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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-21220
ALAMO GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1621248
(State of incorporation) (I.R.S. Employer Identification Number)
1502 E. Walnut, Seguin, Texas 78155
(Address of principal executive offices)
(830) 379-1480
(Telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
Yes X No
--- ---
At April 30, 1998, 9,684,874 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 -
Three months ended March 31, 1998 and March 31, 1997 3
Interim Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4
Interim Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and March 31, 1997 5
Notes to Interim Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
-------------------------------
March 31,1998 March 31, 1997
------------- --------------
Net sales ........................ $48,727 $51,643
Cost of sales..................... 37,379 38,907
------------- --------------
Gross profit.................... 11,348 12,736
Selling, general and administrative
expense .......................... 7,397 7,141
------------- --------------
Income from operations ........ 3,951 5,595
Interest expense ................. (712) (531)
Interest income .................. 174 131
Other income expense (net) ....... (229) 6
------------- --------------
Income before income taxes ..... 3,184 5,201
Provision for income taxes ....... 1,258 1,923
------------- --------------
Net income ...................... $1,926 $3,278
============= ==============
Net income per common share:
Basic ........................... $0.20 $0.34
============= ==============
Diluted ......................... $0.20 $0.34
============= ==============
Average common shares:
Basic ........................... 9,685 9,590
============= ==============
Diluted ........................ 9,715 9,647
============= ==============
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Interim Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
March 31, December 31,
1998 1997
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents........ $ 596 $ 789
Accounts receivable ............. 57,657 42,165
Inventories ..................... 75,956 65,752
Deferred income taxes ........... 2,288 2,288
Prepaid expenses and other ...... 2,401 2,152
-------------- --------------
Total current assets .......... 138,898 113,146
Property, plant and equipment ... 52,571 51,693
Less: Accumulated depreciation.. (29,999) (29,216)
-------------- --------------
22,572 22,477
Goodwill ........................ 12,353 12,632
Other assets .................... 4,939 7,869
-------------- --------------
Total assets .................. $ 178,762 $ 156,124
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .......... $ 17,322 $ 12,787
Income taxes payable ............ 1,359 266
Accrued liabilities ............. 7,561 6,096
Current maturities of long-term
debt ............................ 445 727
-------------- --------------
Total current liabilities ..... 26,687 19,876
Long-term debt, net of current
maturities ....................... 43,507 28,617
Deferred income taxes ............ 1,372 1,366
Stockholders'equity:
Common stock, $.10 par value,
20,000,000 shares authorized;
9,684,874 issued and outstanding
at March 31, 1998 and
December 31, 1997 .............. 968 968
Additional paid-in capital ..... 50,395 50,395
Retained earnings .............. 55,793 54,835
Accumulated other comprehensive
income ......................... 40 67
-------------- --------------
Total stockholders' equity ... 107,196 106,265
-------------- --------------
Total liabilities and
stockholders' equity.......... $ 178,762 $ 156,124
============== ==============
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,
1998 1997
----------- -----------
Operating Activities
Net income .......................... $ 1,926 $ 3,278
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Provision for doubtful accounts ... 62 275
Depreciation ...................... 962 937
Amortization ...................... 314 323
Provision for deferred income tax
benefit ........................... 6 (9)
Gain on sale of equipment ........ 17 (96)
Changes in operating assets and liabilities:
Accounts receivable ............... (15,574) (15,007)
Inventories ....................... (10,205) (606)
Prepaid expenses and other ........ 2,573 (1,769)
Trade accounts payable and accrued
liabilities.............. 6,030 6,969
Income taxes payable .............. 1,066 1,633
----------- -----------
Net cash provided (used) by operating
activities (12,823) (4,072)
Investing Activities
Purchase of property, plant and
equipment ......................... (1,181) (740)
Proceeds from sale of property,
plant and equipment ............... 119 122
----------- -----------
Net cash (used) by investing activities (1,062) (618)
Financing Activities
Net change in bank revolving credit
facility .............................. 15,000 3,700
Principal payments on long-term debt
and capital leases .................... (382) (200)
Dividends paid ........................ (968) (959)
----------- -----------
Net cash provided by financing activities 13,650 2,541
Effect of exchange rate changes on cash 42 (118)
----------- -----------
Net change in cash and cash equivalents (193) (2,267)
Cash and cash equivalents at beginning
of the period ......................... 789 2,228
----------- -----------
Cash and cash equivalents at end of
the period ............................ $ 596 $ (39)
=========== ===========
Cash paid during the period for:
Interest ............................ $ 540 $ 582
Income taxes ........................ (31) 51
See accompanying notes.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
March 31, 1998
1. Basis of Financial Statement Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted ac-
counting 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 gen-
erally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the periods presented are not necessarily indicative of
the results that may be expected for the year ended December, 1998. For
further information, refer to the consolidated financial statements and foot-
notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
2. Accounts Receivable
Accounts Receivable is shown less allowance for doubtful accounts of
$1,807,000 and $1,840,000 at March 31, 1998 and December 31, 1997, res-
pectively.
