-------------------------------------------------------------------------------
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, 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 NOVEMBER 1, 2000, 9,703,659 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE
REGISTRANT WERE OUTSTANDING.
================================================================================
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 Nine months ended September 30, 2000 and
September 30,
1999
Interim Condensed Consolidated Balance Sheets - 4
September 30, 2000 and December 31, 1999
(Audited)
Interim Condensed Consolidated Statements of Cash Flows 5
Nine months ended September 30, 2000 and September 30,
1999
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks 14
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
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
---------------------- ------------------------
September September September September
30, 2000 30, 1999 30, 2000 30,1999
--------- --------- ----------- -----------
Net sales:
North American
Agricultural ........... $ 18,398 $ 18,889 $ 61,153 $ 58,183
Industrial ............. 26,935 13,514 73,504 46,116
European ................ 10,320 11,533 31,687 32,900
--------- --------- --------- ---------
Total net sales ............ 55,653 43,936 166,344 137,199
Cost of sales .............. 40,957 35,668 123,687 105,508
--------- --------- --------- ---------
Gross profit ............... 14,696 8,268 42,657 31,691
Selling, general and 9,049 7,867 25,652 21,890
administrative expense .. --------- --------- --------- ---------
Income from operations .. 5,647 401 17,005 9,801
Interest expense ........... (487) (265) (1,528) (1,355)
Interest income ............ 162 187 561 394
Other income (expense), net. (53) (258) (216) (591)
--------- --------- --------- ---------
Income before income
taxes................. 5,269 65 15,822 8,249
Provision for income taxes ... 1,601 (66) 5,322 2,890
--------- --------- --------- ---------
Net Income .............. $ 3,668 $ 131 $ 10,500 $ 5,359
========= ========= ========= =========
Net income per common share:
Basic ................... $ 0.38 $ 0.01 $ 1.08 $ 0.55
========= ========= ========= =========
Diluted ................. $ 0.38 $ 0.01 $ 1.08 $ 0.55
========= ========= ========= =========
Average common shares:
Basic ................... 9,699 9,736 9,696 9,736
========= ========= ========= =========
Diluted ................. 9,769 9,743 9,755 9,738
========= ========= ========= =========
Dividends declared ......... $ 0.06 $ 0.06 $ 0.18 $ 0.28
========= ========= ========= =========
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
September December
30, 2000 31, 1999
(Unaudited) (Audited)
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 4,118 $ 5,359
Accounts receivable ...................... 48,263 41,764
Inventories .............................. 54,428 45,570
Deferred income taxes .................... 4,335 4,193
Prepaid expenses ......................... 1,301 1,008
--------- ---------
Total current assets ................... 112,445 97,894
Property, plant and equipment ............. 62,320 54,161
Less: Accumulated depreciation ........ (35,935) (32,343)
--------- ---------
26,385 21,818
Goodwill .................................. 16,333 9,937
Other assets .............................. 4,119 3,146
--------- ---------
Total assets .......................... $ 159,282 $ 132,795
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................... 13,611 8,514
Income taxes payable ..................... 1,723 1,080
Accrued liabilities ...................... 10,219 7,920
Current maturities of long-term debt ..... 1,477 526
--------- ---------
Total current liabilities .............. 27,030 18,040
Long-term debt, net of current maturities . 17,119 5,469
Deferred income taxes ..................... 1,325 1,256
Stockholders' equity:
Common stock, $.10 par value, 20,000,000
shares authorized; 9,744,559 and 9,735,809
issued and outstanding at September 30, 2000
and December 31, 1999, respectively .......... 974 974
Additional paid-in capital ................... 50,938 50,775
Treasury stock, at cost; 40,600 shares at
September 30, 2000 ........................... (400) (400)
Retained earnings ............................ 66,323 57,568
Accumulated other comprehensive income ....... (4,027) (887)
--------- ---------
Total stockholders' equity ............. 113,808 108,030
--------- ---------
Total liabilities and stockholders' equity $ 159,282 $ 132,795
========= =========
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
------------------------
September September
30, 2000 30, 1999
----------- ----------
Operating Activities
Net income ............................................ $ 10,500 $ 5,359
Adjustment to reconcile net income to net cash
provided (used) by operating activities:
Provision for doubtful accounts ............... 279 219
Depreciation .................................. 3,242 2,990
Amortization .................................. 1,182 898
Provision for deferred income tax benefit ..... 283 (4)
(Gain) on sale of equipment ................... (181) (219)
Changes in operating assets and liabilities:
Accounts receivable ........................... (5,172) 7,667
Inventories ................................... (1,609) 15,418
