UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2017~~2019

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

ACT OF 1934

FOR THE

TRANSITION PERIOD FROM ____ TO ____

Commission file number 0-21220

~~Commission file number 0-21220~~

ALAMO GROUP INC.

(Exact name of registrant as specified in its charter)

~~DELAWARE~~

Delaware

74-1621248

(State or other jurisdiction of

incorporation or organization)

~~74-1621248~~

(I.R.S. Employer

Identification Number)

1627 East Walnut, Seguin, Texas 78155

(Address of principal executive offices, including zip code)

830-379-1480

(Registrant’s telephone number, including area code)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FOR THE PAST 90 DAYS.

~~YES ☒ NO ☐~~

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED AND POSTED PURSUANT TO RULE 405 OF REGULATION S-T (§232.405 OF THIS CHAPTER) DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT AND POST SUCH FILES). YES ☒ NO ☐

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER, A SMALLER REPORTING COMPANY, OR AN EMERGING GROWTH COMPANY. SEE THE DEFINITIONS OF “LARGE ACCELERATED FILER,” “ACCELERATED FILER,” “SMALLER REPORTING COMPANY,” AND “EMERGING GROWTH COMPANY” IN RULE 12B-2 OF THE EXCHANGE ACT.

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

~~LARGE ACCELERATED FILER~~ ¨

~~ACCELERATED FILER~~ ☒

~~NON-ACCELERATED FILER~~ ¨

~~SMALLER REPORTING COMPANY~~ ¨

Title of each class

Trading symbol(s)

Name of each exchange on which registered

~~(DO NOT CHECK IF A SMALLER REPORTING COMPANY)~~

~~EMERGING GROWTH COMPANY~~ ¨Common Stock, par value

$.10 per share

ALG

New York Stock Exchange

IF AN EMERGING GROWTH COMPANY, INDICATE BY CHECK MARK IF THE REGISTRANT HAS ELECTED NOT TO USE THE EXTENDED TRANSITION PEIROD FOR COMPLYING WITH ANY NEW OR REVISED FINANCIAL ACCOUNTING STANDARDS PROVIDED PURSUANT TO SECTIONIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 ~~OF THE EXCHANGE ACT.~~or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

~~INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ~~OF THE EXCHANGE ACT)~~of the Exchange Act). ~~YES~~Yes ☐ NONo ☒

~~AT OCTOBER 31, 2017, 11,632,394 SHARES OF COMMON STOCK,~~At October 25, 2019, 11,826,104 shares of common stock, $.10 ~~PAR VALUE, OF THE REGISTRANT WERE OUTSTANDING.~~

par value, of the registrant were outstanding.

Alamo Group Inc. and Subsidiaries

INDEX

PART I.

FINANCIAL INFORMATION

PAGE

Item 1.

Interim Condensed Consolidated Financial Statements (Unaudited)

Interim Condensed Consolidated Balance Sheets

September 30, ~~2017~~2019 and December 31, ~~2016~~2018

Interim Condensed Consolidated Statements of Income

Three and Nine Months Ended September 30, ~~2017~~2019 and September 30, ~~2016~~2018

Interim Condensed Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, ~~2017~~2019 and September 30, ~~2016~~2018

Interim Condensed Consolidated ~~Statement~~Statements of Stockholders' Equity

Three and Nine Months Ended September 30, ~~2017~~2019 and September 30, 2018

Interim Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, ~~2017~~2019 and September 30, ~~2016~~2018

Notes to Interim Condensed Consolidated Financial Statements

Item 2.

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

1519

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

2125

Item 4.

Controls and Procedures

2226

PART II.

OTHER INFORMATION

2327

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

~~None~~Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

~~None~~Defaults Upon Senior Securities

Item 4.

~~None~~Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

2430

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share amounts)	September 30, 2017				December 31, 2016				(in thousands, except share amounts)	September 30, 2019					December 31, 2018
ASSETS									ASSETS
Current assets:									Current assets:
Cash and cash equivalents		$	69,068			$	16,793		Cash and cash equivalents		$	60,279	$	34,043
Accounts receivable, net		203,068				170,329			Accounts receivable, net		243,296		228,098
Inventories, net		159,571				135,760			Inventories, net		206,516		176,630
Prepaid expenses		5,470				4,725

Prepaid expenses and other current assets									Prepaid expenses and other current assets		7,771		5,327
Income tax receivable		985				11			Income tax receivable		6,615		8,745
Total current assets		438,162				327,618			Total current assets		524,477		452,843

Rental equipment, net		31,044				30,970			Rental equipment, net		56,177		43,978

Property, plant and equipment		196,837				180,041			Property, plant and equipment		243,777		219,135
Less: Accumulated depreciation		(122,842		)		(113,412		)	Less: Accumulated depreciation		(136,838)		(131,905)
		73,995				66,629
Total property, plant and equipment, net									Total property, plant and equipment, net		106,939		87,230

Goodwill		86,364				74,825			Goodwill		93,468		83,243
Intangible assets, net		54,739				50,038			Intangible assets, net		59,205		48,857
Deferred income taxes		732				619			Deferred income taxes		1,060		1,783
Other assets		1,533				2,077
Other non-current assets									Other non-current assets		15,067		3,699

Total assets		$	686,569			$	552,776		Total assets		$	856,393	$	721,633

LIABILITIES AND STOCKHOLDERS’ EQUITY									LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:									Current liabilities:
Trade accounts payable		$	59,212			$	43,136		Trade accounts payable		$	69,009	$	54,083
Income taxes payable		2,445				2,333			Income taxes payable		2,516		2,865
Accrued liabilities		35,822				33,158			Accrued liabilities		48,525		43,785
Current maturities of long-term debt and capital lease obligations		276				73
Current maturities of long-term debt and finance lease obligations									Current maturities of long-term debt and finance lease obligations		113		119

Total current liabilities		97,755				78,700			Total current liabilities		120,163		100,852

Long-term debt and capital lease obligations, net of current maturities		126,000				70,017
Long-term debt and finance lease obligations, net of current maturities									Long-term debt and finance lease obligations, net of current maturities		150,192		85,179
Long-term tax liability									Long-term tax liability		6,710		6,120
Deferred pension liability		1,999				2,929			Deferred pension liability		1,606		1,944
Other long-term liabilities		7,522				6,969			Other long-term liabilities		14,190		8,436
Deferred income taxes		6,800				6,444			Deferred income taxes		12,480		11,731

Stockholders’ equity:									Stockholders’ equity:
Common stock, $.10 par value, 20,000,000 shares authorized; 11,564,137 and 11,462,484 outstanding at September 30, 2017 and December 31, 2016, respectively		1,156				1,146
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,747,829 and 11,662,688 outstanding at September 30, 2019 and December 31, 2018, respectively									Common stock, $0.10 par value, 20,000,000 shares authorized; 11,747,829 and 11,662,688 outstanding at September 30, 2019 and December 31, 2018, respectively		1,175		1,166
Additional paid-in-capital		102,913				99,765			Additional paid-in-capital		112,629		108,422
Treasury stock, at cost; 42,600 shares at September 30, 2017 and December 31, 2016		(426		)		(426		)
Treasury stock, at cost; 82,600 and 42,600 shares at September 30, 2019 and December 31, 2018, respectively									Treasury stock, at cost; 82,600 and 42,600 shares at September 30, 2019 and December 31, 2018, respectively		(4,566)		(426)
Retained earnings		372,597				334,988			Retained earnings		492,161		443,040
Accumulated other comprehensive loss, net		(29,747		)		(47,756		)
Accumulated other comprehensive loss									Accumulated other comprehensive loss		(50,347)		(44,831)
Total stockholders’ equity		446,493				387,717			Total stockholders’ equity		551,052		507,371

Total liabilities and stockholders’ equity		$	686,569			$	552,776		Total liabilities and stockholders’ equity		$	856,393	$	721,633

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)	2017			2016			2017			2016			(in thousands, except per share amounts)	2019		2018		2019		2018

Net sales:													Net sales:
Industrial	$	132,388		$	121,205		$	375,546		$	361,629		Industrial	$	158,499	$	156,721	$	484,924	$	438,919
Agricultural	64,923			56,443			170,921			156,950			Agricultural	59,797		61,464		168,129		179,182
European	43,144			39,118			122,653			120,647			European	53,533		39,387		165,896		134,683
Total net sales	240,455			216,766			669,120			639,226			Total net sales	271,829		257,572		818,949		752,784
Cost of sales	175,516			162,055			495,338			482,060			Cost of sales	203,119		190,800		613,798		559,301
Gross profit	64,939			54,711			173,782			157,166			Gross profit	68,710		66,772		205,151		193,483

Selling, general and administrative expenses	37,328			33,699			105,913			101,824			Selling, general and administrative expenses	44,255		38,523		128,741		117,087
Income from operations	27,611			21,012			67,869			55,342			Income from operations	24,455		28,249		76,410		76,396

Interest expense	(1,414		)	(1,405		)	(4,241		)	(4,334		)	Interest expense	(1,837)		(1,399)		(5,222)		(4,233)
Interest income	100			43			257			161			Interest income	359		100		862		309
Other income (expense), net	(1,411		)	127			(2,284		)	(253		)	Other income (expense), net	242		(265)		(442)		(491)
Income before income taxes	24,886			19,777			61,601			50,916			Income before income taxes	23,219		26,685		71,608		71,981
Provision for income taxes	8,294			6,541			20,526			18,459			Provision for income taxes	5,801		3,142		18,270		15,084
Net Income	$	16,592		$	13,236		$	41,075		$	32,457		Net Income	$	17,418	$	23,543	$	53,338	$	56,897

Net income per common share:													Net income per common share:
Basic	$	1.43		$	1.15		$	3.56		$	2.84		Basic	$	1.48	$	2.01	$	4.55	$	4.88
Diluted	$	1.42		$	1.14		$	3.52		$	2.81		Diluted	$	1.47	$	2.00	$	4.52	$	4.84
Average common shares:													Average common shares:
Basic	11,586			11,460			11,535			11,424			Basic	11,748		11,689		11,724		11,649
Diluted	11,708			11,595			11,666			11,551			Diluted	11,813		11,777		11,796		11,758

Dividends declared	$	0.10		$	0.09		$	0.30		$	0.27		Dividends declared	$	0.12	$	0.11	$	0.36	$	0.33

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Net income	$	17,418	$	23,543	$	53,338	$	56,897
Other comprehensive loss:
Foreign currency translation adjustments	(9,791)		(924)		(7,877)		(9,657)
Net gain on pension and other post-retirement benefits	215		211		645		634
Unrealized gain during the period related to derivatives	1,864		—		1,852		—
Other comprehensive loss before income tax expense	(7,712)		(713)		(5,380)		(9,023)
Income tax expense related to items of other comprehensive income	(46)		(44)		(136)		(133)
Other comprehensive loss	(7,758)		(757)		(5,516)		(9,156)
Comprehensive income	$	9,660	$	22,786	$	47,822	$	47,741

