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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Common Stock, par value ON WHICH REGISTERED
$.10 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE 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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK (WHICH CONSISTS SOLELY OF
SHARES OF COMMON STOCK) HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY
29, 2000 (BASED UPON THE LAST REPORTED SALE PRICE OF $12.00 PER SHARE) WAS
APPROXIMATELY $65,570,748 ON SUCH DATE.
THE NUMBER OF SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE $.10 PER SHARE,
OUTSTANDING AS OF FEBRUARY 29, 2000 WAS 9,695,209 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S PROXY
STATEMENT RELATING TO THE 2000 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY
2, 2000, HAVE BEEN INCORPORATED BY REFERENCE HEREIN (PART III).
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ALAMO GROUP INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business .......................................................... 3
Item 2. Properties ........................................................ 8
Item 3. Legal Proceedings ................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders ............... 9
Item 4a. Executive Officers of the Company ................................. 9
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters .............................................. 10
Item 6. Selected Financial Data ........................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 11
Item 7a. Quantitative and Qualitative Disclosures About Market Risks ....... 15
Item 8. Financial Statements .............................................. 16
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure ........................... 16
PART III
Item 10. Directors and Executive Officers .................................. 17
Item 11. Executive Compensation ............................................ 17
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 17
Item 13. Certain Relationships and Related Transactions .................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 18
Index to Consolidated Financial Statements ................................. F-1
2
PART I
ITEM 1. BUSINESS
GENERAL
Alamo Group Inc., which includes its subsidiaries ("Alamo Group," "Alamo" or
the "Company"), is a leading manufacturer of high quality, tractor-mounted
mowing and other vegetation maintenance equipment and replacement parts for
industrial and agricultural end-users. The Company believes it is one of a few
vegetation maintenance equipment manufacturers offering a comprehensive product
line that employs the three primary heavy-duty cutting technologies: rotary,
flail and sickle-bar. The Company emphasizes high quality, cost efficient
products for its customers and strives to develop and market innovative products
while constantly monitoring and containing its manufacturing and overhead costs.
The Company has a long-standing policy of supplementing its internal growth
through acquisitions of businesses or product lines that currently command, or
have the potential to achieve, a leading share of their niche markets.
The predecessor corporation to the Company was incorporated in Texas in 1969
as successor to a business that began selling mowing equipment in 1955. The
Company was reincorporated in Delaware in 1987. As used herein and otherwise
required by the context, the terms "Alamo Group" and "the Company" shall mean
Alamo Group Inc. and its direct and indirect subsidiaries.
Since its founding in 1969, the Company has focused on satisfying customer
needs through geographic market expansion, product development and refinement
and selected acquisitions. The Company's first products were based on the rotary
cutting technology. Through acquisitions, the Company added the flail cutting
technology in 1983 and the sickle-bar technology in 1984. The Company added to
its presence in the industrial and governmental markets with the acquisition of
TIGER(R) at the end of 1994.
A major thrust into agricultural mowing markets was begun in 1986 with the
acquisition of RHINO(R), a leading manufacturer in this field. With this
acquisition, the Company embarked on an aggressive strategy to increase the
RHINO dealer network during a period of industry contraction. Distribution
network expansion remains a primary focus of the Company's marketing plans for
agricultural and industrial uses. The addition of M&W GEAR COMPANY in early 1995
allowed the Company to enter into the manufacturing and distribution of
hay-making equipment that complements the RHINO product line. M&W has been
integrated into the agricultural marketing group utilizing the same sales force
to cross sell RHINO and M&W products throughout their dealer networks.
Another strategic move was made in late 1995 with the acquisition of
HERSCHEL(R), a leading manufacturer and distributor of high wear, high turnover
farm equipment replacement parts. In addition, the Company has concentrated on
developing new products which meet the needs of its niche market customers and
on adapting its existing products to serve other applications.
In 1991, the Company began its international expansion with the acquisition
of MCCONNEL(R), a United Kingdom ("U.K.") manufacturer of vegetation maintenance
equipment, principally hydraulic boom-mounted hedge and grass cutters and
related parts. BOMFORD(R), also a U.K. company, was acquired in 1993. BOMFORD is
a manufacturer of heavy duty, tractor-mounted grass and hedge mowing equipment.
In 1994, the Company acquired S.M.A.(R) located in Orleans, France. S.M.A.
manufacturers and sells principally to the French government, a line of heavy
duty, tractor mounted grass and hedge mowing equipment and associated
replacement parts. This acquisition along with smaller ones made in France and
the Netherlands, when combined with MCCONNEL and BOMFORD, has made the Company
one of the largest manufacturer in the European market for the kind of equipment
sold by the Company.
On March 1, 2000, the Company announced the acquisition of 100% of the
outstanding shares of SCHWARZE INDUSTRIES, INC. for approximately $15,000,000 in
cash. The effective date of the acquisition was February 29, 2000. Schwarze
Industries is a manufacturer of sweeping equipment which is sold to governmental
and contractor users. The Company believes the Schwarze sweeper products fit the
Company's strategy of identifying product offerings with brand recognition in
the industrial market place.
3
The principal executive offices of the Company are located at 1502 East
Walnut, Seguin, Texas 78155, and its telephone number is (830) 379-1480.
TERMINATION OF MERGER AGREEMENT
As previously reported by the Company in prior filings with the Securities
and Exchange Commission, the Company had entered into a merger agreement (the
"Merger Agreement") among the Company, WEC Company, a subsidiary of Woods
Equipment Company ("WEC"), and AGI Acquisition Corp., a subsidiary of WEC
Company, which provided for the acquisition of the Company by WEC at a purchase
price of $18.50 per share for the Company's common stock. The Merger Agreement
was approved by the Company's stockholders at a special meeting held on November
18, 1998. Subsequent to the special meeting, after disagreement between the
parties as to the satisfaction of certain closing conditions WEC Company and
Alamo mutually agreed to terminate the Merger Agreement and abandon the proposed
merger on February 23, 1999. Since that time, the Company has focused its
attention on growing and strengthening its operations as an independent company.
MARKETING AND MARKETING STRATEGY
The Company's products are sold through the Company's seven marketing
organizations, and extensive, world-wide dealer networks under the ALAMO
INDUSTRIAL(R), TIGER(R), RHINO(R), M&W(R), HERSCHEL-ADAMS(R), MCCONNEL(R),
BOMFORD(R), S.M.A.(R) and other trademarKS.
ALAMO INDUSTRIAL equipment is principally sold to governmental end-users
and, to a lesser extent, to the agricultural market and commercial turf market.
Domestic governmental agencies and contractors that perform services for such
agencies purchase primarily hydraulically-powered, tractor-mounted mowers,
including boom-mounted mowers, and replacement parts for heavy-duty, intensive
use applications, including the maintenance of highway, airport, recreational
and other public areas. Municipal park agencies, golf courses and landscape
maintenance contractors purchase certain ALAMO INDUSTRIAL mowers that deliver a
fine manicured cut.
TIGER equipment includes heavy-duty, tractor-mounted mowing and vegetation
maintenance equipment and replacement parts. A portion of TIGER sales includes
tractors, which are not manufactured by TIGER. TIGER sells to state, county and
local governmental entities through a network of dealers. In most cases, the
larger dealers' principal product line is TIGER equipment. TIGER'S dealership
network is independent of ALAMO'S dealership network.
RHINO and M&W equipment is generally sold to farmers and ranchers to clear
brush, maintain pastures and unused farmland, shred crops and for hay-making. It
is also sold to other customers, such as mowing contractors and construction
contractors, for non-agricultural purposes. RHINO equipment consists principally
of a comprehensive line of tractor-mounted equipment, including rotary cutters,
finishing mowers, flail mowers and disc mowers. RHINO also sells post hole
diggers, scraper blades and replacement parts for all RHINO equipment. Farm
equipment dealers play the primary role in the sale of RHINO equipment. M&W
hay-making equipment uses a fixed chamber, round bale technology. A portion of
the RHINO product line is also sold through MCCONNEL'S network of agricultural
tractor dealers in the U.K.
HERSCHEL-ADAMS replacement parts are sold for most types of tillage
equipment and tractors, certain types of mowing and construction equipment.
HERSCHEL-ADAMS products include a full range of cutting parts, chromium carbide
treated hard-faced and plain replacement tillage tools, disc blades and
fertilizer application components. HERSCHEL-ADAMS replacement tools are sold
throughout the United States, Canada and Mexico to five major customer groups:
farm equipment dealers, fleet stores, wholesale distributors, original equipment
manufacturers and construction equipment dealers.
MCCONNEL equipment principally includes a line of hydraulic, boom-mounted
hedge and grass cutters, as well as other tractor attachments and implements
such as hydraulic backhoes, cultivators, subsoilers, buckets and other digger
implements and replacement parts. MCCONNEL also sells turf maintenance equipment
to the golf course and leisure markets. MCCONNEL equipment is sold primarily in
the U.K. and France, and to a lesser extent in other parts of Europe, Australia,
and North America. MCCONNEL primarily focuses on the agricultural and commercial
end-user. MCCONNEL products are sold in the U.K. through a network of
agricultural tractor dealers, with exports sold primarily through distributors.
4
BOMFORD equipment includes hydraulic, boom-mounted hedge and hedgerow
cutters, industrial grass mowers, agricultural seed bed preparation cultivators
and replacement parts. BOMFORD equipment is sold to governmental agencies,
contractors and agricultural end-users in the U.K., and France and to a lesser
extent Germany, Scandinavia, North America, Australia and the Far East.
BOMFORD'S sales network is very similar to that of MCCONNEL in the U.K.
SMA equipment includes hydraulic, boom-mounted hedge and hedgerow cutters
and associated replacement parts. SMA'S principal customers are French local
authorities. SMA'S product offerings were expanded in 1994 to include certain
quick-attach boom mowers manufactured by the Company in the U.K. to expand its
presence in agricultural dealerships.
In addition to the sales of HERSCHEL-ADAMS replacement parts, the Company
derives a significant portion of its revenues from sales of replacement parts
for each of its whole goods lines. Replacement parts represented approximately
35% of the Company's total sales for the year ended December 31, 1999.
