The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K.

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

                                                Fiscal Year Ended December 31,

Net sales data in thousands:                     2008           2007           2006

   North American
     Industrial                           $    254,787   $    253,203   $    232,462
     Agricultural                              120,232        117,652        106,076
   European                                    182,116        133,531        117,956
   Total net sales                        $    557,135   $    504,386   $    456,494

Cost and profit margins, as percentages
of net sales:

     Cost of sales                               80.4%          80.6%          80.3%
     Gross profit                                19.6%          19.4%          19.7%
     Selling, general and administrative         14.9%          14.6%          14.6%
expenses
     Income from operations                       3.8%           4.7%           5.0%
     Income before income taxes                   3.1%           3.6%           3.7%
     Net income                                   2.0%           2.5%           2.5%

Results of Operations

Fiscal 2008 compared to Fiscal 2007

The Company's net sales in the fiscal year ended December 31, 2008 ("2008") were $557,135,000, an increase of $52,749,000 or 10.5% compared to $504,386,000 for the fiscal year ended December 31, 2007 ("2007"). The increase was primarily attributable to the acquisitions of Rivard and Henke in the amount of $41,615,000, and continued demand for our products in most of the Company's segments. The Company's sales during the last quarter of 2008 were negatively impacted by the decline in the worldwide economy.

North American Industrial sales (Net) were $254,787,000 in 2008 compared to 253,203,000 in 2007, a $1,584,000 or 0.6% increase. The increase came from the acquisition of Henke in the amount of $1,662,000. The Industrial segment did experience higher sales in the first half of 2008 from the excavator and vacuum truck business. Sweeper market sales were soft throughout the year due to the weak retail market and related cut back in parking lot sweeper activity. Also negatively impacting this segment were late deliveries of key components from suppliers.

North American Agricultural sales (Net) were $120,232,000 in 2008 compared to $117,652,000 in 2007, representing an increase of $2,580,000 or 2.2%. The increase was mainly due to steady market conditions, specifically mowing and front-end loader equipment. During the third quarter of 2008, this division experienced delays in deliveries of key components from suppliers which prevented us from delivering to our customers in a timely fashion. Drought conditions in the southern part of the U.S. also had a negative impact on sales during most of the year along with lower commodity prices in late 2008.

European sales (Net) increased $48,585,000 or 36.4% to $182,116,000 in 2008 compared to $133,531,000 in 2007. This increase was mainly from the acquisition of Rivard in the amount of $39,953,000, and to a lesser extent higher export sales outside our core markets, along with improved agricultural market conditions in the first half of 2008. Sales in local currency grew 14% without the Rivard acquisition. Negatively affected the European segment were changes in the international currency rates.

Gross Margins for 2008 were $109,414,000 (19.6% of net sales) compared to $97,711,000 (19.4% of net sales) in 2007, an increase of $11,703,000. The increase was due to the acquisitions of Rivard and Henke along with steady market conditions for the first nine months of 2008. Negatively affecting the Company's gross margin were higher steel, steel products and energy prices.

Selling, general and administrative expenses ("SG&A") were $83,059,000 (14.9% of net sales) in 2008 compared to $73,874,000 (14.6% of net sales) in 2007. The increase of $9,185,000 in SG&A in 2008 primarily came from the addition of Rivard andHenke, in the amount of $5,525,000 along with increased sales commissions from higher sales.

Goodwill impairment for 2008 was $5,010,000 compared to zero in 2007. The Company wrote off the entire goodwill in its Agricultural Division after performing its required impairment test review. The severe decline in market values of the Company, along with uncertainty in the economy going forward was the cause for the write-down.

Interest expense for 2008 was $7,450,000 compared to $8,338,000 in 2007, an $888,000 or a 10.7% decrease. The decrease was due to lower interest rates in 2008.

Other Income (expense), net was $1,513,000 of income during 2008 versus income of $813,000 in 2007. The income in 2008 was entirely from changes in exchange rates. The income in 2007 was mainly from exchange rate gains of $703,000 and a gain of $150,000 relating to the sale of the Company's investment in a small business investment company along with a loss on the sale of the Guymon property held for sale.

Provision for Income Taxes was $6,227,000 (36.1% of income before income taxes) for 2008 compared to $5,670,000 (31.4% of income before income taxes) in 2007. The increase in the effective tax rate for 2008 was from increased state taxes in the United States and from the non deductable tax write off of goodwill.

Net Income for 2008 was $10,999,000 compared to $12,365,000 in 2007 due to the factors described above.

