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 JUNE 30, ~~2018~~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.

~~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.

~~LARGE ACCELERATED FILER~~ ☒

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

~~ACCELERATED FILER~~ ¨

~~NON-ACCELERATED FILER~~ ¨

~~SMALLER REPORTING COMPANY~~ ¨

~~(DO NOT CHECK IF A 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 13a OF THE EXCHANGE ACT. ☐

~~INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES ☐ NO ☒~~

~~AT JULY 27, 2018, 11,727,674 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE REGISTRANT WERE OUTSTANDING.~~

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value

$.10 per share

ALG

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing 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 ☐

~~Alamo Group Inc.~~

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 ~~Subsidiaries~~

~~INDEX~~

“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 12b-2 of the Exchange Act). Yes ☐ No ☒

At July 26, 2019, 11,818,179 shares of common stock, $.10 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

June 30, ~~2018~~2019 and December 31, ~~2017~~2018

Interim Condensed Consolidated Statements of Income

Three and Six Months Ended June 30, ~~2018~~2019 and June 30, ~~2017~~2018

Interim Condensed Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, ~~2018~~2019 and June 30, ~~2017~~2018

Interim Condensed Consolidated Statement s of Stockholders' Equity

Three and Six Months Ended June 30, 2019 and June 30, 2018

Interim Condensed Consolidated Statements of Cash Flows

~~Three and~~ Six Months Ended June 30, ~~2018~~2019 and June 30, ~~2017~~2018

Notes to Interim Condensed Consolidated Financial Statements

Item 2.

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

1518

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

2023

Item 4.

Controls and Procedures

2125

PART II.

OTHER INFORMATION

2125

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~None~~

Item 3.

Defaults Upon Senior Securities

~~None~~

Item 4.

Mine Safety Disclosures

~~None~~

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

2327

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share amounts)
June 30,
2018 December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 43,602 $ 25,373
Accounts receivable, net 238,126 205,767
Inventories, net 174,836 155,568
Prepaid expenses 6,771 5,336
Income tax receivable 5,345 483
Total current assets 468,680 392,527
Rental equipment, net 37,057 28,493
Property, plant and equipment 207,827 202,293
Less: Accumulated depreciation (128,090) (125,629)
79,737 76,664
Goodwill 83,972 84,761
Intangible assets, net 50,636 52,872
Deferred income taxes 1,545 992
Other assets 3,752 3,362
Total assets $ 725,379 $ 639,671
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable $ 63,322 $ 55,825
Income taxes payable — 5,002
Accrued liabilities 37,312 40,454
Current maturities of long-term debt and capital lease obligations 17 82
Total current liabilities 100,651 101,363
Long-term debt and capital lease obligations, net of current maturities 119,000 60,000
Long-term tax liability 12,316 12,316
Deferred pension liability 879 1,225
Other long-term liabilities 7,415 7,291
Deferred income taxes 10,671 8,368
Stockholders’ equity:
Common stock, $.10 par value, 20,000,000 shares authorized; 11,652,597 and 11,577,048 outstanding at June 30, 2018 and December 31, 2017, respectively 1,165 1,158
Additional paid-in-capital 106,794 103,864
Treasury stock, at cost; 42,600 shares at June 30, 2018 and December 31, 2017 (426) (426)
Retained earnings 405,479 374,678
Accumulated other comprehensive loss (38,565) (30,166)
Total stockholders’ equity 474,447 449,108
Total liabilities and stockholders’ equity $ 725,379 $ 639,671


(in thousands, except share amounts)	June 30, 2019					December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$	48,190	$	34,043
Accounts receivable, net		267,064		228,098
Inventories, net		205,910		176,630

Prepaid expenses and other current assets		6,690		5,327
Income tax receivable		8,250		8,745
Total current assets		536,104		452,843

Rental equipment, net		51,517		43,978

Property, plant and equipment		243,489		219,135
Less: Accumulated depreciation		(138,022)		(131,905)
Total property, plant and equipment, net		105,467		87,230

Goodwill		93,134		83,243
Intangible assets, net		62,725		48,857
Deferred income taxes		961		1,783
Other non-current assets		16,671		3,699

Total assets		$	866,579	$	721,633

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	67,391	$	54,083
Income taxes payable		1,926		2,865
Accrued liabilities		47,707		43,785
Current maturities of long-term debt and finance lease obligations		131		119

Total current liabilities		117,155		100,852

Long-term debt and finance lease obligations, net of current maturities		166,232		85,179
Long-term tax liability		6,378		6,120
Deferred pension liability		1,719		1,944
Other long-term liabilities		14,340		8,436
Deferred income taxes		17,923		11,731

Stockholders’ equity:
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,737,993 and 11,662,688 outstanding at June 30, 2019 and December 31, 2018, respectively		1,174		1,166
Additional paid-in-capital		111,476		108,422
Treasury stock, at cost; 72,600 and 42,600 shares at June 30, 2019 and December 31, 2018, respectively		(3,381)		(426)
Retained earnings		476,152		443,040
Accumulated other comprehensive loss		(42,589)		(44,831)
Total stockholders’ equity		542,832		507,371

Total liabilities and stockholders’ equity		$	866,579	$	721,633

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2019		2018		2019		2018

Net sales:
Industrial	$	168,000	$	150,031	$	326,425	$	282,198
Agricultural	55,159		59,071		108,332		117,718
European	62,027		48,023		112,363		95,296
Total net sales	285,186		257,125		547,120		495,212
Cost of sales	212,053		190,671		410,679		368,501
Gross profit	73,133		66,454		136,441		126,711

Selling, general and administrative expenses	43,784		39,668		84,486		78,564
Income from operations	29,349		26,786		51,955		48,147

Interest expense	(1,935)		(1,497)		(3,385)		(2,834)
Interest income	330		109		503		209
Other expense, net	(295)		(92)		(684)		(226)
Income before income taxes	27,449		25,306		48,389		45,296
Provision for income taxes	6,782		6,535		12,469		11,942
Net Income	$	20,667	$	18,771	$	35,920	$	33,354

Net income per common share:
Basic	$	1.76	$	1.61	$	3.07	$	2.87
Diluted	$	1.75	$	1.60	$	3.05	$	2.84
Average common shares:
Basic	11,726		11,652		11,712		11,629
Diluted	11,798		11,759		11,787		11,749

Dividends declared	$	0.12	$	0.11	$	0.24	$	0.22

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands, except per share amounts) 2018 2017 2018 2017
Net sales:
Industrial $ 150,031 $ 117,342 $ 282,198 $ 243,158
Agricultural 59,071 54,221 117,718 105,998
European 48,023 41,713 95,296 79,509
Total net sales 257,125 213,276 495,212 428,665
Cost of sales 190,671 158,597 368,501 319,822
Gross profit 66,454 54,679 126,711 108,843
Selling, general and administrative expenses 39,668 34,372 78,564 68,285
Income from operations 26,786 20,307 48,147 40,558
Interest expense (1,497) (1,500) (2,834) (2,827)
Interest income 109 81 209 157
Other income (expense) (92) (815) (226) (1,173)
Income before income taxes 25,306 18,073 45,296 36,715
Provision for income taxes 6,535 5,757 11,942 12,232
Net Income $ 18,771 $ 12,316 $ 33,354 $ 24,483
Net income per common share:
Basic $ 1.61 $ 1.07 $ 2.87 $ 2.13
Diluted $ 1.60 $ 1.05 $ 2.84 $ 2.10
Average common shares:
Basic 11,652 11,547 11,629 11,509
Diluted 11,759 11,671 11,749 11,646
Dividends declared $ 0.11 $ 0.10 $ 0.22 $ 0.20

