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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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, 2001, 9,703,659 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE
REGISTRANT WERE OUTSTANDING.
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ALAMO GROUP INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Interim Condensed Consolidated Statements of Income - 3
Three months ended March 31, 2001 and
March 31, 2000
Interim Condensed Consolidated Balance Sheets - 4
March 31, 2001 and December 31, 2000 (Audited)
Interim Condensed Consolidated Statements of Cash Flows 5
Three months ended March 31, 2001 and March 31, 2000
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
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
2
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,
2001 2000
-------- --------
Net sales:
North American
Agricultural ................................ $ 24,626 $ 21,594
Industrial .................................. 22,411 17,834
European ..................................... 9,793 10,538
-------- --------
Total net sales ................................ 56,830 49,966
Cost of sales .................................. 42,439 37,321
-------- --------
Gross profit ................................... 14,391 12,645
-------- --------
Selling, general and administrative expense .... 9,673 7,931
-------- --------
Income from operations ....................... 4,718 4,714
Interest expense ............................... (800) (360)
Interest income ................................ 146 190
Other income (expense), net .................... 70 (194)
-------- --------
Income before income taxes ................... 4,134 4,350
Provision for income taxes ..................... 1,241 1,668
-------- --------
Net Income ................................... $ 2,893 $ 2,682
======== ========
Net income per common share:
Basic ........................................ $ 0.30 $ 0.28
======== ========
Diluted ...................................... $ 0.30 $ 0.28
======== ========
Average common shares:
Basic ........................................ 9,704 9,695
======== ========
Diluted ...................................... 9,792 9,752
======== ========
Dividends declared ............................. $ 0.06 $ 0.06
======== ========
See accompanying notes.
3
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 1,624 $ 2,929
Accounts receivable ......................................... 66,240 50,359
Inventories ................................................. 65,390 59,608
Deferred income taxes ....................................... 4,335 4,335
Prepaid expenses ............................................ 2,067 2,183
--------- ---------
Total current assets ....................................... 139,656 119,414
Property, plant and equipment ................................ 65,631 66,305
Less: Accumulated depreciation ............................. (37,985) (38,197)
--------- ---------
27,646 28,108
Goodwill ..................................................... 20,463 21,833
Other assets ................................................. 3,974 4,053
--------- ---------
Total assets .............................................. $ 191,739 $ 173,408
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................................... 19,064 15,708
Income taxes payable ........................................ 888 (69)
Accrued liabilities ......................................... 9,908 9,948
Current maturities of long-term debt ........................ 1,651 1,484
--------- ---------
Total current liabilities .................................. 31,511 27,071
Long-term debt, net of current maturities .................... 43,750 30,355
Deferred income taxes ........................................ 1,563 1,443
Stockholders' equity:
Common stock, $.10 par value, 20,000,000 shares
authorized; 9,744,559 issued and outstanding
at March 31, 2001 and December 31, 2000, respectively ........ 974 974
Additional paid-in capital ..................................... 51,117 50,969
Treasury stock, at cost; 40,600 shares at
March 31, 2001 ............................................... (400) (400)
Retained earnings .............................................. 68,321 66,010
Accumulated other comprehensive income ......................... (5,097) (3,014)
--------- ---------
Total stockholders' equity ................................. 114,915 114,539
--------- ---------
Total liabilities and stockholders' equity ................. $ 191,739 $ 173,408
========= =========
See accompanying notes.