Fiscal 2007 compared to Fiscal 2006

The Company's net sales in the fiscal year ended December 31, 2007 ("2007") were $504,386,000, an increase of $47,892,000 or 10.5% compared to $456,494,000 for the fiscal year ended December 31, 2006 ("2006"). The increase was primarily attributable to the acquisitions of VacAll, Nite-Hawk, Henke and one month of Gradall in the amount of $18,589,000, and continued market improvement in the Industrial division particularly street sweepers. The Company also experienced improved markets in both the Agricultural and European divisions, along with benefits in currency exchange rates in our European division.

North American Industrial sales (Net) were $253,203,000 in 2007 compared to $232,462,000 in 2006, a $20,741,000 or 8.9% increase. The majority of the increase came from the acquisitions of VacAll, Nite-Hawk, Henke and one month of Gradall along with higher sales of sweeper products. Increased demand for the Company's products in this division have continued to reflect steady growth from governmental customers. Negatively impacting the year were soft conditions in the North American wheeled excavator market along with late deliveries of key components.

North American Agricultural sales (Net) were $117,652,000 in 2007 compared to $106,076,000 in 2006, representing an increase of $11,576,000 or 10.9%. The increase was mainly due to improved market conditions, specifically mowing and front-end loader equipment, which had experienced softness during the first part of 2007 due in part to farm operating costs which negatively affected farmers' spending. Drought conditions in the southeastern part of the U.S. had a negative impact on sales during most of 2007.

European sales (Net) increased $15,575,000 or 13.2% to $133,531,000 in 2007 compared to $117,956,000 in 2006. This increase was mainly from changes in the international currency rates. Sales grew 4% in local currency primarily due to export sales outside the Company's principal markets in Western Europe. European sales to a lesser extent were affected negatively by changing governmental regulations concerning farm programs in the U.K. and European Union.

Gross Margins for 2007 were $97,711,000 (19.4% of net sales) compared to $89,890,000 (19.7% of net sales) in 2006, an increase of $7,821,000. The increase was due to the acquisitions of VacAll, Nite-Hawk, Henke and one month of Gradallalong with higher sales of sweeper products and improved efficiencies from the consolidation of the Company's Holton facility into its Gibson City, Illinois facility in 2006. Negatively affecting the Company's gross margin percent were continued higher energy prices along with inefficiencies in the manufacturing of the VacAll product line at the Gradall facility.

Selling, general and administrative expenses ("SG&A") were $73,874,000 (14.6% of net sales) in 2007 compared to $66,858,000 (14.6% of net sales) in 2006. The increase of $7,016,000 in SG&A in 2007 primarily came from the addition of VacAll, Nite-Hawk, Henke, and one month of Gradall in the amount of $6,899,000.

Interest expense for 2007 was $8,338,000 compared to $6,912,000 in 2006, a $1,426,000 or a 20.6% increase. The increase was due to higher interest rates in the first part of 2007 along with increased borrowings to support the acquisitions of VacAll, Nite-Hawk, and Henkeand higher levels of working capital.

Other Income (expense), net was $813,000 of income during 2007 versus income of $59,000 in 2006. The income in 2007 was mainly from exchange rate gains of $703,000 and a gain of $150,000 relating to the sale of the Company's investment in a small business investment company along with a loss in the sale of the Guymon property held for sale. The income in 2006 was from the gain on the sale of the Holton facility in the amount of $517,000 offset by the loss on the sale of machinery and equipment at Holton totaling $336,000 along with $11,000 of exchange rate losses from foreign contracts covering accounts receivable in our European operations. Also included in 2006, is a write-down of the Guymon property held for sale of $111,000 that was sold in February of 2007

Provision for Income Taxes was $5,670,000 (31.4% of income before income taxes) for 2007 compared to $5,487,000 (32.3% of income before income taxes) in 2006. The decrease in the effective tax rate for 2007 was from additional R&D tax credits received and a reduced corporate tax rate that affected our Canadian operations.

Net Income for 2007 was $12,365,000 compared to $11,488,000 in 2006 due to the factors described above.

Liquidity and Capital Resources

In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to conduct the Company's business, including inventory purchases and capital expenditures. The Company's inventory and accounts payable levels particularly in its North American Agricultural Division build in the first quarter and early spring and, to a lesser extent, 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 preseason sales. These sales help balance the Company's production during the first and fourth quarters. Some of the Company's most recent acquisitions which are not involved in vegetation maintenance have helped to soften this seasonality pattern.

As of December 31, 2008, the Company had working capital of $180,341,000, which represents an increase of $10,950,000 from working capital of $169,391,000 as of December 31, 2007. The increase in working capital was primarily from higher accounts receivable due to the acquisition of Rivard and seasonality.

