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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
[ ] 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
28, 2001 (based upon the last reported sale price of $15.50 per share) was
approximately $89,053,096 on such date.
The number of shares of the issuer's Common Stock, par value $.10 per
share, outstanding as of February 28, 2001 was 9,703,659 shares.
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Stockholders to be held on May
3, 2001, 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.......................................................... 16
Item 11. Executive Compensation.................................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 16
Item 13. Certain Relationships and Related Transactions............................................ 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 17
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 equipment for
right-of-way maintenance and agriculture. Our products include tractor-mounted
mowing and other vegetation maintenance equipment, street sweepers,
agricultural implements and related after market parts and services. 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 strategy 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 began 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(R) GEAR COMPANY in early
1995 allowed the Company to enter into the manufacturing and distribution of
hay-making equipment that complements the RHINO distribution system. 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(R) 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 manufacturers in the European market for the kind of
equipment sold by the Company.
On February 29, 2000, the Company acquired 100% of the outstanding shares
of SCHWARZE INDUSTRIES, INC. ("SCHWARZE"). SCHWARZE 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.
On September 8, 2000, the Company purchased the product line and
associated assets of TWOSE(TM) OF TIVERTON LTD ("TWOSE") in the U.K. and
incorporated its production into the existing facilities at McConnell and
Bomford.
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TWOSE was a small regional manufacturer of power arm flail mowers and parts, as
well as harrows and rollers which solidified the Company's market leadership
position.
On November 6, 2000, the Company acquired 100% of the issued and
outstanding shares of SCHULTE INDUSTRIES, LTD. ("SCHULTE(TM)") and all of its
affiliated and related companies. SCHULTE(TM) is a Canadian manufacturer of
mechanical rotary mowers, snow blowers, and rock removal equipment. The Company
expects SCHULTE to provide expansion into Canadian markets as well as
manufacturing capabilities in Canada.
The principal executive offices of the Company are located at 1502 East
Walnut, Seguin, Texas 78155, and its telephone number is (830) 379-1480.
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), SCHWARZE, RHINO(R), M&W(R), HERSCHEL-ADAMS(R),
SCHULTE(TM), MCCONNEL(R), BOMFORD(R), S.M.A.(R) and other trademarks and trade
names.
ALAMO INDUSTRIAL equipment is principally sold to governmental end-users
and, to a lesser extent, to the agricultural market and commercial turf market.
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, TIGER'S larger dealers' principal product line is TIGER equipment.
TIGER'S dealership network is independent of ALAMO'S dealership network.
SCHWARZE equipment includes air, mechanical broom, and regenerative air
sweepers along with a high-efficiency environmental sweeper. SCHWARZE primarily
sells their products to governmental and contractor customers. The Company
believes that SCHWARZE compliments Alamo Industrial because the end user for
both products in many cases is the same. This combination will strengthen both
the marketing and geographical areas for the Company.
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 posthole 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.
SCHULTE equipment includes mechanical rotary mowers, snow blowers, and
rock removal equipment. SCHULTE serves both the agricultural and industrial
markets primarily in Canada and the U.S. The Company plans for market
synergies in Canada for both TIGER and RHINO product lines with expectation of
broadening product offerings to the existing customer base.
HERSCHEL-ADAMS replacement parts are sold for most types of tillage
equipment and tractors, and 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.
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MCCONNEL products are sold in the U.K. through a network of agricultural
tractor dealers, with exports sold primarily through distributors.
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
30% of the Company's total sales for the year ended December 31, 2000.
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, 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.
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 99 people in its engineering
department, 43 of whom are professionals and the balance of whom are support
staff. Amounts expended on research and development activities were
approximately $2,396,000 in 2000, $1,722,000 in 1999, and $1,685,000 in 1998.
As a percentage of sales research and development was 1.1% in 2000, 1.0% in
1999 and 1% in 1998 respectively. The increase in 2000 is primarily from the
acquisition of SCHWARZE and to a lessor extent SCHULTE.
