UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, ~~2019~~2020

☐ 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

ALAMO GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware

74-1621248

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

1627 East Walnut, Seguin, Texas 78155

(Address of principal executive offices, including zip code)

830-379-1480

(Registrant’s telephone number, including area code)

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

Title of each class

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 ☐

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


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

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

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

At July ~~26, 2019, 11,818,179~~24, 2020, 11,864,170 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, ~~2019~~2020 and December 31, ~~2018~~2019

Interim Condensed Consolidated Statements of Income

Three and Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019

Interim Condensed Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019

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

Three and Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019

Interim Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019

Notes to Interim Condensed Consolidated Financial Statements

Item 2.

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

1817

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

Item 4.

Controls and Procedures

2524

PART II.

OTHER INFORMATION

2524

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share amounts)	(in thousands, except share amounts)	June 30, 2019					December 31, 2018				(in thousands, except share amounts)	June 30, 2020		December 31, 2019
ASSETS	ASSETS							ASSETS
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents		$	48,190	$	34,043		Cash and cash equivalents	$	82,002		$	42,311
Accounts receivable, net	Accounts receivable, net		267,064		228,098			Accounts receivable, net	229,714			237,837
Inventories, net	Inventories, net		205,910		176,630			Inventories, net	248,706			267,674

Prepaid expenses and other current assets	Prepaid expenses and other current assets		6,690		5,327			Prepaid expenses and other current assets	7,625			10,099
Income tax receivable	Income tax receivable		8,250		8,745			Income tax receivable	4,066			12,907
Total current assets	Total current assets		536,104		452,843			Total current assets	572,113			570,828

Rental equipment, net	Rental equipment, net		51,517		43,978			Rental equipment, net	48,583			56,467

Property, plant and equipment	Property, plant and equipment		243,489		219,135			Property, plant and equipment	302,219			302,113
Less: Accumulated depreciation	Less: Accumulated depreciation		(138,022)		(131,905)			Less: Accumulated depreciation	(146,009)			(141,388)
Total property, plant and equipment, net	Total property, plant and equipment, net		105,467		87,230			Total property, plant and equipment, net	156,210			160,725

Goodwill	Goodwill		93,134		83,243			Goodwill	195,457			198,022
Intangible assets, net	Intangible assets, net		62,725		48,857			Intangible assets, net	198,925			206,272
Deferred income taxes	Deferred income taxes		961		1,783			Deferred income taxes	815			1,078
Other non-current assets	Other non-current assets		16,671		3,699			Other non-current assets	17,585			19,371

Total assets	Total assets		$	866,579	$	721,633		Total assets	$	1,189,688		$	1,212,763

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:							Current liabilities:
Trade accounts payable	Trade accounts payable		$	67,391	$	54,083		Trade accounts payable	$	63,417		$	81,986
Income taxes payable	Income taxes payable		1,926		2,865			Income taxes payable	2,619			2,362
Accrued liabilities	Accrued liabilities		47,707		43,785			Accrued liabilities	52,615			59,686
Current maturities of long-term debt and finance lease obligations	Current maturities of long-term debt and finance lease obligations		131		119			Current maturities of long-term debt and finance lease obligations	15,072			18,840

Total current liabilities	Total current liabilities		117,155		100,852			Total current liabilities	133,723			162,874

Long-term debt and finance lease obligations, net of current maturities	Long-term debt and finance lease obligations, net of current maturities		166,232		85,179			Long-term debt and finance lease obligations, net of current maturities	423,723			425,141
Long-term tax liability	Long-term tax liability		6,378		6,120			Long-term tax liability	6,778			7,432
Deferred pension liability	Deferred pension liability		1,719		1,944			Deferred pension liability	1,464			1,844
Other long-term liabilities	Other long-term liabilities		14,340		8,436			Other long-term liabilities	25,361			19,254
Deferred income taxes	Deferred income taxes		17,923		11,731			Deferred income taxes	21,488			26,461

Stockholders’ equity:	Stockholders’ equity:							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
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,786,895 and 11,752,509 outstanding at June 30, 2020 and December 31, 2019, respectively								Common stock, $0.10 par value, 20,000,000 shares authorized; 11,786,895 and 11,752,509 outstanding at June 30, 2020 and December 31, 2019, respectively	1,179			1,175
Additional paid-in-capital	Additional paid-in-capital		111,476		108,422			Additional paid-in-capital	115,594			113,666
Treasury stock, at cost; 72,600 and 42,600 shares at June 30, 2019 and December 31, 2018, respectively			(3,381)		(426)
Treasury stock, at cost; 82,600 shares at June 30, 2020 and December 31, 2019, respectively								Treasury stock, at cost; 82,600 shares at June 30, 2020 and December 31, 2019, respectively	(4,566)			(4,566)
Retained earnings	Retained earnings		476,152		443,040			Retained earnings	525,778			500,320
Accumulated other comprehensive loss	Accumulated other comprehensive loss		(42,589)		(44,831)			Accumulated other comprehensive loss	(60,834)			(40,838)
Total stockholders’ equity	Total stockholders’ equity		542,832		507,371			Total stockholders’ equity	577,151			569,757

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity		$	866,579	$	721,633		Total liabilities and stockholders’ equity	$	1,189,688		$	1,212,763

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,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2019		2018		2019		2018		(in thousands, except per share amounts)	2020		2019		2020		2019

Net sales:	Net sales:									Net sales:
Industrial	Industrial	$	168,000	$	150,031	$	326,425	$	282,198	Industrial	$	182,257	$	194,304	$	412,232	$	367,834
Agricultural	Agricultural	55,159		59,071		108,332		117,718		Agricultural	86,378		90,882		170,851		179,286
European		62,027		48,023		112,363		95,296

Total net sales	Total net sales	285,186		257,125		547,120		495,212		Total net sales	268,635		285,186		583,083		547,120
Cost of sales	Cost of sales	212,053		190,671		410,679		368,501		Cost of sales	200,810		212,053		436,318		410,679
Gross profit	Gross profit	73,133		66,454		136,441		126,711		Gross profit	67,825		73,133		146,765		136,441

Selling, general and administrative expenses	Selling, general and administrative expenses	43,784		39,668		84,486		78,564		Selling, general and administrative expenses	41,551		42,670		92,799		82,517
Amortization expense										Amortization expense	3,613		1,114		7,449		1,969
Income from operations	Income from operations	29,349		26,786		51,955		48,147		Income from operations	22,661		29,349		46,517		51,955

Interest expense	Interest expense	(1,935)		(1,497)		(3,385)		(2,834)		Interest expense	(3,941)		(1,935)		(9,460)		(3,385)
Interest income	Interest income	330		109		503		209		Interest income	306		330		662		503
Other expense, net		(295)		(92)		(684)		(226)
Other income (expense), net										Other income (expense), net	(1,288)		(295)		1,053		(684)
Income before income taxes	Income before income taxes	27,449		25,306		48,389		45,296		Income before income taxes	17,738		27,449		38,772		48,389
Provision for income taxes	Provision for income taxes	6,782		6,535		12,469		11,942		Provision for income taxes	4,749		6,782		10,255		12,469
Net Income	Net Income	$	20,667	$	18,771	$	35,920	$	33,354	Net Income	$	12,989	$	20,667	$	28,517	$	35,920

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	1.76	$	1.61	$	3.07	$	2.87	Basic	$	1.10	$	1.76	$	2.42	$	3.07
Diluted	Diluted	$	1.75	$	1.60	$	3.05	$	2.84	Diluted	$	1.10	$	1.75	$	2.41	$	3.05
Average common shares:	Average common shares:									Average common shares:
Basic	Basic	11,726		11,652		11,712		11,629		Basic	11,778		11,726		11,769		11,712
Diluted	Diluted	11,798		11,759		11,787		11,749		Diluted	11,842		11,798		11,835		11,787

Dividends declared	Dividends declared	$	0.12	$	0.11	$	0.24	$	0.22	Dividends declared	$	0.13	$	0.12	$	0.26	$	0.24

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)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019
Net income	Net income	$	20,667	$	18,771	$	35,920	$	33,354	Net income	$	12,989	$	20,667	$	28,517	$	35,920
Other comprehensive income:
Foreign currency translation adjustments		1,194		(11,850)		1,914		(8,733)
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation adjustment										Foreign currency translation adjustment	5,604		1,194		(14,850)		1,914
Net gain on pension and other post-retirement benefits	Net gain on pension and other post-retirement benefits	215		228		430		423		Net gain on pension and other post-retirement benefits	246		215		492		430
Unrealized loss during the period related to derivatives		(12)		—		(12)		—
Unrealized losses on derivative instruments										Unrealized losses on derivative instruments	(1,144)		(12)		(5,534)		(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)		Other comprehensive income (loss) before income tax expense	4,706		1,397		(19,892)		2,332
Income tax expense related to items of other comprehensive income	Income tax expense related to items of other comprehensive income	(45)		(20)		(90)		(89)		Income tax expense related to items of other comprehensive income	(52)		(45)		(104)		(90)
Other comprehensive income (loss)	Other comprehensive income (loss)	1,352		(11,642)		2,242		(8,399)		Other comprehensive income (loss)	4,654		1,352		(19,996)		2,242
Comprehensive income	Comprehensive income	$	22,019	$	7,129	$	38,162	$	24,955	Comprehensive income	$	17,643	$	22,019	$	8,521	$	38,162

