-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IJUxlzUHbUhwwLbBmTxlpPVrfB9CQZ/VMc8lt8c+qmh6ldEX/izZh+wJWLiYFgLb 0mvK/haCZko5xBHabQqISA== 0000897077-00-000004.txt : 20000516 0000897077-00-000004.hdr.sgml : 20000516 ACCESSION NUMBER: 0000897077-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALAMO GROUP INC CENTRAL INDEX KEY: 0000897077 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 741621248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13854 FILM NUMBER: 636157 BUSINESS ADDRESS: STREET 1: 1502 E WALNUT CITY: SEGUIN STATE: TX ZIP: 78155 BUSINESS PHONE: 8303791480 MAIL ADDRESS: STREET 1: P.O. BOX 549 STREET 2: 1502 EAST WALNUT CITY: SEGUIN STATE: TX ZIP: 78155 10-Q 1 ART.5 FDS FOR 1ST QUARTER 10-Q - -------------------------------------------------------------------------------- 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 MARCH 31, 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 MAY 1, 2000, 9,695,209 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE REGISTRANT WERE OUTSTANDING. =============================================================================== =============================================================================== ALAMO GROUP INC. AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Interim Condensed Consolidated Statements of Income - 3 Three months ended March 31, 2000 and March 31, 1999 Interim Condensed Consolidated Balance Sheets - 4 March 31, 2000 and December 31, 1999 (Audited) Interim Condensed Consolidated Statements of Cash Flows - 5 Three months ended March 31, 2000 and March 31, 1999 Notes to Interim Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risks 14 PART II. OTHER INFORMATION 16 Item 1. None Item 2. None Item 3. None Item 4. None Item 5. None Item 6. Exhibits and Reports on Form 8-K SIGNATURES 17 ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ALAMO GROUP INC. AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) THREE MONTHS ENDED ----------------------------------- MARCH 31, MARCH 31, 2000 1999 ----------------- ---------------- Net sales: North American Agricultural........................$ 21,594 $ 19,143 Industrial........................ 17,834 13,358 European............................. . 10,538 9,667 ----------------- -------------- Total net sales......................... 49,966 42,168 Cost of sales........................... 37,321 32,090 ----------------- -------------- Gross profit......................... 12,645 10,078 Selling, general and administrative expense .............................. 7,931 6,864 ----------------- -------------- Income from operations.............. 4,714 3,214 Interest expense....................... (360) (658) Interest income ....................... 190 102 Other income (expense),net............ (194) (132) ----------------- -------------- Income before income taxes ......... 4,350 2,526 Provision for income taxes............ 1,668 906 Net income ......................... $ 2,682 $ 1,620 ================ ================ Net income per common share: Basic.....................................$ 0.28 $ 0.17 =================== ================ Diluted...................................$ 0.28 $ 0.17 =================== ================ Average common shares: Basic................................... 9,695 9,736 =================== ================ Diluted................................. 9,752 9,752 =================== ================ Dividends declared..................... $ 0.06 $ 0.11 See accompanying notes. ALAMO GROUP INC. AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) MARCH 31, DECEMBER 31, 2000 1999 (UNAUDITED) (AUDITED) ----------------- ---------------- ASSETS Current assets: Cash and cash equivalents ....... $ 4,157 $ 5,359 Accounts receivable ............. 61,475 41,764 Inventories...................... 53,241 45,570 Deferred income taxes ........... 4,309 4,193 Prepaid expenses and others...... 3,824 1,008 ----------------- --------------- Total current assets........ 127,006 97,894 Property, plant and equipment........ 57,093 54,161 Less: Accumulated depreciation... (32,929) (32,343) ----------------- ---------------- 24,164 21,818 Goodwill............................. 14,190 9,937 Other assets......................... 3,640 3,146 ----------------- ---------------- Total assets................ $ 169,000 $ 132,795 ================= ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable............ 16,380 8,514 Income taxes payable.............. 2,470 1,080 Accrued liabilities............... 9,885 7,920 Current maturities of long-term debt........................... 521 526 ----------------- ----------------- Total current liabilities... 29,256 18,040 Long-term debt, net of current maturities........................ 29,235 5,469 Deferred income taxes................ 1,262 1,256 Stockholders' equity: Common stock, $.10 par value, 20,000,000 shares authorized; 9,735,809 issued at March 31, 2000 and December 31, 1999........ 974 974 Additional paid-in capital............ 50,775 50,775 Treasury stock, at cost; 40,600 shares................................. (400) (400) Retained earnings........................ 59,698 57,568 Accumulated other comprehensive income... (1,800) (887) -------------- ---------------- Total stockholders' equity..... 109,247 108,030 -------------- ---------------- Total liabilities and stockholders' equity........... $ 169,000 $ 132,795 ============ ================ See accompanying notes. ALAMO GROUP INC. AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED ---------------------------------------- MARCH 31, MARCH 31, 2000 1999 ------------------ ------------------ OPERATING ACTIVITIES Net income............................ $ 2,682 $ 1,620 Adjustment to reconcile net income to net cash provided (used) by operating activities: Provision for doubtful accounts.... 37 115 Depreciation....................... 990 1,012 Amortization....................... 336 276 Provision for deferred income tax benefit....................... 255 3 (Gain) on sale of equipment........ (42) (59) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable.................. (17,301) (10,930) Inventories.......................... (287) 1,022 Prepaid expenses and other assets.... 517 231 Trade accounts payable and accrued liabilities.......................... 4,941 3,724 Income taxes payable................. 1,118 801 --------------- --------------- Net cash provided (used) by operating activities.............................. (6,684) (2,185) INVESTING ACTIVITIES Acquisitions, net of cash acquire........ (15,000) - Purchase of property, plant and equipment............................... (2,260) (457) Proceeds from sale of property, plant and equipment..................... 67 82 Purchase of long-term investment (500) - ----------------- ---------------- Net cash provided (used) by investing activities................... (17,693) (375) FINANCING ACTIVITIES Net change in bank revolving credit facility......................... 24,000 2,100 Principal payments on long-term debt and capital leases................. (120) (115) Dividends paid.......................... (582) (1,071) ---------------- ---------------- Net cash provided (used) by financing activities..................... 23,298 914 Effect of exchange rate changes on cash.. (123) (91) ---------------- ---------------- Net change in cash and cash equivalents.. (1,202) (1,737) Cash and cash equivalents at beginning of the period............................ 5,359 2,748 --------------- --------------- Cash and cash equivalents at end of the period........................... $ 4,157 $ 1,011 ================= ================ Cash paid during the period for: Interest......................... $ 34 $ 720 Income taxes.................... 8 (51) See accompanying notes. ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) MARCH 31, 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 during 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 showed less allowance for doubtful accounts are $1,465,000 and $1,231,000 at March 31, 2000 and December 31, 1999, respectively. 3. ACQUISITIONS AND INVESTMENTS On February 29, 2000, the Company acquired all the shares of Schwarze Industries Inc. ("Schwarze"), an Alabama corporation. In connection with the acquisition of Schwarze for a purchase price of approximately $15,000,000, the Company acquired assets with an approximate value of $13,650,000 and assumed liabilities of approximately $4,521,000. Purchase accounting is preliminary based on final review of fair value of assets acquired and liabilities assumed. Schwarze is a manufacturer of sweeping equipment which is sold to governmental and contractor users. The pro forma statement of the Company assuming the transaction was completed at January 1, 1999, is listed in the following table (in thousands): THREE MONTHS ENDED ----------------------------------- MARCH 31, MARCH 31, 2000 1999 ---------------- ------------------ Net sales...................... $ 56,639 $ 51,525 Net income..................... 2,782 1,778 Net income per share, diluted.. $ 0.28 $ 0.18 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) MARCH 31, 2000 - (CONTINUED) 4. INVENTORIES Inventories valued at LIFO cost represented 84% and 82% of total inventory at each of March 31, 2000 and December 31, 1999, respectively. The excess of current costs over LIFO valued inventories were $3,925,000 at March 31, 2000 and at December 31, 1999, respectively. Inventory obsolescence reserves were $5,446,000 at March 31, 2000 and $5,216,000 at December 31, 1999. Net inventories consist of the following (in thousands): MARCH 31, DECEMBER 31, 2000 1999 ---------------- ----------------- Finished goods..................... $ 46,066 $ 39,310 Work in process.................... 3,937 2,754 Raw materials..................... 3,238 3,506 ------------- ----------------- $ 53,241 $ 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 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. 5. COMMON STOCK AND DIVIDENDS Dividends declared and paid on a per share basis were as follows: THREE MONTHS ENDED ---------------------------------- MARCH 31, MARCH 31, 2000 1999 -------------- ---------------- Dividends declared.................... $ 0.06 $ 0.11 Dividends paid........................ $ 0.06 $ 0.11 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) MARCH 31, 2000 - (CONTINUED) 6. 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 --------------------------------- MARCH 31, MARCH 31, 2000 1999 ---------------- --------------- Net Income................................. $ 2,682 $ 1,620 =============== =============== Average Common Shares: BASIC (weighted-average outstanding shares)................................ 9,695 9,736 Dilutive potential common shares from stock options and warrants............. 57 - --------------- --------------- DILUTED (weighted-average outstanding shares)................................. 9,752 9,736 =============== =============== Basic earnings per share.................. $ 0.28 $ 0.17 =============== =============== Diluted earnings per share................. $ 0.28 $ 0.17 =============== =============== 7. PENDING ACCOUNTING STANDARDS AND DISCLOSURES In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133. "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. 