===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) 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 of incorporation) (I.R.S. Employer Identification
Number)
1502 E. Walnut, Seguin, Texas 78155
(Address of principal executive offices)
(830) 379-1480
(Telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
--- ---
At October 30, 1998, 9,735,759 shares of common stock, $.10 par value, of the
Registrant were outstanding.
==============================================================================
<PAGE>
Alamo Group Inc. and Subsidiaries
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Interim Condensed Consolidated Statements of Income --
Three months and Nine months ended September 30, 1998 and
September 30, 1997......................................................2
Interim Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997................................3
Interim Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and September 30, 1997.............4
Notes to Interim Condensed Consolidated Financial Statements..........5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9-11
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K...................................12
SIGNATURES..................................................................13
<PAGE>
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 51,024 $ 52,220 $ 160,143 $162,296
Cost of sales.................................. 37,393 36,596 118,964 117,367
---------------- ---------------- --------------- ---------------
Gross profit............................... 13,631 15,624 41,179 44,929
Selling, general and administrative expense.... 10,266 7,900 26,087 22,966
---------------- ---------------- --------------- ---------------
Income from operations..................... 3,365 7,724 15,092 21,963
Interest expense............................... (636) (571) (2,090) (1,756)
Interest income................................ 180 152 496 374
Other income (net)............................. 80 331 (139) 276
---------------- ---------------- --------------- ---------------
Income before income taxes................. 2,989 7,636 13,359 20,857
Provision for income taxes..................... 928 2,726 4,900 7,479
---------------- ---------------- --------------- ---------------
Net income................................. $ 2,061 $ 4,910 $ 8,459 $ 13,378
================ ================ =============== ===============
Net income per common share:
Basic.......................................... $ 0.21 $ 0.52 $ 0.87 $ 1.39
================ ================ =============== ===============
Diluted........................................ $ 0.21 $ 0.51 $ 0.87 $ 1.38
================ ================ =============== ===============
Average common shares:
Basic.......................................... 9,736 9,590 9,707 9,591
================ ================ =============== ===============
Diluted........................................ 9,747 9,687 9,727 9,663
================ ================ =============== ===============
</TABLE>
See accompanying notes.
<PAGE>
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 769 $ 789
Accounts receivable............................................ 52,143 42,165
Inventories.................................................... 72,046 65,752
Deferred income taxes.......................................... 3,035 2,288
Prepaid expenses............................................... 1,517 2,152
---------------- ----------------
Total current assets......................................... 129,510 113,146
Property, plant and equipment.................................... 55,044 51,693
Less: Accumulated depreciation................................ (32,206) (29,216)
---------------- ----------------
22,838 22,477
Goodwill......................................................... 12,090 12,632
Other assets..................................................... 4,623 7,869
---------------- ----------------
Total assets................................................. $ 169,061 $ 156,124
================ ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable......................................... $ 14,556 $ 12,787
Income taxes payable........................................... 932 266
Accrued liabilities............................................ 7,860 6,096
Current maturities of long-term debt........................... 598 727
---------------- ----------------
Total current liabilities.................................... 23,946 19,876
Long-term debt, net of current maturities........................ 30,654 28,617
Deferred income taxes............................................ 1,617 1,366
Stockholders' equity:
Common stock, $.10 par value, 20,000,000 shares authorized;
9,735,759 and 9,684,874 issued and outstanding at September
30, 1998 and December 31, 1997, respectively................... 974 968
Additional paid-in capital....................................... 50,502 50,395
Retained earnings................................................ 60,189 54,835
Accumulated other comprehensive income........................... 1,179 67
---------------- ----------------
Total stockholders' equity................................... 112,844 106,265
---------------- ----------------
Total liabilities and stockholders' equity................... $ 169,061 $ 156,124
================ ================
</TABLE>
See accompanying notes.
