<Page>
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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 SEPTEMBER 30, 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 NOVEMBER 1, 2001, 9,705,251 SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THE
REGISTRANT WERE OUTSTANDING.
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ALAMO GROUP INC. AND SUBSIDIARIES
INDEX
<Table>
<Caption>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Interim Condensed Consolidated Statements of Income - 3 Three months 3
and Nine months ended September 30, 2001 and September 30, 2000
Interim Condensed Consolidated Balance Sheets - 4
September 30, 2001 and December 31, 2000 (Audited)
Interim Condensed Consolidated Statements of Cash Flows - 5 Nine 5
months ended September 30, 2001 and September 30, 2000
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
PART II. OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</Table>
2
<Page>
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
----------------- ----------------- ----------------- -----------------
Net sales:
North American
Agricultural............................ $ 23,793 $ 18,398 $ 71,457 $ 61,153
Industrial.............................. 28,985 26,935 85,090 73,504
European.................................. 11,114 10,320 30,941 31,687
----------------- ----------------- ----------------- -----------------
Total net sales.............................. 63,892 55,653 187,488 166,344
Cost of sales ............................... 47,115 40,957 140,115 123,687
----------------- ----------------- ----------------- -----------------
Gross profit................................. 16,777 14,696 47,373 42,657
Selling, general and administrative expense.. 10,355 9,049 29,890 25,652
----------------- ----------------- ----------------- -----------------
Income from operations.................... 6,422 5,647 17,483 17,005
Interest expense............................. (834) (487) (2,646) (1,528)
Interest income.............................. 151 162 457 561
Other income (expense), net.................. (48) (53) (63) (216)
----------------- ----------------- ----------------- -----------------
Income before income taxes................ 5,691 5,269 15,231 15,822
Provision for income taxes................... 1,907 1,601 5,078 5,322
----------------- ----------------- ----------------- -----------------
Net income................................ $ 3,784 $ 3,668 $ 10,153 $ 10,500
================= ================= ================= =================
Net income per common share:
Basic..................................... $ 0.39 $ 0.38 $ 1.05 $ 1.08
================= ================= ================= =================
Diluted................................... $ 0.39 $ 0.38 $ 1.04 $ 1.08
================= ================= ================= =================
Average common shares:
Basic..................................... 9,705 9,699 9,704 9,696
================= ================= ================= =================
Diluted................................... 9,790 9,769 9,790 9,755
================= ================= ================= =================
Dividends declared........................... $ 0.06 $ 0.06 $ 0.18 $ 0.18
================= ================= ================= =================
</Table>
See accompanying notes.
3
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ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 12,015 $ 2,929
Accounts receivable ........................................... 59,270 50,359
Inventories ................................................... 67,794 59,608
Deferred income taxes ......................................... 4,310 4,335
Prepaid expenses .............................................. 2,603 2,183
------------------ ------------------
Total current assets ........................................ 145,992 119,414
Property, plant and equipment .................................. 71,797 66,305
Less: Accumulated depreciation ............................. (41,660) (38,197)
------------------ ------------------
30,137 28,108
Goodwill ....................................................... 19,475 21,833
Other assets ................................................... 3,849 4,053
------------------ ------------------
Total assets ............................................... $ 199,453 $ 173,408
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................ 15,527 15,708
Income taxes payable .......................................... 883 (69)
Accrued liabilities ........................................... 10,059 9,948
Current maturities of long-term debt .......................... 1,627 1,484
------------------ ------------------
Total current liabilities ................................... 28,096 27,071
Long-term debt, net of current maturities ...................... 46,228 30,355
Deferred income taxes .......................................... 2,848 1,443
Stockholders' equity:
Common stock, $.10 par value, 20,000,000 shares authorized;
9,744,559 issued and outstanding at September 30, 2001
and December 31, 2000, respectively ............................... 976 974
Additional paid-in capital ........................................ 51,213 50,969
Treasury stock, at cost; 42,600 shares at September 30, 2001 ...... (426) (400)
Retained earnings ................................................. 74,417 66,010
Accumulated other comprehensive income ............................ (3,899) (3,014)
------------------ ------------------
Total stockholders' equity .................................. 122,281 114,539
------------------ ------------------
Total liabilities and stockholders' equity .................. $ 199,453 $ 173,408
================== ==================
</Table>
See accompanying notes.