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2017 2016 2017 2016
Net Income $ 16,592
$ 13,236
$ 41,075
$ 32,457
Other comprehensive income:
Foreign currency translation adjustments 7,452
(1,702 ) 17,596
(5,283 )
Net gain on pension and other postretirement benefits 218
266
652
799
Other comprehensive income (loss) before income tax expense 7,670
(1,436 ) 18,248
(4,484 )
Income tax expense related to items of other comprehensive loss (80 ) (98 ) (239 ) (295 )
Other comprehensive income (loss) 7,590
(1,534 ) 18,009
(4,779 )
Comprehensive Income $ 24,182
$ 11,702
$ 59,084
$ 27,678

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


For nine months ended September 30, 2019

	Common Stock					Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stock- holders’ Equity
(in thousands)	Shares	Amount
Balance at December 31, 2018	11,620	$	1,166	$	108,422	$	(426)	$	443,040	$	(44,831)	$	507,371
Net income	—	—		—		—		15,253		—		15,253

Translation adjustment	—	—		—		—		—		720		720

Net actuarial gain arising during period, net of taxes	—	—		—		—		—		170		170

Stock-based compensation	—	—		627		—		—		—		627
Common stock repurchase	(15)	—		—		(1,490)		—		—		(1,490)
Exercise of stock options	11	1		236		—		—		—		237


Dividends paid ($0.12 per share)	—	—		—		—		(1,404)		—		(1,404)
Balance at March 31, 2019	11,616	$	1,167	$	109,285	$	(1,916)	$	456,889	$	(43,941)	$	521,484
Net income	—	—		—		—		20,667		—		20,667

Translation adjustment	—	—		—		—		—		1,194		1,194
Unrealized derivative loss, net of taxes	—	—		—		—		—		(12)		(12)
Net actuarial gain arising during period, net of taxes	—	—		—		—		—		170		170

Stock-based compensation	—	—		948		—		—		—		948
Common stock repurchase	(15)	—		(590)		(1,465)		—		—		(2,055)
Exercise of stock options	64	7		1,833		—		—		—		1,840


Dividends paid ($0.12 per share)	—	—		—		—		(1,404)		—		(1,404)
Balance at June 30, 2019	11,665	$	1,174	$	111,476	$	(3,381)	$	476,152	$	(42,589)	$	542,832
Net income	—	—		—		—		17,418		—		17,418

Translation adjustment	—	—		—		—		—		(9,791)		(9,791)
Unrealized derivative gain, net of taxes	—	—		—		—		—		1,864		1,864
Net actuarial gain arising during period, net of taxes	—	—		—		—		—		169		169

Stock-based compensation	—	—		766		—		—		—		766
Common stock repurchase	(10)	—		—		(1,185)		—		—		(1,185)
Exercise of stock options	10	1		387		—		—		—		388


Dividends paid ($0.12 per share)	—	—		—		—		(1,409)		—		(1,409)
Balance at September 30, 2019	11,665	$	1,175	$	112,629	$	(4,566)	$	492,161	$	(50,347)	$	551,052

Common Stock
Additional
Paid-in Capital
Treasury Stock Retained Earnings
Accumulated
Other
Comprehensive Loss
Total Stock-
holders’ Equity
(in thousands) Shares Amount
Balance at December 31, 2016 11,420
$ 1,146
$ 99,765
$ (426 ) $ 334,988
$ (47,756 ) $ 387,717
Net income —
—
—
—
41,075
—
41,075
Adoption of new accounting standard —
—
11
—
(11 ) —
—
Translation adjustment —
—
—
—
—
17,596
17,596
Net actuarial gain arising during period —
—
—
—
—
413
413
Stock-based compensation —
—
1,254
—
—
—
1,254
Exercise of stock options 102
10
2,049
—
—
—
2,059
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation —
—
(166 ) —
—
—
(166 )
Dividends paid ($.30 per share) —
—
—
—
(3,455 ) —
(3,455 )
Balance at September 30, 2017 11,522
$ 1,156
$ 102,913
$ (426 ) $ 372,597
$ (29,747 ) $ 446,493
Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


For nine months ended September 30, 2018

	Common Stock					Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stock- holders’ Equity
(in thousands)	Shares	Amount
Balance at December 31, 2017	11,534	$	1,158	$	103,864	$	(426)	$	374,678	$	(30,166)	$	449,108
Net income	—	—		—		—		14,583		—		14,583

Translation adjustment	—	—		—		—		—		3,117		3,117

Net actuarial gain arising during period, net of taxes	—	—		—		—		—		126		126

Stock-based compensation	—	—		458		—		—		—		458

Exercise of stock options	9	—		266		—		—		—		266


Dividends paid ($0.11 per share)	—	—		—		—		(1,276)		—		(1,276)
Balance at March 31, 2018	11,543	$	1,158	$	104,588	$	(426)	$	387,985	$	(26,923)	$	466,382
Net income	—	—		—		—		18,771		—		18,771

Translation adjustment	—	—		—		—		—		(11,850)		(11,850)

Net actuarial gain arising during period, net of taxes	—	—		—		—		—		208		208

Stock-based compensation	—	—		730		—		—		—		730
Common stock repurchase	—	—		(437)		—		—		—		(437)
Exercise of stock options	67	7		1,913		—		—		—		1,920


Dividends paid ($0.11 per share)	—	—		—		—		(1,277)		—		(1,277)
Balance at June 30, 2018	11,610	$	1,165	$	106,794	$	(426)	$	405,479	$	(38,565)	$	474,447
Net income	—	—		—		—		23,543		—		23,543

Translation adjustment	—	—		—		—		—		(924)		(924)

Net actuarial gain arising during period, net of taxes	—	—		—		—		—		167		167

Stock-based compensation	—	—		622		—		—		—		622
Common stock repurchase	—	—		1		—		—		—		1
Exercise of stock options	8	1		320		—		—		—		321


Dividends paid ($0.11 per share)	—	—		—		—		(1,285)		—		(1,285)
Balance at September 30, 2018	11,618	$	1,166	$	107,737	$	(426)	$	427,737	$	(39,322)	$	496,892

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,							Nine Months Ended September 30,
(in thousands)	2017			2016			(in thousands)	2019		2018
Operating Activities							Operating Activities
Net income	$	41,075		$	32,457		Net income	$	53,338	$	56,897
Adjustment to reconcile net income to net cash provided by operating activities:							Adjustment to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	(2		)	124			Provision for doubtful accounts	280		(132)
Depreciation - PP&E	8,631			8,500
Depreciation - Rental	4,253			4,951
Depreciation - Property, plant and equipment							Depreciation - Property, plant and equipment	10,583		9,388
Depreciation - Rental equipment							Depreciation - Rental equipment	6,770		4,790
Amortization of intangibles	2,445			2,328			Amortization of intangibles	3,081		2,630
Amortization of debt issuance costs	166			159			Amortization of debt issuance costs	166		166
Stock-based compensation expense	1,254			1,075			Stock-based compensation expense	2,341		1,810
Provision for deferred income tax expense (benefit)	(74		)	5,111
Provision for deferred income tax (benefit) expense							Provision for deferred income tax (benefit) expense	(2,549)		1,160
Gain on sale of property, plant and equipment	(312		)	(367		)	Gain on sale of property, plant and equipment	(732)		(298)
Changes in operating assets and liabilities, net of amounts acquired:
Changes in operating assets and liabilities, net of acquisitions:							Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(20,330		)	2,552			Accounts receivable	(11,263)		(24,916)
Inventories	(4,075		)	(4,265		)	Inventories	(8,413)		(31,521)
Rental equipment	(4,327		)	199			Rental equipment	(18,970)		(16,758)
Prepaid expenses and other assets	2,828			(2,216		)	Prepaid expenses and other assets	(5,377)		(1,887)
Trade accounts payable and accrued liabilities	10,811			(1,895		)	Trade accounts payable and accrued liabilities	9,481		15,797
Income taxes payable	(665		)	(524		)	Income taxes payable	1,738		(8,887)
Other long-term liabilities	204			59
Long-term tax payable							Long-term tax payable	590		(4,969)
Other assets and long-term liabilities							Other assets and long-term liabilities	3,146		317
Net cash provided by operating activities	41,882			48,248			Net cash provided by operating activities	44,210		3,587

Investing Activities							Investing Activities
Acquisitions, net of cash acquired	(38,523		)	(188		)	Acquisitions, net of cash acquired	(58,531)		—
Purchase of property, plant and equipment	(9,686		)	(7,201		)	Purchase of property, plant and equipment	(19,488)		(18,781)
Proceeds from sale of property, plant and equipment	555			899			Proceeds from sale of property, plant and equipment	1,987		1,037
Purchase of patents	—			(50		)

Net cash used in investing activities	(47,654		)	(6,540		)	Net cash used in investing activities	(76,032)		(17,744)

Financing Activities							Financing Activities
Borrowings on bank revolving credit facility	126,000			71,000			Borrowings on bank revolving credit facility	141,000		126,000
Repayments on bank revolving credit facility	(70,000		)	(81,000		)	Repayments on bank revolving credit facility	(76,000)		(85,000)
Principal payments on long-term debt and capital leases	(17		)	(37		)
Proceeds from issuance of debt	—			1,149
Principal payments on finance leases							Principal payments on finance leases	(97)		(82)
Proceeds from issuance of long-term debt and finance leases							Proceeds from issuance of long-term debt and finance leases	2		—

Dividends paid	(3,455		)	(3,082		)	Dividends paid	(4,217)		(3,838)
Proceeds from sale of common stock	2,059			1,254
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation	(166		)	(19		)
Net cash provided by (used in) financing activities	54,421			(10,735		)
Proceeds from exercise of stock options							Proceeds from exercise of stock options	2,465		2,507
Purchase of common stock for treasury							Purchase of common stock for treasury	(4,140)		—
Cost of common stock repurchased							Cost of common stock repurchased	(590)		(436)
Net cash provided by financing activities							Net cash provided by financing activities	58,423		39,151

Effect of exchange rate changes on cash and cash equivalents	3,626			(1,410		)	Effect of exchange rate changes on cash and cash equivalents	(365)		(1,487)
Net change in cash and cash equivalents	52,275			29,563			Net change in cash and cash equivalents	26,236		23,507
Cash and cash equivalents at beginning of the period	16,793			26,922
Cash and cash equivalents at beginning of the year							Cash and cash equivalents at beginning of the year	34,043		25,373
Cash and cash equivalents at end of the period	$	69,068		$	56,485		Cash and cash equivalents at end of the period	$	60,279	$	48,880

Cash paid during the period for:							Cash paid during the period for:
Interest	$	5,073		$	4,433		Interest	$	5,327	$	3,889
Income taxes	20,699			14,178			Income taxes	18,431		26,568

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)

September 30, ~~2017~~2019

1. Basis of Financial Statement Presentation

General

The accompanying unaudited interim condensed consolidated financial statements of Alamo Group Inc. and its subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019. The balance sheet at December 31, ~~2016~~2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2016~~2018 (the ~~"2016~~"2018 10-K").