3. Inventories
Inventories valued at LIFO cost represented 83%and 81% of total inventory at
March 31, 1998 and December 31, 1997, respectively. The excess of current
costs over LIFO valued inventories were $3,208,000 and $3,310,000 at
March 31, 1998 and December 31, 1997. Inventory obsolescence reserves were
$3,886,000 at March 31, 1998 and $3,779,000 at December 31, 1997. Net inven-
tories consist of the following (in thousands):
March 31, December 31,
1998 1997
---------- ------------
Finished goods .................... $ 65,231 $ 57,804
Work in process ................... 5,341 3,792
Raw materials ..................... 5,384 4,156
---------- ------------
$ 75,956 $ 65,752
========== ============
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO must necessarily be based on management's estimates
of expected year-end inventory levels and costs. Because these are subject
to many forces beyond management's control, interim results are subject to
the final year-end LIFO inventory valuation.
4. Common Stock and Dividends
Dividends declared and paid on a per share basis were as follows:
Three Months Ended
----------------------
March 31, March 31,
1998 1997
--------- ---------
Dividends declared ................ $ 0.10 $ 0.10
Dividends paid .................... $ 0.10 $ 0.10
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
March 31, 1998 - (Continued)
5. Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any di-
lutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the Statement 128 re-
quirements.
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,
1998 1997
--------- ---------
Net Income........................ $ 1,926 $ 3,278
Average Common Shares:
BASIC (weighted-average outstanding shares) 9,685 9,590
Dilutive potential common shares from stock
options and warrants 30 57
--------- ---------
DILUTED (weighted-average outstanding shares) 9,715 9,647
========= =========
Basic earnings per share $ 0.20 $ 0.34
========= =========
Diluted earnings per share $ 0.20 $ 0.34
========= =========
6. New Accounting Standards and Disclosures
Disclosures About Segments of an Enterprise and Related Information. In
June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information."
Statement 131 specifies the computation, presentation and disclosure require-
ments for business segment information, and requires that segments be iden-
tified based on, among other factors, reporting used by the Company's manage-
ment in evaluating key business decisions. Statement 131 supersedes State-
ment 14, "Financial Reporting for Segments of a Business Enterprise." State-
ment 131 is effective for the Company's financial statements for the year
ended December 31, 1998. The adoption of Statement 131 will not have a
material impact on the Company.
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
March 31, 1998 - (Continued)
"Derivative Financial Instruments Accounting Policy Disclosure Requirements
and Market Risk Disclosure Rules." During 1997, the Securities and Exchange
Commission issued expanded disclosure requirements of accounting policies for
derivative financial instruments and the exposure to market risks. The new
rules require enhanced descriptions of specific aspects of a registrant's
accounting policies for derivatives as well as qualitative and quantitative
disclosures about each type of market risk. The increased policy disclosures
on derivatives were effective for all public companies for periods ending
after June 15, 1997. The qualitative and quantitative market risk disclo-
sures must be provided in all filings that include audited financial state-
ments for fiscal years ending after June 15, 1998. The Company expects
compliance with these requirements to have no material impact on the
Company's consolidated results of operations, financial position, or cash
flows.
7. Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting Compre-
hensive Income. The adoption of this Statement has no impact on net income
or shareholders' equity. Statement 130 requires unrealized gains or losses
on the Company's available-for-sale securities and foreign currency transla-
tion adjustments, which prior to adoption were reported in Shareholders'
Equity, to be included, along with Net Income, in Comprehensive Income.
