan into a separate 401(k) retirement and savings plan.2010, 20092013, 2012 and 20082011 were $481,000, $1,330,000,$1,331,000, $1,678,000, and $1,520,000,$992,000, respectively. A U.S. subsidiary of the Company had an Hourly Employee Pension Plan of Trust covering collective bargaining which was terminated on December 31, 2006. As of January 1, 2006 the employees were added to the existing 401(k) retirement and salary plan. - 66 -7.5%10% of the participant’s salary up to a specific limit. Total contributions made to the above planplans were $607,000, $537,000,$697,000, $696,000, and $620,000$676,000 for the yearyears ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively.15.2010, 20092013, 2012 and 2008:- 67 - December 31, (in thousands) 2013 2012 2011 Net Revenue North American Industrial $ 296,617 $ 263,353 $ 229,594 North American Agricultural 215,340 200,467 203,993 European 164,879 164,582 170,006 Consolidated $ 676,836 $ 628,402 $ 603,593 Income from Operations North American Industrial $ 25,743 $ 19,313 $ 24,649 North American Agricultural 17,880 18,319 16,644 European 7,114 7,717 8,163 Consolidated $ 50,737 $ 45,349 $ 49,456 Goodwill North American Industrial $ 13,176 $ 13,418 $ 13,316 North American Agricultural — — — European 18,897 18,230 18,435 Consolidated $ 32,073 $ 31,648 $ 31,751 Total Identifiable Assets North American Industrial $ 161,080 $ 153,234 $ 144,763 North American Agricultural 123,352 118,829 121,320 European 154,044 132,276 115,582 Consolidated $ 438,476 $ 404,339 $ 381,665 16. December 31, (in thousands) 2013 2012 2011 Net sales $ 236,839 $ 227,568 $ 216,201 Income from operations 14,822 14,470 19,362 Income before income taxes 16,241 13,731 20,051 Identifiable assets $ 205,317 $ 179,263 $ 155,188 December 31, (in thousands) 2013 2012 2011 Geographic net sales: United States $ 444,151 $ 401,415 $ 381,390 United Kingdom 36,892 40,734 39,967 France 97,958 92,964 101,124 Canada 45,045 36,190 26,029 Australia 11,517 10,225 14,171 Other 41,273 46,874 40,912 Total net sales $ 676,836 $ 628,402 $ 603,593 United States $ 42,053 $ 46,749 $ 52,262 United Kingdom 19,718 13,809 13,511 France 25,751 25,166 26,746 Canada 12,562 11,719 12,221 Australia 768 190 158 Total long-lived assets $ 100,852 $ 97,633 $ 104,898 17. COMPREHENSIVE INCOME (LOSS) For 2010, 2009 and 2008 the Company’s Comprehensive Income was $17,503,000, $27,785,000, and ($14,110,000), respectively.The components of Accumulated Other Comprehensive Income (Loss) are as follows:- 68 -18.16. COMMITMENTS AND CONTINGENCIES2010,2013, future minimum lease payments under these non-cancelable leases and the present value of the net minimum lease payments for the capitalized leases are:
Leases
Leases 2014 $ 1,507 $ 115 2015 927 8 2016 515 — 2017 287 — 2018 110 — Thereafter — — Total minimum lease payments $ 3,346 $ 123 Less amount representing interest 3 Present value of net minimum lease payments $ 120 Less current portion 112 Long-term portion $ 8 $1,632,000$2,293,000 for 2010, $1,693,0002013, $2,088,000 for 2009,2012, and $1,787,000$1,879,000 for 2008.2011.$69,148,000$83,105,000 represent an estimate of goods and services to be purchased under outstanding purchase orders not reflected on the Company’s balance sheet. New purchase obligations should be received and paid for during the current fiscal year.Thevarious unresolved legal actions that arise in the ordinary coursea broad range of its business. The most significant of such actions relates to product liability, which is generally covered by insurance after various self-insured retention (“SIR”) amounts. While amounts claimed might be substantialfederal, state, local and the liability with respect to such litigation cannot be determined at this time, the Company believes that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations; however, the ultimate resolution cannot be determined at this time. The Company is subject to numerous environmentalforeign laws and regulationsrequirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials. Thematerials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s policy is to comply with all applicable environmental, healthfacilities and offsite disposal locations, workplace safety laws and regulations, and the Company believes it is currently in material compliance with all such applicable laws and regulations.equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on the Company in the future. Like other industrial concerns, the Company’s manufacturing operations entail the risk of noncompliance, and there can be no assurance that the Company will not incur material costs or other liabilities as a result thereof.future monitoring of existing wells, we will request an unconditional “no further action” letter will be requested. - 69 - On December 31, 2010, the Company had an environmental reserve in the amount of $1,495,000 related to the acquisition of Gradall’s facility in New Philadelphia, Ohio. Three specific remediation projects that were identified prior to the acquisition are in process of remediation with a remaining reserve balance of $30,000. The Company has a reserve of $277,000 concerning a potential asbestos issue that is expected to be abated over time. The balance of the reserve, $1,188,000, is mainly for potential ground water contamination/remediation that was identified before the acquisition and believed to have been generated by a third party company located near the Gradall facility. The company knows that Bush Hog’s main manufacturing property in Selma, Alabama was contaminated with chlorinated volatile organic compounds which most likely resulted from painting and cleaning operations during the 1960s and ’70s.1970s. The contaminated areas were primarily in the location of underground storage tanks and underneath the former waste storage area. Under the Asset