Capital expenditures were $6,553,000 for 2008, compared to $10,765,000 for 2007. For 2009, capital expenditures are expected to be similar levels compared with 2008. The Company expects to fund capital expenditures from operating cash flows or through its revolving credit facility, described below.

The Company was authorized by its Board of Directors in 1997 to repurchase up to 1,000,000 shares of the Company's common stock to be funded through working capital and credit facility borrowings. There were no shares repurchased in 2007 or in 2008. The authorization to repurchase up to 1,000,000 shares remains available less 42,600 shares previously purchased.

Net cash provided by operating activities was $8,724,000 for 2008, compared to $19,192,000 for 2007. The decrease of cash from operating activities resulted primarily from the acquisition of Rivard.

Net cash provided by financing activities was $19,550,000 for 2008, compared to net cash used of $3,101,000 for 2007. The difference was mainly from increased borrowings under the Company's revolving line of credit due to the Rivard acquisition.

On August 25, 2004, the Company entered into a five-year $70 million Amended and Restated Revolving Credit Agreement with its lenders, Bank of America, JPMorgan Chase Bank, and Guaranty Bank. This contractually committed, unsecured facility allows the Company to borrow and repay amounts drawn at floating or fixed interest rates based upon Prime or LIBOR rates. Proceeds may be used for general corporate purposes or, subject to certain limitations, acquisitions. The loan agreement contains among other things the following financial covenants:
Minimum Fixed Charge Coverage Ratios, Minimum Consolidated Tangible Net Worth, Consolidated Funded Debt to EBITDA Ratio and Minimum Asset Coverage Ratio, along with limitations on dividends, other indebtedness, liens, investments and capital expenditures.

On February 3, 2006, the Company amended and restated the credit agreement to increase the Company's existing credit facility from $70 million to $125 million. Pursuant to the terms of the Amended and Restated Revolving Credit Agreement, the Company has the ability to request an increase in commitments by $25 million. In addition, the existing credit facility was modified in other respects, including reducing the asset coverage ratio and lowering the interest margins.

On March 30, 2006 the Company entered into the Fourth Amendment of the Amended and Restated Revolving Credit Agreement, dated March 30, 2006 (the "Amended and Restated Revolving Credit Agreement"), between the Company and Bank of America, N.A., JPMorgan Chase Bank and Guaranty Bank, as its lenders. Pursuant to the terms of the Amended and Restated Revolving Credit Agreement, the Company added GradallIndustries, Inc., formerly Alamo Group (OH) Inc., and N.P. Real Estate Inc. as members of the Obligated Group. The Amendment also allows for capital expenditures not to exceed $14 million for the fiscal year ending 2006 and $10 million in the aggregate during each fiscal year thereafter.

On May 7, 2007, the Company entered into the Fifth Amended and Restated Revolving Credit Agreement with Bank of America, N.A., JPMorgan Chase Bank, Guaranty Bank and Rabobank, as its lenders. The Amended and Restated Revolving Credit Agreement provides for a $125 million unsecured revolving line of credit for five years with the ability to expand the facility to $175 million, subject to bank approval. In addition to the extended term of the loan to 2012, other major changes were improvements in the leverage ratio, minimum asset coverage ratio and increase in annual allowable capital expenditures up to $17.5 million. The banks agreed to eliminate the fixed charge coverage ratio and minimum net worth requirement along with a reduction in the applicable interest rate margin. The applicable interest margin fluctuates quarterly either up or down based upon the Company's leverage ratio.

On October 14, 2008, the Company entered into the Sixth Amendment and Waiver under the Amended and Restated Revolving Credit Agreement. The purpose of the amendment and waiver was to clarify company names within the obligated group after merging or dissolving some subsidiaries, to define operating cash flow and defining quarterly operating cash flow for Rivard through March 31, 2009. Beginning June 30, 2009, Rivard's actual operating cash flow will be used in the calculation of consolidated operating flow.

As of December 31, 2008, there was $95,000,000 borrowed under the revolving credit facility. At December 31, 2008, $780,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors' contracts resulting in approximately $29,000,000 in available borrowings.

On May 13, 2008, Alamo Group Europe Limited expanded its overdraft facility with Lloyd's TSB Bank plc from £ 1.0 million to £ 5.5 million. The facility was renewed on November 10, 2008 and outstandings currently bear interest at Lloyd's Base Rate plus 1.1% per annum. The facility is unsecured but guaranteed by the U.K. subsidiaries of Alamo Group Europe Limited. As of December 31, 2008, there were no outstanding balances in British pounds borrowed against the U.K. overdraft facility.

