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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
NUMBER)
1502 EAST WALNUT, SEGUIN, TEXAS 78155
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
830-379-1480
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FOR
THE PAST 90 DAYS.
YES X NO ___
-----
AT AUGUST 1, 2000, 9,700,209 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE
REGISTRANT WERE OUTSTANDING.
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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 - 3
Three months and Six months ended June 30, 2000 and June 30, 1999
Interim Condensed Consolidated Balance Sheets - 4
June 30, 2000 and December 31, 1999 (Audited)
Interim Condensed Consolidated Statements of Cash Flows - 5
Six months ended June 30, 2000 and June 30, 1999
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
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
SIGNATURES 18
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 30, JUNE 30 JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ---------
Net sales:
North American
Agricultural ............ $ 21,161 $ 20,151 $ 42,755 $ 39,294
Industrial .............. 28,735 19,244 46,569 32,602
European ................ 10,829 11,700 21,367 21,367
--------- --------- --------- ---------
Total net sales ............ 60,725 51,095 110,691 93,263
Cost of sales .............. 45,409 37,750 82,730 69,840
--------- --------- --------- ---------
Gross profit ............... 15,316 13,345 27,961 23,423
Selling,general and
administrative expense...... 8,672 7,159 16,603 14,023
--------- --------- --------- ---------
Income from operations ... 6,644 6,186 11,358 9,400
Interest expense ........... (681) (432) (1,041) (1,090)
Interest income ............ 209 105 399 207
Other income (expense), net 31 (201) (163) (333)
--------- --------- --------- ---------
Income before income taxes 6,203 5,658 10,553 8,184
Provision for income taxes . 2,053 2,050 3,721 2,956
--------- --------- --------- ---------
Net income ............... $ 4,150 $ 3,608 $ 6,832 $ 5,228
========= ========= ========= ========
Net income per common share:
Basic .................... $ 0.43 $ 0.37 $ 0.71 $ 0.54
========= ========= ======== ==========
Diluted .................. $ 0.43 $ 0.37 $ 0.71 $ 0.54
========= ========= ======== ==========
Average common shares:
Basic .................... 9,695 9,736 9,695 9,736
========= ========= ======== ==========
Diluted .................. 9,754 9,736 9,747 9,736
========= ========= ======== ==========
Dividends declared ......... $ 0.06 $ 0.11 $ 0.12$ 0.22
========= ========= ========= =========
See accompanying notes.
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER
2000 31, 1999
(UNAUDITED) (AUDITED)
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents.................. $ 2,766 $ 5,359
Accounts receivable........................ 60,053 41,764
Inventories................................ 52,949 45,570
Deferred income taxes...................... 4,335 4,193
Prepaid expenses.......................... 1,142 1,008
------------ -----------
Total current assets................... 121,245 97,894
Property, plant and equipment............. 59,075 54,161
Less: Accumulated depreciation .......... (32,695) (32,343)
------------ -----------
26,380 21,818
Goodwill .................................. 16,437 9,937
Other assets .............................. 4,514 3,146
------------ -----------
Total assets .......................... $ 168,576 $ 132,795
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................... 18,030 8,514
Income taxes payable...................... 2,289 1,080
Accrued liabilities ...................... 10,711 7,920
Current maturities of long-term debt...... 1,548 526
------------ -----------
Total current liabilities ............. 32,578 18,040
Long-term debt, net of current maturities . 22,782 5,469
Deferred income taxes ..................... 1,318 1,256
Stockholders' equity:
Common stock, $.10 par value,20,000,000
shares authorized 9,735,809 issued at June 30,
2000 and December 31,1999, respectively.... 974 974
Additional paid-in capital ................ 50,775 50,775
Treasury stock,at cost;40,600shares at (400) (400)
June 30, 2000................................
Retained earnings ......................... 63,237 57,568
Accumulated other comprehensive income .... (2,688) (887)
------------ -----------
Total stockholders' equity ............ 111,898 108,030
------------ -----------
Total liabilities and stockholders' equity $ 168,576 $ 132,795
============ ===========
See accompanying notes.
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE
2000 30, 1999
------------ ------------
OPERATING ACTIVITIES
Net income ............................ $ 6,832 $ 5,228
Adjustment to reconcile net income to net
cash
provided (used) by operating activities:
Provision for doubtful accounts ... 145 140
Depreciation ...................... 2,088 2,007
Amortization ...................... 804 598
Provision for deferred income tax 280 6
benefit................................