Prepaid expenses and other assets ............. 343 1,149
Trade accounts payable and accrued liabilities . 2,853 3,777
Income taxes payable ........................... 554 1,025
-------- --------
Net cash provided (used) by operating activities ...... 12,274 38,279
Investing Activities
Acquisitions, net of cash acquired .................... (15,367) --
Purchase of property, plant and equipment ............. (11,023) (1,914)
Proceeds from sale of property, plant and equipment ... 458 216
Purchase of long-term investment ...................... (500) (500)
-------- -------
Net cash (used) by investing activities ............... (26,432) (2,198)
Financing Activities
Net change in bank revolving credit facility .......... 15,500 (29,600)
Principal payments on long-term debt and capital
leases............................................... (544) (340)
Dividends paid ........................................ (1,745) (2,726)
Proceeds from sale of common stock .................... 164 --
Cost of common stock repurchased ...................... -- (400)
-------- -------
Net cash provided (used) by financing activities ...... 13,375 (33,066)
Effect of exchange rate changes on cash ............... (458) 126
-------- -------
Net change in cash and cash equivalents ............... (1,241) 3,141
Cash and cash equivalents at beginning of the period .. 5,359 2,748
-------- --------
Cash and cash equivalents at end of the period ......... $ 4,118 $ 5,889
======== ========
Cash paid during the period for:
Interest ......................................... $ 1,203 $ 1,584
Income taxes .................................... $ 4,736 $ 1,841
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 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
$1,160,000 and $1,149,000 at September 30, 2000 and December 31, 1999,
respectively.
3. Inventories
Inventories valued at LIFO cost represented 84% and 82% of total
inventory at September 30, 2000 and December 31, 1999, respectively. The excess
of current costs over LIFO valued inventories were $3,925,000 at September 30,
2000 and December 31, 1999. Inventory obsolescence reserves were $4,516,000 at
September 30, 2000 and $5,216,000 at December 31, 1999. Net inventories consist
of the following (in thousands):
September December
30, 2000 31, 999
------------- -------------
Finished goods ........................ $ 42,845 $ 39,310
Work in process ....................... 5,283 2,754
Raw materials ......................... 6,300 3,506
------------ -------------
$ 54,428 $ 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)
September 30, 2000 - (Continued)
4. Common Stock and Dividends
Dividends declared and paid on a per share basis were as follows:
Three Months Ended Nine Months Ended
------------------------- -------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ----------- ------------ ----------
Dividends declared ...... $ 0.06 $ 0.06 $ 0.18 $ 0.28
Dividends paid .......... 0.06 0.06 0.18 0.28
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 Nine Months Ended
--------------------- -------------------
September September September September
30, 2000 30, 1999 30,2000 30, 1999
---------- -------- -------- --------
Net Income ........................ $ 3,668 $ 131 $ 10,500 $ 5,359
======== ======== ======== ========
Average Common Shares:
Basic (weighted-average
outstanding shares).............. 9,699 9,736 9,696 9,736
Dilutive potential common
shares from stock options
and warrants .................. 70 7 59 2
--------- --------- ------- --------
Diluted (weighted-average
outstanding shares)........... 9,769 9,743 9,755 9,738
========= ========= ======= ========
Basic earnings per share ............ $ 0.38 $ 0.01 $ 1.08 $ 0.55
========= ======== ======== =======
Diluted earnings per share .......... $ 0.38 $ 0.01 $ 1.08 $ 0.55
========= ======== ======== =======
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 2000 - (Continued)
6. Segment Reporting
The Company has recently undergone senior management changes and has determined
that the three principal reporting segments are: Agricultural, Industrial and
European. At September 30, 2000 the following unaudited financial information is
segmented: (in thousands)
Three Months Ended Nine Months Ended
--------------------- -----------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
--------- ---------- --------- ----------
Net Revenue
Agricultural ....... $ 18,398 $ 18,889 $ 61,153 $ 58,183
Industrial ......... 26,935 13,514 73,504 46,116
European ........... 10,320 11,533 31,687 32,900
--------- --------- --------- ---------
Consolidated ............ 55,653 43,936 166,344 137,199
Operating Income
Agricultural ....... $ 1,109 $ (3,561) $ 3,672 $ (3,517)
Industrial ......... 2,812 2,026 9,033 8,486
European ........... 1,726 1,936 4,300 4,832
--------- --------- --------- ---------
Consolidated ............ 5,647 401 17,005 9,801
Total Identifiable Assets
Agricultural ....... $ 57,997 $ 56,550 $ 57,997 $ 56,550
Industrial ......... 62,007 35,970 62,007 35,970
European ........... 39,278 44,820 39,278 44,820
--------- --------- --------- ---------
Consolidated ............ 159,282 137,340 159,282 137,340
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 until the first quarter of 2001, citing concerns
over interpretations on important implementation issues. 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.