Replacement parts are more profitable and generally less cyclical than
wholegoods.
While the Company believes that the end-user of its products evaluates the
purchase of such products on the basis of price and product quality, such
purchases are also based on a dealer's service and support and loyalty to the
dealer based on previous purchases.
Demand for products tend to be strongest in the spring and summer growing
seasons. The Company provides incentives for off-season purchases, including
discounts, as a way to even out seasonal variations in its manufacturing cycles.
TERMINATION OF RHINO INTERNATIONAL'S OPERATIONS
On December 31,1998, the Company announced its decision to cease operations
of its Chinese tractor import and marketing business, Rhino International.
Disposal of the assets of the Rhino International operation and the wind-up of
its business were substantially concluded in 1999.
PRODUCT DEVELOPMENT
The Company's ability to provide innovative responses to customer needs, to
develop and manufacture new products and to enhance existing product lines is
important to its success. The Company continually conducts research and
development activities in an effort to improve existing products and develop new
products. The Company currently employs 75 people in its engineering department,
31 of whom are professionals and the balance of whom are support staff. Amounts
expended on research and development activities were approximately $1,722,000 in
1999, $1,685,000 in 1998 and $1,712,000 in 1997.
SEASONALITY
In general, the vegetation maintenance equipment industry tends to follow
the seasonal buying patterns of its major customers with peak sales occurring in
the summer from May through August. Agricultural and governmental end-users
typically purchase new equipment during the first and second calendar quarters.
The timing of these purchases, however, may be affected by weather conditions
and general economic conditions. In order to achieve efficient utilization of
manpower and facilities throughout the year, the Company estimates seasonal
demand months in advance, and equipment is manufactured in anticipation of such
demand. The Company utilizes a rolling monthly sales forecast provided by the
Company's marketing divisions and order backlog in order to develop a production
plan for its manufacturing facilities. Additionally, the Company attempts to
equalize demand for its products throughout the calendar year by offering
seasonal sales programs which may provide additional incentives on equipment
that is ordered during off-season periods.
COMPETITION
The Company's products are sold in highly competitive markets throughout the
world. The principal competitive factors are price, quality, service and
reputation. The Company competes with several large national and international
companies that offer a broad range of agricultural equipment and replacement
parts, as well as numerous small, privately-held manufacturers and suppliers of
a limited number of products. However, the Company has fewer competitors in
wide-swath and boom-mounted mowing equipment within the governmental niche. Some
of the Company's competitors are significantly larger than the Company and have
substantially greater
5
financial and other resources at their disposal. The Company believes that it is
able to compete successfully in its markets by containing its manufacturing
costs, offering high quality products, developing and designing innovative
products and, to some extent, avoiding direct competition with significantly
larger competitors. There can be no assurance that such competitors will not
substantially increase the resources devoted to the development and marketing of
products competitive with those of the Company. The Company believes that within
the U.S. it is the largest supplier within governmental markets for its kind of
equipment, a major supplier in the U.S. agricultural market for such equipment
and one of the largest suppliers in the European market for such equipment.
UNFILLED ORDERS
As of December 31, 1999, the Company had unfilled customer orders of
$34,266,000 compared to $18,932,000 at the end of 1998. The increase is
primarily attributable to a gradual recovery in the agricultural market, which
the Company believes is evidenced by an increase in the incoming orders during
the fourth quarter of 1999 for these products. Management expects that
substantially all of the Company's backlog as of December 31, 1999, will be
shipped during fiscal year 2000. The amount of unfilled orders at a particular
time is affected by a number of factors, including the scheduling of
manufacturing and shipping of the product, which in most instances are dependent
on the Company's seasonal sales programs and the requests of its customers.
Certain of the Company's orders are subject to cancellation anytime before
shipment; therefore, a comparison of unfilled orders from period to period is
not necessarily meaningful and may not be indicative of future actual shipments.
SOURCES OF SUPPLY
The principal raw materials used by the Company include steel and purchased
components. During 1999, the raw materials used by the Company were available
from a variety of sources in adequate quantities and at prevailing market
prices. A number of the Company's units are mounted on and shipped with a
tractor. Tractors are generally available, but in some periods delays in
receiving tractors have been experienced. No single supplier is responsible for
supplying more than 10% of the principal raw materials used by the Company.
While the Company manufactures many of the parts for its products, a
significant percentage of parts, including most drive lines, gear boxes and
hydraulic pumps and motors, are purchased from outside suppliers which
manufacture to the Company's specifications.
Approximately 15% of the aggregate dollar amount of parts purchased by the
Company's U.S. operations are imported.
PATENTS AND TRADEMARKS
The Company owns U.S. and foreign patents. While the Company considers its
patents to be advantageous to its business, it is not dependent on any single
patent or group of patents.
Products manufactured by the Company are advertised and sold under numerous
trademarks. The ALAMO INDUSTRIAL(R), RHINO(R), M&W(R), FUERST(R), MCCONNEL(R),
BOMFORD(R), SMA(R), TIGER(R) and HERSCHEL-ADAMS(R) trademarks are the primary
marks for the Company's products. The Company also owns other trademarks which
it uses to a lesser extent such as TERRAIN KING(R), TRIUMPH(R), MOTT(R),
TURNER(R), and DANDL(R). Management believes that the Company's trademarks are
well known in its markets and are valuable and that their value is increasing
with the development of its business, but that the business is not dependent on
such trademarks. The Company, however, vigorously protects its trademarks
against infringement. The Company believes it has registered its trademarks in
the appropriate jurisdictions.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
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
6
resulted from chrome-plating operations which were discontinued several years
before the Company purchased the property. The Company is working with an
environmental consultant and the state of Iowa to develop and implement a plan
to remediate the contamination. All present and future remediation costs have or
will be paid 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.
EMPLOYEES
As of December 31, 1999, the Company employed 1,117 full-time employees. The
HERSCHEL facility in Indianola, Iowa has a collective bargaining agreement which
covers approximately 48 employees, and the two U.K. subsidiaries, MCCONNEL and
BOMFORD, employing approximately 220 persons, also have collective bargaining
agreements. The Company considers its employee relations to be satisfactory.
FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
See Note 13 of the accompanying consolidated financial statements.
FORWARD-LOOKING INFORMATION
Part I of this Annual Report on Form 10-K and the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in Part
II of this Annual Report contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports or otherwise, in the future by or on
behalf of the Company.
Statements that are not historical are forward-looking. When used by or on
behalf of the Company, the words "estimate," "believe," "intend" and similar
expressions generally identify forward-looking statements made by or on behalf
of the Company.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to the Company and the markets it serves.
Particular risks and uncertainties facing the Company at the present include
continued deterioration in the Company's United States agricultural market and
softening in its international markets; increased competition in the Company's
businesses from competitors that have greater financial resources; the impact of
the strong dollar and British pound which increase the cost of the Company's
products in foreign markets; competitive implications and price transparencies
related to the euro conversion; the Company's ability to develop and manufacture
new and existing products profitably; market acceptance of existing and new
products; the Company's ability to maintain good relations with its employees;
and the ability to retain and hire quality employees.
In addition, the Company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand; slower growth in the Company's markets; financial market
changes including increases in interest rates and fluctuations in foreign
exchange rates; unanticipated problems or costs associated with the transition
of European currencies to the euro currency; actions of competitors;
unanticipated problems or costs associated with accommodation of the year 2000
in computer applications or products; the inability of the Company's suppliers,
customers, creditors, government agencies, public utility providers and
financial service organizations to implement computer applications accommodating
the year 2000; seasonal factors in the Company's industry; unforeseen
litigation; government actions including budget levels, regulations and
legislation, primarily legislation relating to the environment, commerce,
infrastructure spending, health and safety; and availability of materials.
7
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 2. PROPERTIES
At December 31, 1999, the Company utilized six principal manufacturing
plants located in the United States and four in Europe. Listed below are the
facilities:
FACILITY SQUARE FOOTAGE PRINCIPAL TYPES OF PRODUCTS MANUFACTURED AND ASSEMBLED
------------------------- -------------- ------------------------------------------------------
Gibson City, Illinois 235,000 Hay Mowers and Balers, Deep Tillage Equipment and
Mechanical Mowers for RHINO and M&W
Seguin, Texas 230,000 Mechanical and Hydraulic Rotary and Flail Mowers,
Boom-Mounted Equipment for ALAMO and RHINO
Guymon, Oklahoma 171,000 Hard-Faced and Plain Tillage Tools, Replacement
Parts for HERSCHEL and ADAMS
Ludlow, England 160,000 Hydraulic Boom-Mounted Hedge and Grass Cutters
and other Equipment for MCCONNEL
Holton, Kansas 150,000 Mechanical Rotary Mowers, Blades and Post Hole
Diggers for RHINO
Indianola, Iowa 150,000 High Wear, High Turnover Farm Equipment and
Replacement Parts for HERSCHEL and ADAMS
Salford Priors, England 106,000 Tractor Mounted Power Arm Flails and other
Equipment for BOMFORD
Sioux Falls, South Dakota 60,000 Assembly of Hydraulic and Mechanical Mowing
Equipment for TIGER
Orleans, France 40,000 Heavy Duty, Tractor-Mounted Grass and Hedge Mowing
Equipment for SMA
Peschadores, France 12,000 Manufactures Replacement Parts for Blades, Knives
and Shackles
--------------
Total 1,314,000
About 87% of the manufacturing and office space is owned, with the balance
being leased. The Company also has 79,700 square feet of warehouse space in four
locations, of which 35,000 square feet is owned. The Company closed one of its
manufacturing facilities in LaGrange, Illinois during the year and the facility
is presently held for sale. Further, the Company is in the process of closing
its warehouse location in Harrisburg, Pennsylvania which is expected to be
completed by March 31, 2000. Except as otherwise stated herein, the Company
considers each of its facilities to be well maintained, in good operating
condition, and adequate for its present level of operations.