4
<Page>
ALAMO GROUP INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income ............................................... $ 10,153 $ 10,500
Adjustment to reconcile net income to net cash
provided (used) by operating activities:
Provision for doubtful accounts .................... 1,363 279
Depreciation ....................................... 3,142 3,242
Amortization ....................................... 1,469 1,182
Provision for deferred income tax benefit........... 1,560 283
(Gain) loss on sale of equipment ................... (1,421) (181)
Changes in operating assets and liabilities:
Accounts receivable ................................ (6,582) (5,172)
Inventories ........................................ (4,568) (1,609)
Prepaid expenses and other assets .................. 920 343
Trade accounts payable and accrued liabilities ..... (1,949) 2,853
Income taxes payable ............................... 951 554
----------------- -----------------
Net cash provided by operating activities 5,038 12,274
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (7,880) (15,367)
Purchase of property, plant and equipment ............... (4,881) (11,023)
Proceeds from sale of property, plant and equipment ..... 2,118 458
Purchase of long-term investment ........................ - (500)
----------------- -----------------
Net cash (used) by investing activities ................. (10,643) (26,432)
FINANCING ACTIVITIES
Net change in bank revolving credit facility ............. 16,200 15,500
Principal payments on long-term debt and capital leases .. (86) (544)
Dividends paid ........................................... (1,747) (1,745)
Proceeds from sale of common stock ....................... 245 164
Net cash provided (used) by financing activities.......... (26) -
----------------- -----------------
14,586 13,375
Effect of exchange rate changes on cash .................. 105 (458)
----------------- -----------------
Net change in cash and cash equivalents .................. 9,086 (1,241)
Cash and cash equivalents at beginning of the period ..... 2,929 5,359
----------------- -----------------
Cash and cash equivalents at end of the period ........... $ 12,015 $ 4,118
================= =================
Cash paid during the period for:
Interest ........................................... $ 2,772 $ 1,203
Income taxes ....................................... $ 3,345 $ 4,736
</Table>
See accompanying notes.
5
<Page>
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
SEPTEMBER 30, 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,
2001. 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
$1,219,000 and $1,322,000 at September 30, 2001 and December 31, 2000,
respectively.
3. INVENTORIES
Inventories valued at LIFO cost represented 61% of total inventory at
September 30, 2001 and December 31, 2000, respectively. The excess of current
costs over LIFO valued inventories were $4,429,000 at September 30, 2001 and
4,238,000 at December 31, 2000. Inventory obsolescence reserves were $3,404,000
at September 30, 2001 and $4,201,000 at December 31, 2000. Net inventories
consist of the following (in thousands):
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
----------------- -----------------
Finished goods ............................ $ 47,003 $ 40,135
Work in process ........................... 12,534 9,711
Raw materials ............................. 8,257 9,762
----------------- -----------------
$ 67,794 $ 59,608
================= =================
</Table>
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
<Page>
4. COMMON STOCK AND DIVIDENDS
Dividends declared and paid on a per share basis were as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Dividends declared ................ $ 0.06 $ 0.06 $ 0.18 $ 0.18
Dividends paid .................... 0.06 0.06 0.18 0.18
</Table>
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).
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Net Income .......................................... $ 3,784 $ 3,668 $ 10,153 $ 10,500
=============== =============== =============== ===============
Average Common Shares:
BASIC (weighted-average outstanding shares) ..... 9,705 9,699 9,704 9,696
Dilutive potential common shares from stock
options and warrants ............................ 85 70 86 59
--------------- --------------- --------------- ---------------
Diluted (weighted-average outstanding shares) ... 9,790 9,769 9,790 9,755
=============== =============== =============== ===============
Basic earnings per share ............................ $ 0.39 $ 0.38 $ 1.05 $ 1.08
=============== =============== =============== ===============
Diluted earnings per share .......................... $ 0.39 $ 0.38 $ 1.04 $ 1.08
=============== =============== =============== ===============
</Table>
7
<Page>
6. SEGMENT REPORTING
At September 30, 2001 the following unaudited financial information is
segmented: (in thousands)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------------- --------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
-------------------- -------------------- -------------------- --------------------
NET REVENUE
Agricultural $ 23,793 $ 18,398 $ 71,457 $ 61,153
Industrial 28,985 26,935 85,090 73,504
European 11,114 10,320 30,941 31,687
-------------------- -------------------- -------------------- --------------------
Consolidated 63,892 55,653 187,488 166,344
OPERATING INCOME
Agricultural $ 2,205 $ 1,109 $ 7,282 $ 3,672
Industrial 2,304 2,812 6,898 9,033
European 1,913 1,726 3,303 4,300
-------------------- -------------------- -------------------- --------------------
Consolidated 6,422 5,647 17,483 17,005
TOTAL IDENTIFIABLE ASSETS
Agricultural $ 96,420 $ 57,997 $ 96,420 $ 57,997
Industrial 61,389 62,007 61,389 62,007
European 41,644 39,278 41,644 39,278
-------------------- ------------------- -------------------- --------------------
Consolidated 199,453 159,282 199,453 159,282
</Table>
7. NEW ACCOUNTING STANDARDS AND DISCLOSURES
In June 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" (FAS 141), and Statement No. 142, "Goodwill and
Other Intangible Assets" (FAS 142). FAS 141 will require the purchase method of
accounting to be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. FAS 141 also
provides new criteria to determine whether an acquired intangible asset should
be recognized separately from goodwill.