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


			Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	(in thousands)		2018		2017		2018		2017		(in thousands)	2019		2018		2019		2018
Net Income			$	18,771	$	12,316	$	33,354	$	24,483
Net income											Net income	$	20,667	$	18,771	$	35,920	$	33,354
Other comprehensive income:	Other comprehensive income:										Other comprehensive income:
		Foreign currency translation adjustments	(11,850)		7,098		(8,733)		10,144
		Net gain on pension and other postretirement benefits	228		217		423		434
		Other comprehensive income before income tax expense	(11,622)		7,315		(8,310)		10,578
		Income tax expense related to items of other comprehensive loss	(20)		(80)		(89)		(159)
		Other comprehensive income	(11,642)		7,235		(8,399)		10,419
Comprehensive Income			$	7,129	$	19,551	$	24,955	$	34,902
Foreign currency translation adjustments											Foreign currency translation adjustments	1,194		(11,850)		1,914		(8,733)
Net gain on pension and other post-retirement benefits											Net gain on pension and other post-retirement benefits	215		228		430		423
Unrealized loss during the period related to derivatives											Unrealized loss during the period related to derivatives	(12)		—		(12)		—
Other comprehensive income (loss) before income tax expense											Other comprehensive income (loss) before income tax expense	1,397		(11,622)		2,332		(8,310)
Income tax expense related to items of other comprehensive income											Income tax expense related to items of other comprehensive income	(45)		(20)		(90)		(89)
Other comprehensive income (loss)											Other comprehensive income (loss)	1,352		(11,642)		2,242		(8,399)
Comprehensive income											Comprehensive income	$	22,019	$	7,129	$	38,162	$	24,955

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


For six months ended June 30, 2019																			For six months ended June 30, 2019

		Common Stock			Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stock- holders’ Equity			Common Stock					Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stock- holders’ Equity
(in thousands)	(in thousands)	Shares	Amount																(in thousands)	Shares	Amount
Balance at December 31, 2017		11,534	$	1,158		$	103,864		$	(426)		$	374,678		$	(30,166)	$	449,108
Balance at December 31, 2018																			Balance at December 31, 2018	11,620	$	1,166	$	108,422									$	(426)	$	443,040	$	(44,831)	$	507,371
Net income	Net income	—				—			—			33,354			—		33,354		Net income	—							15,253		—		15,253

Translation adjustment	Translation adjustment	—				—			—			—			(8,733)		(8,733)		Translation adjustment	—									720

Net actuarial gain arising during period, net of taxes	Net actuarial gain arising during period, net of taxes	—				—			—			—			334		334		Net actuarial gain arising during period, net of taxes	—									170

Stock-based compensation	Stock-based compensation	—				1,188			—			—			—		1,188		Stock-based compensation	—			627		—						627
Common stock repurchase																			Common stock repurchase	(15)	—				(1,490)		—				(1,490)
Exercise of stock options	Exercise of stock options	76	7			1,742			—			—			—		1,749		Exercise of stock options	11	1		236		—						237

Dividends paid ($0.22 per share)		—				—			—			(2,553)			—		(2,553)
Balance at June 30, 2018		11,610	$	1,165		$	106,794		$	(426)		$	405,479		$	(38,565)	$	474,447
Dividends paid ($0.12 per share)																			Dividends paid ($0.12 per share)	—							(1,404)		—		(1,404)
Balance at March 31, 2019																			Balance at March 31, 2019	11,616	$	1,167	$	109,285	$	(1,916)	$	456,889	$	(43,941)	$	521,484
Net income																			Net income	—							20,667		—		20,667

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

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

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


For six months ended June 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

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended
June 30,
(in thousands) 2018 2017
Operating Activities
Net income $ 33,354 $ 24,483
Adjustment to reconcile net income to net cash (used in) provided by operating activities:
Provision for doubtful accounts (158) (87)
Depreciation - Property, plant and equipment 6,242 5,560
Depreciation - Rental equipment 2,983 2,804
Amortization of intangibles 1,756 1,554
Amortization of debt issuance costs 110 110
Stock-based compensation expense 1,188 774
Deferred income tax expense (benefit) 967 (20)
Gain on sale of property, plant and equipment (149) (238)
Changes in operating assets and liabilities:
Accounts receivable (35,260) (23,519)
Inventories (22,116) (4,436)
Rental equipment (11,547) (3,275)
Prepaid expenses and other assets (1,452) 1,012
Trade accounts payable and accrued liabilities 5,959 11,621
Income taxes payable (9,806) (4,226)
Other assets and long-term liabilities 215 305
Net cash (used in) provided by operating activities (27,714) 12,422
Investing Activities
Acquisitions, net of cash acquired — (26,440)
Purchase of property, plant and equipment (10,829) (6,268)
Proceeds from sale of property, plant and equipment 628 417
Net cash used in investing activities (10,201) (32,291)
Financing Activities
Borrowings on bank revolving credit facility 104,000 109,000
Repayments on bank revolving credit facility (45,000) (33,000)
Principal payments on long-term debt and capital leases (66) —
Dividends paid (2,553) (2,297)
Proceeds from sale of common stock 2,186 1,981
Redemptions of common stock to satisfy withholding taxes related to stock-based compensation

(437) (166)
Net cash provided by financing activities 58,130 75,518
Effect of exchange rate changes on cash and cash equivalents (1,986) 2,195
Net change in cash and cash equivalents 18,229 57,844
Cash and cash equivalents at beginning of the period 25,373 16,793
Cash and cash equivalents at end of the period $ 43,602 $ 74,637
Cash paid during the period for:
Interest $ 2,526 $ 3,131
Income taxes 19,637 16,444


	Six Months Ended June 30,
(in thousands)	2019		2018
Operating Activities
Net income	$	35,920	$	33,354
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	157		(158)
Depreciation - Property, plant and equipment	6,868		6,242
Depreciation - Rental equipment	4,323		2,983
Amortization of intangibles	1,969		1,756
Amortization of debt issuance costs	110		110
Stock-based compensation expense	1,575		1,188
Provision for deferred income tax expense	2,306		967
Gain on sale of property, plant and equipment	(284)		(149)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(32,377)		(35,260)
Inventories	(11,023)		(22,116)
Rental equipment	(11,862)		(11,547)
Prepaid expenses and other assets	(3,393)		(1,452)
Trade accounts payable and accrued liabilities	5,555		5,959
Income taxes payable	(477)		(9,806)
Long-term tax payable	258		—
Other assets and long-term liabilities	1,274		215
Net cash provided by (used in) operating activities	899		(27,714)

Investing Activities
Acquisitions, net of cash acquired	(52,499)		—
Purchase of property, plant and equipment	(12,423)		(10,829)
Proceeds from sale of property, plant and equipment	661		628

Net cash used in investing activities	(64,261)		(10,201)

Financing Activities
Borrowings on bank revolving credit facility	122,000		104,000
Repayments on bank revolving credit facility	(41,000)		(45,000)
Principal payments on finance leases	(76)		(66)
Proceeds from issuance of long-term debt and finance leases	38		—

Dividends paid	(2,808)		(2,553)
Proceeds from exercise of stock options	2,077		2,186
Treasury stock	(2,955)		—
Cost of common stock repurchased	(590)		(437)
Net cash provided by financing activities	76,686		58,130

Effect of exchange rate changes on cash and cash equivalents	823		(1,986)
Net change in cash and cash equivalents	14,147		18,229
Cash and cash equivalents at beginning of the year	34,043		25,373
Cash and cash equivalents at end of the period	$	48,190	$	43,602

Cash paid during the period for:
Interest	$	3,285	$	2,526
Income taxes	10,035		19,637

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)

June 30, ~~2018~~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, ~~2018~~.2019. The balance sheet at December 31, ~~2017~~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, ~~2017(the "201710-K"~~2018 (the "2018 10-K").