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. In December 1999, SEC Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," was issued. This pronouncement summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition. The guidance provided by SAB 101 is required to be adopted by the Company no later than the second quarter of 2000. The Company is currently of SAB 101 and assessing its impact on the Company's financial statements, if any. ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) MARCH 31, 2000 - (CONTINUED) 8. COMPREHENSIVE INCOME During the first quarter of 2000 and 1999, Comprehensive Income amounted to $1,769,000 and $383,000, respectively. The components of COMPREHENSIVE INCOME, are as follows (in thousands): THREE MONTHS ENDED ---------------------------------- MARCH 31, MARCH 31, 2000 1999 ----------------- --------------- Net income............................... $ 2,682 $ 1,620 Unrealized gains on securities........... - - Foreign currency translation adjustments.. (913) (1,237) ------------------ --------------- Comprehensive income...................... $ 1,769 $ 383 ================== =============== The components of ACCUMULATED OTHER COMPREHENSIVE INCOME are as follows (in thousands): MARCH 31, DECEMBER 31, 2000 1999 ----------------- --------------- Foreign currency translation adjustments.............................. $ (1,800) $ (887) ----------------- --------------- Accumulated other comprehensive income.................................. $ (1,800) $ (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 $3.8 million. In April 1998, 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. ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED) MARCH 31, 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 ------------------------------------ (SALES, AS PERCENT OF NET SALES) MARCH 31, MARCH 31, 2000 1999 ------------------ ---------------- Domestic Agricultural....................... 43.2 % 45.4 % Industrial......................... 35.7 % 31.7 % European............................... 21.1 % 22.9 % ------------------ ---------------- Total sales, net..................... 100.0 % 100.0 % THREE MONTHS ENDED ------------------------------------ (COST TRENDS AND PROFIT MARGIN, MARCH 31, MARCH 31, AS PERCENTAGES OF NET SALES 2000 1999 --------------- --------------- Gross margin............................. 25.3 % 23.9 % Income from operations................... 9.4 % 7.6 % IncomE before income taxes............... 8.7 % 6.0 % Net income............................... 5.4 % 3.8 % RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 The Company's net sales for the first quarter of 2000 were $49,966,000 an increase of $7,798,000 or 18.5% compared to $42,168,000 for the first quarter of 1999. The increase was primarily attributable to the improved agricultural market which began late in 1999. Also net sales includes one month of sweeper sales from Schwarze Industries which was acquired on February 29, 2000. North American Agricultural sales (Net) were $21,594,000 in the first quarter of 2000 compared to $19,143,000 for the first quarter of 1999, an increase of $2,451,000 or 12.8%. The Company began to see market improvement in late 1999 with increased new orders. Higher cattle prices which support increased agricultural market sales improved as well as higher rainfall in its core markets which had experienced drought conditions. North American Industrial sales (Net) were $17,834,000 in the first quarter of 2000 compared to $13,358,000 in the first quarter of 1999, an increase of $4,476,000 or 33%. Higher backlogs from the end of 1999 resulting from higher state governmental spending as well as increased rainfall in its major markets supported increased industrial sales. Also included was sweeper sales for the first quarter of 2000. Schwarze Industries which produces the street sweepers was acquired on February 29, 2000. European sales (Net) were $10,538,000 in the first quarter of 2000 compared to $9,667,000 in the first quarter of 1999, an increase of $877,000 or 9.0%. Sales momentum continued to remain positive following the fourth quarter of 1999 as European markets remain strong and the U.K. market continued to stabilize. Gross margin for the first quarter of 2000 was $12,645,000 (25.3% of net sales) compared to $10,278,000 (23.9% of net sales) for the first quarter of 1999. Margins were up due higher sales for the quarter as mentioned above with margin percentages improving due to stronger product sales in the higher margin wholegoods and OEM parts business. Selling, general and administration expenses (SG&A) for the first quarter of 2000 were $7,931,000 (15.9% of net sales) compared to $6,864,000 (16.3% of net sales) during the same period of 1999. The increase in SG&A expenses of $1,067,000 was primarily attributable to SG&A expenses relating to Schwarze Industries which was acquired during the first quarter of 2000. Interest expense for first quarter of 2000 was $360,000 compared to $658,000 for the first quarter of 1999, a decrease of $298,000 or 45.3%. Lower debt levels during the first quarter of 2000 was the primary contributor of reduced interest expense. The bank revolving credit facility was zero at the end of 1999 with a significant increase during the first quarter of 2000 from the acquisition of Schwarze Industries on February 29, 2000. The Company's net income after tax was $2,682,000 for the first quarter of 2000 compared to $1,620,000 for the first quarter of 1999 an increase of $1,062,000 or 65.6% from result of factors described above. ALAMO GROUP INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities was $6,684,000 for the three month period ended March 31, 2000, compared to $2,185,000 for the same period in 1999, a increase of $4,499,000. The increase was primarily attributable to increases in accounts receivable