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 fourth quarter of fiscal year
2000. The Company is currently evaluating any possible impact of SAB 101 on its
financial condition and results of operations.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 30, 2000 - (Continued)
8. Comprehensive Income
During the third quarter of 2000 and 1999, Comprehensive Income
amounted to $2,329,000 and $1,280,000 and for the nine months ended September
30, 2000 and 1999, it was $7,360,000 and $4,429,000 respectively.
The components of Comprehensive Income, net of related tax are as follows (in
thousands):
Three Months Ended Nine Months Ended
---------------------- ------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
---------- ---------- ----------- -----------
Net Income .............. $ 3,668 $ 131 $ 10,500 $ 5,359
Foreign currency
translation............... (1,339) 1,149 (3,140) (930)
--------- --------- --------- ---------
Comprehensive Income .... $ 2,329 $ 1,280 $ 7,360 $ 4,429
========= ========= ========= =========
The components of Accumulated Other Comprehensive Income as shown on the Balance
Sheet are as follows (in thousands):
September December
30, 2000 31, 1999
--------- ------------
Foreign currency translation ......... $(4,027) $ (887)
-------- ---------
Accumulated other comprehensive income $(4,027) $ (887)
======== =========
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. In April 1998, a judgment was entered
requiring the Company to pay $110,000, net of its recovery. A settlement of the
lawsuit was finalized during the third quarter of 2000.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
September 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 learned and reported in its 1999 annual report
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 Nine Months Ended
----------------------- ---------------------
Sales Data September September September September
In Thousands 30, 2000 30, 1999 30, 2000 30, 1999
---------- -------- -------- ---------
North American
Agricultural ... 33.1 % 43.0 % 36.8 % 42.4 %
Industrial ..... 48.4 % 30.8 % 44.2 % 33.6 %
European .......... 18.5 % 26.2 % 19.0 % 24.0 %
------- ------- -------- -------
Total sales, net 100.0 % 100.0 % 100.0 % 100.0 %
======== ======= ======== ========
Three Months Ended Nine Months Ended
------------------------ --------------------------
Cost Trends and Profit September September September September
Margin, as Percentages 30, 2000 30, 1999 30, 2000 30, 1999
of Net Sales -------- ----------- ----------- -----------
Gross margin ............. 26.4 % 18.8 % 25.6 % 23.1 %
Income from operations ... 10.1 % 0.9 % 10.2 % 7.1 %
Income before income taxes 9.5 % 1.0 % 9.5 % 6.0 %
Net income ............... 6.6 % 3.0 % 6.3 % 3.9 %
Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended September 30, 2000 vs. Three Months Ended September 30, 1999
Net sales for the third quarter of 2000 were $55,653,000, a increase of
$11,717,000 or 26.7% compared to $43,936,000 for the third 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 $18,398,000 in 2000 compared
to $18,889,000 for the same period in 1999, a decrease of $491,000 or 2.6%.
The decrease in sales was primarily due to a weakness in market conditions
which continued to be impacted by the decline in the agricultural industry
that began in late 1999. The market for crop production and harvesting
products are expected to continue to be soft.
Net North American Industrial sales increased for the third quarter by
$13,421,000 or 99.3% to $26,935,000 for 2000 compared to $13,514,000 during
the same period in 1999. The increase was mainly due to the addition of
Schwarze Industries.
Net European sales for the third quarter of 2000 were $10,320,000 a
decrease of $1,213,000 or 10.5% compared to $11,533,000 during the third
quarter of 1999. The decrease was a result of the continued negative impact
by the strength of the U.K. pound against the euro dollar and continued
weakening of the U.K. agricultural market.