~~Reclassifications~~

~~Certain amounts reported for the three and six months ended June 30, 2017 have been reclassified in order to conform to the 2018 presentation.~~

Accounting Pronouncements Adopted on January 1, ~~2018~~

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. Effective January 1, 2018 the Company adopted the provisions of Topic 606 using the modified retrospective method of adoption. There was no impact to our financial position or results of operations as of and for the six months ended June 30, 2018 as a result of adopting Topic 606. Therefore, there was nocumulative-effect adjustment to retained earnings as of January 1, 2018 for the impact of the adoption of Topic 606. See “Revenue Recognition” below for our accounting policy affected by our adoption of Topic 606.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715),” which requires employers to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost (non-service cost components) to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This ASU is to be applied retrospectively for income statement items and prospectively for any capitalized benefit costs. The adoption of this ASU effective January 1, 2018 did not affect our financial position or results of operations. Accordingly, for the three months ended June 30, 2018 and 2017, we reclassified the non-service cost components out of selling, general and administrative expenses of $62,000 and $150,000 respectively, and into other income (expense), net. For the six months ended June 30, 2018 and 2017 we reclassified the non-service cost components out of selling, general and administrative expenses of $124,000 and $300,000 respectively, and into other income (expense), net.

~~Accounting Pronouncements Not Yet Adopted~~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 required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The guidance ~~will become~~became effective for us on January 1, 2019. ~~The impacts that adoption~~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 ~~the ASU is expected to have~~$7,747,000 and a corresponding lease liability of $7,868,000 on our consolidated ~~financial statements~~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 ~~related disclosures are being evaluated. Additionally, we~~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 ~~yet determined~~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 ~~effect~~right-of-use assets and liabilities. Adoption of the ~~ASU~~standards had no impact on ~~our internal control over financial reporting~~results of operations or ~~other changes in business practices and processes.~~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 disclose a description of the 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 ~~Company has~~adoption of this ASU did not ~~yet determined~~have a material impact on the ~~effect of the ASU.~~Company's consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In ~~March~~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, 2020. The impacts that adoption of the ASU is expected to have on our financial disclosures is being evaluated.

In August 2018, the FASB issued Accounting Statement Update (ASU) No. ~~2018-05, “Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,~~2018-14, “Compensation, Defined Benefit Plans,” which ~~amends~~modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The update removes certain ~~SEC material in Topic 740~~disclosures that are no longer considered cost beneficial and adds disclosure requirements identified as relevant. The guidance will become effective for ~~the income tax accounting implications~~us on January 1, 2021 with early adoption permitted for any financial statements that have not been issued. The impacts that adoption of the ~~recently issued Tax Reform. This guidance clarifies the application of Topic 740 in situations where a registrant does not~~ASU is expected to have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC Topic 740 for certain income tax effects of Tax Reform for the reporting period in which the Tax Reform was enacted. We are currently evaluating the effects of Tax Reform, and in the absence of clarifying guidance in the application of certain provisions of Tax Reform, we used reasonable estimates to determineon our ~~provisional tax amounts and are awaiting guidance for those items for which a reasonable estimate cannot be made.~~financial disclosures is being evaluated.

2. Accounting Policies

~~Revenue Recognition~~Leases

The following policy resulted from our adoption of the provisions of ASC Topic ~~606, “Revenue from Contracts with Customers,~~842, “Leases,” effective January 1, ~~2018,~~2019, as described above in “Accounting Pronouncements Adopted on January 1, ~~2018.~~2019.”

~~The majority~~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 ~~Company's revenue~~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 ~~from product sales under contracts with customers. The Company presents three~~reportable operating segments within its financial statements; Industrial, Agricultural and European. Contract terms and performance obligations within each contractual agreement are generally consistent for all three divisions with small differences that do not haveon a ~~significant impact on~~straight-line basis over the revenue recognition considerations under Topic 606. Revenues are recognized when we satisfy our performance obligation to transfer product to our customers, which typically occurs at a point in time upon shipment or delivery of the product, and for an amount that reflects the transaction price that is allocated to the performance obligation. Our contracts with customers state the final terms of sale, including the description, quantity and price for goods sold. In the normal course of business, we generally do not accept product returns.

The transaction price is the consideration that we expect to be entitled to in exchange for our products. Some of our contracts contain variable consideration in the form of sales incentives to our customers, such as discounts and rebates. For contracts that include variable consideration, we estimate the factors that determine the variable consideration in order to establish the transaction price.lease term.

We have elected ~~that any taxes collected from customers~~to not account for the lease and ~~remitted~~non-lease components separately for most of our asset classes with the exception of real-estate. We have also elected to ~~government authorities (i.e. sales tax, use tax, etc.) are excluded~~exclude all lease agreements with an initial term of 12 months or less from the ~~measurement of the transaction price and therefore are excluded from net sales in the consolidated statements of operations.~~lease recognition requirements.

There are instances where we provide shipping services in relation to the goods sold to our customers. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are included in cost of goods sold. We have elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e. an expense) rather than as a promised service.

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 million.~~$53 million and has been finalized.

~~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 Old Dominion acquisition was to increase the Company's presence in the sweeper market and broaden our product offerings.

~~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.

~~Consolidated Acquisitions~~

The Company has included the operating results of ~~Old Dominion, Santa Izabel, and R.P.M.~~Dutch Power in its consolidated financial statements since ~~their acquisitions.~~the acquisition. The total purchase price has been allocated to assets acquired and liabilities assumed, including deferred taxes, based on their fair values as of the completion of the acquisitions. Certain estimated values are not yet finalized and are subject to change. The Company will finalize the amounts once the necessary information is obtained and the analysis is complete. The following ~~represents~~are the ~~final~~estimated fair value of the assets acquired and liabilities assumed ~~for all threeacquisitions~~ as of the acquisition ~~dates~~date (in thousands):


Cash	$	~~2,547~~87
Accounts receivable	~~7,111~~6,278
Inventory	~~15,471~~17,498
Prepaid ~~expenses~~and other assets	~~134~~3,564
Property, plant &and equipment	~~5,902~~12,828
Intangible assets	~~5,855~~15,787
~~Other assets~~	~~1,057~~
Other liabilities assumed	~~(5,635)~~(13,132)

Net assets assumed	$	~~32,442~~42,910

Goodwill	~~8,657~~9,701
Acquisition Price	$	~~41,099~~52,611

4. Accounts Receivable

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

At June 30, ~~2018~~2019 the Company had ~~$18,270,000~~$19,220,000 in reserves for sales discounts compared to ~~$15,652,000~~$18,123,000 at December 31, ~~2017~~2018 related to products shipped to our customers under various promotional programs. The increase was primarily due to additional discounts reserved related to increased sales of the Company's agricultural products sold during the first ~~half~~six months of ~~2018.~~2019.

5. Inventories

Inventories valued at LIFO cost represented ~~62%~~54% and 60% of total inventory at June 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. The excess of current cost over LIFO valued inventories was approximately ~~$7,919,000~~$10,646,000 at June 30, ~~2018~~2019 and December 31, ~~2017~~.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 be based, to some extent, on management's estimates at each quarter end. Net inventories consist of the following:


(in thousands)	(in thousands)	June 30, 2018			December 31, 2017			(in thousands)	June 30, 2019					December 31, 2018

Finished goods	Finished goods		$	149,645		$	133,161	Finished goods		$	172,577	$	149,298
Work in process	Work in process		10,434			10,243		Work in process		18,192		12,732
Raw materials	Raw materials		14,757			12,164		Raw materials		15,141		14,600
Total inventory			$	174,836		$	155,568
Inventories, net								Inventories, net		$	205,910	$	176,630

Inventory obsolescence reserves were ~~$6,755,000~~$7,014,000 at June 30, ~~2018~~2019 and ~~$6,932,000~~$7,194,000 at December 31, ~~2017.~~2018.