~~In May 2014, the Financial~~ Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This update is effective as of January 1, 2018, with early adoption permitted as of January 1, 2017. We have completed our evaluation of the provisions of this standard and concluded that our adoption will not change the amount or timing of revenue recognized by us, nor will it affect our financial position.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” as part of its simplification initiative. ASU 2015-11 amends existing guidance for measuring inventories. This amendment requires the Company to measure inventories recorded using the first-in, first-out method at the lower of cost and net realizable value. This amendment does not change the methodology for measuring inventories recorded using the last-in, first-out method. This amendment was effective prospectively for the CompanyPronouncements Adopted on January 1, ~~2017. The adoption of the changes did not materially affect our financial position or results of our operations.~~2019

In February 2016, the FASB issued ASU No. 2016-02, ~~“Leases.”~~“Leases (Topic 842)". This update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. ~~Entities are~~The guidance became effective for us on January 1, 2019. As a lessee, this standard primarily impacted our accounting for long-term real estate and equipment leases, for which we recognized right-of-use assets of $7,747,000 and a corresponding lease liability of $7,868,000 on our consolidated balance sheet.

We adopted these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases". We did not have a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to not account for lease and non-lease components separately for most of our asset classes and to exclude leases with an initial term of 12 months or less from the right-of-use assets and liabilities. Adoption of the standards had no impact on results of operations or liquidity.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", to allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). Upon adoption of the ASU, entities will be required to ~~use~~disclose a ~~modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning~~description of the ~~earliest comparative~~accounting policy for releasing income tax effects from accumulated other comprehensive income. The standard is required to be adopted for periods beginning after December 15, 2018, with early adoption available for any set of financial statements that have yet to be issued or made available for issuance including retrospectively for any period in which the effect of the change is the U.S. corporate income tax rate in the TCJA is recognized. The adoption of this ASU did not have a material impact on the Company's consolidated financial ~~statements when adopted.~~statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued Accounting Statement Update (ASU) No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosures requirements on fair value measurements. Among other things, the amendments add disclosures for changes in unrealized gains and losses on Level 3 fair value measurements and requires additional disclosures on unobservable inputs associated with Level 3 assets. The guidance will become effective for us on January 1, ~~2019.~~2020. The impacts that adoption of the ASU is expected to have on our ~~consolidated~~financial disclosures is being evaluated.

In August 2018, the FASB issued Accounting Statement Update (ASU) No. 2018-14, “Compensation, Defined Benefit Plans", which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The update removes certain disclosures that are no longer considered cost beneficial and adds disclosure requirements identified as relevant. The guidance will become effective for us on January 1, 2021 with early adoption permitted for any financial statements ~~and related disclosures are being evaluated. Additionally, we~~that have not ~~yet determined the effect~~been issued. The impacts that adoption of the ASU is expected to have on our ~~internal control over~~ financial ~~reporting or other changes in business practices and processes.~~disclosures is being evaluated.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation,” to simplify the accounting and reporting for employee share-based payments. This amendment, among other changes, allows for a policy election such that an entity can continue to estimate forfeitures at the time of the grant or can account for forfeitures as they occur. The amendment requires a modified retrospective approach for the adoption. In addition, the amendment eliminates the requirement to reclassify excess tax benefits from operating activities to financing activities. The effect of the change on prior period has been retrospectively adjusted to make the cash flow statements comparable. The Company adopted this ASU on January 1, 2017.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” to improve information on credit losses for financial instruments. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The ASU is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted beginning in fiscal years beginning after December ~~18,~~15, 2018. The Company ~~has~~does not ~~yet evaluated the effect~~expect the adoption of this ASU ~~will~~to have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments,” to address diversity in practice on certain specific cash flow issues. The ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company early-adopted this ASU on January 1, 2017 and the adoption did not have an effect on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 “Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment” to simplify how an entity is required to test for goodwill impairment. As a result, an entity will perform its goodwill impairment test by comparing the carrying value of a reporting unit against the fair value and will record an impairment for the amount that the carrying value of a reporting unit exceeds the fair value. The ASU is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company early-adopted this ASU on January 1, 2017 and will apply the new guidance prospectively on goodwill impairment tests.

In March 2017, the FASB issued ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” to provide income statement classification guidance for components of the net benefit cost. The ASU requires entities to disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement. Furthermore, entities should present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. The ASU is to be adopted retrospectively and is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and may be early adopted. The Company expects that adoption will result in a reclassification of the non-service components of pension and post-retirement costs, primarily from cost of sales and selling, general and administrative expenses to other income (loss) on the consolidated statements of income. The Company’s pensions, including net periodic cost, is disclosed in Note 13 of the 2016 10-K.

2. Accounting Policies

~~There~~Leases

The following policy resulted from our adoption of the provisions of ASC Topic 842, “Leases", effective January 1, 2019, as described above in “Accounting Pronouncements Adopted on January 1, 2019".

If we determine that an arrangement is or contains a lease, we recognize a right-of-use (ROU) asset and lease liability at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have ~~been no changes~~elected to not account for the lease and non-lease components separately for most of our asset classes with the exception of real-estate. We have also elected to exclude all lease agreements with an initial term of 12 months or ~~additions to our significant accounting policies described in Note 1 to~~less from the ~~Consolidated Financial Statements in the Company’s 2016 10-K.~~lease recognition requirements.

3. Business Combinations

~~Santa Izabel Agro Industria Ltda.~~

On ~~June 6, 2017,~~March 4, 2019, the Company ~~completed~~acquired 100 percent of the ~~acquisition~~issued and outstanding equity interests of ~~Santa Izabel Agro Industria Ltda.~~Dutch Power Company B.V. ("~~Santa Izabel"~~Dutch Power"). ~~Santa Izabel~~Dutch Power designs, manufactures and ~~markets~~sells a variety of ~~agricultural implements~~landscape and ~~trailers sold throughout Brazil.~~vegetation management machines primarily in Europe. The primary reason for the ~~Santa Izabel~~Dutch Power acquisition was to ~~broaden~~enhance the Company's ~~presence~~platform for growth by increasing both the Company's product portfolio and capabilities in the ~~manufacturing and distribution of agricultural machinery in Brazil.~~European market. The acquisition price was approximately ~~$10~~$53 million. ~~Revenues~~

The total purchase price has been allocated on a preliminary basis to assets acquired and ~~earnings subsequent to the acquisition are immaterial during the second and third quarters of 2017.~~

~~Old Dominion Brush Company~~

On June 26, 2017, the Company completed the acquisition of Old Dominion Brush Company, Inc. ("Old Dominion"). Old Dominion manufactures and sells replacement brooms for street sweepers and leaf vacuum equipment. The acquisition price was approximately $18 million. The primary reason for the ODB acquisition was to increase the Company's presence in the sweeper market and broaden our product offerings.

In the period between the closing date and September 30, 2017, ODB has generated approximately $7.0 million of net sales and $.5 million of net income. The Company has included the operating results of ODB in its interim condensed consolidated financial statements since its acquisition.

~~R.P.M. Tech Inc.~~

On August 8, 2017, the Company completed the acquisition of R.P.M. Tech Inc. ("R.P.M."). R.P.M. manufactures and sells heavy duty snow removal equipment. The primary reason for the R.P.M acquisition was to strengthen the Company's offering in industrial snowblowers. The acquisition price was approximately $13 million. Revenues and earnings subsequent to the acquisition are immaterial duringliabilities assumed, including deferred taxes. During the third quarter of ~~2017.~~

2019, additional information was obtained and an adjustment was made to goodwill for approximately $2.0 million. Certain estimated values are not yet finalized and are subject to ~~change, which could be significant.~~change. The Company will finalize the amounts once the necessary information is obtained and the analysis is complete.

In the period between the date of acquisition and September 30, 2019, Dutch Power generated approximately $27.7 million of net sales and $0.8 million of net income. The Company has included the operating results of Dutch Power in its consolidated financial statements since the date of acquisition.

The following ~~are~~table reflects the estimated fair value of the assets acquired and liabilities ~~for all three acquisitions~~ assumed as of the ~~Acquisition~~acquisition date (in thousands):


Cash	$	87
Accounts receivable	6,278
Inventory	17,731
Prepaid and other assets	1,901
Property, plant and equipment	13,439
Intangible assets	14,095

Other liabilities assumed	(12,606)

Net assets assumed	$	40,925

Goodwill	11,686
Acquisition Price	$	52,611

Cash $ 2,547
Accounts receivable 7,112
Inventory 15,258
Prepaid expenses 134
Income tax receivable 485
Property, plant & equipment 3,921
Intangible assets 6,727
Other assets 572
Other liabilities assumed (4,898 )

Net assets assumed $ 31,858

Goodwill 9,210
Acquisition Price $ 41,068

These acquisitions are being accounted for in accordance with ASC Topic 805. Accordingly, the total purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed based on their estimated fair values as of the completion of the acquisitions. These allocations reflect various provisional estimates that were available at the time and are subject to change during the purchase price allocation period as valuations are finalized.

4. Accounts Receivable

Accounts receivable is shown net of sales discounts and the allowance for doubtful accounts.

At September 30, ~~2017~~2019 the Company had ~~$13,663,000~~$16,807,000 in reserves for sales discounts compared to ~~$13,488,000~~$18,123,000 at December 31, ~~2016~~2018 related to products shipped to our customers under various promotional programs. The ~~increase~~decrease was primarily due to ~~additional~~reduced discounts reserved related to ~~increased~~lower sales onof the Company's agricultural products sold during the first ~~and second quarter~~nine months of ~~2017.~~2019.

~~The allowance for doubtful accounts was $2,551,000 at September 30, 2017 and $2,501,000 at December 31, 2016.~~

5. Inventories

Inventories valued at LIFO cost represented ~~63%~~56% and ~~67%~~60% of total inventory at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The excess of current cost over LIFO valued inventories was approximately ~~$8,123,000~~$10,646,000 at September 30, ~~2017~~2019 and December 31, ~~2016.~~2018. An actual valuation of inventory under the LIFO method is made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO must ~~necessarily~~ be based, to some extent, on management's estimates at each quarter end. Net inventories consist of the following:


(in thousands)	September 30, 2017			December 31, 2016			(in thousands)	September 30, 2019					December 31, 2018

Finished goods		$	137,064		$	116,667	Finished goods		$	173,994	$	149,298
Work in process		9,707			9,431		Work in process		18,415		12,732
Raw materials		12,800			9,662		Raw materials		14,107		14,600
Total inventory		$	159,571		$	135,760
Inventories, net							Inventories, net		$	206,516	$	176,630

Inventory obsolescence reserves were ~~$7,721,000~~$6,991,000 at September 30, ~~2017~~2019 and ~~$7,262,000~~$7,194,000 at December 31, ~~2016. The increase was mainly from the Company's European and Industrial Divisions.~~2018.

6. Rental Equipment

Rental equipment is shown net of accumulated depreciation of ~~$12,173,000~~$13,359,000 and ~~$10,430,000~~$11,145,000 at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Company recognized depreciation expense of ~~$1,449,000~~$2,447,000 and ~~$1,508,000~~$1,808,000 for the three months ended September 30, ~~2017~~2019 and September 30, ~~2016,~~2018, respectively and ~~$4,253,000~~$6,770,000 and ~~$4,951,000~~$4,790,000 for the nine months ended September 30, ~~2017~~2019 and September 30, ~~2016,~~2018, respectively.

7. Fair Value Measurements

The carrying values of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate their fair value because of the short-term nature of these items. The carrying value of our debt approximates the fair value as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, as the floating rates on our outstanding balances approximate current market rates. This conclusion was made based on Level 2 inputs.