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

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
(in thousands) Shares Amount
Balance at December 31, 2018 11,620 $ 1,166 $ 108,422 $ (426) $ 443,040 $ (44,831) $ 507,371
Net income — — — — 15,253 — 15,253
Translation adjustment — — — — — 720 720
Net actuarial gain arising during period, net of taxes — — — — — 170 170
Stock-based compensation — — 627 — — — 627
Common stock repurchase (15) — — (1,490) — — (1,490)
Exercise of stock options 11 1 236 — — — 237
Dividends paid ($0.12 per share) — — — — (1,404) — (1,404)
Balance at March 31, 2019 11,616 $ 1,167 $ 109,285 $ (1,916) $ 456,889 $ (43,941) $ 521,484
Net income — — — — 20,667 — 20,667
Translation adjustment — — — — — 1,194 1,194
Unrealized derivative loss, net of taxes — — — — — (12) (12)
Net actuarial gain arising during period, net of taxes — — — — — 170 170
Stock-based compensation — — 948 — — — 948
Common stock repurchase (15) — (590) (1,465) — — (2,055)
Exercise of stock options 64 7 1,833 — — — 1,840
Dividends paid ($0.12 per share) — — — — (1,404) — (1,404)
Balance at June 30, 2019 11,665 $ 1,174 $ 111,476 $ (3,381) $ 476,152 $ (42,589) $ 542,832


For six months ended June 30, 2020

	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, 2019	11,670	$	1,175	$	113,666	$	(4,566)	$	500,320	$	(40,838)	$	569,757





Other comprehensive income	—	—		—		—		15,528		(24,650)		(9,122)
Stock-based compensation expense	—	—		933		—		—		—		933

Stock-based compensation transactions	9	1		368		—		—		—		369


Dividends paid ($0.13 per share)	—	—		—		—		(1,528)		—		(1,528)
Balance at March 31, 2020	11,679	$	1,176	$	114,967	$	(4,566)	$	514,320	$	(65,488)	$	560,409





Other comprehensive income	—	—		—		—		12,989		4,654		17,643
Stock-based compensation expense	—	—		1,103		—		—		—		1,103

Stock-based compensation transactions	25	3		(476)		—		—		—		(473)


Dividends paid ($0.13 per share)	—	—		—		—		(1,531)		—		(1,531)
Balance at June 30, 2020	11,704	$	1,179	$	115,594	$	(4,566)	$	525,778	$	(60,834)	$	577,151

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


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
(in thousands)	Shares	Amount
Balance at December 31, 2018	11,620	$	1,166	$	108,422	$	(426)	$	443,040	$	(44,831)	$	507,371





Other comprehensive income	—	—		—		—		15,253		890		16,143
Stock-based compensation expense	—	—		627		—		—		—		627
Repurchased shares	(15)	—		—		(1,490)		—		—		(1,490)
Stock-based compensation transactions	11	1		236		—		—		—		237


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





Other comprehensive income	—	—		—		—		20,667		1,352		22,019
Stock-based compensation expense	—	—		948		—		—		—		948
Repurchased shares	(15)	—		—		(1,465)		—		—		(1,465)
Stock-based compensation transactions	64	7		1,243		—		—		—		1,250


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

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended June 30,							Six Months Ended June 30,
(in thousands)	(in thousands)	2019		2018		(in thousands)	2020		2019
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	35,920	$	33,354	Net income	$	28,517	$	35,920
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Adjustment to reconcile net income to net cash provided by operating activities:						Adjustment to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	Provision for doubtful accounts	157		(158)		Provision for doubtful accounts	416		157
Depreciation - Property, plant and equipment	Depreciation - Property, plant and equipment	6,868		6,242		Depreciation - Property, plant and equipment	9,407		6,868
Depreciation - Rental equipment	Depreciation - Rental equipment	4,323		2,983		Depreciation - Rental equipment	5,158		4,323
Amortization of intangibles	Amortization of intangibles	1,969		1,756		Amortization of intangibles	7,449		1,969
Amortization of debt issuance costs		110		110
Amortization of debt issuance						Amortization of debt issuance	334		110
Stock-based compensation expense	Stock-based compensation expense	1,575		1,188		Stock-based compensation expense	2,036		1,575
Provision for deferred income tax expense		2,306		967
Provision for deferred income tax (benefit) expense						Provision for deferred income tax (benefit) expense	(3,328)		2,306
Gain on sale of property, plant and equipment	Gain on sale of property, plant and equipment	(284)		(149)		Gain on sale of property, plant and equipment	(883)		(284)
Changes in operating assets and liabilities, net of acquisitions:	Changes in operating assets and liabilities, net of acquisitions:					Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(32,377)		(35,260)		Accounts receivable	3,408		(32,377)
Inventories	Inventories	(11,023)		(22,116)		Inventories	15,283		(11,023)
Rental equipment	Rental equipment	(11,862)		(11,547)		Rental equipment	2,726		(11,862)
Prepaid expenses and other assets	Prepaid expenses and other assets	(3,393)		(1,452)		Prepaid expenses and other assets	2,834		(3,393)
Trade accounts payable and accrued liabilities	Trade accounts payable and accrued liabilities	5,555		5,959		Trade accounts payable and accrued liabilities	(23,913)		5,555
Income taxes payable	Income taxes payable	(477)		(9,806)		Income taxes payable	9,192		(477)
Long-term tax payable	Long-term tax payable	258		—		Long-term tax payable	(654)		258
Other assets and long-term liabilities		1,274		215
Net cash provided by (used in) operating activities		899		(27,714)
Other assets and long-term liabilities, net						Other assets and long-term liabilities, net	728		1,274
Net cash provided by operating activities						Net cash provided by operating activities	58,710		899

Investing Activities	Investing Activities					Investing Activities
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(52,499)		—		Acquisitions, net of cash acquired	—		(52,499)
Purchase of property, plant and equipment	Purchase of property, plant and equipment	(12,423)		(10,829)		Purchase of property, plant and equipment	(12,545)		(12,423)
Proceeds from sale of property, plant and equipment	Proceeds from sale of property, plant and equipment	661		628		Proceeds from sale of property, plant and equipment	3,163		661

Net cash used in investing activities	Net cash used in investing activities	(64,261)		(10,201)		Net cash used in investing activities	(9,382)		(64,261)

Financing Activities	Financing Activities					Financing Activities
Borrowings on bank revolving credit facility	Borrowings on bank revolving credit facility	122,000		104,000		Borrowings on bank revolving credit facility	89,000		122,000
Repayments on bank revolving credit facility	Repayments on bank revolving credit facility	(41,000)		(45,000)		Repayments on bank revolving credit facility	(83,000)		(41,000)
Principal payments on finance leases		(76)		(66)
Principal payments on long-term debt and finance leases						Principal payments on long-term debt and finance leases	(11,320)		(76)
Proceeds from issuance of long-term debt and finance leases	Proceeds from issuance of long-term debt and finance leases	38		—		Proceeds from issuance of long-term debt and finance leases	—		38

Dividends paid	Dividends paid	(2,808)		(2,553)		Dividends paid	(3,059)		(2,808)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	2,077		2,186		Proceeds from exercise of stock options	606		2,077
Treasury stock		(2,955)		—
Cost of common stock repurchased		(590)		(437)
Net cash provided by financing activities		76,686		58,130
Treasury stock repurchased						Treasury stock repurchased	—		(2,955)
Common stock repurchased						Common stock repurchased	(710)		(590)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(8,483)		76,686

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	823		(1,986)		Effect of exchange rate changes on cash and cash equivalents	(1,154)		823
Net change in cash and cash equivalents	Net change in cash and cash equivalents	14,147		18,229		Net change in cash and cash equivalents	39,691		14,147
Cash and cash equivalents at beginning of the year	Cash and cash equivalents at beginning of the year	34,043		25,373		Cash and cash equivalents at beginning of the year	42,311		34,043
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period	$	48,190	$	43,602	Cash and cash equivalents at end of the period	$	82,002	$	48,190

Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	3,285	$	2,526	Interest	$	10,545	$	3,285
Income taxes	Income taxes	10,035		19,637		Income taxes	4,137		10,035

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)

June 30, ~~2019~~2020

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, ~~2019.~~2020. The balance sheet at December 31, ~~2018~~2019 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, ~~2018~~2019 (the ~~"2018~~"2019 10-K").