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6. Rental Equipment

Rental equipment is shown net of accumulated depreciation of ~~$10,447,000~~$12,417,000 and ~~$9,413,000~~$11,145,000 at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The Company recognized depreciation expense of ~~$1,577,000~~$2,234,000 and ~~$1,396,000~~$1,577,000 for the three months ended June 30, ~~2018~~2019 and June 30, ~~2017,~~2018, respectively and ~~$2,983,000~~$4,323,000 and ~~$2,804,000~~$2,983,000 for the six months ended June 30, ~~2018~~2019 and June 30, ~~2017,~~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 June 30, ~~2018~~2019 and December 31, ~~2017~~, 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 Definite and Indefinite-lived Intangible Assets

The following is the summary of changes to the Company's Goodwill for the six months ended June 30, ~~2018:~~2019:

Industrial Agricultural European Consolidated
(in thousands)
Balance at December 31, 2017 $ 61,682 $ 6,357 $ 16,722 $ 84,761
Translation adjustment (361) (864) (422) (1,647)
Goodwill adjusment 84 774 — 858
Balance at June 30, 2018 $ 61,405 $ 6,267 $ 16,300 $ 83,972


	Industrial			Agricultural				European			Consolidated
(in thousands)
Balance at December 31, 2018		$	61,107	$	6,230	$	15,906		$	83,243
Translation adjustment		326		46		(182)			190
Goodwill acquired		—		—		9,701			9,701
Balance at June 30, 2019		$	61,433	$	6,276	$	25,425		$	93,134

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 June 30,
2018 December 31,
2017
Definite:
Trade names and trademarks 25 years $ 23,985 $ 24,276
Customer and dealer relationships 10-14 years 32,401 32,654
Patents and drawings 3-12 years 1,964 1,982
Total at cost 58,350 58,912
Less accumulated amortization (13,214) (11,540)
Total net 45,136 47,372
Indefinite:
Trade names and trademarks 5,500 5,500
Total Intangible Assets $ 50,636 $ 52,872


(in thousands)	Estimated Useful Lives	June 30, 2019					December 31, 2018
Definite:
Trade names and trademarks	25 years		$	33,083	$	23,938
Customer and dealer relationships	10-14 years		34,466		32,260
Patents and drawings	3-12 years		6,621		2,061
Total at cost			74,170		58,259
Less accumulated amortization			(16,945)		(14,902)
Total net			57,225		43,357
Indefinite:
Trade names and trademarks			5,500		5,500
Total Intangible Assets			$	62,725	$	48,857

The Company recognized amortization expense of ~~$875,000~~$1,114,000 and ~~$777,000~~$875,000 for the three months ending June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1,756,000~~$1,969,000 and ~~$1,554,000~~$1,756,000 for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

As of June 30, ~~2018,~~2019, the Company had ~~$50,636,000~~$62,725,000 of intangible assets, which represents 7% of total assets.

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9. Debt

The components of long-term debt are as follows:

(in thousands) June 30,
2018 December 31,
2017
Current Maturities:
Other notes payable $ 17 $ 82
17 82
Long-term debt:
Bank revolving credit facility 119,000 60,000
119,000 60,000
Total debt $ 119,017 $ 60,082


(in thousands)	June 30, 2019					December 31, 2018
Current Maturities:
Finance lease obligations		$	131	$	119


Long-term debt:
Bank revolving credit facility		166,000		85,000
Finance lease obligations		232		179

Total Long-term debt		166,232		85,179
Total debt		$	166,363	$	85,298

As of June 30, ~~2018, $1,655,000~~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 ~~$129,345,000~~$80,848,000 in available borrowings.

10. Common Stock and Dividends

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
		2018		2017		2018		2017			2019		2018		2019		2018

Dividends declared	Dividends declared	$	0.11	$	0.10	$	0.22	$	0.20	Dividends declared	$	0.12	$	0.11	$	0.24	$	0.22
Dividends paid	Dividends paid	$	0.11	$	0.10	$	0.22	$	0.20	Dividends paid	$	0.12	$	0.11	$	0.24	$	0.22

On July 2, ~~2018,~~2019, the Company announced that its Board of Directors had declared a quarterly cash dividend of ~~$0.11~~$0.12 per share, which was paid on July ~~27, 2018,~~29, 2019, to shareholders of record at the close of business on July 16, ~~2018.~~2019.

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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share)	(In thousands, except per share)	2018		2017		2018		2017		(In thousands, except per share)	2019		2018		2019		2018
Net Income	Net Income	$	18,771	$	12,316	$	33,354	$	24,483	Net Income	$	20,667	$	18,771	$	35,920	$	33,354
Average Common Shares:	Average Common Shares:									Average Common Shares:
Basic (weighted-average outstanding shares)	Basic (weighted-average outstanding shares)	11,652		11,547		11,629		11,509		Basic (weighted-average outstanding shares)	11,726		11,652		11,712		11,629
Dilutive potential common shares from stock options	Dilutive potential common shares from stock options	107		124		120		137		Dilutive potential common shares from stock options	72		107		75		120
Diluted (weighted-average outstanding shares)	Diluted (weighted-average outstanding shares)	11,759		11,671		11,749		11,646		Diluted (weighted-average outstanding shares)	11,798		11,759		11,787		11,749

Basic earnings per share	Basic earnings per share	$	1.61	$	1.07	$	2.87	$	2.13	Basic earnings per share	$	1.76	$	1.61	$	3.07	$	2.87
Diluted earnings per share	Diluted earnings per share	$	1.60	$	1.05	$	2.84	$	2.10	Diluted earnings per share	$	1.75	$	1.60	$	3.05	$	2.84

1213

~~12. Income Taxes~~

~~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").~~

We reflected an overall income tax liability for the year ended December 31, 2017 with respect to TCJA as a result of remeasuring our U.S. deferred tax assets and liabilities using the 21% rate and recognizing a one-time transition tax charge on the deemed repatriation of previously undistributed accumulated earnings and profits of our international subsidiaries. We have elected to pay the transition tax to the Internal Revenue Service (IRS) over a period of eight years, with the first installments being paid in 2018.

Due to the significant and complex changes to the Code from the TCJA, the SEC issued Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act," (SAB 118). SAB 118 provides measurement period for up to one year for adjustments to be made to account for the effects of the TCJA. The Company reflected the income tax effects of those aspects of TCJA for which the accounting is complete. To the extent the Company’s accounting for certain income tax effects of TCJA is incomplete but the Company is able to determine a reasonable estimate, the Company recorded a provisional estimate in the financial statements. For those items where a reasonable estimate could not be made, a provisional amount was not recorded and the Company continued to apply the provisions of the tax laws that were in effect immediately before the enactment of TCJA.

As of June 30, 2018, we have not revised our initial provisional amount for the tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries. We continue to gather additional information in order to more accurately compute this tax. Any associated U.S. state taxes will be recorded once the federal estimate is finalized. We anticipate this information will be available in the second half of 2018.

In addition to the changes described above, TCJA imposes a U.S. tax on Global Intangible Low Taxed Income (“GILTI”) that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is still subject to interpretation and additional clarifying guidance is expected, but is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. We are still assessing impacts GILTI may have.