8. Goodwill and Intangible Assets

The following is the summary of changes to the Company's Goodwill for the nine months ended September 30, ~~2017:~~2019:


	Industrial			Agricultural				European			Consolidated
(in thousands)
Balance at December 31, 2018		$	61,107	$	6,230	$	15,906		$	83,243
Translation adjustment		234		(397)		(1,298)			(1,461)
Goodwill acquired		—		—		11,686			11,686
Balance at September 30, 2019		$	61,341	$	5,833	$	26,294		$	93,468

(in thousands)
Balance at December 31, 2016 $ 74,825
Goodwill acquired 9,210
Translation adjustments 2,329
Balance at September 30, 2017 $ 86,364

~~As of September 30, 2017, the Company had $86,364,000 of goodwill, which represents 13% of total assets.~~

The following is a summary of the Company's definite and indefinite-lived intangible assets net of the accumulated amortization:


(in thousands)	Estimated Useful Lives	September 30, 2019					December 31, 2018
Definite:
Trade names and trademarks	25 years		$	31,866	$	23,938
Customer and dealer relationships	10-14 years		34,150		32,260
Patents and drawings	3-12 years		5,689		2,061
Total at cost			71,705		58,259
Less accumulated amortization			(18,000)		(14,902)
Total net			53,705		43,357
Indefinite:
Trade names and trademarks			5,500		5,500
Total Intangible Assets			$	59,205	$	48,857

(in thousands) Estimated Useful Lives September 30,
2017 December 31, 2016
Definite:
   Trade names and trademarks 25 years $ 25,400
$ 21,914

   Customer and dealer relationships 14 years 32,529
28,822

   Patents and drawings 3-12 years 1,990
1,954

      Total at cost 59,919
52,690

   Less accumulated amortization (10,680 ) (8,152 )
       Total net 49,239
44,538

Indefinite:
   Trade names and trademarks 5,500
5,500

Total Intangible Assets $ 54,739
$ 50,038

The Company recognized amortization expense of ~~$891,000~~$1,112,000 and ~~$779,000~~$874,000 for the three months ending September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~$2,445,000~~$3,081,000 and ~~$2,328,000~~$2,630,000 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

As of September 30, ~~2017,~~2019, the Company had ~~$54,739,000~~$59,205,000 of intangible assets, which represents 8%7% of total assets.

9. ~~Warranty~~

~~The current liability warranty reserve balance was $5,274,000 at September 30, 2017 and $5,262,000 at December 31, 2016 and is included in Accrued liabilities on the Balance Sheet.~~

~~10.~~ Debt

The components of long-term debt are as follows:


(in thousands)	September 30, 2019					December 31, 2018
Current Maturities:
Finance lease obligations		$	113	$	119


Long-term debt:
Bank revolving credit facility		150,000		85,000
Finance lease obligations		192		179

Total Long-term debt		150,192		85,179
Total debt		$	150,305	$	85,298

(in thousands) September 30,
2017 December 31,
2016
Current Maturities:
    Other notes payable $ 276
$ 73

276
73

Long-term debt:
    Bank revolving credit facility 126,000
70,000

    Other notes payable —
17

126,000
70,017

Total debt $ 126,276
$ 70,090

As of September 30, ~~2017, $1,607,000~~2019, $3,152,000 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 ~~$122,393,000~~$96,848,000 in available borrowings.

~~11.~~10. Common Stock and Dividends

Dividends declared and paid on a per share basis were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018

Dividends declared	$	0.12	$	0.11	$	0.36	$	0.33
Dividends paid	$	0.12	$	0.11	$	0.36	$	0.33

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Dividends declared $ 0.10
$ 0.09
$ 0.30
$ 0.27
Dividends paid $ 0.10
$ 0.09
$ 0.30
$ 0.27

On October ~~2, 2017,~~1, 2019, the Company announced that its Board of Directors had declared a quarterly cash dividend of ~~$0.10~~$0.12 per share, which was paid on October ~~27, 2017,~~28, 2019, to shareholders of record at the close of business on October ~~16, 2017.~~15, 2019.

~~12.~~

11. Earnings Per Share

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share)	2019		2018		2019		2018
Net Income	$	17,418	$	23,543	$	53,338	$	56,897
Average Common Shares:
Basic (weighted-average outstanding shares)	11,748		11,689		11,724		11,649
Dilutive potential common shares from stock options	65		88		72		109
Diluted (weighted-average outstanding shares)	11,813		11,777		11,796		11,758

Basic earnings per share	$	1.48	$	2.01	$	4.55	$	4.88
Diluted earnings per share	$	1.47	$	2.00	$	4.52	$	4.84

12. Income Taxes

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands, except per share) 2017 2016 2017 2016
Net Income $ 16,592
$ 13,236
$ 41,075
$ 32,457
Average Common Shares:
Basic (weighted-average outstanding shares) 11,586
11,460
11,535
11,424
Dilutive potential common shares from stock options 122
135
131
127
Diluted (weighted-average outstanding shares) 11,708
11,595
11,666
11,551

Basic earnings per share $ 1.43
$ 1.15
$ 3.56
$ 2.84
Diluted earnings per share $ 1.42
$ 1.14
$ 3.52
$ 2.81

Tax Reform

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act ("TCJA") that instituted fundamental changes to the U.S. Internal Revenue Code of 1986, as amended ("the Code").

During the three months ended September 30, 2018, we revised our initial provisional amount recorded at December 31, 2017 for the transitional tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries and the impact of the federal tax rate change on the value of our deferred tax assets and liabilities. The transition tax liability on the deemed repatriation decreased $4.2 million, primarily as a result of additional analysis performed over our historical foreign earnings and foreign source income which provided increased ability to credit foreign taxes associated with the deemed repatriation. In addition, the impact of the rate change on deferred increased by $1.2 million due to adjustments resulting from the filing of our 2017 federal income tax return. The net benefit to income taxes reduced the Company's effective income tax rate for the third quarter of 2018 to 11.8%, as well as reducing the effective income tax rate for the first nine months of 2018 to 21.0%.

13. Revenue and Segment ~~Reporting~~Information

~~At September 30, 2017~~Revenues from Contracts with Customers

Disaggregation of revenue is presented in the tables below by product type and by geographical location. Management has determined that this level of disaggregation would be beneficial to users of the financial statements.


Revenue by Product Type
	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Net Sales
Wholegoods	$	207,461	$	200,160	$	644,042	$	594,114
Parts	58,093		52,093		155,965		145,105
Other	6,275		5,319		18,942		13,565
Consolidated	$	271,829	$	257,572	$	818,949	$	752,784

Other includes rental sales, extended warranty sales and service sales as it is considered immaterial.


Revenue by Geographical Location
	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018

Net Sales
United States	$	187,320	$	188,037	$	561,285	$	536,505
France	22,719		17,048		76,273		66,321
Canada	17,700		15,167		49,005		44,819
United Kingdom	14,327		15,141		42,207		41,003
Brazil	3,924		3,050		13,899		13,368
Netherlands	6,704		640		19,510		3,806
China	3,773		6,586		11,984		8,905
Germany	2,262		379		5,603		1,275
Australia	1,549		2,023		5,872		7,550
Other	11,551		9,501		33,311		29,232
Consolidated	$	271,829	$	257,572	$	818,949	$	752,784

Net sales are attributed to countries based on the location of the customer.

Segment Information

The following includes a summary of the unaudited financial information by reporting ~~segment:~~segment at September 30, 2019:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Net Sales
Industrial	$	158,499	$	156,721	$	484,924	$	438,919
Agricultural	59,797		61,464		168,129		179,182
European	53,533		39,387		165,896		134,683
Consolidated	$	271,829	$	257,572	$	818,949	$	752,784

Income from Operations
Industrial	$	14,350	$	18,351	$	50,994	$	46,316
Agricultural	6,140		6,608		12,546		18,047
European	3,965		3,290		12,870		12,033
Consolidated	$	24,455	$	28,249	$	76,410	$	76,396


(in thousands)	September 30, 2019		December 31, 2018
Goodwill
Industrial	$	61,341	$	61,107
Agricultural	5,833		6,230
European	26,294		15,906
Consolidated	$	93,468	$	83,243

Total Identifiable Assets
Industrial	$	470,927	$	421,539
Agricultural	169,818		162,548
European	215,648		137,546
Consolidated	$	856,393	$	721,633

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2017 2016 2017 2016
Net Sales
Industrial $ 132,388
$ 121,205
$ 375,546
$ 361,629
Agricultural 64,923
56,443
170,921
156,950
European 43,144
39,118
122,653
120,647
Consolidated $ 240,455
$ 216,766
$ 669,120
$ 639,226

Income from Operations

Industrial $ 14,826
$ 9,318
$ 38,238
$ 30,016
Agricultural 8,563
7,928
19,190
16,735
European 4,222
3,766
10,441
8,591
Consolidated $ 27,611
$ 21,012
$ 67,869
$ 55,342

(in thousands) September 30, 2017 December 31, 2016
Goodwill
Industrial $ 62,784
$ 56,447
Agricultural 7,080
3,489
European 16,500
14,889
Consolidated $ 86,364
$ 74,825

Total Identifiable Assets
Industrial $ 382,138
$ 339,064
Agricultural 142,201
111,120
European 162,230
102,592
Consolidated $ 686,569
$ 552,776

14. Contingent Matters

The Company is subject to various legal actions which have arisen in the ordinary course 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 might be substantial and the ultimate liability with respect to such litigation cannot be determined at this time, the Company believes that the ultimate 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.

Like other manufacturers, the Company is subject to a 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 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.

15. Leases

The Company ~~knows~~leases office space and equipment under various operating and finance leases, which generally are expected to be renewed or replaced by other leases. The components of lease cost were as follows:


Components of Lease Cost
	Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	2019		2019
Finance lease cost:
Amortization of right-of-use assets	$	33	$	98
Interest on lease liabilities	3		8
Operating lease cost	1,095		3,207
Short-term lease cost	79		311
Variable lease cost	120		347

Total lease cost	$	1,330	$	3,971

Rent expense for the three and nine months ending September 30, 2018 was immaterial.

Maturities of lease liabilities were as follows:


Future Minimum Lease Payments
	September 30, 2019								December 31, 2018
(in thousands)	Operating Leases			Finance Leases			Operating Leases		Capital Leases
2019	$	1,008	(a)	$	37	(a)	$	3,310	$	125
2020	3,215			115			2,453		97
2021	1,900			79			1,308		62
2022	1,244			41			743		24
2023	713			17			419		1
Thereafter	1,225			35			79		—
Total minimum lease payments	$	9,305		$	324		$	8,312	$	309
Less imputed interest	(658)			(19)			—		(11)
Total lease liabilities	$	8,647		$	305		$	8,312	$	298
(a) Amounts represent remaining three months of payments due for 2019.

Future Lease Commencements

As of September 30, 2019, we have additional operating leases, that ~~its Indianola, Iowa property is contaminated with chromium which most likely resulted from chrome plating operations which were discontinued before~~have not yet commenced in the ~~Company purchased the property. Chlorinated volatile organic compounds have also been detected~~amount of $321,000. These operating leases will commence in ~~water samples on the property, though the source is unknown at this time. The Company voluntarily worked with an environmental consultant and the state of Iowa with respect~~fiscal year 2019.