(Gain) loss on sale of equipment .. (171) (71)
Changes in operating assets and
liabilities:
Accounts receivable ............... (16,437) (5,515)
Inventories ....................... 352 9,013
Prepaid expenses and other assets . (319) 457
Trade accounts payable and accrued 7,451 3,180
liabilities ...........................
Income taxes payable .............. 1,051 2,736
------------ ------------
Net cash provided by operating activities 2,076 17,779
INVESTING ACTIVITIES
Acquisitions, net of cash acquired..... (14,248) -
Purchase of property, plant and equipment (9,504) (1,349)
Proceeds from sale of property, plant and 403 128
equipment .............................
Sale of long-term investment........... (500) -
------------ ------------
Net cash (used) by investing activities (23,849) (1,221)
FINANCING ACTIVITIES
Net change in bank revolving credit 21,000 (15,600)
facility ..............................
Principal payments on long-term debt and (442) (226)
capital leases ........................
Dividends paid ........................ (1,163) (2,142)
Proceeds from sale of common stock .... - -
Cost of common stock repurchased ...... - -
------------ ------------
Net cash provided (used) by financing 19,395 (17,968)
activities.............................
Effect of exchange rate changes on cash (215) (245)
------------ ------------
Net change in cash and cash equivalents (2,593) (1,655)
Cash and cash equivalents at beginning of 5,359 2,748
the period ............................
-- --
---------- ----------
Cash and cash equivalents at end of the $ 2,766 $ 1,093
period ................................
============ ============
Cash paid during the period for:
Interest ........................... $ 626 $ 979
Income taxes ....................... $ 2,539 $ 107
See accompanying notes.
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 2000
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements of Alamo Group Inc. and its subsidiaries (the "Company") 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 ending December 31,
2000. The balance sheet at December 31, 1999, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles 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, 1999.
2. ACCOUNTS RECEIVABLE
Accounts Receivable is shown less allowance for doubtful accounts of
$1,149,000 and $1,231,000 at June 30, 2000 and December 31, 1999, respectively.
3. INVENTORIES
Inventories valued at LIFO cost represented 83% and 82% of total inventory
at each of June 30, 2000 and December 31, 1999, respectively. The excess of
current costs over LIFO valued inventories were $3,925,000 at both June 30, 2000
and December 31, 1999, respectively. Inventory obsolescence reserves were
$4,537,000 at June 30, 2000 and $5,216,000 at December 31, 1999. Net inventories
consist of the following (in thousands):
JUNE DECEMBER
30, 31,
2000 1999
------------ ------------
Finished goods ............... $ 41,284 $ 39,310
Work in process .............. 5,074 2,754
Raw materials ................ 6,591 3,506
-- --
--------- ----------
$ 52,949 $ 45,570
============ ============
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.
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 2000 - (CONTINUED)
4. COMMON STOCK AND DIVIDENDS
Dividends declared and paid on a per share basis were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---------- --------- ---------- ----------
Dividends declared ..... $ 0.06 $ 0.11 $ 0.12 $ 0.22
Dividends paid ......... 0.06 0.11 0.12 0.22
5. 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. (In thousands, except
per share).
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---------- --------- ------ -----------
Net Income ........................ $4,150 $3,608 $6,832 $5,228
====== ====== ====== ======
Average Common Shares:
BASIC (weighted-average ........ 9,695 9,736 9,695 9,736
outstanding shares)
Dilutive potential common shares
from stock ........................ 59 -- 52 --
options and warrants
------ ------ ------- -----
Diluted (weighted-average ..... 9,754 9,736 9,747 9,736
outstanding shares)
====== ====== ======= =======
Basic earnings per share .......... $ 0.43 $ 0.37 $ 0.71 $ 0.54
====== ====== ======= =======
Diluted earnings per share ........ $ 0.43 $ 0.37 $ 0.71 $ 0.54
====== ====== ====== =======
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 2000 - (CONTINUED)
6. SEGMENT REPORTING
The Company has recently undergone senior management changes and has
subsequently determined that it is managed based on three principal reporting
segments: Agricultural, Industrial and European. At June 30, 2000 the following
unaudited financial information is segmented: (in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- ---------- ------------ ----------
NET REVENUE
Agricultural $ 21,161 $ 20,151 $ 42,755 $ 39,294
Industrial 28,735 19,244 46,569 32,602
European 10,829 11,700 21,367 21,367
--------- ---------- ------------ ----------
Consolidated 60,725 51,095 110,691 93,263
OPERATING INCOME
Agricultural $ 1,744 $ 81 $ 2,562 $ 64
Industrial 3,612 4,269 6,222 6,442
European 1,288 1,836 2,574 2,894
--------- ---------- ------------ ----------
Consolidated 6,644 6,186 11,358 9,400
TOTAL IDENTIFIABLE
ASSETS
Agricultural $ 60,681 $ 68,488 $ 60,681 $ 68,488
Industrial 67,400 40,593 67,400 40,593
European 40,495 42,599 40,495 42,599
--------- ---------- ------------ ----------
Consolidated 168,576 151,680 168,576 151,576
7. NEW ACCOUNTING STANDARDS AND DISCLOSURES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In September
1998, the Financial Accounting Standards Board ("FASB") issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". In
September 1999, the FASB agreed to defer the effective date of Statement No. 133
for one year citing concerns over interpretations of important implementation
issues. The Company will be required to adopt statement No. 133 in the first
quarter of its fiscal year 2001. The management of the Company, because of its
minimal use of derivatives, does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the consolidated
financial position of the Company.