4
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income ................................................ $ 2,893 $ 2,682
Adjustment to reconcile net income to net
cash provided (used) by operating
activities:
Provision for doubtful accounts ..................... 596 37
Depreciation ........................................ 1,246 990
Amortization ........................................ 474 336
Provision for deferred income tax
benefit ........................................... 193 255
(Gain) loss on sale of property,
plant & equipment ................................. (1,429) (42)
Changes in operating assets and
liabilities:
Accounts receivable ................................. (17,185) (17,301)
Inventories ......................................... (6,694) (287)
Prepaid expenses and other assets ................... 594 517
Trade accounts payable and accrued
liabilities ....................................... 3,949 4,941
Income taxes payable ................................ 984 1,118
-------- --------
Net cash provided (used) by operating activities .......... (14,379) (6,754)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ........................ 0 (15,000)
Purchase of property, plant and equipment ................. (2,024) (2,260)
Proceeds from sale of property, plant and
equipment ............................................... 1,971 67
Purchase of long-term investment .......................... -- (500)
Sale of long-term investment .............................. -- --
-------- --------
Net cash (used) by investing activities ................... (53) (17,693)
FINANCING ACTIVITIES
Net change in bank revolving credit
facility ................................................ 13,200 24,000
Principal payments on long-term debt and
capital leases .......................................... 507 (120)
Dividends paid ............................................ (582) (582)
Proceeds from sale of common stock ........................ 148 --
Cost of common stock repurchased .......................... -- --
-------- --------
Net cash provided (used) by financing ..................... 13,273 23,298
activities
Effect of exchange rate changes on cash ................... (146) (123)
-------- --------
Net change in cash and cash equivalents ................... (1,305) (1,272)
Cash and cash equivalents at beginning of
the period .............................................. 2,929 5,359
-------- --------
Cash and cash equivalents at end of the
period .................................................. $ 1,624 $ 4,087
======== ========
Cash paid during the period for:
Interest .............................................. $ 739 $ 89
Income taxes .......................................... $ 268 $ 322
See accompanying notes.
5
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 2001
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, 2000, 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, 2000.
2. ACCOUNTS RECEIVABLE
Accounts Receivable is shown less allowance for doubtful accounts of
$1,108,000 and $1,322,000 at March 31, 2001 and December 31, 2000, respectively.
3. INVENTORIES
Inventories valued at LIFO cost represented 62% and 61% of total inventory
at March 31, 2001 and December 31, 2000, respectively. The excess of current
costs over LIFO valued inventories were $4,238,000 at March 31, 2001 and
December 31, 2000. Inventory obsolescence reserves were $3,422,000 at March 31,
2001 and $4,201,000 at December 31, 2000. Net inventories consist of the
following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
----------- -------------
Finished goods ................ $54,485 $46,066
Work in process ............... 12,270 3,937
Raw materials ................. 6,923 3,238
------- -------
$73,678 $53,241
======= =======
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.
6
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 2001 - (CONTINUED)
4. COMMON STOCK AND DIVIDENDS
Dividends declared and paid on a per share basis were as follows:
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
2001 2000
---------- ---------
Dividends declared .............. $ 0.06 $ 0.06
Dividends paid .................. 0.06 0.06
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
----------------------
MARCH 31, MARCH 31,
2001 2000
--------- -----------
Net Income ........................................... $2,893 $2,682
====== ======
Average Common Shares:
BASIC (weighted-average outstanding shares) ........ 9,704 9,695
Dilutive potential common shares from stock
options and warrants ............................ 88 57
------ ------
Diluted (weighted-average outstanding shares) ..... 9,792 9,752
====== ======
Basic earnings per share ............................. $ 0.30 $ 0.28
====== ======
Diluted earnings per share ........................... $ 0.30 $ 0.28
====== ======
7
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 2001 - (CONTINUED)
6. SEGMENT REPORTING
At March 31, 2001 the following unaudited financial information is
segmented: (in thousands)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2001 2000
-------- --------
NET REVENUE
Agricultural $ 24,626 $ 21,594
Industrial 22,411 17,834
European 9,793 10,538
-------- --------
Consolidated 56,830 49,966
OPERATING INCOME
Agricultural $ 965 $ 805
Industrial 3,159 2,623
European 594 1,286
-------- --------
Consolidated 4,718 4,714
TOTAL IDENTIFIABLE
ASSETS
Agricultural $ 92,174 $ 63,719
Industrial 61,085 66,279
European 38,480 43,410
-------- --------
Consolidated 191,739 173,408
7. NEW ACCOUNTING STANDARDS AND DISCLOSURES
The Company adopted Statement of Financial Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities," and its
amendments, Statements 137 and 138, on January 1, 2001. FAS 133 requires that
all derivative instruments be recorded on the balance sheet at fair value. The
Company has designed its foreign currency hedge agreements as cash flow hedge
instruments. The hedge agreements are used to manage exposure to exchange rate
movement by effectively changing the variable rate to a fixed rate. The critical
terms of the foreign currency hedge agreements and the sales associated with the
hedging agreements are the same; therefore, the Company has assumed that there
is no ineffectiveness in the hedge relationship. Changes in fair value of the
foreign currency hedging agreements will be recognized in other comprehensive
income, net of tax effects, until the hedged items are recognized in earnings.