Supplemental balance sheet information related to ~~these issues and believes it completed its remediation program in June 2006. The work~~leases was accomplished within the Company’s environmental liability reserve balance. We requested a “no further action” classification from the state. In January 2009, we received a “no further action” letter from the Iowa Department of Natural Resources, accordingas follows:


Operating Leases
(in thousands)	September 30, 2019
Other non-current assets	$	8,569

Accrued liabilities	3,314
Other long-term liabilities	5,333
Total operating lease liabilities	$	8,647

Finance Leases
(in thousands)	September 30, 2019
Property, plant and equipment, gross	$	629
Accumulated Depreciation	(324)
Property, plant and equipment, net	$	305

Current maturities of long-term debt and finance lease obligations				$	113
Long-term debt and finance lease obligations, net of current maturities				192
Total finance lease liabilities	$	305

Weighted Average Remaining Lease Term
Operating leases	4.07 years
Finance leases	3.40 years
Weighted Average Discount Rate
Operating leases	3.40		%
Finance leases	3.34		%

Supplemental Cash Flow information related to ~~which the Iowa property will be subject to certain ongoing environmental covenants that create restrictions regarding the use and future development of the property.~~leases was as follows:


	Nine Months Ended September 30,
(in thousands)	2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	11
Operating cash flows from operating leases	3,146
Financing cash flows from finance leases	97

~~15.~~

16. Retirement Benefit Plans

Defined Benefit Plan

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

Nine Months Ended September 30, 2017

(in thousands)
Hourly Employees’
Pension Plan
Employees’
Retirement Plan
Total
Service cost $ —
$ 3
$ 3
Interest cost —
624
624
Expected return on plan assets —
(956 ) (956 )
Amortization of net loss —
324
324
Net periodic benefit $ —
$ (5 ) $ (5 )

Nine Months Ended September 30, 2016

(in thousands)
Hourly Employees’
Pension Plan
Employees’
Retirement Plan
Total
Service cost $ 6
$ 3
$ 9
Interest cost 300
666
966
Expected return on plan assets (486 ) (898 ) (1,384 )
Amortization of net loss 213
330
543
Net periodic benefit cost $ 33
$ 101
$ 134

The Company amortizes annual pension income or expense evenly over four quarters. Pension expense was $23,000 and pension income was ~~$2,000 and pension expense was $45,000~~$87,000 for the three months ended September 30, ~~2017~~2019 and September 30, ~~2016,~~2018, respectively. Pension expense for the nine months ended September 30, 2019 was $68,000 and pension income for the nine months ended September 30, ~~2017~~2018 was ~~$5,000 and pension expense for the nine months ended September 30, 2016 was $134,000 .~~$260,000. The Company is not required to contribute to the pension plans for the ~~2017~~2019 plan year, but may do so.

On April 6, 2016 we notified all participants in the Gradall Company Hourly Employees’ Pension Plan of our decision to terminate the plan. Participants in the plan did not lose any benefits but were given a choice between obtaining certain continued annuity benefits that match the benefits offered under the plan or receiving an immediate one-time lump sum payment in total settlement of benefits.~~The Company made a final contribution and met all legal requirements to effectuate a proper termination of the plan before December 31, 2016.~~

Supplemental Retirement Plan

In May of 2015, the Board amended the SERP to allow the Board to modify the retirement benefit percentage either higher or lower than 20%. In May of 2016, the Board added additional key management to the plan. As of September 30, ~~2017,~~2019, the current retirement benefit (as defined in the plan) for the participants ranges from 10% to 20%.

The net period expense for the three months ended September 30, ~~2017~~2019 and ~~2016~~2018 was ~~$202,000~~$214,000 and ~~$148,000,~~$250,000 respectively and ~~$606,000~~$642,000 and ~~$443,000~~$749,000 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

17. Subsequent Events

On October 24, 2019, the Company reported that it had completed the previously announced acquisition of 100% of the outstanding capital shares of Morbark, LLC (Morbark), a former portfolio company of Stellex Capital Management, for a total consideration of approximately $352 million, on a debt free basis and subject to certain post-closing adjustments.

Morbark is a leading manufacturer of equipment and aftermarket parts for the forestry tree maintenance, biomass, land management and recycling markets. Their products include a broad range of tree chippers, grinders, flails, debarkers, stump grinders, mulchers and brush cutters, plus related aftermarket spare and wear parts. This includes the products sold under the Morbark, Rayco, Denis Cimaf and Boxer brand names. Morbark products are sold through a network of independent dealers with about 300 sales locations. Their products complement our core business and they've grown steadily in a sector which has performed well. We intend to maintain the Morbark brands in the market place. Morbark, with approximately 720 employees, is based in Winn, Michigan, with subsidiary operations in Wooster, Ohio and Roxton Falls, Quebec.

In connection with this acquisition, the Company expanded its credit facility from $250 million to $650 million to accommodate this event and the ongoing needs of the combined entities. The new credit facility has a five-year duration and consists of a $300 million term loan (used to finance the acquisition) and a $350 million revolving line of credit.

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
As a Percent of Net Sales	2017		2016		2017		2016		As a Percent of Net Sales	2019		2018		2019		2018

Industrial	55.1	%	55.9	%	56.1	%	56.6	%	Industrial	58.3	%	60.8	%	59.2	%	58.3	%
Agricultural	27.0	%	26.0	%	25.6	%	24.5	%	Agricultural	22.0	%	23.9	%	20.5	%	23.8	%
European	17.9	%	18.1	%	18.3	%	18.9	%	European	19.7	%	15.3	%	20.3	%	17.9	%
Total sales, net	100.0	%	100.0	%	100.0	%	100.0	%	Total sales, net	100.0	%	100.0	%	100.0	%	100.0	%


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
Cost Trends and Profit Margin, as Percentages of Net Sales	2017		2016		2017		2016		Cost Trends and Profit Margin, as Percentages of Net Sales	2019		2018		2019		2018

Gross profit	27.0	%	25.2	%	26.0	%	24.6	%	Gross profit	25.3	%	25.9	%	25.1	%	25.7	%
Income from operations	11.5	%	9.7	%	10.1	%	8.7	%	Income from operations	9.0	%	11.0	%	9.3	%	10.1	%
Income before income taxes	10.3	%	9.1	%	9.2	%	8.0	%	Income before income taxes	8.5	%	10.4	%	8.7	%	9.6	%
Net income	6.9	%	6.1	%	6.1	%	5.1	%	Net income	6.4	%	9.1	%	6.5	%	7.6	%

Overview

This report contains forward-looking statements that are based on Alamo Group’s current expectations. Actual results in future periods may differ materially from those expressed or implied because of a number of risks and uncertainties which are discussed below and in the Forward-Looking Information section. Unless the context otherwise requires, the terms the "Company", "we", "our" and "us" means Alamo Group Inc.

For the first nine months of ~~2017,~~2019, the Company's net i~~ncome increased~~income decreased by approximately ~~26.6%~~6.3% when compared to the same period in ~~2016.~~2018. This ~~increase~~decrease was primarily the result of ~~sales growth in all three of~~a favorable one-time adjustment to our prior year tax provision related to new tax legislation. Negatively affecting the Company's ~~Divisions as well as~~performance during the first nine months of 2019 was the continued ~~improvement~~soft market conditions in ~~production efficiencies, control~~the agricultural market, which impacted our North American agricultural sales. Also, while higher material costs hurt profitability during the first quarter of ~~operating expenses~~2019, steel costs have dropped during the second and third quarters, although this positive effect on our margins has been more than offset by unfavorable sales mix and lower ~~effective tax rates. Also~~ ~~contributing to the increase to a lesser extent, were the acquisitions of Santa Izabel and Old Dominion completed~~production in ~~June of 2017 and the acquisition of RPM, which was completed in August of 2017.~~ ~~Negatively influencing both~~ our ~~sales and profits for the nine month period was the effect of the currency translation rates on our non-U.S. results. Alamo's~~Agricultural Division.

The Company's Industrial Division experienced a ~~3.8%~~10.5% increase in sales for the first nine months of ~~2017 which includes $7.9 million in net sales from~~ ~~Old Dominion~~ ~~and RPM. Sales of mowing, excavator, vacuum trucks and sweeping equipment outperformed the same period in 2016, while sales of snow removal products declined during the first nine months of 2017~~2019 compared to the first nine months of ~~2016.~~2018. Sales across all Industrial product groups, with the exception of mowing equipment which was down, outperformed during the first nine months of 2019 compared to the same period in 2018. Agricultural sales were updown in the first nine months of ~~2017~~2019 by ~~8.9%~~6.2% compared to the first nine months of ~~2016~~2018 as a result of ~~a broad applicability~~continued weak demand for our products ~~despite overall~~due to soft agricultural market ~~conditions. Sales from the recently acquired Santa Izabel business contributed $3.7 million for~~conditions and declining farm incomes. Also negatively impacting results was a shutdown during the first ~~nine months~~quarter of ~~2017.~~2019 of the Division's largest manufacturing facility for several days to install an upgrade to its paint system and heavy rains and flooding throughout the mid-west part of the U.S. that occurred during the second quarter. European sales for the first nine months of ~~2017~~2019 were up in U.S. dollars by ~~1.7%~~23.2% compared to the same period in ~~2016 primarily as a result~~2018, mainly due to the acquisition of ~~increased demand for products~~Dutch Power. Excluding Dutch Power, sales were up during the first nine months of 2019 compared to the same time in ~~this Division.~~2018 due to improved performance at our Rivard vacuum truck facility, despite being negatively affected by changes due to currency translation. Consolidated income from operations was ~~up 22.6%~~$76.4 million in the first nine months of ~~2017 as~~2019 which was relatively flat compared to the first nine months of ~~2016. The~~2018, but the Company's backlog ~~was $181.0~~decreased 14.3% to $215.3 million at the end of the ~~first nine months~~third quarter of ~~2017, which is an increase of 31.7%~~2019 versus the backlog of ~~$137.4~~$251.2 million at the end of the ~~first nine months~~third quarter of ~~2016.~~2018. The ~~increase~~decrease in the Company's backlog was ~~primarily~~ attributable to ~~greater demand~~softer new order bookings for our products in ~~all three~~the Agricultural and Industrial Divisions. Excluding the acquisition of Dutch Power, increased orders in the ~~Company's Divisions and, to a lesser extent,~~European Division partially offset these lower new orders for the ~~acquisitions of Santa Izabel,~~ ~~Old Dominion~~ ~~and RPM.~~quarter.