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 2000 - (CONTINUED)
In December 1999, the Securities and Exchange Commission (SEC) staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 summarizes certain SEC staff views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 will be effective for the Company in the first quarter of
fiscal year 2001. The Company is currently evaluating any possible impact of SAB
101 on its financial condition and results of operations.
8. COMPREHENSIVE INCOME
During the second quarter of 2000 and 1999, Comprehensive Income amounted
to $3,262,000 and $2,766,000 and for this six months ended June 30, 2000 and
1999, it was $5,031,000 and $3,149,000 respectively.
The components of COMPREHENSIVE INCOME, net of related tax are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ----------- ---------- ----------
Net Income ................... $ 4,150 $ 3,608 $ 6,832 $ 5,228
Foreign currency translations (888) (842) (1,801) (2,079)
adjustment ................... ------------ ----------- --------- --------
Comprehensive Income ......... $ 3,262 $ 2,766 $ 5,031 $ 3,149
============ =========== ========== ==========
The components of Accumulated Other Comprehensive Income as shown on the Balance
Sheet are as follows (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
------------------------
Foreign currency translation .. $ (2,688) $ (887)
------------------------
Accumulated other comprehensive $ (2,688) $ (887)
income .........................
========================
9. 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 was involved in a lawsuit between Rhino International and
certain of its former dealers. This lawsuit involved claims against Rhino
International totaling $3,800,000 million. In April 1998, a judgment was entered
requiring the Company to pay $110,000, net of its recovery. The Company has
reached a tentative settlement of the claims made in the lawsuit. It is
anticipated that the settlement will be finalized during the third quarter of
2000 and that the terms of the final settlement will be confidential. The
Company believes this matter will not have a material adverse effect on the
Company's consolidated financial position.
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
JUNE 30, 2000 - (CONTINUED)
The Company is subject to numerous environmental laws and regulations
concerning air emissions, discharges into waterways and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
The Company's policy is to comply with all applicable environmental, health and
safety laws and regulations, and the Company believes it is currently in
material compliance with all such applicable laws and regulations. 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 material costs or liabilities will not be incurred by the Company
as a result thereof. The Company has learned that the Indianola, Iowa property
on which its Herschel facility operates is contaminated with chromium. The
contamination likely resulted from chrome-plating operations which were
discontinued several years before the Company purchased the property. The
Company is working with an environmental consultant and the state of Iowa to
develop and implement a plan to remediate the contamination. All present and
future remediation costs have been or will be paid by the previous owner of the
property pursuant to the agreement by which the Company purchased said property.
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 SIX MONTHS ENDED
--------------------- ---------------------
SALES DATAIN JUNE 30, JUNE 30, JUNE 30, JUNE 30,
THOUSANDS 2000 1999 2000 1999
---------- --------- --------- ---------
North American
Agricultural ................. 34.9 % 39.4 % 38.6 % 42.1 %
Industrial ................... 47.3 % 37.7 % 42.1 % 35.0 %
European ....................... 17.8 % 22.9 % 19.3 % 22.9 %
---------- --------- --------- ---------
Total sales, net ............. 100.0 % 100.0 % 100.0 % 100.0 %
========== ========= ========= =========
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
COST TRENDS AND PROFIT MARGIN, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AS 2000 1999 2000 1999
PERCENTAGES OF NET SALES
---------- --------- --------- ---------
Gross margin ................. 25.2 % 26.1% 25.3% 25.1%
Income from operations ....... 10.9 % 12.1% 10.3% 10.1%
Income before income taxes ... 10.2 % 11.1% 9.5% 8.8%
Net income ................... 6.8 % 7.1% 6.2% 5.6%
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
Net sales for the second quarter were $60,725,000, a increase of
$9,630,000 or 18.8% compared to $51,095,000 for the second quarter of 1999. The
increase was primarily attributable to the acquisition of Schwarze Industries,
Inc. which was completed on February 29, 2000.