~~13.~~

12. Revenue and Segment Information

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 June 30,						Six Months Ended June 30,
(in thousands)	2019		2018		2019		2018
Net Sales
Wholegoods	$	229,069	$	209,359	$	437,103	$	399,724
Parts	49,617		43,247		97,871		87,242
Other	6,500		4,519		12,146		8,246
Consolidated	$	285,186	$	257,125	$	547,120	$	495,212

Revenue by Product Type
Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands) 2018 2017 2018 2017
Net Sales
Wholegoods $ 209,359 $ 169,274 $ 399,724 $ 341,111
Parts 43,247 40,083 87,242 80,625
Other 4,519 3,919 8,246 6,929
Consolidated $ 257,125 $ 213,276 $ 495,212 $ 428,665

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


Revenue by Geographical Location	Revenue by Geographical Location									Revenue by Geographical Location
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	(in thousands)	2018		2017		2018		2017		(in thousands)	2019		2018		2019		2018

Net Sales	Net Sales									Net Sales
United States	United States	$	183,291	$	150,277	$	348,468	$	311,706	United States	$	188,652	$	183,291	$	373,965	$	348,468
United Kingdom		12,419		12,159		25,862		22,426
France	France	24,346		21,754		49,273		40,903		France	27,619		24,346		53,554		49,273
Canada	Canada	15,418		11,064		29,652		22,178		Canada	17,361		15,418		31,305		29,652
United Kingdom										United Kingdom	14,082		12,419		27,880		25,862
Brazil										Brazil	5,702		4,858		9,975		10,318
Netherlands										Netherlands	10,132		1,877		12,806		3,166
China										China	6,999		129		8,211		383
Germany										Germany	2,452		493		3,341		896
Australia	Australia	3,145		4,692		5,527		7,890		Australia	1,827		3,145		4,323		5,527
Brazil		4,858		1,650		10,318		2,521
Other	Other	13,648		11,680		26,112		21,041		Other	10,360		11,149		21,760		21,667
Consolidated	Consolidated	$	257,125	$	213,276	$	495,212	$	428,665	Consolidated	$	285,186	$	257,125	$	547,120	$	495,212

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

~~Segment Information~~

Segment Information

The following includes a summary of the unaudited financial information by reporting segment at June 30, ~~2018:~~2019:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	(in thousands)	2018		2017		2018		2017		(in thousands)	2019		2018		2019		2018
Net Sales	Net Sales									Net Sales
Industrial	Industrial	$	150,031	$	117,342	$	282,198	$	243,158	Industrial	$	168,000	$	150,031	$	326,425	$	282,198
Agricultural	Agricultural	59,071		54,221		117,718		105,998		Agricultural	55,159		59,071		108,332		117,718
European	European	48,023		41,713		95,296		79,509		European	62,027		48,023		112,363		95,296
Consolidated	Consolidated	$	257,125	$	213,276	$	495,212	$	428,665	Consolidated	$	285,186	$	257,125	$	547,120	$	495,212

Income from Operations	Income from Operations									Income from Operations
Industrial	Industrial	$	16,165	$	11,052	$	27,965	$	23,622	Industrial	$	20,172	$	16,165	$	36,644	$	27,965
Agricultural	Agricultural	6,186		5,858		11,439		10,717		Agricultural	4,234		6,186		6,406		11,439
European	European	4,435		3,397		8,743		6,219		European	4,943		4,435		8,905		8,743
Consolidated	Consolidated	$	26,786	$	20,307	$	48,147	$	40,558	Consolidated	$	29,349	$	26,786	$	51,955	$	48,147


(in thousands)	June 30, 2019		December 31, 2018
Goodwill
Industrial	$	61,433	$	61,107
Agricultural	6,276		6,230
European	25,425		15,906
Consolidated	$	93,134	$	83,243

Total Identifiable Assets
Industrial	$	465,860	$	421,539
Agricultural	177,673		162,548
European	223,046		137,546
Consolidated	$	866,579	$	721,633

(in thousands) June 30,
2018 December 31,
2017
Goodwill
Industrial $ 61,405 $ 61,682
Agricultural 6,267 6,357
European 16,300 16,722
Consolidated $ 83,972 $ 84,761
Total Identifiable Assets
Industrial $ 408,735 $ 369,271
Agricultural 169,744 141,023
European 146,900 129,377
Consolidated $ 725,379 $ 639,671

~~14.~~13. 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.

14. Leases

The Company 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 June 30,		Six Months Ended June 30,
(in thousands)	2019		2019
Finance lease cost:
Amortization of right-of-use assets	$	34	$	65
Interest on lease liabilities	3		5
Operating lease cost	1,088		2,112
Short-term lease cost	180		232
Variable lease cost	122		227

Total lease cost	$	1,427	$	2,641

Rent expense for the three and six months ending June 30, 2018 was immaterial.

Maturities of lease liabilities were as follows:


Future Minimum Lease Payments
	June 30, 2019								December 31, 2018
(in thousands)	Operating Leases			Finance Leases			Operating Leases		Capital Leases
2019	$	1,965	(a)	$	77	(a)	$	3,310	$	125
2020	3,009			124			2,453		97
2021	1,743			88			1,308		62
2022	1,117			49			743		24
2023	655			26			419		1
Thereafter	1,205			24			79		—
Total minimum lease payments	$	9,694		$	388		$	8,312	$	309
Less imputed interest	(690)			(25)			—		(11)
Total lease liabilities	$	9,004		$	363		$	8,312	$	298
(a) Amounts represent remaining six months of payments due for 2019.

Future Lease Commencements

As of June 30, 2019, we have additional operating leases, that have not yet commenced in the amount of $88,000. These operating leases will commence in fiscal year 2019.

Supplemental balance sheet information related to leases was as follows:


Operating Leases
(in thousands)	June 30, 2019
Other non-current assets	$	8,950

Accrued liabilities	3,382
Other long-term liabilities	5,622
Total operating lease liabilities	$	9,004

Finance Leases
(in thousands)	June 30, 2019
Property, plant and equipment, gross	$	629
Accumulated Depreciation	(297)
Property, plant and equipment, net	$	332

Current maturities of long-term debt and finance lease obligations				$	131
Long-term debt and finance lease obligations, net of current maturities				232
Total finance lease liabilities	$	363

Weighted Average Remaining Lease Term
Operating leases	3.58 years
Finance leases	4.10 years
Weighted Average Discount Rate
Operating leases	3.33		%
Finance leases	3.36		%

Supplemental Cash Flow information related to leases was as follows:


	Six Months Ended June 30,
(in thousands)	2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	7
Operating cash flows from operating leases	2,108
Financing cash flows from finance leases	76

15. Retirement Benefit Plans

Defined Benefit Plan

The Company amortizes annual pension income or expense evenly over four quarters. Pension expense was $23,000 and pension income was $86,000 ~~and $2,000~~ for the three months ended June 30, ~~2018~~2019 and June 30, ~~2017,~~2018, respectively. Pension expense for the six months ended June 30, 2019 was $46,000 and pension income for the six months ended June 30, 2018 was ~~$176,000 and pension income for the six months ended June 30, 2017 was $3,000.~~$176,000. The Company is not required to contribute to the pension plans for the ~~2018~~2019 plan year but may do so.

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 June 30, ~~2018,~~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 June 30, 2019 and 2018 was $214,000 and ~~2017 was~~ $287,000 ~~and, $202,000~~ respectively and ~~$499,000~~$428,000 and ~~$404,000~~$499,000 for the six months ended June 30, 2019 and 2018, ~~and 2017,~~ respectively.

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
June 30, Six Months Ended
June 30,
As a
Percent of Net Sales
2018 2017 2018 2017
Industrial 58.3 % 55.0 % 57.0 % 56.7 %
Agricultural 23.0 % 25.4 % 23.8 % 24.7 %
European 18.7 % 19.6 % 19.2 % 18.6 %
Total sales, net 100.0 % 100.0 % 100.0 % 100.0 %


	Three Months Ended June 30,						Six Months Ended June 30,
As a Percent of Net Sales	2019		2018		2019		2018

Industrial	58.9	%	58.3	%	59.7	%	57.0	%
Agricultural	19.3	%	23.0	%	19.8	%	23.8	%
European	21.8	%	18.7	%	20.5	%	19.2	%
Total sales, net	100.0	%	100.0	%	100.0	%	100.0	%

Three Months Ended
June 30, Six Months Ended
June 30,
Cost Trends and Profit Margin, as
Percentages of Net Sales
2018 2017 2018 2017
Gross profit 25.8 % 25.6 % 25.6 % 25.4 %
Income from operations 10.4 % 9.5 % 9.7 % 9.5 %
Income before income taxes 9.8 % 8.5 % 9.1 % 8.6 %
Net income 7.3 % 5.8 % 6.7 % 5.7 %


	Three Months Ended June 30,						Six Months Ended June 30,
Cost Trends and Profit Margin, as Percentages of Net Sales	2019		2018		2019		2018

Gross profit	25.6	%	25.8	%	24.9	%	25.6	%
Income from operations	10.3	%	10.4	%	9.5	%	9.7	%
Income before income taxes	9.6	%	9.8	%	8.8	%	9.1	%
Net income	7.2	%	7.3	%	6.6	%	6.7	%

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~~section. Unless the context otherwise requires, the terms the "Company", "we", "our" and "us" means Alamo Group Inc.