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 financial and other resources at their disposal. The
Company believes that it is able to compete successfully in its markets by
5
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, 2000, the Company had unfilled customer orders of
$44,269,000 compared to $34,266,000 at the end of 1999. The increase is
primarily attributable to RHINO branded products, which experienced an
increased backlog during the fourth quarter of 2000 as apart of its preseason
selling program. The Company also had increased backlog from the three
acquisitions it made in 2000, SCHWARZE, TWOSE and SCHULTE. Management expects
that substantially all of the Company's backlog as of December 31, 2000, will
be shipped during fiscal year 2001. 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 2000, 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. ALAMO INDUSTRIAL(R), RHINO(R), M&W(R), FUERST(R),
MCCONNEL(R), BOMFORD(R), SMA(R), TIGER(R), SCHULTE(TM) 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 resulted
6
from chrome-plating operations which were discontinued several years before the
Company purchased the property. The Company is working with an environmental
consultant, the previous owner of the property, and the state of Iowa to
develop and implement a plan to remediate the contamination. All present and
future remediation costs have been or are expected to be paid by the previous
owner of the property pursuant to the agreement by which the Company purchased
said property.
The Company is subject to various other federal, state, and local laws
affecting its business, as well as a variety of regulations relating to such
matters as working conditions, equal employment opportunities and product
safety. A variety of state laws regulate the Company's contractual
relationships with its dealers, some of which impose substantive standards on
the relationship between the Company and its dealers, including events of
default, grounds for termination, non-renewal of dealer contracts and equipment
repurchase requirements. The Company believes it is currently in material
compliance with all such applicable laws and regulations.
EMPLOYEES
As of December 31, 2000, the Company employed 1,535 full-time employees.
The HERSCHEL facility in Indianola, Iowa has a collective bargaining agreement
which covers approximately 46 employees, and the two U.K. subsidiaries, MCCONNEL
and BOMFORD, employing approximately 285 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.
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
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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, 2000, the Company utilized six principal manufacturing
plants located in the United States, four in Europe, one in Canada, and one in
Australia. Listed below are the facilities:
FACILITY SQUARE FOOTAGE PRINCIPAL TYPES OF PRODUCTS MANUFACTURED AND ASSEMBLED
-------- -------------- ------------------------------------------------------
Gibson City, Illinois 235,000 Mowers and Hay Balers, Deep Tillage Equipment and Mechanical
Mowers for RHINO and M&W
Seguin, Texas 230,000 Hydraulic and Mechanical Rotary and Flail Mowers, Boom-Mounted
Equipment for ALAMO and RHINO
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 After Market High Wear, High Turnover Farm Equipment and
Replacement Parts for HERSCHEL and ADAMS
Huntsville, Alabama 136,000 Air and Mechanical Sweeping Equipment for SCHWARZE
Salford Priors, England 106,000 Tractor Mounted Power Arm Flails and other Equipment for
BOMFORD
Sioux Falls, South Dakota 60,000 Hydraulic and Mechanical Mowing Equipment for TIGER
Englefeld, Saskatchewan 46,000 Mechanical Rotary Mowers, Snow Blowers, and Rock Removal
Canada Equipment for SCHULTE
Orleans, France 40,000 Heavy Duty, Tractor-Mounted Grass and Hedge Mowing Equipment
for SMA
Queensland, Australia 15,000 Air and Mechanical Sweeping Equipment for SCHWARZE
Peschadores, France 12,000 Manufactures Replacement Parts for Blades, Knives and Shackles
by FORGES GORCE
--------------------
Total 1,340,000
Approximately 87% of the manufacturing and office space is owned, with the
balance being leased. The Company has 64,700 square feet of warehouse space in
three locations, of which 20,000 square feet is owned. The Company closed its
manufacturing facility in LaGrange, Illinois during 1999 and the facility was
subsequently sold on January 24, 2001. The Company closed and sold its warehouse
location in Harrisburg, Pennsylvania in 2000. Further, the Company is in the
process of closing the majority of its manufacturing facilities in Guymon,
Oklahoma which is expected to be completed by March 31, 2001. 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
8
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.
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, 2000.
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 2001 annual
meeting of directors or until his successor is duly elected and qualified.
NAME Age POSITION
--------------------------- ------ -------------------------------------------------------------
Donald J. Douglass 69 Chairman of the Board
Ronald A. Robinson 49 President and Chief Executive Officer
Robert H. George 54 Vice President, Secretary and Treasurer
Ian Burden 46 Executive Vice President, Alamo Group (USA) Inc.
Geoffrey Davies 53 Managing Director, Alamo Group (EUR) Ltd.
John C. Moon 45 Executive Vice President, Alamo Group (USA) Inc.
Richard J. Wehrle 44 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, 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 Executive 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 Executive 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.