Net North American Agricultural sales were $21,161,000 in 2000 compared to
$20,151,000 for the same period in 1999, an increase of $1,010,000 or 5.0%.
The increase in sales was primarily due to improved market conditions which
have been impacted by the cyclical declines in the agricultural industry that
began in late 1998. Products showing the most improvement were Rhino branded
mowers and Herschel replacement parts.
Net North American Industrial sales increased for the second quarter by
$9,491,000 or 49.3% to $28,735,000 for 2000 compared to $19,244,000 during
the same period in 1999. The increase was due to the addition of Schwarze
Industries on February 29, 2000 reflecting a full second quarter of sales.
Net European sales for the second quarter of 2000 were $10,829,000, a
decrease of $871,000 or 7.4% compared to $11,700,000 during the second
quarter of 1999. The decrease was a result of weakening U.K. market
conditions during the quarter.
Gross profit for the second quarter of 2000 was $15,316,000 (25.2% of net
sales) compared to $13,345,000 (26.1% of net sales) during the same period of
1999, an increase of $1,971,000. The increase in gross profit is mainly
attributable to the additional sales from Schwarze Industries during the
quarter. The gross margin percentage was slightly lower due to lower margins on
sweeper products.
Selling, general and administrative expenses ("SG&A") were $8,672,000
(13.5% of net sales) during the second quarter of 2000 compared to $7,159,000
(13.4% of net sales) during the same period of 1999 an increase of $1,513,000.
SG&A for the second quarter of 2000 included operating expenses relating to the
addition of Schwarze Industries. Excluding these SG&A costs for 2000 would
reflect comparable SG&A expenses to the second quarter of 1999.
Interest expense was $681,000 for the second quarter of 2000 compared to
$432,000 during the same period in 1999 an increase of 57.6 %. The increase was
attributable to the acquisition of Schwarze Industries.
Income taxes for the quarter ending June 30, 2000 were $2,053,000 (33.1%)
compared to $2,050,000 (36.2%) in the second quarter ending June 30, 1999. The
Company has filed amended tax returns for the years 1996 through 1999 seeking an
estimated refund of approximately $150,000 for tax credits relating to research
and development expenditures in those years.
SIX MONTHS ENDED JUNE 30, 2000 VS. SIX MONTHS ENDED JUNE 30, 1999
Net sales were up 18.7% to $110,691,000 for the first six months of 2000
compared to $93,263,000 for the first six months of 1999. The increase was a
result of the acquisition of Schwarze Industries and increased sales in the
Company's agricultural products.
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
Net North American Agricultural sales were $42,755,000 for the first six
months of 2000 compared to $39,294,000 for the first six months of 1999,
representing an increase of $3,461,000 or 8.8%. The increase in sales was
primarily due to slightly improved market conditions in some of our core
markets, but we continue to be impacted by the cyclical decline in the
overall agriculture industry.
Net North American Industrial sales increased for the first six months of
2000 by $13,967,000 or 42.8% to $46,569,000 compared to $32,602,000 during
the first six months of 1999. The increase was primarily due to reflecting a
full quarter of sales from the purchase of Schwarze Industries on February
29th.
Net European sales for the first six months of 2000 were $21,367,000,
compared to $21,367,000 during the first six months of 1999, reflecting no
change. The negative currency impact of the decline in the Euro and the
French franc against the British pound sterling and U.S. dollar and the
weakening U.K. market conditions during the second quarter contributed to a
flat year to date sales.
Gross profit for the first six months of 2000 was $27,961,000 (25.3% of
net sales) compared to $23,423,000 (25.1% of net sales) during the first six
months of 1999. The increase in gross profit was mainly attributable to the
acquisition of Schwarze Industries and increased agricultural sales as stated
above.