Accounting Pronouncements Adopted on January 1, ~~2019~~2020

In ~~February 2016,~~August 2018, the FASB issued ~~ASU~~Accounting Statement Update (ASU) No. ~~2016-02, “Leases~~2018-13, “Fair Value Measurement (Topic ~~842)." This update requires that a lessee recognize~~820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements. Among other things, the amendments added disclosures for changes in ~~the statement of financial position a liability to make lease payments~~unrealized gains and ~~a right-of-use asset representing its right to use the underlying asset for the lease term. For leases~~losses on Level 3 fair value measurements and required additional disclosures on unobservable inputs associated 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.Level 3 assets. The guidance became effective for us on January 1, 2019. As a lessee, this standard primarily impacted our accounting for long-term real estate and equipment leases, for which we recognized right-of-use assets of $7,747,000 and a corresponding lease liability of $7,868,000 on our consolidated balance sheet.

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

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” to allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). Upon adoption of the ASU, entities will be required to 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.2020. The adoption of this ASU did not have a material impact on the ~~Company's~~Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” to improve information on credit losses for financial instruments. The ASU replaces the previous incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance became effective for us on January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

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

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” to simplify the accounting for income taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance will become effective for us on January 1, 2021 with early adoption permitted for any financial statements that have not been issued. The impacts that adoption of the ASU is expected to have on our financial disclosures is being evaluated.

2. Business Combinations

Morbark, LLC.

On October 24, 2019, the Company completed the acquisition of 100% of the outstanding capital shares of Morbark, LLC. ("Morbark") a former portfolio company of Stellex Capital Management. Morbark manufacturers equipment and aftermarket parts for forestry, tree maintenance, biomass, land management and recycling markets. These products are marketed under the Morbark, Rayco, Denis Cimaf and Boxer Equipment brand names. The total consideration for the purchase was approximately $354.0 million on a debt free basis and subject to certain post-closing adjustments.

The primary reason for the acquisition was to expand and complement our range of vegetation maintenance equipment in an adjacent market along with accelerating Morbark's international growth using the Company's existing presence in Europe, Brazil and Australia.

The valuation of Morbark resulted in goodwill of $102.3 million, all of which has been assigned to the Company's Industrial reporting segment, $82.8 million of goodwill is tax deductible, the remaining balance is not.

The acquisition was accounted for in accordance with ASC Topic 805 Business Combinations ("ASC Topic 805"). The total purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed, including deferred taxes, based on their estimated fair values as of October 24, 2019. Certain estimated values are not yet finalized and are subject to change. The Company will finalize goodwill and deferred tax amounts once the analysis is complete.

During the six months ended June 30, 2020, Morbark generated approximately $99.8 million of net sales and $4.3 million of net income. The Company has included the operating results of Morbark in its consolidated financial statements since the date of acquisition.

The following table reflects the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):



Accounts receivable	$	13,966
Inventory	72,972
Prepaid and other assets	5,180
Rental Equipment	1,133
Property, plant and equipment	42,969
Intangible assets	149,790
Deferred tax liability	(6,464)
Other liabilities assumed	(32,275)

Net assets assumed	$	247,271

Goodwill	102,305
Total Acquisition Price net cash	$	349,576
Plus: Cash	4,735
Total Consideration	$	354,311

Dutch Power Company B.V.

On March 4, 2019, the Company acquired 100% of the issued and outstanding equity interests of Dutch Power Company B.V. ("Dutch Power"). Dutch Power designs, manufactures and sells a variety of landscape and vegetation management machines primarily in Europe. The primary reason for the Dutch Power acquisition was to enhance the Company's platform for growth by increasing both the Company's product portfolio and capabilities in the European market. The acquisition price was approximately $53.0 million.

~~Accounting Pronouncements Not Yet Adopted~~

~~In August 2018,~~The Company completed its review of the ~~FASB issued Accounting Statement Update (ASU) No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to~~valuation of the ~~Disclosure Requirements~~purchase price allocation for ~~Fair Value Measurement”, which modifies~~Dutch Power during 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,first quarter of 2020. The ~~impacts~~Company found that ~~adoption of~~no additional changes were necessary and that the ~~ASU is expected to have on our financial disclosures is being evaluated.~~

~~In August 2018,~~values disclosed in the FASB issued Accounting Statement Update (ASU) No. 2018-14, “Compensation, Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The update removes certain disclosures that are no longer considered cost beneficial and adds disclosure requirements identified as relevant. The guidance will become effective for us on January 1, 2021 with early adoption permitted for any financial statements that have not been issued. The impacts that adoption of the ASU is expected to have on our financial disclosures is being evaluated.2019 10-K were final.

~~2. Accounting Policies~~3. Accounts Receivable

Accounts receivable is shown net of sales discounts and the allowance for credit losses.

~~Leases~~At June 30, 2020 the Company had $17.8 million in reserves for sales discounts compared to $16.9 million at December 31, 2019 related to products shipped to our customers under various promotional programs. The

~~The following policy resulted from our adoption~~change was primarily due to additional discounts reserved related to sales of the ~~provisions~~Company's agricultural products sold during the first six months of ~~ASC Topic 842, “Leases,” effective January 1,~~2020.

4. Inventories

Inventories valued at LIFO cost represented 45% and 42% of total inventory at June 30, 2020 and December 31, 2019, ~~as described above in “Accounting Pronouncements Adopted on January 1,~~respectively. The excess of current cost over LIFO valued inventories was approximately $10.9 million at June 30, 2020 and December 31, 2019.”

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


(in thousands)	June 30, 2020					December 31, 2019

Finished goods		$	208,472	$	227,823
Work in process		25,705		21,918
Raw materials		14,529		17,933
Inventories, net		$	248,706	$	267,674

~~We have elected to not account for the lease~~Inventory obsolescence reserves were $9.7 million at June 30, 2020 and non-lease components separately for most of our asset classes with the exception of real-estate. We have also elected to exclude all lease agreements with an initial term of 12 months or less from the lease recognition requirements.$8.2 million at December 31, 2019.

5. Rental Equipment

Rental equipment is shown net of accumulated depreciation of $16.7 million and $14.6 million at June 30, 2020 and December 31, 2019, respectively. The Company recognized depreciation expense of $2.6 million and $2.2 million for the three months ended June 30, 2020 and June 30, 2019, respectively and $5.2 million and $4.3 million for the six months ended June 30, 2020 and June 30, 2019, respectively

6. 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, 2020 and December 31, 2019, as the floating rates on our outstanding balances approximate current market rates. This conclusion was made based on Level 2 inputs.

~~3. Business Combinations~~

~~On March 4, 2019, the Company acquired 100 percent of the issued~~7. Goodwill and outstanding equity interests of Dutch Power Company B.V. ("Dutch Power"). Dutch Power designs, manufactures and sells a variety of landscape and vegetation management machines primarily in Europe. The primary reason for the Dutch Power acquisition was to enhance the Company's platform for growth by increasing both the Company's product portfolio and capabilities in the European market. The acquisition price was approximately $53 million and has been finalized.Intangible Assets

The ~~Company has included~~following is the ~~operating results~~summary of ~~Dutch Power in its consolidated financial statements since~~changes to 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~~Company's Goodwill for 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 are the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):six months ended June 30, 2020:


	Industrial			Agricultural				Consolidated
(in thousands)
Balance at December 31, 2019		$	183,307	$	14,715	$	198,022
Translation adjustment		(278)		(1,930)		(2,208)
Goodwill adjustment		(357)		—		(357)
Balance at June 30, 2020		$	182,672	$	12,785	$	195,457


~~Cash~~	$	87
~~Accounts receivable~~	~~6,278~~
~~Inventory~~	~~17,498~~
~~Prepaid and other assets~~	~~3,564~~
~~Property, plant and equipment~~	~~12,828~~
~~Intangible assets~~	~~15,787~~

~~Other liabilities assumed~~	~~(13,132)~~

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

~~Goodwill~~	~~9,701~~
~~Acquisition Price~~	$	~~52,611~~

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, 2020					December 31, 2019
Definite:
Trade names and trademarks	15-25 years		$	66,880	$	67,222
Customer and dealer relationships	8-15 years		122,037		121,508
Patents and drawings	3-12 years		28,252		28,485
Favorable leasehold interests	7 years		4,200		4,200
Total at cost			221,369		221,415
Less accumulated amortization			(27,944)		(20,643)
Total net			193,425		200,772
Indefinite:
Trade names and trademarks			5,500		5,500
Total Intangible Assets			$	198,925	$	206,272

The Company recognized amortization expense of $3.6 million and $1.1 million for the three months ending June 30, 2020 and 2019, respectively, and $7.4 million and $2.0 million for the six months ended June 30, 2020 and 2019, respectively. The increase in amortization is related to the intangible assets acquired in the Morbark acquisition.