There are additional lines of credit, for the Company's French operations in the amount of 9,300,000 Euros, which includes the Rivard credit facilities, for our Canadian operation in the amount of 3,500,000 Canadian dollars, and for our Australian operation in the amount of 800,000 Australian dollars. As of December 31, 2008, 1,315,000 Euros were borrowed against the French line of credit, 1,519,000 Canadian dollars were outstanding on the Canadian line of credit and 400,000 Australian dollars were outstanding under its facility. The Canadian and Australian revolving credit facilities are guaranteed by the Company.

As of December 31, 2008, the Company is in compliance with the terms and conditions of its credit facilities.

On July 27, 2006, the Company filed a shelf registration statement on Form S-3 with the SEC to register 2,300,000 shares of common stock for offer and sale by the Company from time to time in accordance with the Securities Exchange Act.
This filing had a two year life and was withdrawn on May 30, 2008, prior to its cancellation and can be reinstated if deemed appropriate by management.

Management believes the bank credit facilities and the Company's ability to internally generate funds from operations should be sufficient to meet the Company's cash requirements for the foreseeable future. However, the challenges affecting the banking industry and credit markets in general can potentially cause changes to credit availability which creates a level of uncertainty.

Inflation

The Company believes that inflation generally has not had a material impact on its operations or liquidity. The Company is exposed to the risk that the price of steel and fuel may increase and the Company may not be able to increase the price of its products correspondingly. If this occurs, the Company's results of operations would be adversely impacted.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 141, "Business Combinations (Revised 2007)." "Statement 141(R)") 141R replaces Statement of Financial Accounting Standards No. 141, "Business Combinations," ("Statement 141") and applies to all transactions and other events in which one entity obtains control over one or more other businesses. Statement 141(R) requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under Statement 141 whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. Statement 141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under Statement 141. Under Statement 141(R), the requirements of Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," would have to be met by the target in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." Statement 141(R) is expected to have a significant impact on the Company's accounting for business combinations closing on or after January 1, 2009.

Statement of Financial Accounting Standards No. 160, "Non-controlling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51." ("Statement 160") amends Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial Statements," to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Statement 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, Statement 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. Statement 160 is effective for the Corporation on January 1, 2009 and is not expected to have a significant impact on the Company's financial statements.

Statement of Financial Accounting Standards No. 161, "Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133." ("Statement 161") amends Statement of Financial Accounting No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("Statement 133")to amend and expand the disclosure requirements of Statement 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under Statement 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. To meet those objectives, Statement 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. Statement 161 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company's financial statements.

Off-Balance Sheet Arrangements

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

Contractual and Other Obligations
    The following table shows the Company's approximate obligations and
commitments to make future payments under contractual obligations as of December
31, 2008:
                                                      Payment due by period
                                                    Less than          1-3          3-5     More than
Contractual Obligations             Total              1 Year        Years        Years       5 Years
Long-term debt obligations  $     99,476     $         2,738     $    615     $ 95,364    $      759
Capital lease obligations          4,594               1,448        2,605          477            64
Interest obligations              13,789               3,631        6,769        3,319            70
Operating lease obligations        3,993               1,732        1,905          343            13
Purchase obligations              70,834              70,834            -            -             -

   Total                    $    192,686     $        80,383     $ 11,894     $ 99,503    $      906

Definitions:

(A) Long-term debt obligation means a payment obligation under long-term borrowings referenced in FASB Statement of Financial Accounting Standards No. 47 Disclosure of Long-Term Obligations(March 1981), as may be modified or supplemented.

(B) Capital lease obligation means a payment obligation under a lease classified as a capital lease pursuant to FASB Statement of Financial Accounting Standards No. 13 Accounting for Leases(November 1976), as may be modified or supplemented.

(C) Interest obligationrepresents interest due on long-term debt and capital lease obligations. Interest on long-term debt assumes all floating rates of interest remain the same as those in effect at December 31, 2008 and include the effect of the Company's interest rate derivative arrangements on future cash payments for the remaining period of those derivatives.

(D) Operating lease obligationmeans a payment obligation under a lease classified as an operating lease and disclosed pursuant to FASB Statement of Financial Accounting Standards No. 13 Accounting for Leases (November 1976), as may be modified or supplemented.

(E) Purchase obligation means an agreement to purchase goods or services that is enforceable and legally binding on the registrant that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions.

In addition, the Company sponsors various pension plans that may obligate it to make contributions from time to time. We expect to make a cash contribution to our pension plans in 2009.

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 U.S. Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. . . .