<PAGE>
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 30, September 30,
1998 1997
-------------- --------------
<S> <C> <C>
Operating Activities
Net income................................................ $ 8,459 $ 13,378
Adjustment to reconcile net income to net cash
provided (used) by operating activities:
Provision for doubtful accounts...................... 593 542
Depreciation......................................... 2,897 2,763
Amortization......................................... 1,041 1,049
Provision for deferred income tax benefit............ (492) -
Realized gain on marketable securities............... - (70)
Gain on sale of equipment............................ (20) (125)
Changes in operating assets and liabilities:
Accounts receivable.................................. (10,109) (4,213)
Inventories.......................................... (5,810) (2,530)
Prepaid expenses and other assets.................... 3,648 (1,489)
Trade accounts payable and accrued liabilities....... 3,210 2,145
Income taxes payable................................. 613 1,536
-------------- --------------
Net cash provided (used) by operating activities 4,030 12,986
Investing Activities
Purchase of property, plant and equipment................. (3,069) (3,333)
Proceeds from sale of property, plant and equipment....... 178 189
Proceeds from sale of marketable securities - 150
-------------- --------------
Net cash (used) by investing activities (2,891) (2,994)
Financing Activities
Net change in bank revolving credit facility.............. 2,300 (7,500)
Principal payments on long-term debt and capital leases... (609) (462)
Dividends paid............................................ (3,105) (2,878)
Proceeds from sale of common stock........................ 113 201
Cost of common stock repurchased.......................... - (489)
-------------- --------------
Net cash provided (used) by financing activities (1,301) (11,128)
Effect of exchange rate changes on cash................... 142 (194)
-------------- --------------
Net change in cash and cash equivalents................... (20) (1,330)
Cash and cash equivalents at beginning of the period...... 789 2,228
-------------- --------------
Cash and cash equivalents at end of the period............ $ 769 $ 898
============= ==============
Cash paid during the period for:
Interest.................................................. $ 1,968 $ 1,682
Income taxes.............................................. $ 5,031 $ 5,494
</TABLE>
See accompanying notes.
<PAGE>
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 1998
1. Basis of Financial Statement Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
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 generally accepted accounting principles
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 ended December, 1998. 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, 1997.
2. Accounts Receivable
Accounts Receivable is shown less allowance for doubtful accounts of
$2,107,000 and $1,840,000 at September 30, 1998 and December 31, 1997,
respectively.
3. Inventories
Inventories valued at LIFO cost represented 83% and 81% of total inventory at
each of September 30, 1998 and December 31, 1997, respectively. The excess of
current costs over LIFO valued inventories were $3,208,000 and $3,310,000 at
September 30, 1998 and December 31, 1997, respectively. Inventory obsolescence
reserves were $4,056,000 at September 30, 1998 and $3,779,000 at December 31,
1997. Net inventories consist of the following (in thousands):
September 30, December 31,
1998 1997
---------------- ----------------
Finished goods.......................... $ 60,993 $ 57,804
Work in process......................... 5,907 3,792
Raw materials........................... 5,146 4,156
================ ================
$ 72,046 $ 65,752
================ ================
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO must necessarily be based on management's estimates
of expected year-end inventory levels and costs. Because these are subject to
many forces beyond management's control, interim results are subject to the
final year-end LIFO inventory valuation.
<PAGE>
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 1998 - (Continued)
4. Common Stock and Dividends
Dividends declared and paid on a per share basis were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Dividends declared........................ $ 0.11 $ 0.10 $ 0.32 $ 0.30
Dividends paid............................ $ 0.11 $ 0.10 $ 0.32 $ 0.30
</TABLE>
5. Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the Statement 128
requirements.
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. (In thousands, except
per share).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Income.................................. $ 2,061 $ 4,910 $ 8,459 $ 13,378
=============== ================ =============== ===============
Average Common Shares:......................
BASIC (weighted-average outstanding
shares).................................. 9,736 9,590 9,707 9,591
Dilutive potential common shares from .
stock options and warrants.................. 11 97 20 72
--------------- ---------------- --------------- ---------------
DILUTED (weighted-average
outstanding shares) 9,747 9,687 9,727 9,663
=============== ================ =============== ===============
Basic earnings per share.................... $ 0.21 $ 0.52 $ 0.87 $ 1.39
=============== ================ =============== ===============
Diluted earnings per share.................. $ 0.21 $ 0.51 $ 0.87 $ 1.38
=============== ================ =============== ===============
</TABLE>
<PAGE>
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 1998 - (Continued)
6. New Accounting Standards and Disclosures
Disclosures About Segments of an Enterprise and Related Information. In June
1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information."