ITEM 3. LEGAL PROCEEDINGS
In view of the inherent difficulty of predicting the outcome of such
matters, particularly in cases in which substantial damages are sought, the
Company, cannot state what the eventual outcome of pending matters will be. The
Company is contesting the allegations made in each pending matter and believes,
based on current knowledge and after consultation with counsel, that the outcome
of such matters will not have a material adverse effect on the consolidated
financial condition of the Company, but may be material to the Company's
operating results for any particular period, depending on the level of the
Company's income for such period.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year ended December 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
Certain information is set forth below concerning the executive officers of
the Company, each of whom has been selected to serve until the 2000 annual
meeting of directors or until his successor is duly elected and qualified.
NAME AGE POSITION
--------------------- ----- ----------------------------------------------
Donald J. Douglass 68 Chairman of the Board
Ronald A. Robinson 48 President and Chief Executive Officer
Robert H. George 53 Vice President, Secretary and Treasurer
Ian Burden 45 Vice President, Alamo Group (USA) Inc.,
Geoffrey Davies 52 Managing Director, Alamo Group (EUR) Ltd.
John C. Moon 44 Vice President, Alamo Group (USA) Inc.,
Richard J. Wehrle 43 Vice President and Corporate Controller, Alamo
Group (USA), Inc.
Donald J. Douglass founded the Company in 1969 and served as Chairman of the
Board and Chief Executive Officer of the Company since 1969. Mr. Douglass
resigned his position as Chief Executive Officer on July 7, 1999, but continues
to serve as a director and Chairman of the Board for the Company.
Ronald A. Robinson, age 48, was appointed President, Chief Executive Officer
and a director of the Company on July 7, 1999. Mr. Robinson had previously been
President of Svedala Industries, Inc. the U. S. subsidiary of Svedala Industries
AB of Malmo, Sweden, a leading manufacturer of equipment and systems for the
worldwide construction, mineral processing and materials handling industries.
Mr. Robinson joined Svedala in 1992 when it acquired Denver Equipment Company of
which he was Chairman and Chief Executive Officer.
Robert H. George joined the Company in May 1987 as Vice President and
Secretary and has served the Company in various executive capacities since that
time. Prior to joining the Company, Mr. George was Senior Vice President of
Frost National Bank from 1978 to 1987.
Ian Burden has been Vice President of Alamo Group (USA) Inc. since January
1994 and manages the Alamo Industrial division. Since 1981 Mr. Burden served in
various sales and marketing capacities for Bomford Turner, Ltd., a U.K. company
acquired by Alamo in 1993.
Geoffrey Davies has been Managing Director of Alamo Group (EUR) Ltd. since
December 1993. From 1988 to 1993, Mr. Davies served McConnel Ltd., a U.K.
company acquired by Alamo in 1991, in various capacities including serving as
its Marketing Director from February 1992 until December 1993.
John C. Moon has been Vice President of Alamo Group (USA) Inc. since May
1991 and manages the Agricultural division. Prior to his appointment as Vice
President, Mr. Moon has served Rhino in a number of sales and marketing
positions since 1983.
Richard J. Wehrle has been Vice President and Corporate Controller of Alamo
Group (USA) Inc. since September 1995. Prior to his appointment, Mr. Wehrle has
served in various accounting management capacities within the Company since
1988.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the New York Stock Exchange under the
symbol: ALG. On February 29, 2000, there were 9,695,209 shares of common stock
outstanding, held by approximately 200 holders of record. The total number of
beneficial owners of the Company's common stock exceeds this number. On February
29, 2000, the closing price of the common stock on the New York Stock Exchange
was $12.00 per share.
The following table sets forth for the period indicated, on a per share
basis, the range of high and low sales prices for the Company's common stock as
quoted by the New York Stock Exchange. These price quotations reflect
inter-dealer prices, without adjustment for retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions.
HIGH AND LOW STOCK PRICES FOR THE LAST TWO FISCAL YEARS WERE:
1999 1998
------------------------------------------------------ ------------------------------------------------------
CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED QUARTER ENDED HIGH LOW DECLARED
------------------------------------------------------ ------------------------------------------------------
March 31, 1999 $ 12-5/8 $ 7-7/8 $.11 March 31, 1998 $21-13/16 $15-3/8 $.10
June 30, 1999 10-1/4 6-7/8 .11 June 30, 1998 19 14-1/2 .11
September 30, 1999 10-1/8 8-1/2 .06 September 30, 1998 19-3/4 13-1/2 .11
December 31, 1999 10-1/4 8-1/4 .06 December 31, 1998 15-7/16 10-5/8 .11
------------------------------------------------------ ------------------------------------------------------
On July 7, 1999, the Board of Directors of the Company reduced its quarterly
dividend from $0.11 per share to $0.06 per share effective for the second
quarter of 1999. The change was made in order to increase the Company's ability
to grow its business both internally and externally.
On January 6, 2000, the Board of Directors of the Company declared a
quarterly dividend of $0.06 per share which was paid on February 3, 2000, to
holders of record as of January 18, 2000. The Company expects to continue its
policy of paying regular cash dividends, although there is no assurance as to
future dividends as they depend on future earnings, capital requirements and
financial condition. In addition, the payment of dividends is subject to
restrictions under the Company's bank revolving credit agreement.
The Company's bank revolving credit agreement prohibits the Company from
paying quarterly dividends on its Common Stock in excess of $0.11 per share
through March 31, 2000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Item
7 of Part II of this Annual Report on Form 10-K for a further description of the
bank revolving credit agreement.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of Alamo Group Inc. and Subsidiaries. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included herein.
(in thousands, except per share amounts)
FISCAL YEAR ENDED(1)
---------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 30,
1999 1998 1997 1996 1995(2)
----------- ----------- ----------- ----------- -----------
OPERATIONS:
Net sales ....................................... $176,608 $200,553 $203,092 $183,595 $163,852
Income before income taxes ...................... 9,696 6,535 20,595 13,722 17,779
Net income ...................................... 6,102 4,115 13,600 8,762 11,615
Percent of sales ................................ 3.5% 2.1% 6.7% 4.8% 7.1%
Earnings per share
Basic ........................................ 0.63 0.42 1.42 0.91 1.36
Diluted ...................................... 0.63 0.42 1.41 0.91 1.35
Dividends per share ............................. 0.29 0.43 0.40 0.40 0.40
Average common shares
Basic ........................................ 9,722 9,714 9,602 9,585 8,541
Diluted ...................................... 9,726 9,730 9,674 9,641 8,619
FINANCIAL POSITION:
Total assets .................................... $132,795 $161,638 $156,124 $153,862 $151,571
Short-term debt and current maturities .......... 526 487 727 1,031 1,290
Long-term debt, excluding current maturities .... 5,469 35,858 28,617 35,299 37,309
Stockholders' equity ............................ 108,030 106,906 106,265 97,250 90,705
(1) All references to 1995 herein are to the fiscal years ended December 30,
1995 (52 week period). Until 1996, the Company's fiscal years comprised 52
or 53 week periods ending on the Saturday closest to December 31. In 1996,
the Company changed to a calendar year basis. There were no material
differences in the results presented from this change.
(2) Includes the results of operations of companies acquired from the effective
dates of acquisitions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT ON FORM 10-K.
The following tables set forth, for the periods indicated, certain financial
data:
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
---------- ---------- ----------
Sales data in thousands:
Domestic
Agricultural ............................................. $ 75,931 $ 98,393 $ 100,398
Industrial ............................................... 58,719 61,133 56,453
European .................................................... 41,958 41,027 46,241
---------- ---------- ----------
Total net sales ............................................. $ 176,608 $ 200,553 $ 203,092
========== ========== ==========
Cost and profit margins, as percentages of net sales:
Cost of sales ............................................ 76.8% 78.2% 73.8%
Gross margin ............................................. 23.2% 21.8% 26.2%
Selling, general and administrative expense .............. 17.1% 17.5% 15.3%
Income from operations ................................... 6.1% 4.2% 10.9%
Income before income taxes ............................... 5.5% 3.3% 10.1%
Net income ............................................... 3.5% 2.1% 6.7%
11
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
The Company's net sales in the fiscal year ending December 31, 1999 ("1999")
were $176,608,000, a decrease of $23,945,000 or 11.9% compared to $200,553,000
for the fiscal year ended December 31, 1998 ("1998"). The decrease in sales was
primarily attributable to the cyclical decline in the agricultural market which
began in late 1998 and continued throughout 1999.
Domestic Agricultural sales (Net) were $75,931,000 in 1999 compared to
$98,393,000 in 1998, representing a decline of $22,462,000 or 22.8%. The
continued weakness in the overall agricultural economy affected all product
lines during the first three quarters of 1999. The Company began to see some
gradual improvement in the fourth quarter with increased new orders,
especially in the Rhino and Herschel Adams products. Demand for M&W products
continued to be less than anticipated and has not rebounded to historical
backlog levels.
Domestic Industrial sales (Net) in 1999 were $58,719,000 compared to
$61,133,000 in 1998, a $2,414,000 or 3.9% decrease. Wholegood sales improved
over 1998 but tractor shipments declined due to a slowdown in deliveries
from major tractor suppliers which is expected to last through the first
quarter of 2000. Also affecting sales were drought conditions that affected
the northeast areas of the U.S. Industrial backlogs improved during the
fourth quarter of 1999 increasing over last year's levels due to higher
state governmental agency spending.
European sales (Net) increased $931,000 or 2.3% to $41,958,000 in 1999
compared to $41,027,000 in 1998. Exchange rates between the French franc and
the British pound were stable during the first half of 1999 but weakened
during the third and fourth quarter of 1999. European markets rebounded
somewhat during the fourth quarter of 1999 resulting in improved sales.
Gross Margins for 1999 were $40,930,000 (23.2% of net sales) compared to
$43,658,000 (21.8% of net sales) in 1998. Margin percentages for 1999 were
negatively impacted by lower production volumes primarily for agricultural
products as well as an inventory obsolescence charge in the third quarter of
$3,201,000 from a fundamental change in business policy relating to inventory.
The 1998 margin percentages were substantially impacted due to the writeoff of
Rhino International assets relating to the shutdown of the operations totaling
$4,513,000.