Upon adoption of FAS 142, amortization of existing goodwill would cease and
the remaining book value would be tested for impairment at least annually at the
reporting unit level using a new two-step impairment test. Amortization of
goodwill recorded on equity investments would also cease, but this embedded
goodwill will continue to be tested for impairment under current accounting
rules for equity investments. In addition, we will have adjustments to the
equity in net income of affiliates line item to reflect the impact of adopting
these new statements on the operations of our equity investments.
The Company will adopt both statements on January 1, 2002 and we are
currently in the process of determining the impact of these pronouncements on
its financial position and results of operation. Any impairment resulting from
our initial application of the statements will be recorded as a cumulative
effect of accounting change as of January 1, 2002.
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
8
<Page>
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 March
28, 2002.
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 September
30, 2001, the fair value of the hedge agreements were in an unfavorable
position; therefore, the derivative financial instruments were adjusted to a
liability of $10,000. Accumulated other comprehensive income was adjusted to an
accumulated loss of $7,000 and the deferred income tax was adjusted to a $3,000
tax asset. 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 $7,000 of existing losses in
accumulated other comprehensive income, net of taxes, into net income (loss)
through December 31, 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 have 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 cost of goods sold.
8. COMPREHENSIVE INCOME
During the third quarter of 2001 and 2000, Comprehensive Income amounted to
$4,740,000 and $2,329,000 and for the nine months ended September 30, 2001 and
2000, it was $9,268,000 and $7,360,000 respectively.
The components of COMPREHENSIVE INCOME, net of related tax are as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------------ ------------------ ------------------ ------------------
Net Income ................................. $ 3,784 $ 3,668 $ 10,153 $ 10,500
Foreign currency translations adjustment .. 956 (1,339) (885) (3,140)
------------------ ------------------ ------------------ ------------------
Comprehensive Income ....................... $ 4,740 $ 2,329 $ 9,268 $ 7,360
================== ================== ================== ==================
</Table>
The components of Accumulated Other Comprehensive Income as shown on the Balance
Sheet are as follows (in thousands):
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------------ ------------------
Foreign currency translation ................ $ (3,899) $ (3,014)
------------------ ------------------
Accumulated other comprehensive income ....... $ (3,899) $ (3,014)
================== ==================
</Table>
9
<Page>
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 is aware 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.
Due to the recent tragic events in the United States, the Company has
seen market conditions deteriorate somewhat. These external conditions have
created a degree of uncertainty within our dealer network. If this continues it
could have an effect on our early season shipments in December from our
preseason selling programs that began this fall. This concern is most noticeable
in our Industrial segment where several states are projecting revenue shortfalls
and budget cutbacks. We are also concerned by other trends such as large
increases in insurance rates we have recently experienced as a result of these
tragedies and other unknown repercussions.