For the first six months of ~~2018,~~2019, the Company's net income increased by approximately ~~36.2%~~7.7% when compared to the same period in ~~2017.~~2018. This increase was ~~primarily~~ the result of improved sales growth in ~~all three of~~ the Company's ~~Divisions~~Industrial Division and, ~~ongoing operational improvements. Also contributing~~ to a lesser extent, the ~~increase was the Tax Cuts and Jobs Act~~acquisition of ~~2017~~Dutch Power Company B.V. ("~~TCJA"~~Dutch Power") ~~which lowered~~completed in early March of 2019. Negatively affecting the Company's ~~effective tax rate to 26.4% for~~performance during the first six months of ~~2018 compared to 33.3% for~~2019 was the ~~same period~~continued soft market conditions in ~~2017. The lower tax rate resulted in an increase~~the agricultural market, which impacted our North American agricultural sales. Also, while higher material costs hurt profitability during the first quarter of ~~approximately $3.1 million in net income. The acquisitions of Santa Izabel and Old Dominion completed in June of 2017 and~~2019, steel costs eased during the ~~acquisition of R.P.M., which was completed in August of 2017 also contributed~~second quarter as margins improved, although not yet to the ~~increase. Alamo's~~level we saw during the first half of 2018.

The Company's Industrial Division experienced a ~~16.1%~~15.7% increase in sales for the first six months of 2018 which includes $19.8 million in net sales from Old Dominion and R.P.M. Sales of vacuum trucks, excavators, mower and snow removal products outperformed the same period in 2017, while sales of sweeping equipment declined slightly during the first six months of 20182019 compared to the first six months of ~~2017.~~2018. Sales across all Industrial product groups, with the exception of mowing equipment which was flat, outperformed during the first six months of 2019 compared to the same period in 2018. Agricultural sales were updown in the first six months of ~~2018~~2019 by ~~11.1%~~8.0% compared to the first six months of ~~2017~~2018 as a result of ~~stable~~continued weak demand for our products ~~despite~~due to soft agricultural market ~~conditions. Sales from Santa Izabel business contributed $9.7 million to our Agricultural Division for~~conditions and declining farm incomes. Also negatively impacting results was a shutdown during the first ~~six months~~quarter of ~~2018 compared~~2019 of the Division's largest manufacturing facility for several days to ~~$0.6 million for~~install an upgrade to its paint system and heavy rains and flooding throughout the ~~first six months~~mid-west part of ~~2017.~~the U.S. during the second quarter. European sales for the first six months of ~~2018~~ 2019

were up in U.S. dollars by ~~19.9%~~17.9% compared to the same period in ~~2017 primarily as a result~~2018 mainly due to the acquisition of ~~increased demand for products~~Dutch Power. Excluding Dutch Power, sales in ~~this Division.~~local currency were up during the second quarter of 2019 compared to the same time in 2018, but were negatively affected by changes due to currency translation. Consolidated income from operations was ~~$48.1~~$52.0 million in the first six months of ~~2018~~2019 compared to ~~$40.6~~$48.1 million for the first six months of ~~2017.~~2018. The Company's backlog ~~was~~increased 3.9% to $228.8 million at the end of the second quarter of 2019 versus the backlog of $220.2 million at the end of the second quarter of ~~2018, which is an increase of 40.1% versus the backlog of $157.2 million at the end of the second quarter of 2017.~~2018. The increase in the Company's backlog was ~~primarily~~ attributable to greater demand for our products, specifically in the Company's Industrial Division and ~~to a lesser extent,~~from the acquisition of ~~R.P.M.~~Dutch Power, partially offset by lower new orders in the Company's Agricultural and European Divisions.

The Company is cautiously optimistic about its outlook for the remainder of ~~2018,~~2019, but we continue to face ~~certain~~several ongoing challenges. ~~We have seen an increase~~Beginning in 2018, the Company saw increases in raw material, freight, tariff surcharges and other input costs including labor, at above rates ~~above those experienced~~seen in recent years ~~and we expect that~~though some of these inflationary pressures ~~will persist in the near term. Stronger overall demand has led~~have begun to ease. We continue to experience longer lead times for certain key components of our ~~products, such as truck chassis. Newly imposed~~products. The Company also continues to be impacted by a tight labor market and difficulties in hiring and retaining skilled workers. Additional tariffs, ~~and~~ future changes in tariff regulations and ongoing trade disputes could ~~significantly~~further impact ~~our~~the business by ~~further~~ increasing the cost of items ~~we use~~used in the ~~manufacture~~manufacturing of our products and by softening sales of our products to certain of our customers who may be impacted directly or indirectly by an increasing ~~tariff environment. In response to our strong backlog position, we have increased personnel~~tariffs and ~~outsourcing to address short term demand and in the long term we are increasing our capital expenditure levels to continue production efficiency gains while expanding our production capacity. We~~other negative effects resulting from trade disputes. The Company may also be negatively affected by several other unanticipated factors such as a weakness in the overall economy; 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; weakness in the agricultural sector; acquisition integration issues; budget constraints or revenue shortfalls in governmental entities; and other risks and uncertainties as described in “Risk ~~Factors~~Factors" section of ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~"2017~~"2018 Form 10-K").”

Results of Operations

Three Months Ended June 30, 2019 vs. Three Months Ended June 30, 2018~~vs.~~ ~~Three Months Ended June 30, 2017~~

Net sales for the second quarter of ~~2018~~2019 were ~~$257,125,000~~$285,186,000, an increase of ~~$43,849,000~~$28,061,000 or ~~20.6%~~10.9% compared to ~~$213,276,000~~$257,125,000 for the second quarter of ~~2017.~~2018. The increase in sales was ~~mainly~~ attributable to strong demand for our products in the Company's Industrial ~~and European Divisions~~Division as well as ~~$14,309,000~~$14,034,000 of ~~revenues~~net sales from the ~~acquisitions~~acquisition of ~~Santa Izabel, Old Dominion and R.P.M.~~ Dutch Power.

Net Industrial sales increased by ~~$32,689,000~~$17,969,000 or ~~27.9%~~12.0% to ~~$150,031,000~~$168,000,000 for the second quarter of ~~2018~~2019 compared to ~~$117,342,000~~$150,031,000 during the same period in ~~2017.~~2018. The increase was ~~primarily~~ attributable to increased sales across all product groups in the Division with the exception of ~~vacuum truck,~~ mowing ~~excavator~~equipment which was down due to soft market conditions and ~~snow removal equipment. Also, the acquisitions of Old Dominion and R.P.M. added $10,263,000 of net sales during the quarter.~~ adverse weather conditions.