Statement 131 specifies the computation, presentation and disclosure
requirements for business segment information, and requires that segments be
identified based on, among other factors, reporting used by the Company's
management in evaluating key business decisions. Statement 131 supersedes
Statement 14, "Financial Reporting for Segments of a Business Enterprise."
Statement 131 is effective for the Company's financial statements for the year
ended December 31, 1998. The adoption of Statement 131 will not have a
material impact on the Company.
Derivative Financial Instruments Accounting Policy Disclosure Requirements and
Market Risk Disclosure Rules. During 1997, the Securities and Exchange
Commission issued expanded disclosure requirements of accounting policies for
derivative financial instruments and the exposure to market risks. The new
rules require enhanced descriptions of specific aspects of a registrant's
accounting policies for derivatives as well as qualitative and quantitative
disclosures about each type of market risk. The increased policy disclosures
on derivatives were effective for all public companies for periods ending
after June 15, 1997. The qualitative and quantitative market risk disclosures
must be provided in all filings that include audited financial statements for
fiscal years ending after June 15, 1998. The Company expects compliance with
these requirements to have no material impact on the Company's consolidated
results of operations, financial position, or cash flows.
Accounting for Derivative Instruments and Hedging Activities. In June 1998,
the Financial Accounting Standards Board issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is required to be
adopted in years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption
of the new Statement will have a significant effect on earnings or the
financial position of the Company.
7. Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. The adoption of this Statement has no impact on net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported in
Shareholders' Equity, to be included, along with Net Income, in Comprehensive
Income. Prior years data have been conformed to the requirements of Statement
130.
During the third quarter of 1998 and 1997, the Company's Comprehensive Income
was $3,067,000 and $4,218,000, respectively, and for the nine months ended
September 30, 1998 and 1997, it was $9,571,000 and $11,244,000, respectively.
<PAGE>
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 1998 - (Continued)
The components of Comprehensive Income, net of related tax, are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Income....................................... $ 2,061 $ $ 8,459 $
4,910 13,378
Unrealized gains on securities................... - (49) - (90)
Foreign currency translation adjustments......... 1,006 (643) 1,112 (2,044)
--------------- --------------- --------------- ---------------
Comprehensive Income............................. $ 3,067 $ 4,218 $ 9,571 $ 11,244
=============== =============== =============== ===============
</TABLE>
The components of Accumulated Other Comprehensive Income are as follows (in
thousands):
September 30, December 31,
1998 1997
------------- -----------
Unrealized gains or securities................ $ - $ -
Foreign currency translaction adjustments..... 1,179 67
============= ===========
Accumulated other comprehensive income........ $1,179 $ 67
============= ===========
8. Contingent Matters
The Company is subject to various unresolved legal actions which arise in the
ordinary course of its business. The most prevalent of such actions relate to
product liability which are generally covered by insurance. While amounts
claimed may 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.
The Company is involved in a lawsuit between Rhino International and certain
of its dealers and former dealers. This lawsuit involved claims against Rhino
International totaling $3.8 million. In April, a judgment was entered
requiring the Company to pay $110,000, net of its recovery. The judgment is
being appealed by both parties. While the ultimate outcome of this matter
cannot be determined at this time, the Company believes this matter will not
have a material adverse effect on the Company's consolidated financial
position. After September 30, 1998, the Company settled certain other
litigation relating to the Company's acquisition of Rhino International. The
cost to the Company of the settlement of this litigation is reflected in
selling, general and administrative expense as of September 30, 1998.