As of June 30, 2020, the Company had $198.9 million of intangible assets, which represents 17% of total assets.

~~4. Accounts Receivable~~8. Leases

~~Accounts receivable is shown net~~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 ~~sales discounts and the allowance for doubtful accounts.~~lease cost were as follows:


Components of Lease Cost
	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Finance lease cost:
Amortization of right-of-use assets	$	24	$	34	$	48	$	65
Interest on lease liabilities	2		3		4		5
Operating lease cost	1,183		1,088		2,408		2,112
Short-term lease cost	223		180		458		232
Variable lease cost	126		122		244		227

Total lease cost	$	1,558	$	1,427	$	3,162	$	2,641

AtRent expense for the three and six months ending June 30, 2020 and 2019 ~~the Company had $19,220,000 in reserves for sales discounts compared to $18,123,000 at December 31, 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 six months of 2019.~~

~~5. Inventories~~

Inventories valued at LIFO cost represented 54% and 60% of total inventory at June 30, 2019 and December 31, 2018, respectively. The excess of current cost over LIFO valued inventories was approximately $10,646,000 at June 30, 2019 and December 31, 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) June 30, 2019 December 31, 2018
Finished goods $ 172,577 $ 149,298
Work in process 18,192 12,732
Raw materials 15,141 14,600
Inventories, net $ 205,910 $ 176,630

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

immaterial.

~~6. Rental Equipment~~

~~Rental equipment is shown net~~Maturities of accumulated depreciation of $12,417,000 and $11,145,000 at June 30, 2019 and December 31, 2018, respectively. The Company recognized depreciation expense of $2,234,000 and $1,577,000 for the three months ended June 30, 2019 and June 30, 2018, respectively and $4,323,000 and $2,983,000 for the six months ended June 30, 2019 and June 30, 2018, respectivelylease liabilities were as follows:


Future Minimum Lease Payments
	June 30, 2020								December 31, 2019
(in thousands)	Operating Leases			Finance Leases			Operating Leases		Finance Leases
2020	$	2,023	(a)	$	46	(a)	$	4,305	$	97
2021	2,893			80			2,718		83
2022	2,158			41			2,051		45
2023	1,564			18			1,459		22
2024	1,006			17			941		19
Thereafter	2,611			5			2,587		14
Total minimum lease payments	$	12,255		$	207		$	14,061	$	280
Less imputed interest	(996)			(12)			(1,100)		(16)
Total lease liabilities	$	11,259		$	195		$	12,961	$	264
(a) Amounts represent remaining three months of payments due for 2019.

~~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, 2019 and December 31, 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, 2019:~~

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, 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 $1,114,000 and $875,000 for the three months ending June 30, 2019 and 2018, respectively, and $1,969,000 and $1,756,000 for the six months ended June 30, 2019 and 2018, respectively.Future Lease Commencements

As of June 30, ~~2019,~~2020, there are additional operating leases that have not yet commenced in the ~~Company had $62,725,000~~amount of ~~intangible assets, which represents 7%~~$4.7 million. Of the operating leases that have not commenced, $4.6 million relate to buildings and the remainder relates to equipment. These operating leases will commence in fiscal year 2020 with lease terms of ~~total assets.~~ 1 to 10 years.

Supplemental balance sheet information related to leases was as follows:


Operating Leases
(in thousands)	June 30, 2020					December 31, 2019
Other non-current assets	$	11,159				$	12,858

Accrued liabilities	3,263					3,972
Other long-term liabilities	7,996					8,989
Total operating lease liabilities	$	11,259				$	12,961

Finance Leases
(in thousands)	June 30, 2020					December 31, 2019
Property, plant and equipment, gross	$	471				$	524
Accumulated Depreciation	(263)					(265)
Property, plant and equipment, net	$	208				$	259

Current maturities of long-term debt and finance lease obligations				$	72				$	90
Long-term debt and finance lease obligations, net of current maturities				123					174
Total finance lease liabilities	$	195				$	264

Weighted Average Remaining Lease Term
Operating leases	5.04 years					5.10 years
Finance leases	3.29 years					3.47 years

Weighted Average Discount Rate
Operating leases	3.20		%			3.29		%
Finance leases	3.46		%			3.39		%

Supplemental Cash Flow information related to leases was as follows:


	Six Months Ended June 30,
(in thousands)	2020		2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	4	$	7
Operating cash flows from operating leases	2,236		2,108
Financing cash flows from finance leases	47		76

9. Debt

The components of long-term debt are as follows:


(in thousands)	(in thousands)	June 30, 2019					December 31, 2018				(in thousands)	June 30, 2020			December 31, 2019
Current Maturities:	Current Maturities:							Current Maturities:
Finance lease obligations	Finance lease obligations		$	131	$	119		Finance lease obligations	$	72			$	90

Term debt								Term debt	15,000				18,750
									15,072				18,840
Long-term debt:	Long-term debt:							Long-term debt:
Finance lease obligations								Finance lease obligations	123				174
Term debt, net								Term debt, net	272,600				279,967
Bank revolving credit facility	Bank revolving credit facility		166,000		85,000			Bank revolving credit facility	151,000				145,000
Finance lease obligations			232		179

Total Long-term debt	Total Long-term debt		166,232		85,179			Total Long-term debt	423,723				425,141
Total debt	Total debt		$	166,363	$	85,298		Total debt	$	438,795			$	443,981

As of June 30, ~~2019, $3,152,000~~2020, $4.0 million 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 ~~$80,848,000~~$122.3 million 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,
		2019		2018		2019		2018			2020		2019		2020		2019

Dividends declared	Dividends declared	$	0.12	$	0.11	$	0.24	$	0.22	Dividends declared	$	0.13	$	0.12	$	0.26	$	0.24
Dividends paid	Dividends paid	$	0.12	$	0.11	$	0.24	$	0.22	Dividends paid	$	0.13	$	0.12	$	0.26	$	0.24

On July 2, ~~2019,~~2020, the Company announced that its Board of Directors had declared a quarterly cash dividend of ~~$0.12~~$0.13 per share, which was paid on July 29, ~~2019,~~2020, to shareholders of record at the close of business on July 16, ~~2019.~~2020.

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)	2019		2018		2019		2018		(In thousands, except per share)	2020		2019		2020		2019
Net Income	Net Income	$	20,667	$	18,771	$	35,920	$	33,354	Net Income	$	12,989	$	20,667	$	28,517	$	35,920
Average Common Shares:	Average Common Shares:									Average Common Shares:
Basic (weighted-average outstanding shares)	Basic (weighted-average outstanding shares)	11,726		11,652		11,712		11,629		Basic (weighted-average outstanding shares)	11,778		11,726		11,769		11,712
Dilutive potential common shares from stock options	Dilutive potential common shares from stock options	72		107		75		120		Dilutive potential common shares from stock options	64		72		66		75
Diluted (weighted-average outstanding shares)	Diluted (weighted-average outstanding shares)	11,798		11,759		11,787		11,749		Diluted (weighted-average outstanding shares)	11,842		11,798		11,835		11,787

Basic earnings per share	Basic earnings per share	$	1.76	$	1.61	$	3.07	$	2.87	Basic earnings per share	$	1.10	$	1.76	$	2.42	$	3.07
Diluted earnings per share	Diluted earnings per share	$	1.75	$	1.60	$	3.05	$	2.84	Diluted earnings per share	$	1.10	$	1.75	$	2.41	$	3.05

12. Income Taxes

Tax Rate Methodology

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to income for the interim period. Given the significant uncertainty with respect to the impact of the COVID-19 outbreak on our business and results of operations, we are not currently able to estimate our annual effective income tax rate for 2020. If a reliable estimate of the estimated effective tax rate cannot be made, the actual effective tax rate for the year to date may be the best estimate of the annual effective tax rate.

The Company has calculated the actual effective tax rate for the period ending June 30, 2020.