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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, 2001, there were 9,703,659 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, 2001, the closing price of the common stock on the New York Stock Exchange
was $15.50 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:
2000 1999
- --------------------------------------------------------- -----------------------------------------------------------
CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED QUARTER ENDED HIGH LOW DECLARED
- --------------------------------------------------------- -----------------------------------------------------------
March 31, 2000 $12-1/4 $ 9-15/16 $.06 March 31, 1999 $12-5/8 $7-7/8 $.11
June 30, 2000 13-7/16 10-11/16 .06 June 30, 1999 10-1/4 6-7/8 .11
September 30, 2000 13-7/16 12 .06 September 30, 1999 10-1/8 8-1/2 .06
December 31, 2000 13-5/8 12-1/2 .06 December 31, 1999 10-1/4 8-1/4 .06
- --------------------------------------------------------- -----------------------------------------------------------
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 5, 2001, the Board of Directors of the Company declared a
quarterly dividend of $.06 per share which was paid on February 5, 2001, to
holders of record as of January 18, 2001. 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, 2001. 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 31,
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
OPERATIONS:
Net sales ................................ $ 215,874 $ 176,608 $ 200,553 $ 203,092 $ 183,595
Income before income taxes................ 15,890 9,696 6,535 20,595 13,722
Net income ............................... 10,770 6,102 4,115 13,600 8,762
Percent of sales.......................... 5.0% 3.5% 2.1% 6.7% 4.8%
Earnings per share
Basic................................... 1.11 0.63 0.42 1.42 0.91
Diluted ................................ 1.11 0.63 0.42 1.41 0.91
Dividends per share....................... .24 0.34 0.43 0.40 0.40
Average common shares
Basic................................... 9,698 9,722 9,714 9,602 9,585
Diluted ................................ 9,759 9,726 9,730 9,674 9,641
FINANCIAL POSITION:
Total assets.............................. $ 173,408 $ 132,795 $ 161,638 $ 156,124 $ 153,862
Short-term debt and current maturities ... 1,484 526 487 727 1,031
Long-term debt, excluding current
maturities.............................. 30,355 5,469 35,858 28,617 35,299
Stockholders' equity ..................... 114,539 108,030 106,906 106,265 97,250
(1) 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:
(Sales data in thousands:) FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
-------------- -------------- -------------
North American
Agricultural ................................................... $ 79,752 $ 75,931 $ 98,393
Industrial...................................................... 95,867 58,719 61,133
European.......................................................... 40,255 41,958 41,027
-------------- -------------- -------------
Total net sales..................................................... $ 215,874 $ 176,608 $ 200,553
============== ============== =============
Cost and profit margins, as percentages of net sales:
Cost of sales................................................... 75.8% 76.8% 78.2%
Gross margin.................................................... 24.2% 23.2% 21.8%
Selling, general and administrative expense..................... 16.1% 17.1% 17.5%
Income from operations.......................................... 8.1% 6.1% 4.2%
Income before income taxes...................................... 7.4% 5.5% 3.3%
Net income...................................................... 5.0% 3.5% 2.1%
11
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
The Company's net sales in the fiscal year ending December 31, 2000
("2000") were $215,874,000, an increase of $39,266,000 or 22.3% compared to
$176,608,000 for the fiscal year ended December 31, 1999. The increase in sales
was primarily attributable to the acquisition of SCHWARZE Industries on February
29, 2000.
North American Agricultural sales (Net) were $79,752,000 in 2000 compared
to $75,931,000 in 1999, representing a increase of $3,821,000 or 5.0%. The
revenue growth was encouraging given the continued depressed condition in
the overall U.S. agriculture market. RHINO product sales improved
throughout the year as order rates continued to follow an increased pace
that began during the fourth quarter of 1999. Both the M & W and HERSCHEL
products showed no significant change in sales as demand for bailers and
tillage equipment continued to be soft.
North American Industrial sales (Net) in 2000 were $95,867,000 compared to
$58,719,000 in 1999, a $37,148,000 or 63.2% increase. The acquisition of
SCHWARZE Industries in the first quarter of 2000 accounted for the majority
of the increase. ALAMO Industrial products showed slight improvement, but
internal growth was hampered by delivery delays that occurred during the
second and third quarter of 2000. Overall, the industrial market continues
to be steady with the exception of the sweeper market which had experienced
softness during the latter part of the fourth quarter which has continued
into the first quarter of 2001.