Selling, general and administrative expenses ("SG&A") were $30,123,000
(17.1% of net sales) in 1999 compared to $35,169,000 (17.5% of net sales) in
1998. In the last quarter of 1999, the Company expensed a post retirement
benefit for Donald J. Douglass, Chairman of the Board of the Company, who
retired as an employee of the Company on December 31, 1999. The total expense
was $707,000. The Company also expensed a Consulting and Non-Competition
Agreement with its previous President and Chief Operating Officer, Oran Logan in
the amount of $400,000. Mr. Logan's agreement was filed with the Company's 10-Q
for the third quarter of 1999. The Company's 1999 marketing expenses were down
due to lower agricultural sales volumes which translated to reduced commission
levels and a reduction of advertising costs. During 1998, the Company
experienced costs relating to the settlement of a lawsuit as well as writeoff of
goodwill relating to its Rhino International operations. The Company also
incurred expenses relating to the terminated WEC acquisition.
Interest expense for 1999 was $1,495,000 compared to $2,647,000 in 1998, a
$1,152,000 or 43.5% decrease. Increased cash flow from operations was primarily
responsible for lowering debt levels throughout the year thereby reducing
interest expense.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for 1998 were $200,553,000, a decrease of $2,539,000 or 1.3%
compared to $203,092,000 for 1997.
Domestic Agricultural sales (Net) for 1998 were $98,393,000 compared to
$100,398,000 for 1997, representing a $2,005,000 or 2.0% decrease due
primarily to severe drought conditions in the Company's major domestic
markets, which reduced replacement part sales in such markets, and what the
Company believes is the beginning of a cyclical decline in the domestic
agricultural market. Also reducing agricultural sales for 1998 were lower
sales from the Company's Rhino International operation, described more fully
in the paragraph below.
12
Domestic Industrial sales (Net) for 1998 were $61,133,000 compared to
$56,453,000 in the prior year, a $4,680,000 or 8.3% increase, as a result of
continued strength in customer orders.
European sales (Net) for 1998 were $41,027,000, a decrease of $5,214,000 or
11.3% compared to $46,241,000 for last year. The decrease in European sales
was primarily due to continued weakness in farm income in the United Kingdom
and the impact of currency movements, particularly the strength of the
British pound against the French franc, which negatively impacted sales of
the Company's U.K. manufactured products. European sales showed some firming
in the second half of 1998, but are still below historical levels.
In December 1998, the Company announced its decision to terminate the
operations of the Company's Chinese tractor import and marketing business, Rhino
International. These operations had experienced a decline in sales and
profitability related to business factors. Sales in 1998 were $2,197,000 versus
$7,828,000 in 1997. The Company is in the process of collection of accounts
receivable of Rhino International and disposing of its remaining inventory. This
process is substantially complete.
Cost of sales in 1998 was $156,895,000 or 78.2% of net sales compared to
$149,940,000 or 73.8% of net sales in 1997. Impacting costs of sales in the
first quarter of 1998 were production inefficiencies, including supplier delays,
caused by the need to rapidly accelerate production to meet increasing order
rates, and in the last half of the year manufacturing cost variances as
production levels were reduced to accommodate lower business volume. Costs of
sales in 1998 included the impacts of inventory writedowns related to disposing
of the remaining inventory at Rhino International. Gross margins in 1998 were
also reduced by heavier discounts given in agricultural markets, obsolescence
charges in inventory particularly in operations acquired in 1995 and costs of
operations of regional warehouse additions.
Selling, general and administrative expenses in 1998 were $35,169,000 or
17.5% of net sales compared to $31,026,000 or 15.3% of net sales for 1997. The
increase in selling, general and administrative expenses of $4,143,000 was
primarily attributable to the settlement of and legal costs related to certain
litigation relating to Rhino International, accounts receivable writedowns of
Rhino International and legal and other costs related to the Company's proposed
merger transaction with Woods Equipment Company, which was terminated subsequent
to December 31, 1998. Merger costs were $770,000 after tax, or $0.08 per share
in 1998.
Interest expense was $2,647,000 in 1998 compared to $2,262,000 in 1997.
The Company's net income before income taxes from its U.S. operations
decreased approximately $12,596,000 from $14,195,000 in 1997 to $1,614,000 in
1998. The Company's income before income taxes from its foreign operations
decreased approximately $1,479,000 from $6,400,000 in 1997 to $4,921,000 in
1998. Net income for 1998 was $4,115,000 or $0.42 per diluted share compared to
$13,600,000 or $1.41 per diluted share for 1997 as a result of the factors
described above. Without the effect of the net losses of Rhino International as
described above, 1998 net income would have been $10,508,000 or $1.08 per
diluted share and 1997 net income would have been $14,414,000 or $1.49 per
diluted share.
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 quarter and early spring of
the year and partly in the fourth quarter in anticipation of the spring and fall
selling seasons. Accounts receivable historically build in the first and fourth
quarters of each year as a result of preseason sales. These sales balance the
Company's production during the off season. During the latter part of 1998, an
inventory reduction plan was put in place to reduce excess and obsolete
inventory levels that had continued to hamper liquidity. Since the end of 1998,
tighter controls on inventory purchases as well as just in time inventory
procedures for raw materials have aided in reducing inventory by approximately
$18,278,000 of which $3,201,000 was a writedown due to a change in the Company's
obsolescence reserve policy.
As of December 31, 1999, the Company had working capital of $79,854,000
which represents a decrease of $26,038,000 from working capital of $105,892,000
as of December 31, 1998. The decrease in working capital was primarily due to
lower inventory levels as mentioned above.
13
Capital expenditures were $3,616,000 for 1999, compared to $4,403,000 for
1998. Capital expenditures for 2000 are expected to be approximately
$12,000,000. The significant increase is attributable to several items, the
largest one being the proposed purchase of the Company's Bomford manufacturing
facility and adjacent land in the U.K. which is currently leased on a long-term
basis. The purchase price is approximately $5,300,000 and the transaction is
expected to be complete by mid 2000. Other major components of the increase are
related to improvements at the Company's Seguin and Holton plants to improve
their overall efficiency and increase capacity to take on production being
transferred as a result of the closure of the Company's LaGrange facility. And,
approximately $900,000 of the increase is a result of rebuilding the office
building at the Company's Gibson City plant which was destroyed in January 1999
by a snowstorm. This cost has been recovered from the Company's insurance
provider. The Company expects to fund expenditures from operating cash flows or
through its revolving credit facility, described below.
The Company was authorized by its Board of Directors in 1997 to repurchase
up to 1,000,000 shares of the Company's common stock to be funded through
working capital and credit facility borrowings. In 1997 the Company repurchased
79,840 shares. No shares were repurchased in 1998. In 1999, the Company
repurchased 40,600 shares in the third quarter.
Net cash provided by operating activities was $39,188,000 for 1999 compared
to $463,000 for 1998. The significant increase of cash from operating activities
came from a reduction in inventory and accounts receivable. Net inventory was
reduced by $18,278,000 due to the inventory reduction plan mentioned above.
Accounts receivable was reduced by $7,379,000 from collections as well as lower
sales from our agricultural division.
Net cash used by financing activities was $33,483,000 for 1999 compared to
net cash provided of $2,813,000 for 1998. The change in activity was primarily a
result of payment on the bank revolving credit facility.
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 December 31, 1999. As of December 31, 1999, there
were no borrowings under the revolving credit facility. At December 31, 1999,
$1,233,000 of the revolver capacity was committed to irrevocable standby letters
of credit issued in the ordinary course of business as required by vendors
contracts. The Company's borrowing levels for working capital are seasonal with
the greatest utilization generally occurring in the first quarter and early
spring. 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.
On March 1, 2000, the Company announced it had acquired 100% of the
outstanding shares of Schwarze Industries, Inc. for approximately $15,000,000 in
cash. The effective date of the transaction was February 29, 2000. The Company
borrowed the funds for this acquisition from its revolving credit facility
discussed above.
INFLATION
The Company believes that inflation generally has not had a material impact
on its operations or liquidity to date.
IMPACT OF YEAR 2000
In 1998, the Company discussed the nature and progress of its plans to
become Year 2000 compliant. In late 1999, the Company completed its remediation
and testing of systems. As a result of this planning and implementation effort,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $70,000 during 1999 in connection with remediating its
14
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with our products, our internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
EURO CONVERSION
On January 1, 1999, the European Economic and Monetary Union (EMU) entered a
three-year transition phase during which a new common currency, the "euro," was
introduced in participating countries which established fixed conversion rates
through the European Central Bank (ECB) between existing local currencies and
the euro. From that date, the euro is traded on currency exchanges.
Following introduction of the euro, local currencies will remain legal
tender until December 31, 2001. During this transition period, goods and
services may be paid for with the euro or the local currency under the EMU's "no
compulsion, no prohibition" principle. France was a participating country in the
first group to adopt the EMU, which effects the Company's French operations. The
U.K. is currently not a part of the EMU.
Based on its evaluation to date, management believes that the introduction
of the euro will not have a material adverse impact on the Company's financial
position, results of operations or cash flows. However, uncertainty exists as to
the effects the euro will have on the marketplace, and there is no guarantee
that all issues will be foreseen and corrected or that other third parties will
address the conversion successfully.
The Company has reviewed its information systems software and identified
modifications necessary to ensure business transactions can be conducted
consistent with the requirements of the conversion to the euro. Certain of these
modifications have been implemented, and others will be implemented during the
course of the transition period. The Company expects that modifications not yet
implemented will be made on a timely basis and expects the incremental cost of
the euro conversion to be immaterial. Any costs associated with implementing
changes to comply with the euro conversion are expensed as incurred.
The euro introduction did not have a material impact on the Company's
overall currency risk. The Company anticipates the euro will simplify financial
issues related to cross-border trade in the EMU and reduce the transaction costs
and administrative time necessary to manage this trade and related risks.
However, the Company believes that the associated savings will not be material
to corporate results.
PENDING ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133. "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. In July 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. Because
of the Company's minimal use of derivatives, management does not anticipate that
the adoption of the new Statement will have a significant effect on earnings or
the financial position of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks. Market risk is the potential
loss arising from adverse changes in market prices and rates. The Company does
not enter into derivative or other financial instruments for trading or
speculative purposes.