Gross profit for the third quarter of 2000 was $14,696,000 (26.4% of
net sales) compared to $8,268,000 (18.8% of net sales) during the same period of
1999, an increase of $6,428,000. The increase in gross profit is mainly
attributable to the additional sales from Schwarze Industries during the
quarter. In the third quarter of 1999 the Company changed its inventory policy
which resulted in increasing the obsolete and excess inventory reserve, and as a
result the Company took a $3,200,000 charge against cost of sales in the third
quarter of 1999.
Selling, general and administrative expenses ("SG&A") were $9,049,000
(16.3% of net sales) during the third quarter of 2000 compared to $7,867,000
(17.9% of net sales) during the same period of 1999 an increase of $1,182,000.
SG&A for the third quarter of 2000 include operating expenses relating to the
addition of Schwarze Industries. Excluding these costs for 2000 SG&A would
reflect comparable SG&A expenses to the third quarter of 1999.
Interest expense was $487,000 for the third quarter of 2000 compared to
$265,000 during the same period in 1999 an increase of 83.8%. The increase was
attributable to increased debt levels required to finance the acquisition of
Schwarze Industries.
The Company's net income after tax was $3,668,000 for the third quarter
of 2000 compared to $131,000 for the third quarter of 1999, an increase of
$3,537,000 resulting from factors described above.
Nine Months Ended September 30, 2000 vs. Nine Months Ended September 30, 1999
Net sales for the nine months ended in 2000 were $166,344,000, an
increase of $29,145,000 or 21.2% compared to $137,199,000 during the same period
in 1999. The increase was primarily attributable to the acquisition of Schwarze
Industries, Inc. which was completed on February 29, 2000.
Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations - (Continued)
Net North American Agricultural sales were $61,153,000 in 2000
compared to $58,183,000 for the period in 1999, an increase of $2,970,000
or 5.1%. 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 for the first nine months of 2000
were $73,504,00 compared to $46,116,000 during the first nine months of
1999 an increase of $27,388,000 or 59.4%. The increase was primarily due to
seven months of sales relating to the acquisition of Schwarze Industries.
Net European sales for the first nine months of 2000 were
$31,687,000, compared to $32,900,000 during the first nine months of 1999, a
decrease of $1,213,000 or 3.7%. Sales were negatively impacted by 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 first
nine months.
Gross profit for the first nine months of 2000 was $42,657,000 (25.6%
of net sales) compared to $31,691,000 (23.1% of net sales) for the first nine
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 nine
months of 2000 were $25,652,000 compared to $21,890,000 for the first nine
months of 1999, an increase of $3,762,000 or 17.2%. The acquisition of Schwarze
Industries was the main cause for the increase.
The Company's net income after tax was $10,500,000 for the first nine
months of 2000 compared to $5,359,000 for the first nine months of 1999, an
increase of $5,141,000 or 95.9% reflecting the 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 in the
fourth quarter in anticipation of the spring and fall selling seasons. Accounts
Receivable historically build in the first and fourth quarters of each year as a
result of fall preseason sales programs and out of season sales. These sales
enhance the Company's production ability during the off season. During the third
quarter of 1999, an inventory reduction plan was put in place to reduce excess
and obsolete inventory levels that continued to hamper liquidity.
As of September 30, 2000, the Company had working capital of
$85,415,000 which represents an increase of $5,561,000 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.
Capital expenditures were $11,023,000 for the first nine months of
2000, compared to $1,914,000 during the first nine 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.
Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations - (Continued)
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 nine months of 2000.
Net cash provided by financing activities was $13,375,000 during the
nine month period ending September 30, 2000, compared to $33,066,000 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 September 30, 2000. As of September 30, 2000,
$15,500,000 was borrowed under the revolving credit and $1,522,000 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 and second quarter.
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
conversion 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.
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.
Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations - (Continued)
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 North American 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 affect 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.
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
or to assess the impact of such risk factors on the Company's businesses.
Alamo Group Inc. and Subsidiaries
Quantitative and Qualitative Disclosures About Market Risks
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, Australia, 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 September 30, 2000, the Company had
$2,315,000 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, Euro 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, Euro 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 September 30, 2000, the British pound closed at 0.6781 relative to 1.00 U.S.
dollar, and the French Franc closed at 0.0910 relative to 1.00 British pound. By
comparison, on September 30, 1999, the British pound closed at 0.6071 relative
1.00 U.S. dollar, and the French franc closed at 0.0986 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.
Interest Rate Risk
At September 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 third quarter 2000 average interest rate
under these borrowings, the Company's interest expense would have changed by
approximately $75,000. 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