European sales (Net) decreased $1,703,000 or 4.1% to $40,255,000 in 2000
compared to $41,958,000 in 1999. The decrease was attributed to the
weakness in both the British Pound and the Euro that persisted throughout
2000. Europe's agricultural sector continued to be depressed which hurt
market conditions for the Company's products. The situation is not expected
to improve during 2001 especially since the outbreak of hoof and mouth
disease in the U.K. during the first quarter of 2001.
Gross Margins for 2000 were $52,151,000 (24.2% of net sales) compared to
$40,903,000 (23.2% of net sales) in 1999. 2000 margins were down slightly more
than expected due to unfavorable variances from production issues during the
middle of the year. 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.
Selling, general and administrative expenses ("SG&A") were $34,650,000
(16.1% of net sales) in 2000 compared to $30,123,000 (17.1% of net sales) in
1999. The increase of $4,527,000 over 1999 was primarily due to the acquisition
of SCHWARZE Industries during the first quarter of 2000.
Interest expense for 2000 was $2,190,000 compared to $1,495,000 in 1999, a
$695,000 or 46.5% increase. The acquisition of SCHWARZE and SCHULTE primarily
caused the increase for the year.
Net Income for 2000 was $10,770,000 compared to $6,102,000 in 1999 due to
the factors described above.
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.
North American 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.
North American 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
12
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 $40,903,000 (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 write-off 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 write-off
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.
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 builds 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.
As of December 31, 2000, the Company had working capital of $92,343,000,
which represents an increase of $12,489,000 from working capital of $79,854,000
as of December 31, 1999. The increase in working capital was primarily due to
the acquisition of SCHWARZE and SCHULTE, which provided increased levels of
accounts receivable and inventory.
Capital expenditures were $12,650,000 for 2000, compared to $3,616,000 for
1999. Capital expenditures for 2001 are expected to be approximately $6,000,000.
The significant increase in 2000 is attributable to several items, the largest
one being the purchase of the Company's Bomford manufacturing facility and
adjacent land in the U.K., which was leased on a long-term basis. The purchase
price was approximately $5,300,000 and the transaction was completed in June
2000. Other major components of the increase were related to improvements at the
Company's Seguin and Holton plants to increase efficiencies and capacity to take
on production being transferred as a result of the closure of the Company's
LaGrange facility and transfer of RHINO production from Seguin to Holton. 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.
13
The Company was authorized by its Board of Directors in 1997 to repurchase up to
1,000,000 shares of the Company's common stock to be funded through working
capital and credit facility borrowings. In 1999, the Company repurchased 40,600
shares in the third quarter. No shares were repurchased in 2000.
Net cash provided by operating activities was $9,010,000 for 2000, compared
to $39,188,000 for 1999. The decrease of cash from operating activities resulted
primarily from increased inventory and accounts receivables due to the SCHWARZE
and SCHULTE acquisitions. In 1999, operating activities significantly increased
due to an inventory reduction plan that reduced excess and obsolete inventory.
Net cash provided by financing activities was $25,853,000 for 2000,
compared to net cash provided of $33,483,000 for 1999. The change in activity
was primarily a result of the SCHWARZE and SCHULTE acquisitions of approximately
$25,000,000. In 1999, the Company's increased cash flow reduced its bank
revolving credit facility by $29,600,000.
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, 2000. As of December 31, 2000, there
was $28,800,000 borrowed under the revolving credit facility. At December 31,
2000, $2,982,000 of the revolver capacity was committed to irrevocable standby
letters of credit issued in the ordinary course of business as required by
vendor's 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.
INFLATION
The Company believes that inflation generally has not had a material impact
on its operations or liquidity to date.
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
14
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.
NEW ACCOUNTING STANDARDS AND DISCLOSURES
Accounting for Derivative Instruments and Hedging Activities. In September
1998, the Financial Accounting Standards Board ("FASB") issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". In
September 1999, the FASB agreed to defer the effective date of Statement No. 133
for one year until the first quarter of 2001, citing concerns over
interpretations on important implementation issues. The management of the
Company, because of its minimal use of derivatives, does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
consolidated financial position of the Company.
In December 1999, the Securities and Exchange Commission (SEC) staff issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 summarizes certain SEC staff views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 was effective for the Company in the fourth quarter of fiscal year 2000.
The Company recognizes revenue when each of the following four criteria are met:
1) a contract or sales arrangement exists; 2) products have been shipped or
services heave been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured. The Company has
evaluated the possible impact of SAB 101 with its independent auditors and it
believes that its revenue recognition policy is in accordance with SAB 101.