<PAGE>
(A) Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following tables set forth, for the periods indicated, certain financial
data:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Sales Data In Thousands September 30, September 30, September 30, September 30,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
American
Agricultural............................. $ 23,486 $ 25,494 $ 78,930 $ 79,722
Industrial............................... 16,502 15,406 48,698 44,790
European..................................... 11,036 11,320 32,515 37,784
--------------- --------------- --------------- ---------------
Total sales, net......................... $ 51,024 $ 52,220 $ 160,143 $ 162,296
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Cost Trends and Profit Margin, as September 30, September 30, September 30, September 30,
Percentages of Net Sales 1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross margin................................ 26.7% 29.9 % 25.7% 27.7%
Income from operations...................... 6.6% 14.8 % 9.4% 13.5%
Income before income taxes.................. 5.9% 14.6 % 8.3% 12.9%
Net income.................................. 4.0% 9.4 % 5.3% 8.2%
</TABLE>
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net sales for the third quarter of 1998 were $51,024,000, a decrease of
$1,196,000 or 2.3% compared to $52,220,000 for the same quarter last year.
Domestic agricultural sales for the third quarter of 1998 were $23,486,000
compared to $25,494,000 for the third quarter of 1997, representing a
$2,008,000 or 8.5% decrease due primarily to severe drought conditions in the
Company's major domestic markets which reduced replacement part sales in such
markets, a decrease in sales from the Company's Chinese tractor import
operations (which are included in the Company's domestic agricultural sales)
and what the Company believes is the beginning of a cyclical decline in the
domestic agricultural market. Domestic industrial sales for the third quarter
of 1998 were $16,502,000, an increase of $1,096,000 or 7.1% compared to
$15,406,000 for the same quarter last year as a result of continued strength
in customer orders. European sales for the third quarter of 1998 were
$11,036,000, a decrease of $284,000 or 2.5% compared to $11,320,000 for the
same quarter last year. The decrease in European sales was primarily due to
continued weakness in farm income in the United Kingdom and the impact on
sales and margins of currency movements, particularly the strength of the
British Pound against the French Franc which negatively impacted sales of the
Company's U.K. manufactured products. Although currency exposure continues,
European sales showed some firming in the quarter.
The cost of sales in the third quarter of 1998 was $37,393,000 or 73.3% of net
sales compared to $36,596,000 or 70.1% of net sales in the third quarter of
1997.
Selling, general and administrative expenses in the third quarter of 1998 were
$10,266,000 or 20.1% of net sales compared to $7,900,000 or 15.1% of net sales
for the third quarter of 1997. The increase in selling, general and
administrative expenses of $2,366,000 was primarily attributable to the
settlement of certain litigation relating to the Company's Rhino International
subsidiary, which conducts the Company's Chinese tractor import operations.
<PAGE>
(A) Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
These operations have seen a decline in sales and profitability related to
market factors. Operating losses and costs of certain litigation relating to
Rhino International reduced the Company's diluted earnings per share by $0.18
per share for the quarter ended September 30, 1998 and $0.30 per share for the
nine months ended September 30, 1998. Rhino International was acquired by the
Company in 1995 and its operations are not related to the Company's core
business. With the litigation related to the acquisition of Rhino
International now settled, the Company is analyzing various strategic options
for Rhino International that could result in a special charge in the fourth
quarter of 1998.
Net interest expense was $456,000 in the third quarter of 1998 compared to
$419,000 in the third quarter of 1997.
Net income for the third quarter of 1998 was $2,061,000 or $.21 per share
compared to $4,910,000 or $.51 per share for the third quarter of 1997 as a
result of the factors described above.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Net sales for the first nine months of 1998 were $160,143,000, a decrease of
$2,153,000 or 1.3% compared to $162,296,000 for the same period last year.
Domestic agricultural sales were $78,930,000 compared to $79,722,000 for the
first nine months of 1997, representing a $792,000 or 1.0% decrease in
domestic agricultural sales. Domestic industrial sales for the first nine
months of 1998 were $48,698,000, an increase of $3,908,000 or 8.7% compared to
$44,790,000 for the first nine months last year. European sales for the first
nine months of 1998 were $32,515,000, a decrease of $5,269,000 or 13.9%
compared to $37,784,000 for the first nine months last year. In addition to
the factors described for the third quarter, sales and profitability in both
the first and second quarters were negatively impacted by a decrease in sales
in such quarters (compared to the prior year's periods) in both the Company's
European operations and Chinese tractor import operations. Sales in the first
quarter were also negatively impacted by production shortfalls in the
Company's U.S. Operations arising largely from late deliveries from certain of
the Company's suppliers.