The Company ~~believes that its markets~~incurred several challenges during the quarter and expect those to likely continue for at least the ~~remainder~~balance of ~~2017 will~~the year although customer inquiry levels across the Company remain reasonable. Softer economic conditions in North America are beginning to have an affect in the manufacturing sector and consequently have dampened our sales. Also, the Company continues to be ~~stable but~~impacted by a tight labor market and difficulties in hiring and retaining skilled workers. Additional tariff costs, future changes in tariff regulations and ongoing trade disputes could further impact the business by increasing the cost of items used in the manufacturing of our products and by softening sales of our products to our customers who may be impacted directly or indirectly by increasing tariffs and other negative effects resulting from trade disputes. The Company may also be negatively affected by ~~a variety of~~several other factors such as ~~a continued~~additional weakness in the overall economy; ~~sovereign debt issues; credit availability;~~significant changes in currency exchange rates; negative economic impacts resulting from geopolitical events such as the unresolved Brexit situation, changes in trade policy, increased levels of government regulations; ~~ongoing~~ weakness in the agricultural sector; increase in input costs; changes in farm incomes due to commodity prices or governmental aid programs; adverse situations that could affect our customers such as animal disease epidemics; extreme weather conditions; repercussions from the pending exit by the U.K. from the European Union (EU); acquisition integration issues; budget constraints or revenue shortfalls in governmental entities; and ~~changes~~other risks and uncertainties as described in ~~our customers' buying habits due~~“Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K").

On October 24, 2019, the Company completed the previously announced acquisition of 100% of the outstanding capital shares of Morbark, LLC (Morbark), a former portfolio company of Stellex Capital Management, for a total consideration of approximately $352 million, on a debt free basis and subject to ~~lack of confidence in the economic outlook.~~certain post-closing adjustments.

Results of Operations

Three Months Ended September 30, ~~2017~~2019 vs. Three Months Ended September 30, ~~2016~~2018

Net sales for the third quarter of ~~2017~~2019 were ~~$240,455,000~~,$271,829,000, an increase of ~~$23,689,000,~~$14,257,000 or ~~10.9%~~5.5% compared to ~~$216,766,000~~$257,572,000 for the third quarter of ~~2016.~~2018. The increase in sales was mainly attributable to $10,031,000 of net sales from the acquisition of Dutch Power and to a lesser extent, increased demand for our products in ~~all three of~~ the Company's ~~Divisions. Also contributing to the increase in sales were the acquisitions of Santa Izabel,~~ ~~Old Dominion~~European and ~~RPM in the amount of $10,943,000.~~Industrial Division.

Net Industrial sales increased by ~~$11,183,000~~$1,778,000 or ~~9.2%~~1.1% to ~~$132,388,000~~$158,499,000 for the third quarter of ~~2017~~2019 compared to ~~$121,205,000~~$156,721,000 during the same period in ~~2016.~~2018. The increase ~~primarily came from~~

~~the acquisitions of~~ ~~Old Dominion~~ ~~and RPM which added $7,916,000 during the quarter. Also contributing~~was attributable to ~~the increase were~~ higher sales ~~of excavators~~in most product groups specifically sweeper, vacuum truck and ~~vacuum trucks partially~~snow product lines which were helped by stable municipal demand offset by a lower sales ~~volume~~ of mowing ~~and sweeper~~ equipment and ~~weak sales~~excavators reflecting softer demand from some of ~~snow removal products due to the mild winter conditions experienced during the prior snow season.~~our industrial and state-level governmental customers.

Net Agricultural sales were ~~$64,923,000~~$59,797,000 in the third quarter of ~~2017~~2019 compared to ~~$56,443,000~~$61,464,000 for the same period in ~~2016, an increase~~2018, a decrease of ~~$8,480,000~~$1,667,000 or ~~15.0%~~2.7%. The ~~increase came from improved demand for agricultural~~decrease was primarily the result of weak market conditions which limited sales growth in wholegoods as farm incomes remained challenged. Also, an unfavorable product mix of less high margin mowers sales negatively affected both sales and profitability in the markets we serve and new product introductions despite continued soft agricultural market conditions. Also adding to the increase was the acquisition of Santa Izabel which contributed $3,027,000 during the quarter.this division.

Net European sales for the third quarter of ~~2017~~2019 were ~~$43,144,000,~~$53,533,000, an increase of ~~$4,026,000~~$14,146,000 or ~~10.3%~~35.9% compared to ~~$39,118,000~~$39,387,000 during the third quarter of ~~2016.~~2018. The increase was ~~primarily driven by higher agricultural~~mostly due to the acquisition of Dutch Power which added $10,031,000 of net sales during the quarter. Excluding Dutch Power, sales in ~~both~~ the ~~U.K. and French product lines as well as improved~~European Division were up mainly due to increased sales inlevels from Rivard ~~vacuum trucks. Also contributing to the increase was improved~~which more than offset unfavorable currency ~~translation rates in the third quarter of 2017 compared to the third quarter of 2016.~~translation.

Gross profit for the third quarter of ~~2017~~2019 was ~~$64,939,000 (27.0%~~$68,710,000 (25.3% of net sales) compared to ~~$54,711,000 (25.2%~~$66,772,000 (25.9% of net sales) during the same period in ~~2016,~~2018, an increase of ~~$10,228,000.~~$1,938,000. The increase in gross profit during the third quarter of ~~2017~~2019 was primarily due to ~~higher equipment~~the acquisition of Dutch Power. Excluding Dutch Power, gross profit was essentially flat, but lower as a percent of sales due to lower production and ~~parts~~unfavorable sales ~~volume from all three Divisions and, to a lesser extent, the acquisitions of Santa Izabel,~~ ~~Old Dominion~~ ~~and RPM. Also contributing to the higher margin percentage for the quarter were productivity improvements, pricing actions and purchasing initiatives.~~mix which more than offset lower material costs.

Selling, general and administrative expenses (“SG&A”) were ~~$37,328,000 (15.5%~~$44,255,000 (16.3% of net sales) during the third quarter of ~~2017~~2019 compared to ~~$33,699,000 (15.5%~~$38,523,000 (15.0% of net sales) during the same period of ~~2016,~~2018, an increase of ~~$3,629,000.~~$5,732,000. The increase primarily came from ~~our recently acquired Santa Izabel,~~ ~~Old Dominion~~the acquisition of Dutch Power in the amount of $2,472,000. Also,

attributing to the increase was $843,000 in acquisition expenses along with increased bonus accrual and ~~RPM businesses~~spending on research and ~~to a lesser extent increased marketing expenses.~~development projects during the third quarter of 2019.

Interest expense was ~~$1,414,000~~$1,837,000 for the third quarter of ~~2017~~2019 compared to ~~$1,405,000~~$1,399,000 during the same period in ~~2016,~~2018, an increase of ~~$9,000.~~$438,000. The increase ~~in 2017 came from marginal increases in interest rates in~~during the third quarter of ~~2017.~~2019 came from increased borrowings due to the Dutch Power acquisition.

Other income (expense), net was ~~$1,411,000~~$242,000 of ~~expense~~income for the third quarter of ~~2017~~2019 compared to ~~$127,000~~$265,000 of ~~income~~expense during the same period in ~~2016.~~2018. The income in 2019 was primarily due to the the sale of property for $350,000 and the expense in ~~2017 and income in 2016 were~~2018 was primarily the result of changes in currency exchange rates.

Provision for income taxes was ~~$8,294,000 (33.3%~~$5,801,000 (25.0% of income before income tax) in the third quarter of ~~2017~~2019 compared to ~~$6,541,000 (33.1%~~$3,142,000 (11.8% of income before income tax) during the same period in ~~2016.~~2018. During the third quarter of 2018, the Company recorded a net benefit to income taxes of $2,995,000 relating to the adjustment in the provisional amounts recorded in the fourth quarter of 2017 upon enactment of the Tax Cuts and Jobs Act of 2017 ("TCJA"), as more fully described in Note 12 of the Interim Condensed Consolidated Financial Statements. The net benefit to income taxes reduced the Company's effective income tax rate for the third quarter of 2018 to 11.8%.

The Company’s net income after tax was ~~$16,592,000~~$17,418,000 or ~~$1.42~~$1.47 per share on a diluted basis for the third quarter of ~~2017~~2019 compared to ~~$13,236,000~~$23,543,000 or ~~$1.14~~$2.00 per share on a diluted basis for the third quarter of ~~2016.~~2018. The ~~increase~~decrease of ~~$3,356,000~~$6,125,000 resulted from the factors described above.

Nine Months Ended September 30, ~~2017~~2019 vs. Nine Months Ended September 30, ~~2016~~2018

Net sales for the first nine months of ~~2017~~2019 were ~~$669,120,000,~~$818,949,000, an increase of ~~$29,894,000~~$66,165,000 or ~~4.7%~~8.8% compared to ~~$639,226,000~~$752,784,000 for the first nine months of ~~2016.~~2018. The increase was primarily attributable to increased demand for our products in ~~all three of~~ the Company's ~~Divisions.~~Industrial Division. Our recent ~~acquisitions~~acquisition of ~~Santa Izabel,~~ ~~Old Dominion~~ ~~and RPM~~Dutch Power also ~~added~~contributed to the increase in net sales in the amount of ~~$11,585,000. This was offset by currency translation effects which negatively impacted our European~~$27,679,000. Negatively affecting sales during the first nine months of ~~2017.~~2019, were weak agricultural market conditions as well as unfavorable currency translation effects primarily in our European Division.

Net Industrial sales increased during the first nine months by ~~$13,917,000~~$46,005,000 or ~~3.8%~~10.5% to ~~$375,546,000~~$484,924,000 for ~~2017~~2019 compared to ~~$361,629,000~~$438,919,000 during the same period in ~~2016.~~2018. The increase ~~primarily~~ came from ~~the acquisitions of~~ ~~Old Dominion~~ ~~and RPM which together added $7,916,000 during the the first nine months of 2017 along with~~ higher sales of all product lines, with the exception of mowing equipment ~~sweepers, excavators and vacuum trucks. This increase included~~which was down compared to the ~~negative effects resulting from lower sales of snow removal products~~same time in 2018 due to ~~mild~~soft market conditions and adverse weather conditions experienced during the ~~early part~~second quarter of ~~2017.~~2019.

Net Agricultural sales were ~~$170,921,000~~$168,129,000 during the first nine months of ~~2017~~2019 compared to ~~$156,950,000~~$179,182,000 for the same period in ~~2016, an increase~~2018, a decrease of ~~$13,971,000~~$11,053,000 or ~~8.9%~~6.2%. The ~~increase~~decrease in sales for the first nine months of ~~2017~~2019 compared to the first nine months of ~~2016 resulted from increased demand for our products despite softness~~2018 was a result of weak market conditions and lower farm incomes which have been impacted by lower commodity prices as well as trade disputes. A first quarter 2019 shutdown in the ~~overall agricultural market. Also contributing~~Division's largest manufacturing facility to install an upgrade to its paint system in addition to heavy rains and flooding throughout the ~~increase was~~mid-west part of the ~~acquisition~~U.S. during the second quarter of ~~Santa Izabel in the amount of $3,670,000.~~2019 also negatively hampered sales.

Net European sales for the first nine months of ~~2017~~2019 were ~~$122,653,000,~~$165,896,000, an increase of ~~$2,006,000~~$31,213,000 or ~~1.7%~~23.2% compared to ~~$120,647,000~~$134,683,000 during the same period of ~~2016.~~2018. The increase in ~~2017~~2019 was mainly due to the acquisition of Dutch Power in the amount of $27,679,000 and to a lesser extent increased sales of Rivard equipment. Excluding Dutch Power, sales in local currency were up during the first nine months of 2019 compared to the same time in 2018 due to improved ~~sales in both the U.K. and French agricultural markets as well as~~ Rivard vacuum ~~trucks. Also negatively affecting~~truck sales, ~~in 2017 were~~despite being partially offset by unfavorable currency ~~translation rates.~~translation.