13. 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	Revenue by Product Type																	Revenue by Product Type
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	(in thousands)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019
Net Sales	Net Sales									Net Sales
Wholegoods	Wholegoods	$	229,069	$	209,359	$	437,103	$	399,724	Wholegoods	$	206,858	$	229,069	$	450,389	$	437,103
Parts	Parts	49,617		43,247		97,871		87,242		Parts	57,682		49,617		117,292		97,871
Other	Other	6,500		4,519		12,146		8,246		Other	4,095		6,500		15,402		12,146
Consolidated	Consolidated	$	285,186	$	257,125	$	547,120	$	495,212	Consolidated	$	268,635	$	285,186	$	583,083	$	547,120

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)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019

Net Sales	Net Sales									Net Sales
United States	United States	$	188,652	$	183,291	$	373,965	$	348,468	United States	$	200,517	$	188,652	$	434,676	$	373,965
France	France	27,619		24,346		53,554		49,273		France	16,528		27,619		38,611		53,554
Canada	Canada	17,361		15,418		31,305		29,652		Canada	14,785		17,361		28,397		31,305
United Kingdom	United Kingdom	14,082		12,419		27,880		25,862		United Kingdom	10,779		14,082		24,008		27,880
Brazil	Brazil	5,702		4,858		9,975		10,318		Brazil	3,717		5,702		8,263		9,975
Netherlands	Netherlands	10,132		1,877		12,806		3,166		Netherlands	6,239		10,132		13,886		12,806
China	China	6,999		129		8,211		383		China	154		6,999		231		8,211
Germany	Germany	2,452		493		3,341		896		Germany	2,504		2,452		4,848		3,341
Australia	Australia	1,827		3,145		4,323		5,527		Australia	2,837		1,827		5,190		4,323
Other	Other	10,360		11,149		21,760		21,667		Other	10,575		10,360		24,973		21,760
Consolidated	Consolidated	$	285,186	$	257,125	$	547,120	$	495,212	Consolidated	$	268,635	$	285,186	$	583,083	$	547,120

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

1415

Segment Information

The following includes a summary of the unaudited financial information by reporting segment at June 30, ~~2019:~~2020:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	(in thousands)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019
Net Sales	Net Sales									Net Sales
Industrial	Industrial	$	168,000	$	150,031	$	326,425	$	282,198	Industrial	$	182,257	$	194,304	$	412,232	$	367,834
Agricultural	Agricultural	55,159		59,071		108,332		117,718		Agricultural	86,378		90,882		170,851		179,286
European		62,027		48,023		112,363		95,296

Consolidated	Consolidated	$	285,186	$	257,125	$	547,120	$	495,212	Consolidated	$	268,635	$	285,186	$	583,083	$	547,120

Income from Operations	Income from Operations									Income from Operations
Industrial	Industrial	$	20,172	$	16,165	$	36,644	$	27,965	Industrial	$	13,898	$	21,538	$	32,215	$	38,485
Agricultural	Agricultural	4,234		6,186		6,406		11,439		Agricultural	8,763		7,811		14,302		13,470
European		4,943		4,435		8,905		8,743

Consolidated	Consolidated	$	29,349	$	26,786	$	51,955	$	48,147	Consolidated	$	22,661	$	29,349	$	46,517	$	51,955


(in thousands)	(in thousands)	June 30, 2019		December 31, 2018		(in thousands)	June 30, 2020		December 31, 2019
Goodwill	Goodwill					Goodwill
Industrial	Industrial	$	61,433	$	61,107	Industrial	$	182,672	$	183,307
Agricultural	Agricultural	6,276		6,230		Agricultural	12,785		14,715
European		25,425		15,906

Consolidated	Consolidated	$	93,134	$	83,243	Consolidated	$	195,457	$	198,022

Total Identifiable Assets	Total Identifiable Assets					Total Identifiable Assets
Industrial	Industrial	$	465,860	$	421,539	Industrial	$	913,295	$	922,738
Agricultural	Agricultural	177,673		162,548		Agricultural	276,393		290,025
European		223,046		137,546

Consolidated	Consolidated	$	866,579	$	721,633	Consolidated	$	1,189,688	$	1,212,763

~~13.~~14. Contingent Matters

The Company is subject to various legal actions which have arisen in the ordinary course of its business. The most prevalent of such actions relate to product liability, which is generally covered by insurance after various self-insured retention amounts. While amounts claimed might be substantial and the ultimate liability with respect to such litigation cannot be determined at this time, the Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations; however, the ultimate resolution cannot be determined at this time.

Like other manufacturers, the Company is subject to a broad range of federal, state, local and foreign laws and requirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposal locations, workplace safety and equal employment opportunities. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on the Company in the future. Like other industrial concerns, the Company’s manufacturing operations entail the risk of noncompliance, and there can be no assurance that the Company will not incur material costs or other liabilities as a result thereof.

~~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~~

~~Operating cash flows from operating leases~~

~~2,108~~

~~Financing cash flows from finance leases~~

~~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 for the three months ended June 30, 2019 and June 30, 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. The Company is not required to contribute to the pension plans for the 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, 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 $287,000 respectively and $428,000 and $499,000 for the six months ended June 30, 2019 and 2018, 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,							Three Months Ended June 30,				Six Months Ended June 30,
As a Percent of Net Sales	As a Percent of Net Sales	2019		2018		2019		2018		As a Percent of Net Sales	2020		2019		2020		2019

Industrial	Industrial	58.9	%	58.3	%	59.7	%	57.0	%	Industrial	67.8	%	68.1	%	70.7	%	67.2	%
Agricultural	Agricultural	19.3	%	23.0	%	19.8	%	23.8	%	Agricultural	32.2	%	31.9	%	29.3	%	32.8	%
European		21.8	%	18.7	%	20.5	%	19.2	%

Total sales, net	Total sales, net	100.0	%	100.0	%	100.0	%	100.0	%	Total sales, net	100.0	%	100.0	%	100.0	%	100.0	%


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
Cost Trends and Profit Margin, as Percentages of Net Sales	Cost Trends and Profit Margin, as Percentages of Net Sales	2019		2018		2019		2018		Cost Trends and Profit Margin, as Percentages of Net Sales	2020		2019		2020		2019

Gross profit	Gross profit	25.6	%	25.8	%	24.9	%	25.6	%	Gross profit	25.2	%	25.6	%	25.2	%	24.9	%
Income from operations	Income from operations	10.3	%	10.4	%	9.5	%	9.7	%	Income from operations	8.4	%	10.3	%	8.0	%	9.5	%
Income before income taxes	Income before income taxes	9.6	%	9.8	%	8.8	%	9.1	%	Income before income taxes	6.6	%	9.6	%	6.6	%	8.8	%
Net income	Net income	7.2	%	7.3	%	6.6	%	6.7	%	Net income	4.8	%	7.2	%	4.9	%	6.6	%

Overview

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

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak, which is continuing to spread worldwide, has adversely affected our operations, customers, suppliers, and the economies in which we operate. Thus far, we have continued to focus on the health and safety of our employees and have taken steps to ensure their continued well-being while we work on meeting the demands of our customers. Some of our facilities were forced to closed for varying periods of time due to government orders and other pandemic related reasons, but many of our products and/or operations fall within the "essential" designation which has allowed us to continue operations, albeit at a reduced capacity. Currently, all of our manufacturing plants are open and functioning at various levels of operation based on demand. While shelter-in-place or stay-at-home orders have been relaxed or eliminated in many locations, recent case surges could lead to new restrictions or lockdowns, which may limit our operational capabilities. This is dependent on future developments relating to the pandemic which are highly uncertain and unpredictable. As a result of the pandemic, both of our divisions have also experienced some softness in customer demand and we expect this trend to continue in the near term or even longer, should the pandemic continue unabated.

For the first six months of ~~2019,~~2020, the Company's net ~~income~~sales increased by ~~approximately 7.7%~~6.6% but net income decreased by 20.6% when compared to the same period in ~~2018. This~~2019. The increase in net sales was due to the ~~result~~acquisitions of ~~improved sales growth~~Morbark and Dutch Power. The decrease in net income was attributable to the COVID-19 pandemic which began to materially affect our operations in March of this year and continued to negatively impact the Company's ~~Industrial Division and, to a lesser extent, the acquisition of Dutch Power Company B.V. ("Dutch Power") completed in early March of 2019. Negatively affecting the Company's~~overall financial performance during the first six months of 2019 was the continued soft market conditions in the agricultural market, which impacted our North American agricultural sales. Also, while higher material costs hurt profitability during the first quarter of 2019, steel costs eased during the second quarter as margins improved, although not yet to the level we saw during the first half of 2018.2020.

The Company's Industrial Division experienced a ~~15.7%~~12.1% increase in sales for the first six months of ~~2019~~2020 compared to the first six months of ~~2018. Sales~~2019 all due to the acquisitions of Morbark and Dutch Power. Without factoring in contributions from Morbark and Dutch Power, sales across all legacy Industrial product groups ~~with~~(with the exception of ~~mowing equipment~~vegetation control, which was ~~flat, outperformed~~slightly up) were down during the first six months of ~~2019~~2020 compared to the same period in ~~2018.~~2019, primarily as a result of adverse impacts from the COVID-19 pandemic which included

temporary plant closures in the U.S., France and Canada, other operational disruptions across the Division and softness in customer demand.