The Company has hedged its exposure to foreign exchange rate movement through
July 30, 2001.
At January 1, 2001, the foreign currency hedge agreements were in an
unfavorable position by approximately $77,000. In accordance with the
transition provisions of FAS 133, the net-of-tax cumulative effect of an
accounting change adjustment on January 1, 2001, was a loss of $50,000 in
accumulated other comprehensive income with a deferred income tax asset of
$27,000. At March 31, 2001, the fair value of the hedge agreements increased
to a favorable position; therefore, the derivative financial instruments were
adjusted to an asset of $4,000. Accumulated other comprehensive income was
adjusted to an accumulated gain of $3,000 and the deferred income tax was
adjusted
8
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 2001 - (CONTINUED)
to a $1,000 tax liability. As the hedge agreements are deemed to be effective
cash flow hedges, there was no income statement impact related to hedge
ineffectiveness. The Company expects to reclassify approximately $3,000 of
existing gains in accumulated other comprehensive income, net of taxes, into net
income (loss) through July 30, 2001.
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 was effective for the Company in the fourth quarter of fiscal year 2000.
The Company recognizes revenue when each of the following four criteria are met:
1) a contract or sales arrangement exists; 2) products have been shipped or
services heave been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured. The Company has
evaluated the possible impact of SAB 101 with its independent auditors and it
believes that its revenue recognition policy is in accordance with SAB 101.
In September 2000, the Emerging Issues Task Force issued EITF 00-10 which
requires disclosure of shipping and handling costs that are not included in
costs of goods sold. The Company's policy is to include shipping and handling
costs in costs of goods sold.
8. COMPREHENSIVE INCOME
During the first quarter of 2001 and 2000, Comprehensive Income amounted
to $809,000 and $1,769,000 respectively.
The components of Comprehensive Income, net of related tax are as follows:
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
2001 2000
---------- -----------
Net Income .................................. $ 2,893 $ 2,682
Unrealized gains on securities .............. -- --
Foreign currency translations adjustment ... (2,084) (913)
------- -------
Comprehensive Income ........................ $ 809 $ 1,769
======= =======
The components of Accumulated Other Comprehensive Income as shown on the Balance
Sheet are as follows (in thousands):
MARCH 31, MARCH 31,
2001 2000
----------- -----------
Foreign currency translation ............... $(5,097) $(1,800)
------- -------
Accumulated other comprehensive income ..... $(5,097) $(1,800)
======= =======
9
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 2001 - (CONTINUED)
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 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, the previous owner of the
property, and the state of Iowa to develop and implement a plan to remediate the
contamination. All present and future remediation costs have been or are
expected to be paid by the previous owner of the property pursuant to the
agreement by which the Company purchased said property.
.The Company is subject to various other federal, state, and local laws
affecting its business, as well as a variety of regulations relating to such
matters as working conditions, equal employment opportunities and product
safety. A variety of state laws regulate the Company's contractual relationships
with its dealers, some of which impose substantive standards on the relationship
between the Company and its dealers, including events of default, grounds for
termination, non-renewal of dealer contracts and equipment repurchase
requirements. The Company believes it is currently in material compliance with
all such applicable laws and regulations.
The Company closed on the sale of its property located in LaGrange,
Illinois during the first quarter of 2001. Sales price for the building and
the land was $1,755,000. Also, the Company previously announced the closure
of the manufacturing operation in Guymon, Oklahoma and expects this to be
completed during 2001.
10
ALAMO GROUP INC. AND SUBSIDIARIES
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 DATA IN THOUSANDS MARCH 31, MARCH 31,
2001 2000
---------- ----------
North American
Agricultural ........................ 43.3 % 43.2 %
Industrial .......................... 39.5 % 35.7 %
European .............................. 17.2 % 21.1 %
------- -------
Total sales, net .................... 100.0 % 100.0 %
======= =======
THREE MONTHS ENDED
------------------------
COST TRENDS AND PROFIT MARGIN, MARCH 31, MARCH 31,
AS PERCENTAGES OF NET SALES 2001 2000
---------- ----------
Gross margin .......................... 25.3 % 25.3%
Income from operations ................ 8.3 % 9.4%
Income before income taxes ............ 7.3 % 8.7%
Net income ............................ 5.1 % 5.4%
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000
Net sales for the first quarter of 2001 were $56,830,000, an increase
of $6,864,000 or 13.7% compared to $49,966,000 for the first quarter of 2000.