Gross profit for the first nine months of ~~2017~~2019 was ~~$173,782,000 (26.0%~~$205,151,000 (25.1% of net sales) compared to ~~$157,166,000 (24.6%~~$193,483,000 (25.7% of net sales) during the same period in ~~2016,~~2018, an increase of ~~$16,616,000.~~$11,668,000. The increase in gross profit for the first nine months of ~~2017~~2019 came from the acquisition of Dutch Power and higher equipment ~~and parts~~ sales in ~~all three of~~ the Company's ~~Divisions~~Industrial Division. Negatively affecting both gross margin and ~~to a lesser extent, the acquisitions of Santa Izabel,~~ ~~Old Dominion~~ ~~and RPM. Also contributing to the higher~~ margin ~~percent~~percentage for the first nine months of ~~2017~~2019 were ~~productivity~~the effects of lower production and unfavorable product mix, partially offset by lower material costs and improvements ~~pricing actions, and purchasing initiatives.~~in the Rivard vacuum truck business.

SG&A expenses were ~~$105,913,000 (15.8%~~$128,741,000 (15.7% of net sales) during the first nine months of ~~2017~~2019 compared to ~~$101,824,000 (15.9%~~$117,087,000 (15.6% of net sales) during the same period of ~~2016,~~2018, an increase of ~~$4,089,000.~~$11,654,000. The increase primarily came from ~~our recently acquired Santa Izabel,~~ ~~Old Dominion~~increased spending on research and ~~RPM business operations and~~development projects, higher selling expenses due to ~~a lesser extent transactional costs relating to~~increased sales, as well as acquisition expenses in the ~~acquisitions and increased marketing~~amount of $1,240,000. Our recent acquisition of Dutch Power added $5,421,000 in SG&A expenses.

Interest expense was ~~$4,241,000~~$5,222,000 for the first nine months of ~~2017~~2019 compared to ~~$4,334,000~~$4,233,000 during the same period in ~~2016, a decrease~~2018, an increase of ~~$93,000.~~$989,000. The ~~decrease in 2017 came from from lower debt levels~~increase during ~~the nine months of 2017 compared to~~ the first nine months of ~~2016, despite a marginal increase in interest rates during 2017.~~2019 came from increased borrowings due to the Dutch Power acquisition.

Other income (expense), net was ~~$2,284,000~~$442,000 of expense during the first nine months of ~~2017~~2019 compared to ~~$253,000~~$491,000 of expense in the first nine months of ~~2016.~~2018. The ~~expense~~expenses in ~~2017~~2019 and ~~2016~~2018 were primarily the result of changes in exchange rates.

Provision for income taxes was ~~$20,526,000 (33.3%)~~$18,270,000 (25.5% of income before income taxes) in the first nine months of ~~2017~~2019 compared to ~~$18,459,000 (36.3%)~~$15,084,000 (21.0% of income before income taxes) during the same period in ~~2016. The decrease~~2018. During the third quarter of 2018, the Company recorded a net benefit to income taxes of $2,995,000 relating to the adjustment in the provisional amounts recorded in the fourth quarter of 2017 upon enactment of TCJA, as more fully described in Note 12 of the Interim Condensed Consolidated Financial Statements. The net benefit to income taxes reduced the Company's effective income tax rate ~~in 2017 was primarily from~~for the ~~recognition~~first nine months of ~~excess tax benefits related~~2018 to share based payments as a result of the adoption of ASU No. 2016-09. The higher effective tax rate in 2016 is primarily due to a higher portion of our taxable income being generated in jurisdictions with higher tax rates as well as losses incurred in certain foreign jurisdictions that did not result in a tax benefit.21.0%.

The Company's net income after tax was ~~$41,075,000~~$53,338,000 or ~~$3.52~~$4.52 per share on a diluted basis for the first nine months of ~~2017~~2019 compared to ~~$32,457,000~~$56,897,000 or ~~$2.81~~$4.84 per share on a diluted basis for the first nine months of ~~2016.~~2018. The ~~increase~~decrease of ~~$8,618,000~~$3,559,000 resulted from the factors described above.

Liquidity and Capital Resources

In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to operate the Company’s business, including inventory purchases and capital expenditures. The Company’s inventory and accounts payable levels typically build in the first half of the year and in the fourth quarter in anticipation of the spring and fall selling seasons. Accounts receivable historically build in the first and fourth quarters of each year as a result of fall preseason sales programs and out of season sales, particularly in our Agricultural Division. Preseason sales, primarily in the Agricultural Division, help level the Company’s production during the off season.

As of September 30, ~~2017,~~2019, the Company had working capital of ~~$340,407,000~~$404,314,000 which represents an increase of ~~$91,489,000~~$52,323,000 from working capital of ~~$248,918,000~~$351,991,000 at December 31, ~~2016.~~2018. The increase in working capital was primarily due to seasonality and ~~to a lesser extent~~ the ~~acquisitions~~acquisition of ~~Santa Izabel,~~ ~~Old Dominion~~ ~~and RPM.~~Dutch Power.

Capital expenditures were ~~$9,686,000~~$19,488,000 for the first nine months of ~~2017,~~2019, compared to ~~$7,201,000~~$18,781,000 during the first nine months of ~~2016.~~2018. The Company expects higher capital expenditures in 2019 in order to consolidate production capacity, support improvements in operational efficiencies, invest in technology and for the previously announced construction of a new manufacturing facility for its Super Products vacuum truck operation in Wisconsin, as well as the expansion of our Tenco facility in Canada. The Company will fund future expenditures from operating cash flows or through ~~its~~our revolving credit facility, described below.

Net cash used for acquisitions was $58,531,000 during the first nine months of 2019. The amount used to acquire Dutch Power was approximately $52,611,000 with the remaining balance used for the Dixie Chopper acquisition.

Net cash provided by ~~(used in)~~ financing activities was ~~$54,421,000~~$58,423,000 and ~~($10,735,000)~~$39,151,000 during the nine month periods ended September 30, ~~2017~~2019 and September 30, ~~2016,~~2018, respectively. The majority of the increase in net cash provided by financing activities in ~~2017 resulted from an increase in net~~2019 as compared to the prior year, was mainly due to borrowings ~~under our bank credit facility required for funding~~to finance the acquisition of Dutch Power, partially offset by the ~~acquisitions of Old Dominion and Santa Izabel and seasonal funding of operations.~~repurchase activity related to the Company's common stock.

The Company had ~~$65,385,000~~$51,888,000 in cash and cash equivalents held by its foreign subsidiaries as of September 30, ~~2017.~~2019. The majority of these funds are at our ~~U.K.~~European and Canadian ~~subsidiaries~~facilities. As a result of the

fundamental changes to the taxation of multinational corporations created by Tax Cuts and ~~would not be available for~~Jobs Act, we no longer intend to permanently reinvest all of the undistributed earnings of our European foreign affiliates. While the Company intends to use ~~in the United States without incurring US federal and state tax consequences. The Company plans to use~~some of these funds for working capital and capital expenditures ~~or acquisitions~~ outside the ~~United States.~~

U.S., recent changes in the U.S. tax laws have substantially mitigated the cost of repatriation. During the second quarter of 2018, the Company repatriated excess cash from its European operations of approximately $24,000,000. The Company ~~maintains an unsecured revolving~~will continue to repatriate foreign cash and cash equivalents in excess of amounts needed to fund foreign operating and investing activities. Repatriated funds will initially be used to reduce funded debt levels under the Company's current credit facility ~~with certain lenders under~~and subsequently used to fund working capital, capital investments and acquisitions company-wide.

On October 24, 2019, the Company, as Borrower, and each of its domestic subsidiaries as guarantors, entered into a Second Amended and Restated ~~Revolving~~ Credit Agreement ("(the Credit Agreement) with Bank of America, N.A., as Administrative Agent. The Credit Agreement provides the ~~Agreement"). The~~Company with the ability to request loans and other financial obligations in an aggregate ~~commitments from lenders under~~amount of up to $650,000,000. Pursuant to the Credit Agreement, is ~~$250,000,000~~ ~~and, subject to certain conditions and bank approval,~~ the Company has borrowed $300,000,000 pursuant to a Term Facility repayable with interest quarterly at a percentage of the ~~option~~initial principal amount of the Term Facility of 5.0% per year with the remaining principal due in 5 years. Up to ~~request an increase~~$350,000,000 is available under the Credit Agreement pursuant to a Revolver Facility which terminates in ~~aggregate commitments of up to an additional~~ ~~$50,000,000~~.5 years. The Agreement requires the Company to maintain ~~various~~two financial covenants, ~~including a minimum earnings before interest and tax to interest expense ratio,~~ a maximum 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 Agreement also contains other customary covenants, representations and events of defaults. Effective December 20, 2016, the Company amended it's revolving credit facility to extend the termination date, reduce LIBOR interest margin and to modify certain financial and other covenants in order to meet the ongoing needs of the Company's business and to allow for greater flexibility in relation to future acquisitions. The expiration date of the ~~revolving credit facility~~Term Facility and the Revolver Facility is ~~December 20, 2021.~~October 24, 2024. As of ~~September~~October 30, ~~2017,~~ ~~$126,000,000~~2019, $510,000,000 was outstanding under the Agreement. On ~~September~~October 30, ~~2017,~~ ~~$1,607,000~~2019, $4,152,000 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 ~~$122,393,000~~$133,964,000 in available borrowings. ~~As of September 30, 2017, the~~The Company ~~was~~is in compliance with the covenants under the Agreement.

Management believes the Agreement 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, future challenges affecting the banking industry and credit markets in general could potentially cause changes to credit availability, which creates a level of uncertainty.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes that of the Company's significant accounting policies, which are set forth in Note 1 of the Notes to Consolidated Financial Statements in the ~~Company's Annual Report on~~2018 Form 10-K, ~~for the year ended December 31, 2016 (the "2016 Form 10-K"),~~ the policies relating to the business combinations, ~~allowance for doubtful accounts,~~ sales discounts, ~~inventories-obsolete and slow moving, warranty,~~ and goodwill and other intangible assets involved a higher degree of judgment and complexity. There have been no material changes to the nature of estimates, assumptions and levels of

subjectivity and judgment related to critical accounting estimates disclosed in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the ~~Company's 2016~~2018 Form 10-K.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are likely to have a current or future material effect on our financial condition.

Forward-Looking Information

Part I of this Quarterly Report on Form 10-Q and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Quarterly 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.

Statements that are not historical are forward-looking. When used by or on behalf of the Company, the words “estimate,” "anticipate," "expect," “believe,” “intend”, "will", "would", "should", "could" and similar expressions generally identify forward-looking statements made by or on behalf of the Company.

Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses operating in a global market, as well as matters specific to the Company and the markets it serves. Particular risks and uncertainties facing the Company include changes in market conditions; ongoing weakness in the agricultural sector; changes in tariff regulations and the imposition of new tariffs; a strong U.S. dollar; increased competition; trade wars or other negative economic impacts resulting from geopolitical events; decreases in the prices of agricultural commodities, which could affect our customers' income levels; increase in input costs; our inability to increase profit margins through continuing production efficiencies and cost reductions; repercussions from the pending exit by the U.K. from the European Union (EU); acquisition integration issues; budget constraints or income shortfalls which could affect the purchases of our type of equipment by governmental customers; credit availability for both the Company and its customers, adverse weather conditions such as droughts, floods, snowstorms, etc. which can affect buying patterns of the Company’s customers and related contractors; the price and availability of critical raw materials, particularly steel and steel products; energy cost; increased cost of new governmental regulations which effect corporations including related fines and ~~penalties;~~penalties (such as the new European General Data Protection Regulation); the potential effects on the buying habits of our customers due to animal disease outbreaks and other epidemics; the Company’s ability to develop and manufacture new and existing products profitably; market acceptance of new and existing products; the Company’s ability to maintain good relations with its employees; the Company's ability to successfully complete acquisitions and operate acquired businesses or ~~assets including Santa Izabel, Old Dominion and RPM;~~assets; the ability to hire and retain quality skilled employees; and cyber security risks affecting information technology or data security breaches.

In addition, the Company is subject to risks and uncertainties facing the industry in general, including changes in business and political conditions and the economy in general in both domestic and international markets; weather conditions affecting demand; slower growth in the Company’s markets; financial market changes including increases in interest rates and fluctuations in foreign exchange rates; actions of competitors; the inability of the Company’s suppliers, customers, creditors, public utility providers and financial service organizations to deliver or provide their products or services to the Company; seasonal factors in the Company’s industry; litigation; government actions including budget levels, regulations and legislation, primarily relating to the environment, commerce, infrastructure spending, health and safety; and availability of materials.

The Company wishes to caution readers not to place undue reliance on any forward-looking statements and to recognize that the statements are not predictions of actual future results. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning the Company and its businesses, including factors that could potentially materially affect the Company’s financial results, may emerge from time to time. It is not possible for management to predict all risk factors or to assess the impact of such risk factors on the Company’s businesses.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Foreign Currency Risk

International Sales

A portion of the Company’s operations consists of manufacturing and sales activities in international jurisdictions. The Company primarily manufactures its products in the U.S., U.K., France, Canada, Brazil, Australia and ~~Australia.~~the Netherlands. The Company sells its products primarily in the functional currency within the markets where the products are produced, but certain sales from the Company's U.K. and Canadian operations are denominated in other foreign 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.

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. subsidiaries regularly enter into foreign exchange forward contracts to hedge approximately 90% of its future net foreign currency collections over a period of six months. As of September 30, ~~2017,~~2019, the Company had ~~$1,566,000~~$903,000 outstanding in forward exchange contracts related to accounts receivable. A 15% fluctuation in exchange rates for these currencies would change the fair value of these contracts by approximately ~~$235,000.~~$135,000. 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.

Exposure to Exchange Rates

The Company translates the assets and liabilities of foreign-owned subsidiaries at rates in effect at the balance sheet date. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in accumulated other comprehensive income within the statement of stockholders’ equity. The total foreign currency translation adjustment for the current quarter ~~increased~~decreased stockholders’ equity by ~~$7,452,000.~~$9,791,000.

The Company’s earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately in Europe and Canada, as a result of the sales of its products in international markets. Forward currency contracts are used to hedge against the earnings effects of such fluctuations. The result of a uniform 10% strengthening or 10% decrease in the value of the dollar relative to the currencies in which the Company’s sales are denominated would result in a change in gross profit of ~~$4,836,000~~$6,558,000 for the nine month period ending September 30, ~~2017.~~2019. 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 include 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.

In March 2019, the Company entered into fixed-to-fixed cross-currency swaps and designated these swaps to hedge a portion of its net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. These contracts involve the exchange of fixed U.S. dollars with fixed euro interest payments periodically over the life of the contracts and an exchange of the notional amounts at maturity. The fixed-to-fixed cross-currency swaps include €40 million ($45 million) maturing December 2021.

Interest Rate Risk

The Company’s long-term debt bears interest at variable rates. Accordingly, the Company’s net income is affected by changes in interest rates. Assuming the current level of borrowings at variable rates and a two percentage point change for the third quarter ~~2017~~2019 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately ~~$630,000.~~$750,000. In the event of an adverse change in interest rates, management could take actions to mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects this analysis assumes no such actions. 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.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

An evaluation was carried out under the supervision and with the participation of Alamo’s management, including our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer (Principal Financial Officer) and ~~Vice-President~~Vice President, Controller and ~~Corporate Controller,~~Treasurer, (Principal Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon the evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer (Principal Financial Officer) and ~~Vice-President, Corporate~~Vice President, Controller and Treasurer, (Principal Accounting Officer) concluded that the Company’s design and operation of these disclosure controls and procedures were effective at the end of the period covered by this report.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. - Legal Proceedings

For a description of legal proceedings, see Note 1314 Contingent Matters to our interim condensed consolidated financial statements.

Item 1A. - Risk Factors

~~There~~We may not be able to realize the potential or strategic benefits of the acquisitions we complete, or we may not successfully address problems encountered in connection with acquisitions.

Acquisitions are an important part of our growth strategy and we have completed a number of acquisitions over the past several years. To date in 2019, we completed three acquisitions, namely, Dutch Power, Dixie Chopper, and Morbark, with Morbark being the most recently completed and most significant. Acquisitions can be difficult, time-consuming, and pose a number of risks, including:

•Potential negative impact on our earnings per share;

•Failure of acquired products to achieve projected sales;

•Problems in integrating the acquired products with our existing and/or new products;

•Potential downward pressure on operating margins due to lower operating margins of acquired businesses, increased headcount costs and other expenses associated with adding and supporting new products;

•Difficulties in retaining and integrating key employees;

•Failure to realize expected synergies including anticipated revenue benefits and/or cost savings ;

•Disruption of ongoing business operations, including diversion of management’s attention and uncertainty for employees and customers, particularly during the post-acquisition integration process; and

•Potential negative impact on our relationships with customers, distributors and vendors.

If we do not manage these risks, the acquisitions that we complete may have an adverse effect on our business, our results of operations or financial condition.

Other than as set forth under this Item 1A, there have not been any material changes from the risk factors previously disclosed in the ~~2016~~2018 Form 10-K for the year ended December 31, ~~2016.~~2018.

Item 2. - ~~None~~Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides a summary of the Company's repurchase activity for its common stock during the three months ended September 30, 2019:


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ^(a)
July 2019	—	—	—	—
August 2019	—	—	—	—
September 2019	10,000	$118.51	10,000	$25,861,222
(a) On December 13, 2018, the Board authorized a stock repurchase program of up to $30.0 million of the Company's common stock. The program shall have a term of five (5) years, terminating on December 12, 2023.

Item 3. - ~~None~~Defaults Upon Senior Securities

None.

Item 4. - ~~None~~Mine Safety Disclosures

Not Applicable

Item 5. - Other Information

(a) Reports on Form 8-K

~~None~~None.

(b) Other Information

~~None~~None.

Item 6. - Exhibits

(a) Exhibits

~~31.1~~ Exhibits

Exhibit Title

Incorporated by Reference From the Following Documents

10.1

—

Securities Purchase Agreement, dated as of September 11, 2019, by and among Alamo Acquisition Corporation, a Delaware corporation, Alamo Group Inc., a Delaware corporation, Stellex Capital Partners, LP, a Delaware limited partnership, and in its capacity as the initial representative of the other Sellers and Morbark Holdings Group, LLC, a Delaware limited liability company.

Incorporated by Reference

10.2

—

First Amendment to Securities Purchase Agreement, dated as of October 22, 2019, by and among Alamo Acquisition Corporation, a Delaware corporation, Alamo Group Inc., a Delaware corporation, Stellex Capital Partners, LP, a Delaware limited partnership, and in its capacity as the initial representative of the other Sellers pursuant to Section 10.6 of the Securities Purchase Agreement.

Filed Herewith

10.3

—

Second Amended and Restated Credit Agreement, dated as of October 24, 2019, by and among Alamo Group Inc., Bank of America, N.A. as administrative agent, Wells Fargo Bank, National Association, and BBVA USA as co-syndication agents, and the other lenders party thereto.

Incorporated by Reference

31.1

—

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

Filed Herewith

31.2

—

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

Filed Herewith

31.3

—

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

Filed Herewith

32.1

—

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

Filed Herewith

32.2

—

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

Filed Herewith

32.3

—

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

Filed Herewith

~~101.INS~~32.4

—

Consulting Agreement with Former Executive of the Company - Geoffrey Davies

Incorporated by Reference

101.INS

—

XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document

Filed Herewith

101.SCH

—

XBRL Taxonomy Extension Schema Document

Filed Herewith

101.CAL

—

XBRL Taxonomy Extension Calculation Linkbase Document

Filed Herewith

101.DEF

—

XBRL Taxonomy Extension Definition Linkbase Document

Filed Herewith

101.LAB

—

XBRL Taxonomy Extension Label Linkbase Document

Filed Herewith

101.PRE

—

XBRL Taxonomy Extension Presentation Linkbase Document

Filed Herewith

104

—

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed Herewith

Alamo Group Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



October ~~31, 2017~~30, 2019			Alamo Group Inc.
			(Registrant)

			/s/ Ronald A. Robinson
			Ronald A. Robinson
			President & Chief Executive Officer



			/s/ Dan E. Malone
			Dan E. Malone
			Executive Vice President & Chief Financial Officer
			(Principal Financial Officer)



			/s/ Richard J. Wehrle
			Richard J. Wehrle
			Vice President, Controller & ~~Corporate Controller~~Treasurer
			(Principal Accounting Officer)

2430



Cash	$	2,547
Accounts receivable	7,112
Inventory	15,258
Prepaid expenses	134
Income tax receivable	485
Property, plant & equipment	3,921
Intangible assets	6,727
Other assets	572
Other liabilities assumed	(4,898		)

Net assets assumed	$	31,858

Goodwill	9,210
Acquisition Price	$	41,068



(in thousands)
Balance at December 31, 2016	$	74,825
Goodwill acquired	9,210
Translation adjustments	2,329
Balance at September 30, 2017	$	86,364



(in thousands)	September 30, 2017		December 31, 2016
Goodwill
Industrial	$	62,784	$	56,447
Agricultural	7,080		3,489
European	16,500		14,889
Consolidated	$	86,364	$	74,825

Total Identifiable Assets
Industrial	$	382,138	$	339,064
Agricultural	142,201		111,120
European	162,230		102,592
Consolidated	$	686,569	$	552,776



	Nine Months Ended September 30, 2017
(in thousands)	Hourly Employees’ Pension Plan			Employees’ Retirement Plan				Total
Service cost		$	—		$	3		$	3
Interest cost		—			624			624
Expected return on plan assets		—			(956		)	(956		)
Amortization of net loss		—			324			324
Net periodic benefit		$	—		$	(5	)	$	(5	)



	Nine Months Ended September 30, 2016
(in thousands)	Hourly Employees’ Pension Plan				Employees’ Retirement Plan				Total
Service cost		$	6			$	3		$	9
Interest cost		300				666			966
Expected return on plan assets		(486		)		(898		)	(1,384		)
Amortization of net loss		213				330			543
Net periodic benefit cost		$	33			$	101		$	134