The Company's Agricultural Division sales were down in the first six months of ~~2019~~2020 by ~~8.0%~~4.7% compared to the first six months of ~~2018~~2019. Agricultural sales were negatively affected by the COVID-19 pandemic which began to hurt Agricultural sales as ~~a result~~well as operations in late March of ~~continued weak demand for our products due to soft agricultural market conditions~~this year. During the second quarter of 2020, North American sales and ~~declining farm incomes. Also negatively impacting results was a shutdown~~profitability showed some improvement and held up better than the Division's operations in the UK and France which experienced temporary plant closures during the ~~first quarter~~months of ~~2019 of the Division's largest manufacturing facility for several days to install an upgrade to its paint system~~March and ~~heavy rains and flooding throughout the mid-west part of the U.S. during the second quarter. European sales for~~April.

Consolidated income from operations was $46.5 million in the first six months of 2020 which included $2.7 million of non-cash inventory step-up expense related to the Morbark acquisition. This was a 10.5% decline when compared to the first six months of 2019. The Company's backlog decreased 6.9% to $216.6 million at the end of the second quarter of 2020 versus the backlog of $228.8 million at the end of the second quarter of 2019. The decrease in the Company's backlog was primarily attributable to negative effects from the COVID-19 pandemic.

We believe the COVID-19 pandemic will continue to adversely impact our business for the remainder of 2020. At this time, however, it is not clear how significant these impacts will be given the current level of uncertainty. The impacts will depend on numerous evolving factors which cannot be predicted, including the duration and scope of the pandemic, the effectiveness of containment and treatment efforts, and the immediate and longer term economic consequences felt by our dealers and government customers, which could result in budgetary tightening and weaker demand for our products. In light of the current situation and outlook, we have taken various steps to contain costs, improve cash flow and reduce overall debt, which include, among other things, rolling back pay increases for salaried employees in the U.S. and most of our international operations, restricting travel, reducing inventory levels to match current demand, limiting capital expenditures, temporarily suspending the Company's share repurchase program and delaying other discretionary spending. We will continue to focus on improving our financial stability while ensuring the continued health and safety of our employees. We feel confident there will be a continuing need for products such as ours that are critical for agricultural operations and infrastructure maintenance, and believe that our current focus on employee well-being and financial stability will allow us to be well positioned for long term growth after the pandemic situation eases. However, since we cannot reasonably estimate the duration and severity of the COVID-19 pandemic, we cannot predict the ultimate impact it will have on our business, results of operations, and financial condition.

While the direct and indirect consequences of the COVID-19 pandemic will certainly pose the greatest risk for the Company during 2020, the Company may also be negatively affected by several other factors such as an increase in tariff rates, ongoing trade disputes, changes in U.S. fiscal policy such as changes in the federal tax rate, weakness in the overall world-wide economy; significant changes in currency exchange rates; negative economic impacts resulting from geopolitical events, 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" section in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K").

Results of Operations

Three Months Ended June 30, 2020 vs. Three Months Ended June 30, 2019

Net sales for the second quarter of 2020 were $268.6 million, a decrease of $16.6 million or 5.8% compared to $285.2 million for the second quarter of 2019. Net sales during the second quarter of 2020 were negatively affected by the ongoing COVID-19 pandemic which began to impact the business in the latter part of the first quarter. The acquisition of Morbark contributed $46.5 million in net sales for the second quarter of 2020.

Net Industrial sales decreased by $12.0 million or 6.2% to $182.3 million for the second quarter of 2020 compared to $194.3 million during the same period in 2019. The impact from COVID-19 issues materially affected the Division beginning at the end of the first quarter of 2020. This included the temporary suspension of manufacturing in two of its North American locations and one in France which have since reopened. The acquisition of Morbark added $46.5 million of net sales during the second quarter of 2020.

Net Agricultural sales were $86.4 million in the second quarter of 2020 compared to $90.9 million for the same period in 2019, a decrease of $4.5 million or 5.0%. The decrease was primarily the result of the

~~were up in U.S. dollars~~COVID-19 pandemic. North American operations experienced modest growth over the prior years second quarter and benefited from the contributions of Dixie Chopper but the division was hurt by ~~17.9% compared to~~both the ~~same period in 2018 mainly due to the acquisition of Dutch Power. Excluding Dutch Power, sales in local currency were up~~U.K. and French Agricultural businesses as they experienced temporary plant closures 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 $52.0 million in the first six months of 2019 compared to $48.1 million for the first six months of 2018. The Company's backlog 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. The increase in the Company's backlog was attributable to greater demand for our products, specifically in the Company's Industrial Division and from the acquisition of Dutch Power, partially offset by lower new orders in the Company's Agricultural and European Divisions.quarter.

The Company is cautiously optimistic about its outlook for the remainder of 2019, but we continue to face several ongoing challenges. Beginning in 2018, the Company saw increases in raw material, freight, tariff surcharges and other input costs including labor, at above rates seen in recent years though some of these inflationary pressures have begun to ease. We continue to experience longer lead times for certain key components of our products. The Company also continues to be impacted by a tight labor market and difficulties in hiring and retaining skilled workers. Additional tariffs, future changes in tariff regulations and ongoing trade disputes could further impact the business by increasing the cost of items used in the manufacturing of our products and by softening sales of our products to certain of our customers who may be impacted directly or indirectly by increasing tariffs and other negative effects resulting from trade disputes. The Company may also be negatively affected by 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" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K").

~~Results of Operations~~

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

Net sales for the second quarter of 2019 were $285,186,000, an increase of $28,061,000 or 10.9% compared to $257,125,000 for the second quarter of 2018. The increase in sales was attributable to strong demand for our products in the Company's Industrial Division as well as $14,034,000 of net sales from the acquisition of Dutch Power.

Net Industrial sales increased by $17,969,000 or 12.0% to $168,000,000 for the second quarter of 2019 compared to $150,031,000 during the same period in 2018. The increase was attributable to increased sales across all product groups in the Division with the exception of mowing equipment which was down due to soft market conditions and adverse weather conditions.

Net Agricultural sales were $55,159,000 in the second quarter of 2019 compared to $59,071,000 for the same period in 2018, a decrease of $3,912,000 or 6.6%. The decrease was primarily the result of weak market conditions which limited sales 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 2019 were $62,027,000, an increase of $14,004,000 or 29.2% compared to $48,023,000 during the second quarter of 2018. The increase was driven by the acquisition of Dutch Power which added $14,034,000 of net sales during the quarter. Excluding Dutch Power, sales in the European Division were flat in U.S. dollars. Excluding Dutch Power, sales in local currency were up during the second quarter of 2019 compared to the same time in 2018, but were offset by unfavorable currency translation.

Gross profit for the second quarter of ~~2019~~2020 was ~~$73,133,000 (25.6%~~$67.8 million (25.2% of net sales) compared to ~~$66,454,000 (25.8%~~$73.1 million (25.6% of net sales) during the same period in ~~2018, an increase~~2019, a decrease of ~~$6,679,000.~~$5.3 million. The ~~increase~~decrease in gross profit during the second quarter of ~~2019~~2020 was primarily from lower net sales due to ~~improved sales in~~ the ~~Company's Industrial Division~~COVID-19 pandemic. Negatively affecting the gross margin and gross margin percentage during the second quarter of 2020 was $0.7 million of inventory step-up charge related to the Morbark acquisition.

Selling, general and administrative expenses (“SG&A”) were $41.6 million (15.5% of net sales) during the second quarter of 2020 compared to $42.7 million (15.0% of net sales) during the same period of 2019, a ~~lesser extent~~decrease of $1.1 million. The second quarter of 2020 includes $6.2 million of additional expense related to the acquisition of Morbark. Amortization expense in the second quarter of 2020 was $3.6 million compared to $1.1 million in the same period in 2019, an increase of $2.5 million. The increased amortization expense was primarily attributable to the Morbark acquisition.

Interest expense was $3.9 million for the second quarter of 2020 compared to $1.9 million during the same period in 2019, an increase of $2.0 million. The increase during the second quarter of 2020 resulted from increased borrowings due to the Morbark acquisition which was completed in October of 2019.

Other income (expense), net was $1.3 million of expense for the second quarter of 2020 compared to $0.3 million of expense during the same period in 2019. The expense in 2020 was primarily the result of changes in currency exchange rates offset slightly by the gain from the sale of the RPM building.

Provision for income taxes was $4.7 million (26.8% of income before income tax) in the second quarter of 2020 compared to $6.8 million (24.7% of income before income tax) during the same period in 2019.