Net Agricultural sales were ~~$59,071,000~~$55,159,000 in the second quarter of ~~2018~~2019 compared to ~~$54,221,000~~$59,071,000 for the same period in ~~2017 an increase~~2018, a decrease of ~~$4,850,000~~$3,912,000 or ~~8.9%~~6.6%. The ~~increase~~decrease was primarily ~~came from~~ the ~~acquisition~~result of ~~Santa Izabel which contributed a net $4,046,000 during the quarter. The Division continued to experience~~ weak market conditions which limited sales ~~growth.~~growth in both equipment and replacement parts as farm incomes continued to be challenged. Also, negatively affecting sales were heavy rains and flooding throughout the mid-west part of the U.S.

Net European sales for the second quarter of ~~2018~~2019 were ~~$48,023,000~~$62,027,000, an increase of ~~$6,310,000~~$14,004,000 or ~~15.1%~~29.2% compared to ~~$41,713,000~~$48,023,000 during the second quarter of ~~2017.~~2018. The increase was ~~primarily~~ driven by ~~higher agricultural~~the acquisition of Dutch Power which added $14,034,000 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 flat in U.S. dollars. Excluding Dutch Power, sales ~~of Rivard vacuum trucks. Also contributing to the increase~~in local currency were ~~favorable currency translation rates in~~up during the second quarter of ~~2018~~2019 compared to the ~~second quarter of 2017.~~same time in 2018, but were offset by unfavorable currency translation.

Gross profit for the second quarter of ~~2018~~2019 was ~~$66,454,000 (25.8%~~$73,133,000 (25.6% of net sales) compared to ~~$54,679,000 (25.6%~~$66,454,000 (25.8% of net sales) during the same period in ~~2017,~~2018, an increase of ~~$11,775,000.~~$6,679,000. The increase in gross profit during the second quarter of ~~2018~~2019 was primarily due to ~~higher equipment~~improved sales ~~from all three Divisions~~in the Company's Industrial Division and to a lesser extent the ~~acquisitions~~acquisition of ~~Santa Izabel, Old Dominion~~Dutch Power, which more than offset the profit decline in the Agricultural and ~~R.P.M. Also contributing to the higher~~European

Divisions. Gross profit and gross margin percentage for the quarter ~~were ongoing productivity improvements~~saw some improvement since the first quarter of 2019 as ~~well~~commodity costs, specifically raw materials such as ~~pricing actions and purchasing initiatives which more than offset generally higher commodity costs.~~steel eased.

Selling, general and administrative expenses (“SG&A”) were ~~$39,668,000~~$43,784,000 (15.4% of net sales) during the second quarter of ~~2018~~2019 compared to ~~$34,372,000 (16.1%~~$39,668,000 (15.4% of net sales) during the same period of ~~2017,~~2018, an increase of ~~$5,296,000.~~$4,116,000. The increase primarily came from ~~our recently acquired Santa Izabel, Old Dominion and R.P.M. businesses~~the acquisition of Dutch Power in the amount of ~~$2,568,000 and to a lesser extent commissions, other~~$2,338,000. Also, higher selling expenses due to increased sales and ~~higher~~increased spending on research and development ~~projects.~~projects added to SG&A expenses during the second quarter of 2019.

Interest expense was ~~$1,497,000~~$1,935,000 for the second quarter of ~~2018~~2019 compared to ~~$1,500,000~~$1,497,000 during the same period in ~~2017 a decrease~~2018, an increase of ~~$3,000.~~ $438,000. The increase during the second quarter of 2019 came from increased borrowings due to the Dutch Power acquisition.

Other ~~income (expense), net~~expense was ~~$(92,000) of expense~~$295,000 for the second quarter of ~~2018~~2019 compared to ~~$(815,000) of expense~~$92,000 during the same period in ~~2017.~~2018. The expenses in ~~2018~~2019 and ~~2017~~2018 were primarily the result of changes in currency exchange rates.

Provision for income taxes was ~~$6,535,000 (25.8%~~$6,782,000 (24.7% of income before income tax) in the second quarter of ~~2018~~2019 compared to ~~$5,757,000 (31.9%~~$6,535,000 (25.8% of income before income tax) during the same period in ~~2017.~~2018. The ~~decrease in the effective tax rate~~increase was due to higher pre-tax income during the ~~recent enactment~~second quarter of ~~the TCJA that lowered the U.S. statutory tax rate from 35% to 21% for 2018.~~2019.

The Company’s net income after tax was $20,667,000 or $1.75 per share on a diluted basis for the second quarter of 2019 compared to $18,771,000 or $1.60 per share on a diluted basis for the second quarter of ~~2018 compared to $12,316,000 or $1.05 per share on a diluted basis for the second quarter of 2017.~~2018. The increase of ~~$6,455,000~~$1,896,000 resulted from the factors described above.

Six Months Ended June 30, 2019 vs. Six Months Ended June 30, 2018~~vs.~~ ~~Six Months Ended June 30, 2017~~

Net sales for the first six months of ~~2018~~2019 were ~~$495,212,000,~~$547,120,000, an increase of ~~$66,547,000~~$51,908,000 or ~~15.5%~~10.5% compared to ~~$428,665,000~~$495,212,000 for the first six months of ~~2017.~~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 R.P.M.~~Dutch Power added to the increase in net sales in the amount of ~~$28,851,000. Also contributing to the increase in sales, were favorable currency translation effects primarily on our European~~$17,648,000. Negatively affecting sales during the first six months of ~~2018.~~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 six months by ~~$39,040,000~~$44,227,000 or ~~16.1%~~15.7% to ~~$282,198,000~~$326,425,000 for ~~2018~~2019 compared to ~~$243,158,000~~$282,198,000 during the same period in ~~2017. Approximately half the~~2018. The increase came from higher sales of ~~vacuum trucks, mowers, excavators and snow removal equipment. The acquisitions~~all product lines, with the exception of ~~Old Dominion and R.P.M. together added $19,830,000 during~~mowing equipment which was flat compared to the ~~the first six months of~~same time in 2018.

Net Agricultural sales were ~~$117,718,000~~$108,332,000 during the first six months of ~~2018~~2019 compared to ~~$105,998,000~~$117,718,000 for the same period in ~~2017, an increase~~2018, a decrease of ~~$11,720,000~~$9,386,000 or ~~11.1%~~8.0%. The ~~increase~~decrease in sales for the first six months of ~~2018~~2019 compared to the first six months of ~~2017~~2018 was a result of weak market conditions and lower farm incomes which have been impacted by lower commodity prices as well as tariffs. A first quarter 2019 shutdown in the ~~acquisition of Santa Izabel which accounted for $9,021,000~~Division's largest manufacturing facility to install an upgrade to its paint system in addition to heavy rains and flooding throughout the mid-west part of the ~~increase.~~U.S. during the second quarter of 2019 also negatively hampered sales.

Net European sales for the first six months of ~~2018~~2019 were ~~$95,296,000,~~$112,363,000, an increase of ~~$15,787,000~~$17,067,000 or ~~19.9%~~17.9% compared to ~~$79,509,000~~$95,296,000 during the same period of ~~2017.~~2018. The increase in ~~2018~~2019 was due to ~~improved~~the acquisition of Dutch Power. Excluding Dutch Power, sales in ~~both~~local currency were up during the ~~U.K. and French agricultural markets as well as Rivard vacuum trucks. Also contributing~~first six months of 2019 compared to ~~sales~~the same time in 2018, but were ~~the effects of~~offset by unfavorable currency ~~translation rates.~~translation.

Gross profit for the first six months of ~~2018~~2019 was ~~$126,711,000 (25.6%~~$136,441,000 (24.9% of net sales) compared to ~~$108,843,000 (25.4%~~$126,711,000 (25.6% of net sales) during the same period in ~~2017,~~2018, an increase of ~~$17,868,000.~~$9,730,000. The increase in gross profit for the first six months of ~~2018~~2019 came from higher equipment sales in ~~all three of~~ the Company's ~~Divisions~~Industrial Division and, to a lesser extent, the ~~acquisitions~~acquisition of ~~Santa Izabel, Old Dominion~~Dutch Power. Negatively affecting both gross margin and ~~R.P.M. Also, contributing to the higher~~ margin percentage for the first six months of ~~2018~~2019 were ~~productivity~~higher steel, freight and other input costs, some of which began to ease during the second quarter. Productivity improvements, pricing actions, and purchasing initiatives ~~despite higher steel, freight and other input costs.~~helped offset these negative affects.