In September 2000, the Emerging Issues Task Force issued EITF 00-10 which
requires disclosure of shipping and handling costs that are not included in
costs of goods sold. The Company's policy is to include shipping and handling
costs in costs of goods sold.
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 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, 2000, the Company had $1,409,840 outstanding forward exchange
contracts related to sales, additionally there was an exchange contract of
$5,173,000 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 $1,000,000. 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, 2000, 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, 2000. Comparatively, at December 31,
1999, 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
15
decrease in gross profit of $1,226,000 for the year-ended December 31, 1999.
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 2000 was a loss of
$2,127,000. On December 31, 2000, the British pound closed at .6697 relative to
1.00 U.S. dollar, and the French franc closed at .0958 relative to 1.00 British
pound. By comparison, 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. 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, 2000 the Company's long-term debt bears interest at
variable rates. Accordingly, the Company's net income is affected by changes in
interest rates. Assuming the current level of borrowings at variable rates and a
two hundred basis point change in the 2000 average interest rate under these
borrowings, the Company's 2000 interest expense would have changed by
approximately $575,000. 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.
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 2001 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 2001 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 2001 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 2001 Annual Meeting of
Stockholders, which appears under the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
Participation."
16
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.
17
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 Form S-1, February 5, 1993
Corporation, dated November 25, 1991
*10.2 -- 1993 Non-Qualified Stock Option Plan, adopted by the Board of Directors Form S-1, February 5, 1993
on February 2, 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 Form 10-K, March 28, 1994
January 25, 1994
10.5 -- Third Amended and Restated Revolving Credit and Term Loan Agreement Form 10-K, March 29, 1996
between NationsBank of Texas, N.A. and Alamo Group Inc. and certain
subsidiaries dated December 29, 1995
10.6 -- First Amendment to Third Amended and Restated Revolving Credit and Term Form 10-K, March 27, 1997
Loan Agreement dated April 10, 1996
10.7 -- Second Amendment to Third Amended and Restated Revolving Credit and Form 10-K, March 27, 1997
Term Loan Agreement dated December 23, 1996
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 Form 10-Q, May 15, 1997
Alamo Group Inc.
10.10 -- Third Amendment to Third Amended and Restated Revolving Credit and Term Form 10-Q, August 15, 1997
Loan Agreement dated June 23, 1997
10.11 -- Fourth Amendment to Third Amended and Restated Revolving Credit and Form 10-K, March 31, 1998
Term Loan Agreement dated December 31, 1997
*10.12 -- Incentive Compensation Plan, adopted on December 9, 1997 Form 10-K, March 31, 1998
*10.13 -- 401(k) Restoration Plan for Highly 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 Form 10-Q, August 14, 1998
Certain Officers and Employees of Alamo Group Inc.
*10.15 -- Severance Pay Agreement for Eighteen Months Between Alamo Group Inc. Form 10-Q, August 14, 1998
and Certain Officers and Employees of Alamo Group Inc.
10.18 -- Fifth Amendment to Third Amended and Restated Revolving Credit and Term Form 10-K, March 31, 1999
Loan Agreement dated effective as of December 31, 1998
*10.19 -- 1999 Non-Qualified Stock Option Plan, adopted by the Board of Directors Schedule 14A, July 30, 1999
on July 7, 1999
*10.20 -- Amended and Restated 1994 Incentive Stock Option Plan adopted by the Schedule 14A, July 30, 1999
Board of Directors on July 7, 1999
21.1 -- Subsidiaries of the Registrant Filed Herewith
23.1 -- Consent of Ernst & Young LLP Filed Herewith
* Compensatory Plan
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 2000
Form 8-K dated November 21, 2000 reporting Item 2
18
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, 2001 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, 2001
- ----------------------------
Donald J. Douglass
/s/ RONALD A. ROBINSON President, Chief Executive Officer and a Director March 23, 2001
- ---------------------------- (Principal Executive Officer, Principal Financial
Ronald A. Robinson Officer and Principal Accounting Officer)
/s/ JERRY E. GOLDRESS Director March 23, 2001
- ----------------------------
Jerry E. Goldress
/s/ DAVID H. MORRIS Director March 23, 2001
- ----------------------------
David H. Morris
/s/ O. S. SIMPSON, JR. Director March 23, 2001
- ----------------------------
O.S. Simpson, Jr.