10
<Page>
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:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SALES DATA IN THOUSANDS SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
North American
Agricultural .............................. 37.2% 33.1% 38.1% 36.8%
Industrial ................................ 45.4% 48.4% 45.4% 44.2%
European ..................................... 17.4% 18.5% 16.5% 19.0%
-------------- -------------- -------------- --------------
Total sales, net .......................... 100.0% 100.0% 100.00% 100.0%
============== ============== ============== ==============
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
COST TRENDS AND PROFIT MARGIN, AS SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PERCENTAGES OF NET SALES 2001 2000 2001 2000
-------------- -------------- -------------- --------------
Gross margin ............................... 26.3% 26.4% 25.3% 25.6%
Income from operations ..................... 10.1% 10.1% 9.3% 10.2%
Income before income taxes ................. 8.9% 9.5% 8.1% 9.5%
Net income ................................. 5.9% 6.6% 5.4% 6.3%
</Table>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 VS. THREE MONTHS ENDED SEPTEMBER 30, 2000
Net sales for the third quarter of 2001 were $63,892,000, an increase
of $8,239,000 or 14.8% compared to $55,653,000 for the third quarter of 2000.
The increase was primarily attributable to the acquisition of Schulte
Industries, LTD. ("Schulte") on November 7, 2000 and SMC Corporation ("SMC") on
August 14, 2001.
Net North American Agricultural sales were $23,793,000 in 2001
compared to $18,398,000 for the same period in 2000 an increase of
$5,395,000 or 29.3%. The increase in sales was primarily due to the
acquisitions of Schulte and SMC as well as improved sales from the
Rhino mower product line. The Company continued to experience a very
soft market in hay making products, tillage products and distributed
parts. The overall market is expected to remain weak for 2001 and into
2002.
Net North American Industrial sales increased during the third quarter
by $2,050,000 or 7.6% to $28,985,000 for 2001 compared to $26,935,000
during the same period in 2000. The increase was primarily from the
Alamo product line which experienced strong governmental contract bids
and product deliveries during the quarter. Sales of Schwarze
Industries sweepers to direct contract markets were down due to
continued soft markets which is expected to continue into the 4th
quarter of this year.
Net European Sales for the third quarter of 2001 were $11,114,000 an
increase of $794,000 or 7.7% compared to $10,320,000 during the third
quarter of 2000. The increase is mainly from improved market sales
outside the areas affected by the foot and mouth disease in the United
Kingdom (U.K.) which had hurt the business during 2001. Sales in the
French market continue to perform well supporting the overall sales
increase.
11
<Page>
Gross profit for the third quarter of 2001 was $16,777,000 (26.3% of
net sales) compared to $14,696,000 (26.4% of net sales) during the same period
in 2000, an increase of $2,081,000. The increase in gross profit was mainly
attributable to the additional sales from the acquisition of Schulte and SMC.
Selling, general and administrative ("SG&A") were $10,355,000 (16.2%
of net sales) during the third quarter of 2001 compared to $9,049,000 (16.2% of
net sales) during the same period of 2000, an increase of $1,306,000. SGA for
the third quarter of 2001 had increased operating expenses relating to the
additions of Schulte and SMC. Also included in operating expenses is the cost
from the companies Enterprise Resource Planning ("ERP") project which was
implemented during the third quarter.
Interest Expense was $834,000 for the third quarter of 2001 compared
to $487,000 during the same period in 2000, an increase of $347,000. This
increase was attributable to the acquisition of Schulte and seasonal working
capital requirements.
The Company's net income after tax was $3,784,000 or $.39 per share on
a diluted basis for the third quarter of 2001 compared to $3,668,000 or $.38 per
share on a diluted basis. This increase of $116,000 resulting from factors
described above.
NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. NINE MONTHS ENDED SEPTEMBER 30, 2000
Net sales were up 12.7% to $187,488,000 for the first nine months of 2001
compared to $166,344,000 for the first nine months of 2000. The increase was a
result of the acquisition of Schulte and SMC and increased sales in the
Company's agricultural products.
Net North American Agricultural sales were $71,457,000 for the first
nine months of 2001 compared to $61,153,000 for the first nine months of
2000, representing an increase of $10,304,000 or 16.8%. The increase in
sales was primarily due to improved market conditions in some of our core
markets specifically our Rhino branded products as well as the acquisition
of Schulte and SMC, but we continue to be impacted by the soft market
conditions in the overall agriculture industry.
Net North American Industrial sales increased for the first nine
months of 2001 by $11,586,000 or 15.7% to $85,090,000 compared to
$73,504,000 during the first nine months of 2000. The increase was
primarily due to reflecting a full year of sales from the purchase of
Schwarze Industries on February 29th, 2000, as well as continued improved
sales in the market for our Alamo products as described above.