FOREIGN CURRENCY RISK
AS A RESULT OF FOREIGN SALES
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company primarily manufactures its
products in the United States, the 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
15
be affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in the other markets in which the U.S. or U.K.
subsidiaries of the Company distributes its products.
To mitigate the short-term effect of changes in currency exchange rates on
the Company's functional currency based sales, the Company regularly hedges by
entering into foreign exchange forward contracts to hedge approximately 80% of
its future net foreign currency sales transactions over a period of six months.
As of December 31, 1999, the Company had no outstanding forward exchange
contracts related to sales, however there was an exchange contract of $8,560,000
relating to a short-term inter-company cash transfer. A 15% fluctuation in
exchange rates for these currencies would change the fair value by approximately
$2,100,000. However, since these contracts hedge foreign currency denominated
transactions, any change in the fair value of the contracts should be offset by
changes in the underlying value of the transaction being hedged.
EXPOSURE TO EXCHANGE RATES AS A RESULT OF FOREIGN SALES
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies, predominately in European countries,
as a result of the sales of its products in foreign markets. Foreign currency
options and forward contracts are used to hedge against the earnings effects of
such fluctuations. At December 31, 1998, the result of a uniform 10%
strengthening in the value of the dollar relative to the currencies in which the
Company's sales are denominated would result in a decrease in gross profit of
$1,226,000 for the year ending December 31, 1999. Comparatively, at December 31,
1997, the result of a uniform 10% strengthening in the value of the dollar
relative to the currencies in which the Company's sales are denominated would
have resulted in a decrease in gross profit of $1,235,000 for the year-ended
December 31, 1998. This calculation assumes that each exchange rate would change
in the same direction relative to the U.S. dollar. In addition to the direct
effects of changes in exchange rates, which are a changed dollar value of the
resulting sales, changes in exchange rates also affect the volume of sales or
the foreign currency sales price as competitors' products become more or less
attractive. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices. The translation adjustment during 1999 was a
loss of $1,538,000. On December 31, 1999, the British pound closed at .6191
relative to 1.00 U.S. dollar, and the French franc closed at .0953 relative to
1.00 British pound. By comparison, on December 31, 1998, the British pound
closed at .6026 relative to 1.00 U.S. dollar, and the French franc closed at
.1076 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 December 31, 1999 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
hundred basis point change in the 1999 average interest rate under these
borrowings, the Company's 1999 interest expense would have changed by
approximately $120,000. 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.
ITEM 8. FINANCIAL STATEMENTS
The financial statements and supplementary data described in Item 14(a)1 of
this report and included on pages F-1 through F-17 of this Report are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
There is incorporated herein, by reference, that portion of the Company's
definitive proxy statement for the 2000 Annual Meeting of Stockholders, which
appears therein under the captions "Item 1: Election of Directors," "Information
Concerning Directors," and "Section 16(a) Beneficial Ownership Reporting
Compliance." See also the information in Item 4a. of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated in this Item 11, by reference, that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders, which appears under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated in this Item 12, by reference, that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders, which appears under the caption "Beneficial Owners of Common
Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated in this Item 13, by reference, that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders, which appears under the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
Participation."
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included
following the Index to Consolidated Financial Statements on page F-1 of this
Report.
PAGE
------
Report of Ernst & Young LLP, Independent Auditors............... F-2
Consolidated Statements of Income............................... F-3
Consolidated Balance Sheets..................................... F-4
Consolidated Statements of Stockholders' Equity................. F-5
Consolidated Statements of Cash Flows........................... F-6
Notes to Consolidated Financial Statements...................... F-7
(A)2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required under the instructions or the information requested is set forth in the
consolidated financial statements or related notes thereto.
(A)3. EXHIBITS
The following Exhibits are incorporated by reference to the filing indicated
or are included following the Index to Exhibits.
18
INDEX TO EXHIBITS
INCORPORATED BY REFERENCE
FROM THE FOLLOWING
EXHIBITS EXHIBIT TITLE DOCUMENTS
- ----------- ----------------------------------------------------------------- --------------------------
3.1 -- Certificate of Incorporation, as amended, of Alamo Group Inc. Form S-1, February 5, 1993
3.2 -- By-Laws of Alamo Group Inc. Form 10-K, March 29, 1996
10.1 -- Warrant Agreement between Alamo Group Inc. and Capital
Southwest Corporation, dated November 25, 1991 Form S-1, February 5, 1993
*10.2 -- 1993 Non-Qualified Stock Option Plan, adopted by the
Board of Directors on February 2, 1993 Form S-1, February 5, 1993
*10.3 -- Alamo Group Inc. Executive Loan Program of 1991 Form S-1, March 18, 1993
*10.4 -- 1994 Incentive Stock Option Plan, adopted by the Board of
Directors on January 25, 1994 Form 10-K, March 28, 1994
10.5 -- Third Amended and Restated Revolving Credit and Term
Loan Agreement between NationsBank of Texas, N.A. and
Alamo Group Inc. and certain subsidiaries dated
December 29, 1995 Form 10-K, March 29, 1996
10.6 -- First Amendment to Third Amended and Restated Revolving
Credit and Term Loan Agreement dated April 10, 1996 Form 10-K, March 27, 1997
10.7 -- Second Amendment to Third Amended and Restated Revolving
Credit and Term Loan Agreement dated December 23, 1996 Form 10-K, March 27, 1997
10.8 -- Form of indemnification agreements with Directors of
Alamo Group Inc. Form 10-Q, May 15, 1997
10.9 -- Form of indemnification agreements with certain executive
officers of Alamo Group Inc. Form 10-Q, May 15, 1997
10.10 -- Third Amendment to Third Amended and Restated Revolving Credit
and Term Loan Agreement dated June 23, 1997 Form 10-Q, August 15, 1997
10.11 -- Fourth Amendment to Third Amended and Restated Revolving Credit
and Term Loan Agreement dated December 31, 1997 Form 10-K, March 31, 1998
*10.12 -- Incentive Compensation Plan, adopted on December 9, 1997 Form 10-K, March 31, 1998
*10.13 -- 401(k) Restoration Plan for Highly Compensated Employees,
adopted on December 9, 1997 Form 10-K, March 31, 1998
*10.14 -- Severance Pay Agreement for Twelve Months Between Alamo Group Inc.
and Certain Officers and Employees of Alamo Group Form 10-Q, August 14, 1998
*10.15 -- Severance Pay Agreement for Eighteen Months Between Alamo
Group Inc. and Certain Officers and Employees of Alamo Group Form 10-Q, August 14, 1998
10.16 -- Amended and Restated Agreement and Plan of Merger by and
among Alamo Group Inc., WEC Company and AGI Acquisition Corp.
dated as of September 4, 1998 Schedule 14A, October 22, 1998
10.17 -- Letter Agreement Between Alamo Group Inc., WEC Company and
AGI Acquisition Corp. dated February 23, 1999 terminating the
Merger Agreement Between the Parties dated September 4, 1998 Form 10-K, March 31, 1999
10.18 -- Fifth Amendment to Third Amended and Restated Revolving Credit
and Term Loan Agreement dated effective as of December 31, 1998 Form 10-K, March 31, 1999
*10.19 -- 1999 Non-Qualified Stock Option Plan, adopted by the
Board of Directors on July 7, 1999 Schedule 14A, July 30, 1999
*10.20 -- Amended and Restated 1994 Incentive Stock Option Plan adopted
by the Board of Directors on July 7, 1999 Schedule 14A, July 30, 1999
21.1 -- Subsidiaries of the Registrant Form 10-K, March 31, 2000
23.1 -- Consent of Ernst & Young LLP Filed Herewith
27.1 -- Financial Data Schedule Electronic Filing Only
* Compensatory Plan
(B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 1999
(None)
19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: March 23, 2000 By: /s/ RONALD A. ROBINSON
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- ---------------------- ------------------------------------ --------------
/s/ DONALD J. DOUGLASS Chairman of the Board and Director March 23, 2000
Donald J. Douglass
/s/ RONALD A. ROBINSON President, Chief Executive Officer March 23, 2000
Ronald A. Robinson and a Director (Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer)
/s/ ORAN F. LOGAN Director March 23, 2000
Oran F. Logan
/s/ DAVID H. MORRIS Director March 23, 2000
David H. Morris
/s/ O.S. SIMPSON, JR. Director March 23, 2000
O.S. Simpson, Jr.
/s/ JAMES B. SKAGGS Director March 23, 2000
James B. Skaggs
/s/ WILLIAM R. THOMAS Director March 23, 2000
William R. Thomas
20
ALAMO GROUP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors......................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997........................ F-3
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998.......................................... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997........................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997........................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................. F-7
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Alamo Group Inc.
We have audited the accompanying consolidated balance sheets of Alamo
Group Inc. and its subsidiaries as of December 31, 1999 and December 31,
1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Alamo Group Inc. and its subsidiaries at December 31, 1999
and 1998 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
San Antonio, Texas
March 1, 2000
F-2
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
Net sales ...................................... $ 176,608 $ 200,553 $ 203,092
Cost of sales .................................. 135,705 156,895 149,940
--------- --------- ---------
Gross profit ............................... 40,903 43,658 53,152
Selling, general and administrative expense .... 30,123 35,169 31,026
--------- --------- ---------
Income from operations ..................... 10,780 8,489 22,126
Interest expense ............................... (1,495) (2,647) (2,262)
Interest income ................................ 604 697 523
Other income (expense), net .................... (193) (4) 208
--------- --------- ---------
Income before income taxes ................. 9,696 6,535 20,595
Provision for income taxes ..................... 3,594 2,420 6,995
--------- --------- ---------
Net income ................................. $ 6,102 $ 4,115 $ 13,600
========= ========= =========
Net income per common share:
Basic ...................................... $ 0.63 $ 0.42 $ 1.42
========= ========= =========
Diluted .................................... $ 0.63 $ 0.42 $ 1.41
========= ========= =========
Average common shares:
Basic ...................................... 9,722 9,714 9,602
========= ========= =========
Diluted .................................... 9,726 9,730 9,674
========= ========= =========
See accompanying notes.