Purchase Agreement, Bush Hog’s prior owner agreed to and has removed the underground storage tanks at its cost and has remediedremediated the identified contamination in accordance with the regulations of the Alabama Department of Environmental Management. An environmental consulting firm was retained by the prior owner and is administeringto administer the cleanup and will monitor the sitessite on an ongoing basis until the remediation program is complete and approved by the applicable authorities. other assets of the Company contain asbestos that may have to be remediated over time. Management has made its best estimate of the cost to remediate these environmental issues. However, such estimates are difficult to estimate including the timing of such costs. The Company believes that any subsequent change in the liability associated with the asbestos removal will not have a material adverse effect on the Company’s consolidated financial position or results of operations.19.20102013 and 20092012 is presented below. Seasonal influences affect the Company’s sales and profits, with peak business occurring in May through August. 2013 2012 First Second Third Fourth First Second Third Fourth Sales $ 158,429 $ 178,064 $ 174,738 $ 165,605 $ 155,911 $ 167,009 $ 156,078 $ 149,404 Gross profit 34,912 44,091 43,156 36,351 35,238 39,161 37,070 32,043 Net income 6,950 11,787 11,333 6,024 6,785 9,344 8,575 4,199 Earnings per share Diluted $ 0.57 $ 0.97 $ 0.93 $ 0.49 $ 0.56 $ 0.77 $ 0.71 $ 0.35 Average shares Diluted 12,158 12,200 12,229 12,262 12,027 12,058 12,056 12,090 Dividends per share $ 0.07 0.07 $ 0.07 $ 0.07 $ 0.06 $ 0.06 $ 0.06 $ 0.06 High $ 40.64 $ 44.13 $ 49.45 $ 61.27 $ 30.93 $ 34.23 $ 34.00 $ 34.63 Low $ 33.12 $ 37.39 $ 40.48 $ 45.51 $ 25.51 $ 29.40 $ 27.07 $ 29.66 The third quarter of 2010 results include a tax credit of $0.9 million relating to prior years research and development expenses. 20092013 results includes $1.8 million in pretax legal expenses related to the patent infringement lawsuit filed against the Company.pre-taxpretax charge of $14.1$0.7 million related to goodwill impairment,impairment; (2) a pre-tax benefit of $3.7$2.4 million related charge relating to LIFO liquidation, various litigation matters;and (3) a $30.2 1.2 million gain on bargain purchase reversal of Bush Hogan environmental reserve at our Gradall facility.- 70 -20. ACQUISITIONS AND INVESTMENTSBush HogOctober 22, 2009 (“Closing Date”),February 24, 2014 the Company acquired the majority of the assets and assumed certain liabilities of Bush Hog located in Selma, Alabama. The purchase included substantially all of the ongoing business of Bush Hog, including the Bush Hog brand name and all related product names and trademarks (the “Acquisition”). The purchase price consideration was 1.7 million unregistered shares of Alamo Group common stock which represented approximately 14.5% of the outstanding stock of Alamo Group. Because the restricted stock was issued in an unregistered private transaction, resale of the shares is restricted and the shares may be resold only if registered or sold in a transaction exempt from the registration requirements of the Securities Act, including pursuant to Rule 144 under the Securities Act. Under Rule 144, the restricted stock is subject to, among other things, an initial 6-month holding 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 price of Alamo common stock less a discount for lack of marketability associated with the 6-month holding period. We utilized an Asian put option model to measure the discount for lack of marketability. An Asian put option is an option that entitles the holder to a payoff based on the average price of an underlying asset, over a predetermined period. The closing price of our common stock on October 22, 2009 was $16.09 per share.The Acquisition was accounted for in accordance with ASC Topic 805, Business Combinations (“ASC Topic 805”). Accordingly, the total purchase price was allocated on a provisional basis to assets acquired and net liabilities assumed in connection with the Acquisition based on their estimated fair values as of the completion of the Acquisition. These allocations reflected various provisional estimates that were available at the time and were subject to change during the purchase price allocation period as valuations are finalized. All valuations are now final.The Company believesannounced that it was ablehas entered into an agreement to acquire Bush Hog for less than the fair value of its assets because of (i) the Company’s unique position as a market leader in this industry segment and (ii) the seller’s intent to exit its Bush Hog operations. Bush Hog was an unprofitable venture, and the seller approached the Company in an effort to sell Bush Hog and exit the agricultural equipment manufacturing business that no longer fit its strategy. With the seller's intent to exit the agricultural manufacturing business segment and the Company’s position as a market leader, the Company was able to agree on a favorable purchase price.The primary reason for the Bush Hog acquisition was to help the Company further the goal of becoming the largest manufacturer of agricultural mowers in the world. This acquisition enabled the Company to expand its market presence, expand its product offerings and enter new markets.The fair value of the net assets acquired was approximately $53.1 million, which exceeds the preliminary estimated purchase price of $25.4 million. Accordingly, the Company recognized the excess of the fair value of the net assets over the purchase price of approximately $27.7 million as a gain on bargain purchase. The gain on bargain purchase of $27.7 million was shown separately within income from operations in the Consolidated Statements of Income in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The recorded amount was provisional and subject to change. The Company evaluated the purchase price allocation during 2010, including the opening fair value of inventory, accounts receivable, property, plant & equipment, accrued liabilities and deferred taxes, which required the Company to adjust the recorded gain. - 71 -The following table summarizes the fair 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 fair value of the assets acquired and liabilities assumed with a corresponding adjustment to the bargain purchase gain. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The December 31, 2009 financial statement balances and disclosures impacted by these adjustments have been retrospectively adjusted. The adjustments were due to the final valuation of property, plant and equipment, accounts receivable, other liabilities and deferred taxes.In accordance with the closing documents, the Company received a 50% undivided interest in the Accounts Receivable of Bush Hog, subject to any net working capital adjustment. The post closing net working capital adjustment was $3.8 million which increased accounts receivable and the gain on bargain purchase. The Company will collect payments on the acquired accounts receivable and remit 50% of the collections to the seller less the $3.8 million. The Bush Hog accounts receivable were recorded at 50% of the fair value, plus the working capital adjustment.The intangible asset relates to the appraised value of the Bush Hog name at closing and has an indefinite life.Under 805-10, acquisition related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are accounted for as expenses 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 and net profit was $4.3 million. In the period between the Closing Date and December 31, 2009, Bush Hog generated approximately $10.9 million of net revenue and $1.5 million net loss. The Company has included the operating resultsunits of Bush Hog in its consolidated financial statements sinceSpecialized Industries, LP. This includes the Closing Date.The following table presents unaudited supplemental pro forma information as if the acquisitionbusinesses of Bush Hog had occurred on January 1, 2009 for the year ended December 31, 2010Super Products LLC, Wausau-Everest LP and for the year ended December 31, 2009:- 72 - The unaudited pro forma financial informationHoward P. Fairfield LLC. Super Products is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition been completed as of the beginning of the periods presented, and should not be taken as being representative of the future consolidated results of operations of the Company. The company knows that Bush Hog’s main manufacturing property in Selma, Alabama was contaminated with chlorinated volatile organic compounds which most likely resulted from painting and cleaning operations during the 1960’s and ‘70s. The contaminated areas were primarily in the location of underground storage tanks and underneath the former waste storage area. Under the Asset Purchase Agreement, Bush Hog’s prior owner agreed to and has removed the underground storage tanks at its cost and has remedied the identified contamination in accordance with the regulations of the Alabama Department of Environmental Management. An environmental consulting firm was retained by the prior owner and is administering the cleanup and will monitor the sites on an ongoing basis until the remediation program is complete and approved by the applicable authorities.Rivard Developpement On May 30, 2008, the Company purchased Rivard Developpement S.A.S. (“Rivard”), a leading French manufacturer of vacuum trucks high-pressure cleaning systems and trenchers.related equipment, parts and service, which is complementary to Alamo’s VacAll operation. Wausau-Everest is a manufacturer of snow removal equipment which is complementary to Alamo’s Tenco and Henke operations. And, Howard P. Fairfield is a dealer/distribution operation primarily in the New England area. Together the three operations had net sales of approximately $139 million in the fiscal year ending December 31, 2013. Total consideration for the purchase is approximately $186 million, subject to certain adjustments. The purchase price was approximately €15is anticipated to close within 45 days and is subject to receiving regulatory approval and completion of other pre-closing requirements.(approximately U.S. $23 million) plusto $250 million to meet the assumptionongoing needs of certain liabilities. the combined entities.allocatedentered into a contract to sell the purchase priceSMC plant for $900,000 and anticipates a gain on the sale of the facility which is expected to the acquired assets and liabilities assumed and recorded goodwill of approximately €9 million (approximately U.S. $15 million) related to this acquisition. We finalized the purchase price allocation duringclose in the second quarter of 2009. The majority of the purchase price was funded utilizing the Company’s cash reserves in Europe, with the balance from bank credit facilities. Rivard’s sales in 2007 were €40 million (approximately U.S. $62 million), and the company has 275 full-time employees. Rivard is located in Daumeray, France and was founded in 1952.21. SUBSEQUENT EVENTS The Board of Directors of the Company adopted the Alamo Group Inc. Supplemental Executive Retirement Plan (the “Plan”), effective as of January 3, 2011. The Plan will benefit certain key management or other highly compensated employees of the Company and/or certain subsidiaries who are selected by the Board to participate. The Plan is also intended to provide a benefit from the Company upon 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 (as defined in the Plan) upon the occurrence of certain payment events to the extent a participant has a vested right thereto.- 73 -