Net European sales for the first nine months of 2001 were $30,941,000,
compared to $31,687,000 during the first nine months of 2000, reflecting a
decrease of $746,000 or 2.4%. The negative currency impact due to the
decline in the Euro and the French Franc against the British pound sterling
and U.S. dollar during the first half of the year and the weakening U.K.
market conditions from foot and mouth disease during the year contributed
to lower year to date sales.
Gross profit for the first nine months of 2001 was $47,373,000 (25.3%
of net sales) compared to $42,657,000 (25.6% of net sales) during the first nine
months of 2000. The increase in gross profit was mainly attributable to the
acquisition of Schulte and SMC and increased sales from the Alamo and Rhino
product lines as stated above. Margin percentages were down due to slower than
expected replacement parts sales during the early part of this year.
Selling, general and administrative expenses (SG&A) for the first nine
months of 2001 were $29,890,000 (15.9% of net sales) compared to $25,652,000
(15.4% of net sales) in the first nine months of 2000, an increase of $4,238,000
or 16.5%. The acquisitions of Schulte and SMC primarily accounted for the
increase and to a lesser extent the cost of the Company's ERP project.
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Interest Expense was $2,646,000 for the first nine months of 2001
compared to $1,528,000 during the same time in 2000. The cash acquisition of
Schwarze, Schulte, and SMC are the principal reason for the increase in interest
expense.
The Company's net income after tax was $10,153,000 for the first nine months of
2001 compared to $10,500,000 for the first nine months of 2000, a decrease of
$463,000 or 3.3% as a result of factors described above.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company has on going
cash requirements which are necessary to expand the Company's business including
inventory purchases and capital expenditures. The Company's inventory and
accounts payable levels typically build in the first half of the year and 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 September 30, 2001, the Company had working capital of
$117,896,000 which represents an increase of $25,553,000 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 as well as from the acquisition of SMC.
Capital expenditures were $4,881,000 for the first nine months of
2001, compared to $11,023,000 during the first nine months of 2000. Included in
2001 is $1,749,000 which relates to the ERP Project. During 2000, the Company
purchased the manufacturing facility and adjacent land at its Bomford facility
in the United Kingdom for approximately $5,300,000. 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. The Company has repurchased 2,000 shares in 2001, all in the third
quarter.
Net cash provided by financing activities was $14,586,000 during the
nine month period ending September 30, 2001, compared to $13,375,000 net cash
provided by financing activities for the same period in 2000. On August 31,
2001, the Company entered into a $70,000,000 contractually committed, unsecured,
bank revolving credit facility under which the Company can borrow and repay
until August 31, 2003, with interest at variable rate options based upon prime
or libor rates, with such rates either floating on a daily basis or fixed for
periods up to 180 days. Proceeds may be used for general corporate purposes or,
subject to certain limitations, acquisition activities. The loan agreement
contains certain financial covenants which are customary in credit facilities of
this nature including minimum financial ratio requirements and limitations on
dividends, indebtedness, liens and investments. The Company is in compliance
with all such covenants as of September 30, 2001. As of September 30, 2001,
$45,000,000 was borrowed under the revolving credit and $2,962,000 of the
revolver capacity was committed to irrevocable standby letters of credit issued
in the ordinary course of business as required by certain vendor's contracts.
The Company's borrowing levels for working capital are seasonal with
the greatest utilization generally occurring in the first and third 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.
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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.
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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, Canada, Australia, U.K. and France. The Company also
purchases products and components from other countries. 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 69% of its future net foreign currency receivables covering
a period of approximately nine months. As of September 30, 2001, the Company had
$1,521,000 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
Canada, the U.K. and France as the Canadian dollar, 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, the Canadian dollar, 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
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percent change. On September 30, 2001, the British pound closed at 0.6785
relative to 1.00 U.S. dollar, and the French Franc closed at 0.09442 relative to
1.00 British pound. By comparison, on September 30, 2000, the British pound
closed at 0.6781 relative 1.00 U.S. dollar, and the French franc closed at
0.0910 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 and others could affect future earnings or the financial position of
the Company.
INTEREST RATE RISK
At September 30, 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 nine months 2001 average interest rate
under these borrowings, the Company's interest expense would have changed by
approximately $900,000. 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
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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 & CEO
/s/
-----------------------------------------------
Richard J. Wehrle
Vice President and Corporate Controller
Principal Accounting Officer
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