F-3
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .................. $ 5,359 $ 2,748
Accounts receivable ........................ 41,764 49,834
Inventories ................................ 45,570 64,578
Deferred income taxes ...................... 4,193 5,087
Prepaid expenses and other ................. 1,008 1,067
--------- ---------
Total current assets ................ 97,894 123,314
Property, plant and equipment .................. 54,161 55,893
Less: Accumulated depreciation ............ (32,343) (32,989)
--------- ---------
21,818 22,904
Goodwill ....................................... 9,937 11,411
Other assets ................................... 3,146 4,009
--------- ---------
Total assets ........................ $ 132,795 $ 161,638
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ..................... $ 8,514 $ 9,461
Income taxes payable ....................... 1,080 478
Accrued liabilities ........................ 7,920 6,996
Current maturities of long-term debt ....... 526 487
--------- ---------
Total current liabilities ........... 18,040 17,422
Long-term debt, net of current maturities ...... 5,469 35,858
Deferred income taxes .......................... 1,256 1,452
Stockholders' equity:
Common stock, $.10 par value, 20,000,000
shares authorized; 9,735,809 and 9,735,759
issued at December 31, 1999 and December 31,
1998 respectively ......................... 974 973
Additional paid-in capital ................. 50,775 50,507
Treasury stock, at cost; 40,600
shares at December 31, 1999 ............... (400) --
Retained earnings .......................... 57,568 54,775
Accumulated other comprehensive income ..... (887) 651
--------- ---------
Total stockholders' equity .......... 108,030 106,906
--------- ---------
Total liabilities and stockholders' equity . $ 132,795 $ 161,638
========= =========
See accompanying notes.
F-4
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCK-
----------------------- PAID-IN TREASURY RETAINED COMPREHENSIVE HOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS INCOME EQUITY
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 .......... 9,590 $ 959 $ 49,502 $ -- $ 45,071 $ 1,718 $ 97,250
Net income ........................ -- -- -- -- 13,600 -- 13,600
Change in unrealized gains on
securities, net of income ........ -- -- -- -- -- (90) (90)
Translation adjustment ............ -- -- -- -- -- (1,561) (1,561)
---------
Total comprehensive income ........ 11,949
Purchase of treasury stock, at cost (80) -- -- (1,631) -- -- (1,631)
Sale of common stock and related .. 175 9 893 1,631 -- -- 2,533
Dividends paid ($.40 per share) ... -- -- -- -- (3,836) -- (3,836)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 .......... 9,685 968 50,395 -- 54,835 67 106,265
Net income ........................ -- -- -- -- 4,115 -- 4,115
Translation adjustment ............ -- -- -- -- -- 584 584
---------
Total comprehensive income ........ 4,699
Sale of common stock .............. 51 5 112 -- -- -- 117
Dividends paid ($.43 per share) ... -- -- -- -- (4,175) -- (4,175)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 .......... 9,736 973 50,507 -- 54,775 651 106,906
Net income ........................ -- -- -- -- 6,102 -- 6,102
Translation adjustment ............ -- -- -- -- -- (1,538) (1,538)
---------
Total comprehensive income ........ -- -- -- -- -- -- 4,564
Purchase of treasury stock, at cost (41) -- -- (400) -- -- (400)
Sale of common stock .............. -- 1 268 -- -- -- 269
Dividends paid ($.34 per share) ... -- -- -- -- (3,309) -- (3,309)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 .......... 9,695 $ 974 $ 50,775 $ (400) $ 57,568 $ (887) $ 108,030
========= ========= ========= ========= ========= ========= =========
See accompanying notes.
F-5
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
--------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net income ................................................. $ 6,102 $ 4,115 $ 13,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts .................... 133 1,099 675
Depreciation ....................................... 3,967 3,938 3,700
Amortization ....................................... 1,185 1,897 1,364
Provision for deferred income tax benefit .......... 693 (2,711) (286)
Realized gain on marketable securities ............. -- -- (70)
Gain on sale of equipment ......................... (1,048) (124) (152)
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable ................................ 7,379 (8,540) 321
Inventories ........................................ 18,278 1,470 (6,367)
Prepaid expenses and other ......................... 1,449 1,731 (1,655)
Trade accounts payable and accrued liabilities ..... 414 (2,617) 1,756
Income taxes payable ............................... 636 205 (583)
-------- -------- --------
Net cash provided by operating activities .................. 39,188 463 12,303
INVESTING ACTIVITIES
Purchase of property, plant and equipment .................. (3,616) (4,403) (4,685)
Proceeds from sale of property, plant and equipment ........ 1,120 342 224
Purchase of long-term investment ........................... (500) (500) --
Sale of long-term investment ............................... -- 3,200 --
Proceeds from sale of marketable securities ................ -- -- 150
-------- -------- --------
Net cash (used) by investing activities .................... (2,996) (1,361) (4,311)
FINANCING ACTIVITIES
Net change in bank revolving credit facility ............... (29,600) 7,600 (5,500)
Principal payments on long-term debt and
capital leases ............................................ (443) (729) (841)
Dividends paid ............................................. (3,309) (4,175) (3,836)
Proceeds from sale of common stock and related ............. 269 117 2,533
Cost of common stock repurchased ........................... (400) -- (1,631)
-------- -------- --------
Net cash provided (used) by financing activities ........... (33,483) 2,813 (9,275)
Effect of exchange rate changes on cash .................... (98) 44 (156)
-------- -------- --------
Net change in cash and cash equivalents .................... 2,611 1,959 (1,439)
Cash and cash equivalents at beginning of the year ......... 2,748 789 2,228
-------- -------- --------
Cash and cash equivalents at end of the year ............... $ 5,359 $ 2,748 $ 789
======== ======== ========
Cash paid during the year for:
Interest ............................................... $ 1,742 $ 2,547 $ 2,215
Income taxes ........................................... 2,300 5,100 6,979
See accompanying notes.
F-6
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS AND SEGMENTS
The Company manufactures tractor-mounted mowing and vegetation maintenance
equipment and replacement parts for industrial and agricultural end-users.
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (Statement
131). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas and major customers. The adoption of Statement
131 did not affect results of operations or financial position. The Company
operates in one business segment, the tractor-mounted mowing and vegetation
maintenance equipment and replacement parts segment. The adoption of Statement
131 requires certain geographic disclosures which are included in Footnote 13.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Alamo Group Inc. and its subsidiaries ("the Company"), all of which are wholly
owned. Other investments are accounted for under the equity method or the cost
method. All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the 1998 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCY
The Company translates the assets and liabilities of foreign-owned
subsidiaries at rates in effect at the end of the year. Revenues and expenses
are translated at average rates in effect during the reporting period.
Translation adjustments are included in accumulated comprehensive income within
the statement of stockholders' equity.
The Company enters into foreign currency forward contracts to hedge its
exposure on material foreign currency transactions. The Company does not hold or
issue financial instruments for trading purposes. Changes in the market value of
the foreign currency instruments are recognized in the financial statements upon
settlement of the hedged transaction. At December 31, 1999, the Company had a
foreign currency forward contract, maturing in January 2000, for $8,569,000.
Foreign currency transaction gains or losses are included in Other income
(expense), net. For 1999, 1998 and 1997, such transactions netted a loss of
$906,000, gain of $99,000 and loss of $346,000, respectively.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity date no
longer than 90 days.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
credit risk is limited because of the large numbers and types of customers and
their geographic dispersion.
F-7
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
INVENTORIES
Inventories of U.S. operating subsidiaries are principally stated at the
lower of cost (last-in, first-out method) ("LIFO") or market, and the Company's
foreign subsidiaries' inventories are stated at the lower of cost (first-in,
first-out) ("FIFO") or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Major
renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed currently. Depreciation is provided at
amounts calculated to amortize the cost of the assets over their estimated
useful economic lives using the straight-line method.
GOODWILL
Goodwill is related to purchase acquisitions and, with minor exceptions, is
being amortized over fifteen years from respective acquisition dates. Goodwill
is shown net of amortization of $5,343,000 and $5,036,000 for the years ended
December 31, 1999 and 1998, respectively. The Company continually evaluates the
existence of goodwill impairment on the basis of whether the goodwill is fully
recoverable from projected, undiscounted net cash flows of the related business
unit.
LONG-TERM INVESTMENTS
At December 31, 1999 and 1998, respectively, the Company had $1,500,000 and
$1,000,000 invested in a Small Business Investment Company which is carried at
cost in Other assets. The Company is committed to invest an additional $500,000.
Due to inherent risk factors in such investments, the ultimate realization of
these amounts, included in Other assets in the accompanying financial
statements, is not determinable at this date.
RELATED PARTY TRANSACTIONS
Notes receivable from officers of the Company for $970,000 and $1,300,000
for the years ended December 31, 1999 and 1998, respectively, are included in
Other assets.
REVENUE RECOGNITION
Product revenue is recognized when the product is shipped. Pre-season sales
orders are solicited in the fall in advance of the dealer's sales season in the
spring and summer. Pre-season sales orders are shipped beginning in the fall and
continuing through the spring and represent an opportunity for the Company's
factories to level their production/shipping volumes through the winter months.
These pre-season shipments carry descending discounts in conjunction with
delayed payment terms of up to six months from the dealer's requested delivery
date. Revenue from sales is recorded net of a provision for discounts that are
anticipated to be earned and deducted at time of payment by the customer. These
approximated discounts represent an average of historical amounts taken and are
adjusted as program terms are changed. The reserves for discounts are reviewed
and adjusted quarterly.
RESEARCH AND DEVELOPMENT
Product development and engineering costs charged to Selling, general and
administrative expense amounted to $1,722,000, $1,685,000 and $1,712,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting basis and tax basis of assets and liabilities
and are measured using presently enacted tax rates and laws.
F-8
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
STOCK-BASED COMPENSATION
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, and
elected to continue to use the intrinsic value method in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in the
financial statements for these plans. The pro forma effects of fair value
accounting for compensation costs related to options, on net income and earnings
per share, would not be material.