The increase was primarily attributable to the acquisition of Schwarze
Industries, Inc. ("Schwarze") on February 29, 2000 and the acquisition of
Schulte Industries, LTD. ("Schulte") on November 7, 2000.
Net North American Agricultural sales were $24,626,000 in 2001 compared to
$21,594,000 for the same period in 2000 an increase of $3,032,000 or
14.0%. The increase in sales was primarily due to the acquisitions of
Schulte Industries. There were also improved sales from the Rhino mower
product line. More specifically was strong activity in the medium to
heavy-duty cutters as well as finishing mowers. The overall market
continues to remain cautious for 2001.
Net North American Industrial sales increased during the first quarter by
$4,577,000 or 25.7% to $22,411,000 for 2001 compared to $17,824,000 during
the same period in 2000. The increase was primarily the acquisition of
Schwarze, a sweeper manufacturing company. Sales of the Alamo Industrial
products were up slightly but experienced some delays due to the lack of
tractor availability along with lagging parts sales from an extended
winter of inclement weather.
Net European Sales for the first quarter of 2001 were $9,793,000, a
decrease of $745,000 or 7.1% compared to $10,538,000 during the first
quarter of 2000. The decrease was a result of the spread of foot and mouth
disease in the United Kingdom (U.K.) which severely hampered its parts
business. The effect of the disease is expected to continue until late
August of this year.
Gross profit for the first quarter of 2001 was $14,391,000 (25.3% of net
sales) compared to $12,645,000 (25.3% of net sales) during the same period in
2000, an increase of $1,746,000. The increase in gross profit was mainly
attributable to the additional sales from the from the acquisitions of Schwarze
and Schulte.
11
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Selling, general and administrative ("SG&A") were $9,673,000 (17.0% of net
sales) during the first quarter of 2000 compared to $7,931,000 (15.9% of net
sales) during the same period of 2000, and increase of $1,742,000. SGA for the
first quarter of 2001 had increased operating and amortization expense relating
to the addition of Schwarze and Schulte.
Interest Expense was $800,000 for the first quarter of 2001 compared to
$360,000 during the same period in 2000, an increase of $440,000. This increase
was attributable to the acquisitions of Schwarze and Schulte.
.
The Company's net income after tax was $2,893,000 or $.30 per share on a
diluted basis for the first quarter of 2001 compared to $2,682,000 or $.28 per
share on a diluted basis. This increase of $211,000 resulting from 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 builds 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.
As of March 31, 2001, the Company had working capital of $108,145,000
which represents an increase of $15,802,000 from working capital of $92,343,000
as of December 31, 2000. The increase in working capital was primarily from
higher accounts receivable and inventory levels due to seasonality.
Capital expenditures were $2,024,000 for the first three months of 2001,
compared to $2,260,000 during the first three months of 2000. The Company
expects to fund 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 1999, the Company repurchased
40,600 shares in the third quarter. No shares were repurchased in 2000 or in the
first quarter of 2001.
Net cash provided by financing activities was $13,273,000 during the three
month period ending March 31, 2001, compared to $24,000,000 net cash used by
financing activities for the same period in 2000. 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 March 31, 2001. As of March 31, 2001, $42,000,000 was borrowed
under the revolving credit and $3,025,000 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.
12
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
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.
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.
13
ALAMO GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
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; 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.
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 March 31, 2001, the Company had
$1,937,000 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. On March 31,
2001, the British pound closed at 0.7062 relative to 1.00 U.S. dollar, and the
French Franc closed at 0.0947 relative to 1.00 British pound. By comparison, on
March
14
ALAMO GROUP INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS (CONTINUED)
31, 2000, the British pound closed at 0.6284 relative 1.00 U.S. dollar, and the
French franc closed at 0.0914 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, 2001, 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 2001 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
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
16