Prior years data have been conformed to the requirements of Statement 130.
During the first quarter of 1998 and 1997, Comprehensive Income amounted to
$1,899 and $1,880, respectively.
The components of Comprehensive Income, net of related tax are as follows:
Three Months Ended
----------------------
March 31, March 31,
1998 1997
--------- ---------
Net Income ........................ $ 1,926 $ 3,278
Unrealized gains on securities .... - (47)
Foreign currency translation adjustments (27) (1,351)
--------- ---------
Comprehensive Income. ............. $ 1,899 $ 1,880
========= =========
The components of Accumulated Other Comprehensive Income are as follows:
Three Months Ended
---------------------
March 31, March 31,
1998 1997
--------- ---------
Unrealized gains on securities .... - -
Foreign currency translation adjustments 40 67
--------- ---------
Accumulated other comprehensive income 40 67
========= =========
Alamo Group Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)
March 31, 1998 - (Continued)
8. Contingent Matters
The Company is subject to various unresolved legal actions which arise in the
ordinary course of its business. The most prevalent of such actions relate
to product liability which are generally covered by insurance. While amounts
claimed may be substantial and the ultimate liability with respect to such
litigation cannot be determined at this time, the Company believes that the
ultimate outcome of these matters will not have a material adverse effect on
the Company's consolidated financial position.
The Company has been named in litigation involving Rhino International which
includes aggregate claims totaling $8.2 million. The Company believes it has
meritorious defenses against these matters and will vigorously defend the
pending claims and prosecute appropriate counterclaims. While the ultimate
outcome of this litigation cannot be determined at this time, the Company be-
lieves this matter will not have a material adverse effect on the Company's
consolidated financial position.
Alamo Group Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following tables set forth, for the periods indicated, certain financial
data:
Three Months Ended
----------------------
Sales Data In Thousands March 31, March 31,
1998 1997
--------- ---------
American
Agricultural ................... $ 25,949 $ 26,616
Industrial ..................... 13,330 12,658
European ....................... 9,448 12,369
--------- ---------
Total sales, net ............. $ 48,727 $ 51,643
Three Months Ended
----------------------
Cost Trends and Profit Margins, March 31, March 31,
as Percentages of Net Sales 1998 1997
--------- ---------
Gross margin ...................... 23.3% 24.7%
Income from operations ............ 8.1% 10.8%
Income before income taxes ........ 6.5% 10.1%
Net income ........................ 4.0% 6.3%
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Net sales for the first quarter decreased by $2,916,000, down 5.7% compared
to the same quarter last year. First quarter sales and margins were nega-
tively impacted by expected weakness in the European market, a decline in
imported Chinese tractor sales and a continuing delay from U.S. outsource
suppliers. The weakness in the European market was due to economic and
market conditions in the U.K. and France. Expense increases were in line
with Company growth.
Liquidity and Capital Resources
Cash used by operations was $12,823,000 for the three-month period ended
March 31, 1998, with the net income cash flows for the period offset by a net
increase in working capital accounts related primarily to seasonal effects,
inventory build-ups from shipments deferred by supplier/outsourced delays
and increased stocking or replacement parts in warehouses and increase in
accounts receivable due to restructured pre-season program terms.
As of March 31, 1998, $38,996,000 was utilized under the Company's
$45,000,000 bank revolving credit facility, of which $1,996,000 was for
standby letters of credit and $37,000,000 was borrowed. The Company's
borrowings are seasonal in nature with the greatest utilization generally
occurring in the first quarter and early spring.
The bank credit facility and the Company's ability to internally generate
funds from operations should be sufficient to meet the Company's cash re-
quirements in the near future.
- - ------------------------------------------------------------------------------
This report may be deemed to contain forward-looking statements which involve
known and unknown risks and uncertainties which may cause the Company's
actual results in future periods to differ materially from forecasted re-
sults. Among those factors which could cause actual results to differ
materially are the following: market demand, competition, weather, and other
risk factors listed from time to time in the Company's SEC reports.
- - ------------------------------------------------------------------------------
Alamo Group Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various unresolved legal actions which arise in
the ordinary course of its business. The most prevalent of such actions re-
late 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.
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/
Jim A. Smith
Executive Vice President and CFO
(Principal Accounting and Financial Officer)