2. 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 amounts).
1999 1998 1997
------ ------ -------
Net income ............................................. $6,102 $4,115 $13,600
====== ====== =======
Average common shares:
BASIC (weighted-average outstanding shares) ........ 9,722 9,714 9,602
Dilutive potential common shares from stock
options and warrants ........................... 4 16 72
------ ------ -------
DILUTED (weighted-average outstanding shares) ...... 9,726 9,730 9,674
====== ====== =======
Basic earnings per share ............................... $ 0.63 $ 0.42 $ 1.42
====== ====== =======
Diluted earnings per share ............................. $ 0.63 $ 0.42 $ 1.41
====== ====== =======
Stock options and warrants were 101,000 shares in 1999 and 48,000 shares in
1998 and they were not included in the diluted earnings per share calculation as
they were antidilutive.
3. TERMINATION OF OPERATIONS OF SUBSIDIARY
In December 1998, the Company announced its decisions to terminate the
operations of the Company's Chinese tractor import and marketing business, Rhino
International. This operation experienced a decline in sales and profitability
related to business factors. Sales in 1999 were $1,223,000 million versus
$2,197,000 million in 1998 and $7,828,000 million in 1997. Disposal of the
assets of the Rhino International operation were substantially concluded in
1999, and resulted in an after-tax loss of $665,000. In 1998, the effect of
Rhino International, including settlement of certain litigation, charges of
$955,000 related to impairment of goodwill and other intangibles, $650,000 of
various other costs involved in terminating operations, and reserves for
inventory and accounts receivable losses expected in final collection and
disposition, was an after-tax loss of $6,417,000 compared to an after-tax loss
in 1997 of $853,000. These charges are included in net sales, cost of sales and
selling, general and administrative expense as appropriate.
F-9
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
4. VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included the following (in thousands):
BALANCE CHARGED TO TRANSLATIONS, NET WRITE-OFFS BALANCE
BEGINNING OF NET COSTS AND RECLASSIFICATIONS OR DISCOUNTS END OF
YEAR EXPENSES AND ACQUISITIONS TAKEN YEAR
----------- ------------- ----------------- --------------- --------
1999
- ----
Allowance for doubtful accounts ............. $ 2,247 $ 133 $ (33) $ (1,116) $ 1,231
Reserve for sales discounts ................. 5,189 12,537 (1) (14,134) 3,591
Reserve for inventory obsolescence .......... 5,706 2,485 (100) (2,875) 5,216
1998
- ----
Allowance for doubtful accounts ............. $ 1,840 $ 1,099 $ 9 $ (701) $ 2,247
Reserve for sales discounts ................. 3,484 16,241 -- (14,536) 5,189
Reserve for inventory obsolescence .......... 3,779 2,363 13 (449) 5,706
1997
- ----
Allowance for doubtful accounts ............. $ 1,521 $ 675 $ (27) $ (329) $ 1,840
Reserve for sales discounts ................. 3,866 14,177 (2) (14,557) 3,484
Reserve for inventory obsolescence .......... 4,110 281 (113) (499) 3,779
5. INVENTORIES
Inventories valued at LIFO cost represented 82% and 87% of total inventory
for the years ended December 31, 1999 and 1998, respectively. The excess of
current costs over LIFO-valued inventories was $3,925,000 and $3,981,000 at
December 31, 1999 and December 31, 1998, respectively. Net inventories consist
of the following (in thousands):
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
Finished wholegoods and parts ...... $39,310 $57,571
Work in process .................... 2,754 2,840
Raw materials ...................... 3,506 4,167
------- -------
$45,570 $64,578
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
DECEMBER 31, DECEMBER 31, USEFUL
1999 1998 LIVES
-------- -------- ----------
Land .......................... $ 1,904 $ 1,965
Buildings and improvements .... 18,917 19,484 15-25 yrs.
Machinery and equipment ....... 25,471 25,485 5 yrs.
Office furniture and equipment 4,414 5,602 5 yrs.
Transportation equipment ...... 3,455 3,357 3-5 yrs.
-------- ----------
54,161 55,893
Accumulated depreciation ...... (32,343) (32,989)
-------- ----------
$ 21,818 $ 22,904
======== ==========
F-10
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
Property, plant and equipment at December 31, 1999 and December 31, 1998
includes $6,272,000 and $6,513,000, respectively, for buildings held under
capitalized leases.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following balances (in thousands):
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
Salaries, wages and bonuses ........ $2,635 $3,227
Warranty ........................... 1,467 1,750
Other .............................. 3,818 2,019
------ ------
$7,920 $6,996
====== ======
8. LONG-TERM DEBT
The components of long-term debt at December 31 are as follows (in thousands):
1999 1998
------- -------
Bank revolving credit facility ............... $ -- $29,600
Capital lease obligations .................... 5,812 6,514
Other notes payable .......................... 183 231
------- -------
Total long-term debt ......................... 5,995 36,345
Less current maturities ...................... 526 487
------- -------
$ 5,469 $35,858
======= =======
As of December 31, 1999, the Company had a $45,000,000 contractually
committed, unsecured, long-term bank revolving credit facility under which the
Company can borrow and repay until December 31, 2002, with interest at various
rate options based upon Prime or Eurodollar rates, with such rates either
floating on a daily basis or fixed for periods up to 180 days. Proceeds may be
used for general corporate purposes or, subject to some limitations,
acquisitions. The loan agreement contains certain financial covenants, customary
in credit facilities of this nature, including minimum financial ratio
requirements and limitations on dividends, indebtedness, liens and investments.
Due to the losses related to Rhino International discussed in Note 3, the
Company was not initially in compliance with certain of the covenants at
December 31, 1998. The bank amended the covenant requirements effective for the
period ended December 31, 1998 and for future periods. After this amendment the
Company was in compliance with all covenants as of December 31, 1998. The
Company is in compliance with all convenants at December 31, 1999. At December
31, 1999, no amounts were outstanding on the revolving credit facility. At
December 31, 1999, $1,233,000 of the revolver capacity was committed to
irrevocable standby letters of credit issued in the ordinary course of business
as required by certain vendor contracts.
The aggregate maturities of long-term debt, as of December 31, 1999, are as
follows: $526,000 in 2000, $537,000 in 2001, $582,000 in 2002, $636,000 in 2003
and $694,000 in 2004 and $3,020,000 thereafter.
Long-term debt is stated at estimated fair value.
F-11
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
9. INCOME TAXES
U.S. and non-U.S. income before income taxes is as follows (in thousands):
1999 1998 1997
------- ------- -------
Income before income taxes:
Domestic ................ $ 5,262 $ 1,614 $14,210
Foreign ................. 4,434 4,921 6,385
------- ------- -------
$ 9,696 $ 6,535 $20,595
======= ======= =======
The provision for income taxes consists of (in thousands):
1999 1998 1997
------- ------- -------
Current:
Federal ................ $ 1,096 $ 3,289 $ 4,892
Foreign ................ 1,678 1,907 2,176
State .................. 122 (63) 419
------- ------- -------
2,896 5,133 7,487
Deferred:
Federal ................ 742 (2,718) (492)
Foreign ................ (44) 5 --
------- ------- -------
698 (2,713) (492)
------- ------- -------
Total income taxes $ 3,594 2,420 $ 6,995
======= ======= =======
Reconciliation of the statutory U.S. federal rate to actual tax rate is as
follows (in thousands):
1999 1998 1997
------- ------- -------
Statutory U.S. federal tax
(34% in 1999 and 1998
and 35% in 1997) .............. $ 3,297 $ 2,222 $ 7,208
Increase (reduction) from:
Non-U.S. taxes ............ 126 240 (292)
U.S. State taxes .......... 81 (42) 272
Other ..................... 90 -- (193)
------- ------- -------
Provision for income taxes .... $ 3,594 2,420 $ 6,995
======= ======= =======
Actual tax rate ............... 37% 37% 34%
At December 31, 1999, the Company had unremitted earnings of foreign
subsidiaries of $20,274,000. These earnings, which reflect full provision for
non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or can
be remitted without substantial additional tax. Accordingly, no provision has
been made for taxes that might be payable upon remittance of such earnings nor
is it practicable to determine the amount of this liability.
F-12
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
The components of deferred tax assets and liabilities included in the balance
sheets are as follows (in thousands):
1999 1998
------ ------
Deferred tax asset:
Inventory ........................... $1,770 $1,942
Accounts receivable ................. 1,531 2,127
Depreciation ........................ 1,069 1,151
Deferred compensation ............... 269 --
Net operating loss carryforwards .... 78 48
Insurance ........................... 365 322
Other current ....................... 593 948
Other non-current ................... 1,040 1,005
------ ------
Total deferred asset ............... $6,715 $7,543
====== ======
Deferred tax liability:
Difference between book basis and
tax basis of assets ............... $2,965 $3,232
Other ............................... 813 676
------ ------
Total deferred liability ........... $3,778 $3,908
====== ======
At December 31, 1999, net current deferred tax assets were $4,193,000
($5,087,000 in 1998). Net non-current deferred tax liabilities were $1,256,000
($1,452,000 in 1998).
The net deferred tax asset for the Company decreased from $3,635,000 at
December 31, 1998 to $2,937,000 at December 31, 1999. This is in part due to the
utilization of Rhino International's current deferred tax asset. In 1998, this
asset was increased as a result of a $4,907,000 write-down related to the
shutdown of that subsidiary. The net deferred tax asset for Rhino International
was $807,000 and $2,297,000 as of December 31, 1999 and December 31, 1998,
respectively.
10. COMMON STOCK
In conjunction with the issuance of debt in a prior year, the Company issued
warrants to purchase 62,500 shares of common stock to the lender. The exercise
price of $16 per share was subject to adjustment, and the warrants expired in
January 2000 without being exercised.
Subsequent to December 31, 1999, the Company declared and paid a dividend of
$0.06 per share.
11. STOCK OPTIONS
INCENTIVE OPTIONS
On April 28, 1994, the stockholders approved the 1994 Incentive Stock Option
Plan ("1994 ISO Plan") for key employees. Each option becomes vested and
exercisable for up to 20% of the total optioned shares each year after grant.