/s/ JAMES B. SKAGGS Director March 23, 2001
- ----------------------------
James B. Skaggs
/s/ WILLIAM R. THOMAS Director March 23, 2001
- ----------------------------
William R. Thomas
19
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, 2000, 1999 and 1998............................................ F-3
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999.............................................................. F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998............................................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998............................................ 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, 2000 and December 31, 1999, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000.
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, 2000 and 1999 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Antonio, Texas
March 13, 2001
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,
2000 1999 1998
----------------- ----------------- -----------------
Net sales:
North American
Agricultural ........................................... $ 79,752 $ 75,931 $ 98,393
Industrial ............................................. 95,867 58,719 61,133
European .................................................. 40,255 41,958 41,027
---------------- ---------------- -----------------
Total net sales............................................. 215,874 176,608 200,553
Cost of sales .............................................. 163,723 135,705 156,895
----------------- ----------------- -----------------
Gross profit ............................................ 52,151 40,903 43,658
Selling, general and administrative expense................. 34,650 30,123 35,169
----------------- ----------------- -----------------
Income from operations .................................. 17,501 10,780 8,489
Interest expense ........................................... (2,190) (1,495) (2,647)
Interest income............................................. 760 604 697
Other income (expense), net................................. (181) (193) (4)
----------------- ----------------- -----------------
Income before income taxes............................... 15,890 9,696 6,535
Provision for income taxes ................................. 5,120 3,594 2,420
----------------- ----------------- -----------------
Net income............................................... $ 10,770 $ 6,102 $ 4,115
================= ================= =================
Net income per common share:
Basic.................................................... $ 1.11 $ 0.63 $ 0.42
================= ================= =================
Diluted.................................................. $ 1.11 $ 0.63 $ 0.42
================= ================= =================
Average common shares:
Basic.................................................... 9,698 9,722 9,714
================= ================= =================
Diluted.................................................. 9,759 9,726 9,730
================= ================= =================
See accompanying notes.
F-3
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
2000 1999
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 2,929 $ 5,359
Accounts receivable .......................................................... 50,359 41,764
Inventories .................................................................. 59,608 45,570
Deferred income taxes......................................................... 4,335 4,193
Prepaid expenses and other ................................................... 2,183 1,008
---------------- ----------------
Total current assets ..................................................... 119,414 97,894
Property, plant and equipment .................................................. 66,305 54,161
Less: Accumulated depreciation .............................................. (38,197) (32,343)
---------------- ----------------
28,108 21,818
Goodwill ....................................................................... 21,833 9,937
Other assets ................................................................... 4,053 3,146
---------------- ----------------
Total assets ............................................................. $ 173,408 $ 132,795
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................................ $ 15,708 $ 8,514
Income taxes payable.......................................................... (69) 1,080
Accrued liabilities........................................................... 9,948 7,920
Current maturities of long-term debt ......................................... 1,484 526
---------------- ----------------
Total current liabilities ................................................ 27,071 18,040
Long-term debt, net of current maturities ...................................... 30,355 5,469
Deferred income taxes........................................................... 1,443 1,256
Stockholders' equity:
Common stock, $.10 par value, 20,000,000 shares authorized; 9,744,259 and
9,735,809 issued at December 31, 2000 and
December 31, 1999, respectively ............................................ 974 974
Additional paid-in capital ................................................... 50,969 50,775
Treasury stock, at cost; 40,600 shares at December 31, 2000 ................. (400) (400)
Retained earnings ............................................................ 66,010 57,568
Accumulated other comprehensive income ....................................... (3,014) (887)
---------------- ----------------
Total stockholders' equity ............................................... 114,539 108,030
---------------- ----------------
Total liabilities and stockholders' equity ................................... $ 173,408 $ 132,795
================ ================
See accompanying notes.