Selling, general and administrative expenses (SG&A) for the first six
months of 2000 were $16,603,000 compared to $14,023,000 in the first six months
of 1999, an increase of $2,580,000 or 17.7%. The acquisition of Schwarze
Industries was the main cause for the increase.
The Company's net income after tax was $6,832,000 for the first six months
of 2000 compared to $5,228,000 for the first six months of 1999, an increase of
$1,604,000 or 30.7% from result of factors described above.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company has on going cash
requirements which are necessary to expand 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 partly
in the third 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 and out of season sales. These sales enhance the
Company's production during the off season. Since the end of 1999, tighter
requirements on inventory purchases as well as just in time inventory procedures
for raw materials have aided in reducing inventory approximately $19,286,000.
During the latter part of 1999, an inventory reduction plan was put in place to
reduce excess and obsolete inventory levels that continued to hamper liquidity.
As of June 30, 2000, the Company had working capital of $88,667,000 which
represents an increase of $8,813,000 from working capital of $79,854,000 as of
December 31, 1999. The increase in working capital was primarily from higher
accounts receivable due to seasonality as well as the acquisition of Schwarze
Industries on February 29, 2000.
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
Capital expenditures were $9,504,000 for the first six months of 2000,
compared to $1,349,000 during the first six months of 1999. The significant
increase is attributable to the purchase of the Company's Bomford manufacturing
facility and adjacent land in the U. K. for approximately $5,300,000 which had
been subject to a long term lease. Also included is approximately $875,000 for
the rebuilding of the offices at the Company's Gibson City facility which was
destroyed in January 1999 by a snowstorm which loss was covered by insurance.
The majority of the remaining balance was used to purchase new equipment for
manufacturing operations. The Company expects to fund expenditures from
operating cash flows or through its revolving credit facility, described below.
The Company has been authorized by its Board of Directors to repurchase up
to 1,000,000 shares of the Company's common stock to be funded through working
capital and credit facility borrowings. In 1997 the Company repurchased 79,840
shares. No shares were repurchased in 1998. In 1999, the Company repurchased
40,600 shares in the third quarter. No shares were repurchased during the first
six months of 2000.
Net cash provided by financing activities was $19,395,000 during the
six-month period ending June 30, 2000 compared to $17,968,000 net cash used by
financing activities for the same period in 1999. The change in activities is
attributable primarily to the acquisition of Schwarze Industries. The Company
has a $45,000,000 contractually committed, unsecured, long-term bank revolving
credit facility under which the Company can borrow and repay until December 31,
2002, with interest at variable rate options based upon prime or libor rates,
with such rates either floating on a daily basis or fixed for periods up to 180
days. Proceeds may be used for general corporate purposes or, subject to certain
limitations, acquisition activities. The loan agreement contains certain
financial covenants which are customary in credit facilities of this nature
including minimum financial ratio requirements and limitations on dividends,
indebtedness, liens and investments. The Company is in compliance with all such
covenants as of June 30, 2000. As of June 30, 2000, $21,000,000 was borrowed
under the revolving credit and, $1,591,000 of the revolver capacity was
committed to irrevocable standby letters of credit issued in the ordinary course
of business as required by certain vendors contracts. The Company's borrowing
levels for working capital are seasonal with the greatest utilization generally
occurring in the first quarter and early spring.
Management believes that 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 for the foreseeable future.
EURO CONVERSION
On January 1, 1999, the European Economic and Monetary Union (EMU) entered
a three-year transition phase during which a new common currency, the "euro,"
was introduced in participating countries which established fixed conversion
rates through the European Central Bank (ECB) between existing local currencies
and the euro. From that date, the euro is traded on currency exchanges.
Following the introduction of the euro, local currencies will remain legal
tender until December 31, 2001. During this transition period, goods and
services may be paid for with the euro or the local currency under the EMU's "no
compulsion, no prohibition" principle. France was a participating country in the
first group to adopt the EMU, which effects the Company's French operations. The
U.K. is currently not a part of the EMU.
Based on its evaluation to date, management believes that the euro will
not have a material adverse impact on the Company's financial position, results
of operations or cash flows. However, uncertainty exists as to the effects the
euro will have on the marketplace, and there is no guarantee that all issues
will be foreseen and corrected or that other third parties will address the
conversion successfully.
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
The Company has reviewed its information systems software and identified
modifications necessary to ensure business transactions can be conducted
consistent with the requirements of the conversion to the euro. Certain of these
modifications have been implemented, and others will be implemented during the
course of the transition period. The Company expects that modifications not yet
implemented will be made on a timely basis and expects the incremental cost of
the euro conversion to be immaterial. Any costs associated with implementing
changes to comply with the euro conversion are expensed as incurred.