reflecting normal seasonal levels. The Company's working capital requirements are seasonal with investments in working capital typically building during the first half of the year and then declining in the second half of the year. The Company had $97,750,000 of working capital, as of March 31, 2000, an increase of $17,896,000 over working capital of $79,854,000 as of December 31, 1999. The increase in working capital was primarily due to higher accounts receivable, particularly in U.S. operations, reflecting the impact of normal seasonal fluctuation and the acquisition of Schwarze Industries. Capital expenditures were $2,260,000 for the first quarter of 2000, compared to $457,000 during the first quarter of 1999. Capital expenditures for the year of 1999 are expected to be approximately $12,000,000. The significant increase is attributable to several items, the largest one being the proposed purchase of the Company's Bomford manufacturing facility and adjacent land in the U.K. which is currently leased on a long-term basis. The purchase price is approximately $5,300,000 and the transaction is expected to be complete by mid 2000. Other major components of the increase are related to improvements at the Company's Seguin and Holton plants to improve their overall efficiency and increase capacity to take on production being transferred as a result of the closure of the Company's LaGrange facility. And, approximately $900,000 of the increase is a result of rebuilding the office building at the Company's Gibson City plant which was destroyed in January 1999 by a snowstorm. This cost has been recovered from the Company's insurance provider. The Company expects to fund such expenditures from operating cash flows or through its revolving credit facility, described below. The Company was authorized by its Board of Directors in 1997 to repurchase up to 1,000,000 shares of the Company's common stock to be funded through working capital and credit facility borrowings. 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. Net cash provided by financing activities was $23,298,000 during the first quarter of 2000 compared to $914,000 for the same period in 1999. The increase primarily came from borrowings on the bank revolving credit facility used to acquire Schwarze Industries, effective February 29, 2000 for approximately $15,000,000. As of March 31, 2000, 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 various rate options based upon Prime or Eurodollar 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 some limitations, acquisitions. The loan agreement contains certain financial covenants, 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 covenants at March 31, 2000. As of March 31, 2000, $24,000,000 had been borrowed under the revolving credit facility at various interest rate options, with an average effective rate of 7.04%. At March 31, 2000, $1,786,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by certain vendor contracts. The Company's borrowing levels for working capital are seasonal with the greatest utilization generally occurring in the first quarter and early spring. ALAMO GROUP INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. IMPACT OF YEAR 2000 In 1998, the Company discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result of this planning and implementation effort, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $70,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. 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 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 introduction of 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. 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 euro introduction did not have a material impact on the Company's overall currency risk. 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", "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 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 the inability of the Company's suppliers, customers, creditors, government agencies, public utility providers; seasonal factors in 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to various market 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. ALAMO GROUP INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 the other 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 sales over a period of six months. As of March 31, 2000, the Company had no 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 first quarter of 2000 was a loss of $913,000, which was primarily caused due to the weakening of the British pound to the U.S. dollar. On March 31, 2000, the British pound closed at 0.6284 relative to 1.00 U.S. dollar, and the French franc closed at 0.0914 relative to 1.00 British pound. By comparison, on March 31, 1999, the British pound closed at 0.6204 relative to 1.00 U.S. dollar, and the French franc closed at 0.1020 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 March 31, 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 first quarter of 2000 average interest rate under these borrowings, the Company's interest expense would have changed by approximately $150,000. 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 1. None Item 2. None Item 3. None Item 4. None Item 5. None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K Form 8-K dated March 15, 2000, Reporting Item 2 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 and Financial Officer) EX-27 2 ART.5 FDS FOR 1ST QUARTER 10-Q
5 1000 3-MOS Dec-31-2000 Mar-31-2000 4,157 0 61,475 0 53,241 127,006 57,093 32,929 169,000 29,256 0 0 0 974 108,273 169,000 49,966 49,966 37,321 37,321 7,931 0 170 4,350 1,668 2,682 0 0 0 2,682 .28 .28
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