The Company’s net income after tax was $13.0 million or $1.10 per share on a diluted basis for the second quarter of 2020 compared to $20.7 million or $1.75 per share on a diluted basis for the second quarter of 2019. The decrease of $7.7 million resulted from the factors described above.

Six Months Ended June 30, 2020 vs. Six Months Ended June 30, 2019

Net sales for the first six months of 2020 were $583.1 million, an increase of $36.0 million or 6.6% compared to $547.1 million for the first six months of 2019. The increase was attributable to the acquisitions of Morbark and Dutch Power which ~~more than offset~~contributed net sales of $106.9 million. Negatively affecting sales during the ~~profit decline~~first six months of 2020, was the outbreak of the COVID-19 virus which began to affect the Company's operations late in the first quarter.

Net Industrial sales increased during the first six months by $44.4 million or 12.1% to $412.2 million for 2020 compared to $367.8 million during the same period in 2019. The increase came from the acquisitions of Morbark and Dutch Power mentioned above. Impacts from the COVID-19 pandemic began to materially affect the Division late in the first quarter of 2020. This included temporary plant closures in the U.S., France and Canada along and other operational disruptions throughout the countries we sell in mainly from health concerns and governmental directives, governmental spending and customer delivery restrictions.

Net Agricultural sales were $170.9 million during the first six months of 2020 compared to $179.3 million for the same period in 2019, a decrease of $8.4 million or 4.7%. The decrease in sales for the first six months of 2020 compared to the first six months of 2019 was a result of the COVID-19 pandemic. Before the impact of the virus affected the Division, sales during the first two and ~~European~~a half months of 2020 had begun to show signs of improvement from the soft agricultural market conditions that have negatively impacted this Division for the last several years. This Division's North American operations did reasonably well and benefited from the contributions of Dixie Chopper but the ongoing pandemic affected both sales and operations in late first quarter of 2020 and specifically hurt both the U.K. and French Agricultural business as they experienced temporary plant closures.

~~Divisions. Gross profit and gross margin percentage for the quarter saw some improvement since the first quarter of 2019 as commodity costs, specifically raw materials such as steel eased.~~

Selling, general and administrative expenses (“SG&A”) were $43,784,000 (15.4% of net sales) during the second quarter of 2019 compared to $39,668,000 (15.4% of net sales) during the same period of 2018, an increase of $4,116,000. The increase primarily came from the acquisition of Dutch Power in the amount of $2,338,000. Also, higher selling expenses due to increased sales and increased spending on research and development projects added to SG&A expenses during the second quarter of 2019.

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

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

Provision for income taxes was $6,782,000 (24.7% of income before income tax) in the second quarter of 2019 compared to $6,535,000 (25.8% of income before income tax) during the same period in 2018. The increase was due to higher pre-tax income during the second quarter of 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. The increase of $1,896,000 resulted from the factors described above.

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

Net sales for the first six months of 2019 were $547,120,000, an increase of $51,908,000 or 10.5% compared to $495,212,000 for the first six months of 2018. The increase was primarily attributable to increased demand for our products in the Company's Industrial Division. Our recent acquisition of Dutch Power added to the increase in net sales in the amount of $17,648,000. Negatively affecting sales during the first six months of 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 $44,227,000 or 15.7% to $326,425,000 for 2019 compared to $282,198,000 during the same period in 2018. The increase came from higher sales of all product lines, with the exception of mowing equipment which was flat compared to the same time in 2018.

Net Agricultural sales were $108,332,000 during the first six months of 2019 compared to $117,718,000 for the same period in 2018, a decrease of $9,386,000 or 8.0%. The decrease in sales for the first six months of 2019 compared to the first six months of 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 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 U.S. during the second quarter of 2019 also negatively hampered sales.

Net European sales for the first six months of 2019 were $112,363,000, an increase of $17,067,000 or 17.9% compared to $95,296,000 during the same period of 2018. The increase in 2019 was due to the acquisition of Dutch Power. Excluding Dutch Power, sales in local currency were up during the first six months of 2019 compared to the same time in 2018, but were offset by unfavorable currency translation.

Gross profit for the first six months of ~~2019~~2020 was ~~$136,441,000 (24.9%~~$146.8 million (25.2% of net sales) compared to ~~$126,711,000 (25.6%~~$136.4 million (24.9% of net sales) during the same period in ~~2018,~~2019, an increase of ~~$9,730,000.~~$10.4 million. The increase in gross profit for the first six months of ~~2019~~2020 came from ~~higher equipment sales in~~ the ~~Company's Industrial Division~~acquisitions of Morbark and ~~to a lesser extent, the acquisition of~~ Dutch ~~Power.~~Power. Negatively affecting ~~both~~the gross margin and gross margin percentage ~~for~~during the first six months of ~~2019~~2020 were ~~higher steel, freight and other input costs, some~~$2.7 million of ~~which began~~inventory step-up charge related to ~~ease during~~ the ~~second quarter. Productivity improvements, pricing actions, and purchasing initiatives helped offset these negative affects.~~

Morbark

acquisition.

SG&A expenses were ~~$84,486,000 (15.4%~~$92.8 million (15.9% of net sales) during the first six months of ~~2019~~2020 compared to ~~$78,564,000 (15.9%~~$82.5 million (15.1% of net sales) during the same period of ~~2018,~~2019, an increase of ~~$5,922,000.~~$10.3 million. The ~~increase primarily came from higher selling expenses due to increased sales along with increased spending on research~~acquisitions of Morbark and ~~development projects. To a lesser extent, our the recent acquisition of~~ Dutch Power ~~added $2,949,000~~ accounted for $15.4 million of net additional expense during the first six months of 2020. Amortization expense in ~~SG&A expenses.~~the first six months of 2020 was $7.4 million compared to $2.0 million in the same period in 2019, an increase of $5.4 million. The increased amortization expense was primarily from the acquisitions of Dutch Power and Morbark.

Interest expense was ~~$3,385,000~~$9.5 million for the first six months of ~~2019~~2020 compared to ~~$2,834,000~~$3.4 million during the same period in ~~2018,~~2019, an increase of ~~$551,000.~~$6.1 million. The increase during the first six months of ~~2019~~2020 came from increased borrowings due to the ~~Dutch Power acquisition.~~Morbark acquisition in October of 2019.

Other income (expense), net was ~~$684,000~~$1.1 million of ~~expense~~income during the first six months of ~~2019~~2020 compared to ~~$226,000~~$0.7 million of expense in the first six months of ~~2018.~~2019. The ~~expenses~~income in ~~2019~~2020 and ~~2018~~expense in 2019 were primarily the result of changes in exchange rates. To a lessor extent, gains from the sale of the Super Products and RPM buildings are included in the 2020 income.

Provision for income taxes was ~~$12,469,000 (25.8%~~$10.3 million (26.4% of income before income taxes) in the first six months of ~~2019~~2020 compared to ~~$11,942,000 (26.4%~~$12.5 million (25.8% of income before income taxes) during the same period in ~~2018. The increase was due to higher pre-tax income during the first six months of~~ 2019.

The Company's net income after tax was ~~$35,920,000~~$28.5 million or $2.41 per share on a diluted basis for the first six months of 2020 compared to $35.9 million 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~~2019. The decrease of ~~2018. The increase of $2,566,000~~$7.4 million 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, ~~2019,~~2020, the Company had working capital of ~~$418,949,000~~$438.4 million which represents an increase of ~~$66,958,000~~$30.4 million from working capital of ~~$351,991,000~~$408.0 million at December 31, ~~2018.~~2019. The increase in working capital was primarily from increase in cash and lower trade accounts payable due to ~~seasonality and increased demand for our products reflected~~reductions in inventory levels related to the ~~Company's higher sales and backlog and to a lesser extent the acquisition of Dutch Power.~~COVID-19 virus.

Capital expenditures were ~~$12,423,000~~$12.5 million for the first six months of ~~2019,~~2020, compared to ~~$10,829,000~~$12.4 million during the first six months of ~~2018.~~2019. The Company ~~expects higher~~initially expected to continue capital expenditures at a rate consistent with the rate of spending for the entire year of 2019. In response to the COVID-19 pandemic, we began to limit new capital expenditures in ~~2019 in order to increase production capacity, support improvements in operational efficiencies, invest in technology~~the first quarter of 2020, however any previously approved projects and ~~for the previously announced construction of a new manufacturing facility for its Super Products vacuum truck operation in Wisconsin as well as the expansion of our Tenco facility in Canada.~~related spending have carried over. The Company will fund any future expenditures from operating cash flows or through our revolving credit facility, described below.

Net cash used for investing activities was $9.4 million during the first six months of 2020 compared to $64.3 million during the first six months of 2019. The 2019 increase in the use of funds was to acquire Dutch Power which was approximately $52.5 million.