F-4
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL STOCK-
------------------ PAID-IN TREASURY RETAINED COMPREHENSIVE HOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS INCOME EQUITY
------ -------- ----------- ----------- ------------- --------------- -------------
Balance at December 31, 1997........ 9,685 $ 968 $ 50,395 $ -- $ 54,835 $ 67 $ 106,265
Net income....................... -- -- -- -- 4,115 -- 4,115
Translation adjustment........... -- -- -- -- -- 548 584
-------------
Total comprehensive income....... -- -- -- -- -- 4,699
Purchase of treasury stock, at
cost............................. -- -- -- 117
Sale of common stock and related. 51 5 112 -- -- -- 4,699
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
Net income...................... -- -- -- -- 10,770 -- 10,770
Translation adjustment........... -- -- -- -- -- (2,127) (2,127)
-------------
Total comprehensive income....... -- -- -- -- -- -- 8,643
Purchase of treasury stock, at
cost............................. -- -- -- -- -- -- --
Sale of common stock............. 9 -- 194 -- -- -- 194
Dividends paid ($.24 per share).. -- -- -- -- (2,328) -- (2,328)
------ -------- ----------- ----------- ------------- --------------- -------------
Balance at December 31, 2000........ 9,704 $ 974 $ 50,969 $ (400) $ 66,010 $ (3,014) $ 114,539
====== ======== =========== =========== ============= =============== =============
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,
2000 1999 1998
--------------- --------------- ----------------
OPERATING ACTIVITIES
Net income............................................................. $ 10,770 $ 6,102 $ 4,115
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts................................... 450 133 1,099
Depreciation ..................................................... 4,441 3,967 3,938
Amortization ..................................................... 1,558 1,185 1,897
Provision for deferred income tax benefit ........................ 266 693 (2,711)
Gain on sale of equipment ....................................... (219) (1,048) (124)
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable .............................................. (6,358) 7,379 (8,540)
Inventories ...................................................... (2,511) 18,278 1,470
Prepaid expenses and other ....................................... (236) 1,449 1,731
Trade accounts payable and accrued liabilities ................... 2,167 414 (2,617)
Income taxes payable ............................................. (1,318) 636 205
--------------- --------------- ---------------
Net cash provided by operating activities ............................. 9,010 39,188 463
INVESTING ACTIVITIES
Acquisitions, net of cash acquired .................................... (24,453)
Purchase of property, plant and equipment ............................. (12,650) (3,616) (4,403)
Proceeds from sale of property, plant and equipment ................... 530 1,120 342
Purchase of long-term investment ...................................... (500) (500) (500)
Sale of long-term investment .......................................... -- -- 3,200
--------------- --------------- ---------------
Net cash (used) by investing activities ............................... (37,073) (2,996) (1,361)
FINANCING ACTIVITIES
Net change in bank revolving credit facility .......................... 28,800 (29,600) 7,600
Principal payments on long-term debt and capital leases ............... (813) (443) (729)
Dividends paid ........................................................ (2,328) (3,309) (4,175)
Proceeds from sale of common stock and related ........................ 194 269 117
Cost of common stock repurchased ...................................... -- (400) --
--------------- --------------- ---------------
Net cash provided (used) by financing activities ...................... 25,853 (33,483) 2,813
Effect of exchange rate changes on cash ............................... (220) (98) 44
--------------- --------------- ---------------
Net change in cash and cash equivalents ............................... (2,430) 2,611 1,959
Cash and cash equivalents at beginning of the year .................... 5,359 2,748 789
--------------- --------------- ---------------
Cash and cash equivalents at end of the year .......................... $ 2,929 $ 5,359 $ 2,748
=============== =============== ===============
Cash paid during the year for:
Interest ........................................................... $ 1,876 $ 1,742 $ 2,547
Income taxes ....................................................... 7,561 2,300 5,100
See accompanying notes.
F-6
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS AND SEGMENTS
The Company manufactures, distributes and services high quality equipment
for right-of-way maintenance and agriculture. Our products include
tractor-mounted mowing and other vegetation maintenance equipment, street
sweepers, agricultural implements and related after market parts and services.
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
manages its business in three principal reporting segments; Agricultural,
Industrial, and European. The adoption of Statement 131 requires segment
reporting and certain geographic disclosures which are included in Footnotes 13
and 14.
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, 2000, the Company had
$1,409,840 outstanding forward exchange contracts related to sales and a foreign
currency forward contract of $5,173,000 relating to a short term inter-company
cash transfer maturing in January 2001. The maximum exposure of the December 31,
2000 contracts that the Company expects to incur during the first quarter of
2001 is approximately $77,000 loss. Foreign currency transaction gains or losses
are included in Other income (expense), net. For 2000, 1999 and 1998, such
transactions netted a loss of $204,000, a loss of $906,000 and a gain of
$99,000, respectively.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with a maturity date no
longer than 90 days.
F-7
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
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.