Under the terms of this plan, the exercise price of the shares subject to each
option granted will not be less than the fair market value of the common stock
at the date the option is granted.
On August 31, 1999, the stockholders of the Company approved amending the
1994 ISO Plan. During the period ended December 31, 1999, options to purchase
101,000 shares have been granted. The amendment was filed on Schedule 14A, dated
July 30, 1999. At December 31, 1999, the Company has reserved 385,525 shares of
common stock for these options.
F-13
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
Following is a summary of activity in the incentive stock option plans for the
periods indicated:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------- -------- --------
Options outstanding at beginning of
year .............................. 51,200 83,385 123,373
Granted .......................... 101,000 -- --
Exercised ........................ (50) (30,885) (14,863)
Cancelled ........................ (50,350) (1,300) (25,125)
-------- -------- --------
Options outstanding at end of year .. 101,800 51,200 83,385
======== ======== ========
Options exercisable at end of year .. 400 26,300 44,385
======== ======== ========
Options available for grant at end
of year ........................... 174,600 225,250 224,400
======== ======== ========
PER SHARE OPTION PRICES, FOR OPTIONS OUTSTANDING AT DECEMBER 31, 1999,
RANGED FROM $8.9375 TO $18.75.
NONQUALIFIED OPTIONS
On February 2, 1993, the Company granted nonqualified options for 200,000
shares of common stock to key employees of the Company at $11.50 per share. Each
option becomes vested and exercisable for up to 20% of the total optioned shares
after one year following the grant of the option and for an additional 20% of
the total optioned shares after each succeeding year until the option is fully
exercisable at the end of the fifth year. During 1999 and 1998, -0- and 20,000
shares were exercised, respectively, and 20,000 shares remain outstanding and
exercisable until January 30, 2003.
On July 7, 1999, the Company granted 200,000 shares of the Company's Common
Stock from the 1999 Non-Qualified Stock Option Plan at the exercised price of
$8.9375 per share being the closing price of the Company's Common Stock on the
grant date. Each option becomes vested and exercisable for up to 20% of the
total optioned shares after one year following the grant of the option and for
an additional 20% of the total optioned shared after each succeeding year until
the option is fully exercisable.
Following is a summary of activity in the nonqualified option plans for the
periods indicated:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------- ------- -------
Options outstanding at beginning of
year ............................. 20,000 40,000 200,000
Granted .......................... 200,000 -- --
Exercised ........................ -- 20,000 160,000
Cancelled ........................ -- -- --
------- ------- -------
Options outstanding at end of year . 220,000 20,000 40,000
======= ======= =======
Options exercisable at end of year . 20,000 20,000 40,000
======= ======= =======
Options available for grant at end
of year .......................... 200,000 -- --
======= ======= =======
F-14
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
12. RETIREMENT BENEFIT PLANS
The Company provides a defined contribution 401(k) retirement and savings
plan for eligible U.S. employees. Company matching contributions are based on a
percentage of employee contributions. Company contributions to the plan during
1999, 1998 and 1997 were $578,000, $620,000 and $399,000, respectively.
Two of the Company's foreign subsidiaries also participate in a defined
contribution and savings plan covering eligible employees. The Company's foreign
subsidiaries contribute between 5.8% and 9.6% of the participant's salary up to
a specific limit. Contributions were $282,000 in 1999, $428,000 in 1998 and
$453,000 in 1997.
13. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
Following is selected financial information on the Company's foreign
operations (located in Europe) (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
Net sales ........................ $41,958 $41,027 $46,241
Income from operations ........... 5,312 5,060 7,053
Income before income taxes and
allocated interest expense ..... 4,434 4,921 6,385
Identifiable assets .............. 42,009 42,117 39,744
Following is other selected geographic financial information on the Company's
operations (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------- -------- --------
Geographic net sales:
United States ................. $133,130 $156,809 $152,492
United Kingdom ................ 14,505 13,534 17,446
France ........................ 19,070 19,466 19,305
Other ......................... 9,903 10,744 13,849
-------- -------- --------
Total net sales .................. $176,608 $200,553 $203,092
======== ======== ========
Geographic location of long lived
assets:
United States ................. $ 21,838 $ 23,697 $ 27,684
United Kingdom ................ 9,395 10,132 10,686
France ........................ 3,564 4,495 4,608
-------- -------- --------
Total long lived assets .......... $ 34,797 $ 38,324 $ 42,978
======== ======== ========
Net sales are attributed to countries based on the location of customers.
F-15
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
14. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. The adoption of this Statement has no impact on the net
income or stockholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported in stockholders'
equity, to be included, along with net income, in Comprehensive income. Prior
years' data have been conformed to the requirements of Statement 130.
For 1999, 1998 and 1997 the Company's Comprehensive Income was $4,564,000,
$4,699,000 and $11,949,000, respectively.
The components of Accumulated Other Comprehensive Income are as follows (in
thousands):
1999 1998 1997
----- ----- -----
Foreign currency translation
adjustments ........................ $(887) $ 651 $ 67
----- ----- -----
Accumulated other comprehensive
income ............................. $(887) $ 651 $ 67
===== ===== =====
15. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and transportation equipment under various
operating leases which generally are expected to be renewed or replaced by other
leases. The Company has certain capitalized leases consisting principally of
leases of buildings. At December 31, 1999, future minimum lease payments under
these noncancelable leases and the present value of the net minimum lease
payments for the capitalized leases are (in thousands):
OPERATING CAPITALIZED
LEASES LEASES
--------- -----------
2000 ........................................... $ 488 $ 936
2001 ........................................... 446 936
2002 ........................................... 171 936
2003 ........................................... 35 936
2004 ........................................... 27 936
Thereafter ..................................... 24 3,907
------ ------
Total minimum lease payments ................... $1,191 8,587
======
Less amount representing interest .............. 2,775
------
Present value of net minimum lease payments .... 5,812
Less current portion ........................... 479
------
Long-term portion .............................. $5,333
======
Rental expense for operating leases was $1,351,000 for 1999, $1,404,000 for
1998 and $1,176,000 for 1997.
F-16
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
OTHER
The Company is subject to various unresolved legal actions which arise in
the ordinary course of its business. The most prevalent of such actions relate
to product liability which are generally covered by insurance. While amounts
claimed may be substantial and the ultimate liability with respect to such
litigation cannot be determined at this time, the Company believes that the
ultimate outcome of these matters will not have a material adverse effect on the
Company's consolidated financial position.
The Company was involved in a lawsuit between Rhino International and
certain of its former dealers. This lawsuit involved claims against Rhino
International totaling $3.8 million. In April 1998, a judgment was entered
requiring the Company to pay $110,000, net of its recovery. The judgment is
being appealed by both parties. While the ultimate outcome of this matter cannot
be determined at this time, the Company believes this matter will not have a
material adverse effect on the Company's consolidated financial position. In
1998, the Company settled (with prejudice) certain other litigation relating to
the Company's acquisition of Rhino International. The cost to the Company of the
settlement of this litigation is reflected in Selling, General and
Administrative expense in 1998.
The Company had an executive loan program pursuant to which the Company made
loans to certain officers and employees of the Company to purchase stock of the
Company. The loans are subject to approval by the Compensation Committee of the
Board of Directors. All loans are secured by a pledge of the shares being
purchased. The maximum aggregate amount which officers and employees may borrow
is $400,000 and $200,000, respectively. Each loan bears interest at prime and is
payable quarterly. Beginning March 2001, each employee must make annual
principal payments equal to 10% of the amount loaned to the employee. As of
December 31, 1999, and 1998, $317,000 and $585,000, respectively, were
outstanding under the program and are included in additional paid-in capital.
The executive loan program has expired.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 is presented below.
Seasonal influences affect the Company's sales and profits with peak business
occurring in May through August. (In thousands, except per share amounts):
1999 1998
-------------------------------------------- ---------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- --------- -------- -------- --------
Sales ............................. $ 42,168 $ 51,095 $ 43,936 $ 39,409 $ 48,727 $ 60,392 $ 51,024 $ 40,410
Gross profit ...................... 10,078 13,345 8,268 9,212 11,348 16,200 13,631 2,479
Net income (loss) ................. 1,620 3,608 131 743 1,926 4,472 2,061 (4,344)
Earnings per share
Diluted ....................... $ .17 $ .37 $ .01 $ .08 $ .20 $ .46 $ .21 $ (.45)
Average shares
Diluted ....................... 9,736 9,736 9,728 9,705 9,715 9,720 9,747 9,736
Dividends per share ............... $ .11 $ .11 $ .06 $ .06 $ .10 $ .11 $ .11 $ .11
Market price of common stock
High .......................... $ 12-5/8 $ 10-1/4 $ 10-1/8 $ 10-1/4 $21-13/16 $ 19 $ 19-3/4 $15-7/16
Low ........................... $ 7-7/8 $ 6-7/8 $ 8-1/2 $ 8-1/4 $ 15-3/8 $ 14-1/2 $ 13-1/2 $ 10-5/8
Financial data for the 1998 third and fourth quarters is impacted by the
settlement of certain litigation and termination of operations of Rhino
International, as described in Footnote 3.
F-17
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
17. SUBSEQUENT EVENTS
On February 29, 2000 the Company acquired 100% of the issued and outstanding
shares of Schwarze Industries, Inc., a privately owned manufacturer of sweeping
equipment which sells to governmental and contract customers. The purchase price
was approximately $15,000,000 paid in cash and drawn on the revolving credit
facility and will be treated as a purchase for accounting purposes. Schwarze
Industries in headquartered in Huntsville, Alabama and employs approximately 165
people. Schwarze Industries occupies approximately 40,000 square feet which is
owned and approximately 100,000 square feet which is leased.
The Company has agreed in principle to purchase the manufacturing facility
and adjacent land located at the Company's Bomford location. The purchase price
is approximately $5,300,000 and the transaction is expected to be complete by
mid 2000. Currently, the Bomford facility is accounted for in the capital lease
section in Footnote 15.
F-18