Net cash used in financing activities was $8.5 million and net cash provided by ~~financing activities~~ was ~~$76,686,000 and $58,130,000~~$76.7 million during the six month periods ended June 30, ~~2019~~2020 and June 30, ~~2018,~~2019, respectively. ~~The majority~~Net cash used in financing activities for the first six months of 2020 relates to the increase ~~in net cash provided by financing activities in 2019 as compared to~~repayments on the ~~prior year, was mainly due to borrowings to finance~~revolving credit facility and the ~~acquisition of Dutch Power, partially offset by the repurchase activity related to the Company's common stock.~~

~~The Company had $44,605,000 in cash and cash equivalents held by its foreign subsidiaries as of June 30, 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 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 investingprincipal payments

2120

~~activities.~~on long-term debt and financing leases. The majority of the net cash provided by financing activities in 2019 was due to borrowings to finance the acquisition of Dutch Power.

The Company had $78.7 million in cash and cash equivalents held by its foreign subsidiaries as of June 30, 2020. The majority of these funds are at our European and Canadian facilities. The Company will continue to repatriate European and Canadian cash and cash equivalents in excess of amounts needed to fund operating and investing activities, but will need to monitor exchange rates to determine the appropriate timing of such repatriation given the current relative strength of the U.S. dollar. 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~~On October 24, 2019, the Company, ~~maintains an unsecured revolving credit facility with certain lenders under~~as Borrower, and each of its domestic subsidiaries as guarantors, entered into a Second Amended and Restated ~~Revolving~~ Credit Agreement ("(the Credit Agreement) with Bank of America, N.A., as Administrative Agent. The Credit Agreement provides the ~~Agreement"). The~~Company with the ability to request loans and other financial obligations in an aggregate ~~commitments from lenders under the Agreement is $250,000,000~~amount of up to $650.0 million 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.~~$200.0 million. Pursuant to the Credit Agreement, the Company has borrowed $300.0 million pursuant to a Term Facility repayable with interest quarterly at a percentage of the initial principal amount of the Term Facility of 5.0% per year with the remaining principal due in 5 years. Up to $350.0 million is available under the Credit Agreement pursuant to a Revolver Facility which terminates in 5 years. The Agreement requires the Company to maintain ~~various~~two financial covenants, ~~including a minimum earnings before interest and tax to interest expense ratio,~~ a maximum consolidated leverage ratio and a minimum ~~asset~~consolidated fixed charge 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~~Term Facility and the Revolver Facility is ~~December 20, 2021.~~October 24, 2024. As of June 30, ~~2019, $166,000,000~~2020, $439.8 million was outstanding under the ~~Agreement.~~Credit Agreement, $288.8 million on the Term Facility and $151.0 million on the Revolver Facility. On June 30, ~~2019, $3,152,000~~2020, $4.0 million 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 ~~$80,848,000~~$122.3 million in available borrowings. ~~As of June 30, 2019, the~~The Company ~~was~~is in compliance with the covenants under the ~~Agreement.~~Agreement as of June 30, 2020.

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.~~conditions, particularly given the uncertainty created by the COVID-19 pandemic.

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 ~~2018~~2019 Form 10-K, the policies relating to the business combinations, sales discounts, 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 ~~2018~~2019 Form 10-K.

~~Off-Balance Sheet Arrangements~~

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

2221

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; the impact of the current COVID-19 outbreak; 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)~~Regulation and the California Consumer Privacy Act); 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.~~breaches; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, on the Company or its customers, suppliers and the economy in general. The Company continued to experience the impacts of COVID-19 on its markets and operations including operational disruption and softening demand. The full extent to which COVID-19 will adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. While this situation will negatively impact the Company’s results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the full financial impact cannot be reasonably estimated at this time.

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 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. Foreign exchange rates and economic conditions in these foreign markets may be further impacted by the effects of the COVID-19 pandemic.

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, ~~2019,~~2020, the Company had ~~$1,578,000~~$0.4 million 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 ~~$237,000.~~$0.1 million. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts should be offset by changes in the underlying value of the transaction being hedged.

Exposure to Exchange Rates

The Company translates the assets and liabilities of foreign-owned subsidiaries at rates in effect at the balance sheet date. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in accumulated other comprehensive income within the statement of stockholders’ equity. The total foreign currency translation adjustment for the current quarter increased stockholders’ equity by ~~$1,194,000.~~$5.6 million.

The Company’s earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately in Europe and Canada, as a result of the sales of its products in international markets. Forward currency contracts are used to hedge against the earnings effects of such fluctuations. The result of a uniform 10% strengthening or 10% decrease in the value of the dollar relative to the currencies in which the Company’s sales are denominated would result in a change in gross profit of ~~$4,375,000~~$4.0 million for the six month period ending June 30, ~~2019.~~2020. 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 2019 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately $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.

2423

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 2020 average interest rate under these borrowings, the Company’s interest expense would have changed by approximately $2.2 million. 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.

In January 2020, the Company entered into an interest rate swap agreement with three of it's total lenders that hedge future cash flows related to it's outstanding debt obligations. As of June 30, 2020, the Company had $439.8 million outstanding under the Credit Agreement of which $200.0 million was hedged in a three year interest rate swap contract with a fixed LIBOR base rate of 1.43%.

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, Controller and 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, Controller and Treasurer, (Principal Accounting Officer) concluded that the Company’s design and operation of these disclosure controls and procedures were effective at the end of the period covered by this report.

Changes in internal control over financial reporting

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

PART II. OTHER INFORMATION

Item 1. - Legal Proceedings

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

Item 1A. - Risk Factors

~~There have not~~Our business has been ~~any material changes from~~and will continue to be adversely affected by the ~~risk factors previously disclosed in the 2018 Form 10-K for the year ended December 31, 2018.~~COVID-19 pandemic.

~~Item 2. - Unregistered Sales~~In March 2020, the World Health Organization characterized the outbreak of ~~Equity Securities~~COVID-19 as a pandemic, and ~~Use of Proceeds~~

~~The following table provides a summary~~the President of the ~~Company's repurchase activity~~United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business, and there is no guarantee our efforts to address the adverse impacts of COVID-19 will be effective. We have experienced operational interruptions as a result of the pandemic, including the temporary suspension or reduced capacity of operations due to health concerns and government imposed restrictions, which have had and will have an adverse effect on the productivity and profitability of such manufacturing facilities, and in turn is expected to have an adverse effect on our business and financial results. Moreover, a prolonged pandemic, or the threat thereof, could result in continued operational and other disruptions 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. - Defaults Upon Senior Securities~~

~~None.~~

~~Item 4. - Mine Safety Disclosures~~

~~Not Applicable~~

us and for our customers and suppliers. We may also incur significant costs to remedy damages caused by operational and supply chain disruptions, performance delays, and payment defaults or bankruptcy of our customers and suppliers, all of which could adversely affect our financial condition and results of operations.

2524

The rapid spread of COVID-19 has also created significant uncertainty and global economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations, financial results, financial condition and prospects will depend on numerous evolving factors which cannot be predicted, including: the duration and scope of the pandemic; governmental, business and individual actions taken in response; the short and long term effects on the operational and financial condition of our dealers and our governmental and other customers; and the impact on the overall demand for our products. Any of the above factors could result in negative direct and indirect impacts on our business which could have a material adverse effect on our financial condition and results of operations. In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity and energy prices, and interest rates. Even after the COVID-19 pandemic has subsided, we may continue to experience material adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. Any of these events could amplify the other risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2019 and could otherwise materially adversely affect our business, financial condition, results of operations, prospects and/or stock price.

Other than as set forth under this Item 1A, there have not been any material changes from the risk factors previously disclosed in the 2019 Form 10-K for the year ended December 31, 2019.

Item 2. - 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, 2020:


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 1-30, 2020	—	—	—	$25,861,222
May 1-31, 2020	—	—	—	$25,861,222
June 1-30, 2020	—	—	—	$25,861,222
(a) On December 13, 2018, the Board authorized a stock repurchase program of up to $30.0 million of the Company's common stock. The program shall have a term of five (5) years, terminating on December 12, 2023.

Item 3. - Defaults Upon Senior Securities

None.

Item 4. - Mine Safety Disclosures

Not Applicable

Item 5. - Other Information

(a) Reports on Form 8-K

None.

(b) Other Information

None.

Item 6. - Exhibits

(a) Exhibits

Exhibits

Exhibit Title

Incorporated by Reference From the Following Documents

3.1

—

By-Laws of the Alamo Group Inc. as amended

Filed as Exhibit 3.1 to Form 8-K, March 30, 2020

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

104

—

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

Filed Herewith

Alamo Group Inc.

SIGNATURES

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


July ~~31, 2019~~29, 2020			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 & Treasurer
			(Principal Accounting Officer)


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