The Company anticipates the euro will simplify financial issues related to
cross-border trade in the EMU and reduce the transaction costs and
administrative time necessary to manage this trade and related risks. However,
the Company believes that the associated savings will not be material to
corporate results.
FORWARD-LOOKING INFORMATION
Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 3. "Quantitative and Qualitative Disclosures
About Market Risks" contained in this Quarterly Report on Form 10-Q 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", "believe", "intend"
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 at the present include
continued deterioration in the Company's United States agricultural market and
softening in its international markets; increased competition in the Company's
businesses from competitors that may have greater financial resources; the
impact of the strong dollar and British pound which increase the cost of the
Company's products in foreign markets; competitive implications and price
transparencies related to the euro conversion; the Company's ability to develop
and manufacture new and existing products profitably; market acceptance of
existing and new products; the Company's ability to maintain good relations with
its employees; and the ability to retain and hire quality employees.
In addition, the Company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand; slower growth in the Company's markets; financial market
changes including increases in interests rates and fluctuations in foreign
currency exchange rates; unanticipated problems or costs associated with the
transition of European currencies to the euro currency; actions of competitors;
unanticipated problems or costs associated with accommodations of the Year 2000
in computer applications or products; the inability of the Company's supplier,
customers, creditors, government agencies, public utility providers and
financial service organizations to implement computer applications accommodating
the Year 2000; seasonal factors that could materially affect the Company's
industry; unforeseen litigation; government actions including budget levels,
regulations and legislation, primarily legislation relating to the environment,
commerce, infrastructure spending, health and safety; and availability of
materials.
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
The Company wishes to caution readers not to place undue reliance on any
forward-looking statement 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
potentially could materially affect the Company's financial results may emerge
from time to time. It is not possible for management to predict all risk factors
for 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 markets risks. Market risk is the
potential loss 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
AS A RESULT OF FOREIGN SALES
A portion of the Company's operations consist of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its products in
the United States, U.K. and France. The Company sells its products primarily
within the markets where the products are produced, but certain of the Company's
sales from its U.K. operations are denominated in other European currencies. As
a result, the Company's financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions, in order
to mitigate the short-term effect of changes in currency exchange rates on the
Company's functional currency based sales, the Company regularly hedges by
entering into foreign exchange forward contracts to hedge approximately 80% of
its future net foreign currency receivables covering a period of approximately
six months. As of June 30, 2000, the Company had $1,684,000 in outstanding
forward exchange contracts. However, since these contracts hedge foreign
currency denominated transactions, any change in the market value of the
contracts would be offset by changes in the underlying value of the transaction
being hedged.
AS A RESULT OF FOREIGN TRANSLATION
The Company's earnings and financial position are affected by foreign
currency exchange rate fluctuations related to its wholly-owned subsidiaries in
the U.K. and France as the British pound and French franc are the functional
currencies of these subsidiaries. Changes in the foreign currency exchange rate
between the U.S. dollar and the British pound or French franc can impact the
Company's results of operations and financial position. The impact of a
hypothetical change in the foreign currency exchange rate of 5% between the U.S.
dollar and the British pound or French franc would change the market value to an
approximate range between $500,000 and $2,000,000. Any percentage greater than
5% could not be justified in this hypothetical calculation due to historical
information not supporting a larger percent change. The translation adjustment
during the second quarter of 2000 was a loss of $26,000 which was primarily
caused due to the weakening of the French franc to the British pound. On June
30, 2000, the British pound closed at 0.6591 relative to 1.00 U.S. dollar, and
the French Franc closed at 0.0965 relative to 1.00 British pound. By comparison,
on June 30, 1999, the British pound closed at 0.6340 relative 1.00 U.S. dollar,
and the French franc closed at 0.0997 relative to 1.00 British pound. No
assurance can be given as to future valuation of the British pound or French
franc or how further movements in those currencies could affect future earnings
or the financial position of the Company.
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
INTEREST RATE RISK
At June 30, 2000, 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 in the second quarter 2000 average interest rate under
these borrowings, the Company's interest expense would have changed by
approximately $60,000. 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.
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
None
ALAMO GROUP INC. AND SUBSIDIARIES
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)
/S/____________________________
Ronald A. Robinson
President and CEO
Principal Accounting Officer