The cost of sales in the first nine months of 1998 was $118,964,000 or 74.3%
of net sales compared to $117,367,000 or 72.3% of net sales in the first nine
months of 1997.
Selling, general and administrative expenses in the first nine months of 1998
were $26,087,000 or 16.3% of net sales compared to $22,966,000 or 14.2% of net
sales for the first nine months of 1997. The increase for the nine months
ended September 30, 1998 was primarily attributable to the factors discussed
for the third quarter above.
Net interest expense was $1,594,000 in the first nine months of 1998 compared
to $1,382,000 in the first nine months of 1997.
Net income for the first nine months of 1998 was $8,459,000 or diluted
earnings per share of $.87 compared to $13,378,000 or diluted earnings per
share of $1.38 per share for the first nine months of 1997 as a result of the
factors described above.
Liquidity and Capital Resources
Net cash provided by operating activities was $4,030,000 for the first nine
months of 1998 compared to $12,986,000 for the first nine months of 1997. The
Interim Condensed Consolidated Balance Sheet at September 30, 1998 reflects
net increases over December 31, 1997 in accounts receivable and inventories of
$9,978,000 and $6,294,000, respectively. The increase in accounts receivable
is largely attributable to changes in the Company's marketing programs while
the increase in inventories is a result of decreased sales due to pervasive
drought
<PAGE>
(A) Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
conditions in the Company's major domestic markets, seasonal effects and
increased stocking of replacement parts in warehouses.
As of September 30, 1998, $26,331,000 was utilized under the Company's
$45,000,000 bank revolving credit facility, of which $2,031,000 was for
standby letters of credit and $24,300,000 was borrowed. The Company's
borrowings are seasonal in nature with the greatest utilization generally
occurring in the first quarter and early spring.
The bank credit facility and the Company's ability to internally generate
funds from operations should be sufficient to meet the Company's cash
requirements in the near future.
Year 2000
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit
format. If not addressed, such computer systems will be unable to properly
interpret dates beyond the year 1999, which could lead to business disruptions
in the U.S. and internationally (the "Year 2000" issue). The potential costs
and uncertainties associated with the Year 2000 issue will depend on a number
of factors, including software, hardware and the nature of the industry in
which a company operates. Additionally, companies must coordinate with other
entities with which they electronically interact. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company does not believe that the impact of the recognition of the year
2000 by its information and operating technology systems will have a material
adverse effect on the Company's financial condition and results of operations.
The majority of any necessary system changes will be upgraded in the normal
course of business. The Company has initiated formal communications with all
of its significant suppliers and customers to determine the extent to which
the Company could be vulnerable to those third parties' failure to remediate
their own year 2000 issues. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems.
The total cost of the modifications and upgrades to date has not been
material. Although no assurances can be given as to the Company's compliance,
particularly as it relates to third-parties, including governmental entities,
based upon the progress to date, the Company does not expect that either
future costs of modifications or the consequences of any unsuccessful
modifications will have a material adverse effect on the Company's financial
position or results of operations. Accordingly, the Company believes that the
most reasonably likely worst case Year 2000 scenario would not have a material
adverse effect on the Company's financial position or results of operations.
Forward Looking Statements
Certain information included in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Although the Company believes that the expectations reflected in such
forward looking statements are based upon reasonable assumptions, it can give
no assurance that its expectations will be achieved. Additionally, the
Company's financial results are sensitive to movement in interest rates and
foreign currencies, as well as general and industry specific economic
conditions, weather conditions, pricing and product actions taken by
competitors, production disruptions and changes in environmental,
international trade and other laws impact
<PAGE>
(A) Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
the way in which it conducts its business. Dealer's end users sales of
replacement parts are especially effected by unusual weather conditions.
<PAGE>
(B) Alamo Group Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are included herein:
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
(1) A report on Form 8-K dated August 20, 1998 containing Items 5
and 7.
<PAGE>
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.
Alamo Group Inc.
(Registrant)
By:/s/ Jim A. Smith
Jim A. Smith
Executive Vice President and CFO
(Principal Accounting and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
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0
0
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</TABLE>