SG&A expenses were ~~$78,564,000 (15.9%~~$84,486,000 (15.4% of net sales) during the first six months of ~~2018~~2019 compared to ~~$68,285,000~~$78,564,000 (15.9% of net sales) during the same period of ~~2017,~~2018, an increase of ~~$10,279,000.~~$5,922,000. The increase primarily came from ~~our recently acquired Santa Izabel, Old Dominion and R.P.M. businesses in the amount of $5,220,000 and to a lesser extent, commissions, other~~higher selling expenses ~~and higher~~due to increased sales along with increased spending on research and development projects. To a lesser extent, our the recent acquisition of Dutch Power added $2,949,000 in SG&A expenses.

Interest expense was ~~$2,834,000~~$3,385,000 for the first six months of ~~2018~~2019 compared to ~~$2,827,000~~$2,834,000 during the same period in ~~2017,~~2018, an increase of ~~$7,000.~~$551,000. The increase ~~in 2018~~during the first six months of 2019 came from ~~from a marginal increase in interest rates during 2018.~~increased borrowings due to the Dutch Power acquisition.

Other income (expense), net was ~~$(226,000)~~$684,000 of expense during the first six months of ~~2018~~2019 compared to ~~$(1,173,000)~~$226,000 of expense in the first six months of ~~2017.~~2018. The expenses in ~~2018~~2019 and ~~2017~~2018 were primarily the result of changes in exchange rates.

Provision for income taxes was ~~$11,942,000 (26.4%)~~$12,469,000 (25.8% of income before income taxes) in the first six months of ~~2018~~2019 compared to ~~$12,232,000 (33.3%)~~$11,942,000 (26.4% of income before income taxes) during the same period in ~~2017.~~2018. The ~~decrease in both income taxes and the effective tax rate~~increase was due to higher pre-tax income during the ~~recent enactment~~first six months of ~~the TCJA that lowered the U.S. statutory tax rate from 35% to 21% for 2018.~~2019.

The Company's net income after tax was $35,920,000 or $3.05 per share on a diluted basis for the first six months of 2019 compared to $33,354,000 or $2.84 per share on a diluted basis for the first six months of ~~2018 compared to $24,483,000 or $2.10 per share on a diluted basis for the first six months of 2017.~~2018. The increase of ~~$8,871,000~~$2,566,000 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 June 30, ~~2018,~~2019, the Company had working capital of ~~$368,029,000~~$418,949,000 which represents an increase of ~~$76,865,000~~$66,958,000 from working capital of ~~$291,164,000~~$351,991,000 at December 31, ~~2017.~~2018. The increase in working capital was primarily due to seasonality and increased demand for our products reflected in the Company's higher sales and backlog and to a lesser extent the ~~acquisitions~~acquisition of ~~Santa Izabel, Old Dominion and R.P.M.~~Dutch Power.

Capital expenditures were ~~$10,829,000~~$12,423,000 for the first six months of ~~2018,~~2019, compared to ~~$6,268,000~~$10,829,000 during the first six months of ~~2017.~~2018. The Company ~~is expected to have~~expects higher capital expenditures in ~~2018~~2019 in order to increase production capacity, support ~~improvement~~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 ~~possibly acquiring new manufacturing locations or purchasing currently leased facilities. We~~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 provided by financing activities was ~~$58,130,000~~$76,686,000 and ~~$75,518,000~~$58,130,000 during the six month periods ended June 30, ~~2018~~2019 and June 30, ~~2017,~~2018, respectively. The majority of the ~~decrease~~increase in net cash provided by financing activities in ~~2018~~2019 as compared to the prior year, was mainly due to ~~repayment~~borrowings to finance the acquisition of ~~debt and a decrease in borrowings under our bank credit facility as a result of repatriating excess funds from our European operations.~~Dutch Power, partially offset by the repurchase activity related to the Company's common stock.

The Company had ~~$39,450,000~~$44,605,000 in cash and cash equivalents held by its foreign subsidiaries as of June 30, ~~2018.~~2019. The majority of these funds are at our European and Canadian facilities. As a result of the fundamental changes to the taxation of multinational corporations created by ~~TCJA,~~Tax Cuts and 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 some of these funds for working capital and capital expenditures outside the 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 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 and subsequently used to fund working capital, capital investments and acquisitions company-wide.

The Company maintains an unsecured revolving credit facility with certain lenders under its Amended and Restated Revolving Credit Agreement ("the Agreement"). The aggregate commitments from lenders under the Agreement is $250,000,000 and, subject to certain conditions and bank approval, the Company has the option to request an increase in aggregate commitments of up to an additional $50,000,000. The Agreement requires the Company to maintain various 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 its 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 is December 20, 2021. As of June 30, ~~2018, $119,000,000~~2019, $166,000,000 was outstanding under the Agreement. On June 30, ~~2018, $1,655,000~~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 ~~$129,345,000~~$80,848,000 in available borrowings. As of June 30, ~~2018,~~2019, the Company was 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 ~~2017~~2018 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 ~~2017~~2018 Form 10-K.

The enactment of the TCJA on December 22, 2017 made broad and complex changes to the U.S. tax code, including a new tax law that may subject the Company to a tax on global intangible low-taxed income (“GILTI”) beginning in 2018. GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. We are still assessing impacts GILTI may have.

As of June 30, 2018, the Company has not completed its accounting for the tax effects of the enactment of the TCJA. The Company operates in many countries throughout the world through numerous subsidiaries. In order to complete the accounting associated with the TCJA, the Company will continue to accumulate the relevant data, refine computational elements, monitor and analyze U.S. federal and state guidance if and when issued, and adjust its provisional estimates accordingly within the measurement period prescribed by SAB 118. Any adjustments could be material to income tax expense.

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 (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; 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 June 30, ~~2018~~,2019, the Company had ~~$332,000~~$1,578,000 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 ~~$50,000~~.$237,000. 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 ~~decreased~~increased stockholders’ equity by ~~$11,850,000.~~$1,194,000.

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 ~~$3,726,000~~$4,375,000 for the six month period ending June 30, ~~2018.~~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 second quarter ~~2018~~2019 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately ~~$595,000.~~$830,000. 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 1413 Contingent Matters to our interim condensed consolidated financial statements.

Item 1A. - Risk Factors

The Trump Administration has made public statements indicating possible significant changes in the U.S. trade policy and has taken certain actions that have adversely impacted U.S. trade and relationships with China and other trading partners, including imposing tariffs on certain goods imported into the U.S. Any changes in U.S. trade policy could trigger, and certain actions already taken have triggered, additional retaliatory actions by affected countries, resulting in "trade wars." Trade wars may lead to reduced economic activity, increased costs, reduced demand and changes in purchasing behaviors for some or all of our products, or other potentially adverse economic outcomes. These or other consequences from any trade wars could have a material adverse impact on our sales volumes, prices and our consolidated financial results.

~~Other than as set forth under this Item 1A, there~~There have not been any material changes from the risk factors previously disclosed in the ~~2017~~2018 Form 10-K for the year ended December 31, ~~2017.~~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 June 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)
April 2019	—	—	—	—
May 2019	—	—	—	—
June 2019	15,000	$97.66	15,000	$27,045,987
(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

Exhibits

Exhibit Title

Incorporated by Reference From the Following Documents

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

32.4

—

Consulting Agreement with Former Executive of the Company - Geoffrey Davies

Filed Herewith

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

2226

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.


~~August 1, 2018~~July 31, 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)

2327