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 $6,520,000 and $5,343,000 for the years ended
December 31, 2000 and 1999, 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, 2000 and 1999, respectively, the Company had $2,000,000 and
$1,500,000 invested in a Small Business Investment Company which is carried at
cost in Other assets.
RELATED PARTY TRANSACTIONS
Notes receivable from officers of the Company was $970,000 for the years
ended December 31, 2000 and 1999, 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. The Company recognizes revenue when each of the
following four criteria are met: 1) a contract or sales arrangement exists; 2)
products have been shipped or services heave been rendered; 3) the price of the
products or services is fixed or determinable; and 4) collectibility is
reasonably assured.
F-8
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
SHIPPING AND HANDLING COSTS
In September 2000, the Emerging Issues Task Force issued EITF 00-10 which
requires disclosure of shipping and handling costs that are not included in
costs of goods sold. The Company's policy is to include shipping and handling
costs in costs of goods sold.
RESEARCH AND DEVELOPMENT
Product development and engineering costs charged to Selling, general and
administrative expense amounted to $ 2,396,000, $1,722,000, and $1,685,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. The increase in
2000 is primarily from the acquisition of SCHWARZE and to a lessor extent,
SCHULTE.
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.
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.
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)
2000 1999 1998
--------------- --------------- ---------------
Net income............................................ $ 10,770 $ 6,102 $ 4,115
=============== =============== ===============
Average common shares:
BASIC (weighted-average outstanding shares) ....... 9,698 9,722 9,714
Dilutive potential common shares from stock
options and warrants............................. 61 4 16
--------------- --------------- ---------------
DILUTED (weighted-average outstanding shares) ...... 9,759 9,726 9,730
=============== =============== ===============
Basic earnings per share ............................. $ 1.11 $ 0.63 $ 0.42
=============== =============== ===============
Diluted earnings per share ........................... $ 1.11 $ 0.63 $ 0.42
=============== =============== ===============
Stock options were 5,000 shares in 2000 and 101,000 shares in 1999, and
were not included in the diluted earnings per share calculation as they were
antidilutive.
F-9
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
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 2000 were immaterial versus $1,223,000 in
1999 and $2,197,000 in 1998. 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. These charges are included in net sales, cost of sales and selling,
general and administrative expense as appropriate.
4. VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included the following (in thousands):
NET
BALANCE CHARGED TO TRANSLATIONS, NET WRITE-OFFS BALANCE
BEGINNING OF COSTS AND RECLASSIFICATIONS OR DISCOUNTS END OF
YEAR EXPENSES AND ACQUISITIONS TAKEN YEAR
------------------------------------------------------------------------------
2000
- ----
Allowance for doubtful accounts....... $ 1,231 $ 284 $ 929 $ (1,122) $ 1,322
Reserve for sales discounts........... 3,591 14,283 (3) (13,766) 4,105
Reserve for inventory obsolescence.... 5,216 (466) (204) (345) 4,201
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
5. INVENTORIES
Inventories valued at LIFO cost represented 61% and 82% of total inventory
for the years ended December 31, 2000 and 1999, respectively. The excess of
current costs over LIFO-valued inventories was $4,238,000 and $3,925,000 at
December 31, 2000 and December 31, 1999, respectively. Net inventories consist
of the following (in thousands):
DECEMBER 31, DECEMBER 31,
2000 1999
--------------- ----------------
Finished wholegoods and parts ............... $ 40,135 $ 39,310
Work in process ............................. 9,711 2,754
Raw materials ............................... 9,762 3,506
--------------- ----------------
$ 59,608 $ 45,570
=============== ================
F-10
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
DECEMBER 31, DECEMBER 31, USEFUL
2000 1999 LIVES
---------------- ---------------- --------------
Land............................. $ 3,819 $ 1,904
Buildings and improvements ...... 21,411 18,917 15-25 yrs.
Machinery and equipment ......... 31,249 25,471 5 yrs.
Office furniture and equipment .. 5,918 4,414 5 yrs.
Transportation equipment ........ 3,908 3,455 3-5 yrs.
---------------- ----------------
66,305 54,161
Accumulated depreciation ........ (38,197) (32,343)
---------------- ----------------
$ 28,108 $ 21,818
================ ================
Property, plant and equipment at December 31, 2000 and December 31, 1999
includes $2,540,000 and $6,272,000, respectively, for buildings, machinery and
equipment held under capitalized leases.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following balances (in thousands):
DECEMBER 31, DECEMBER 31,
2000 1999
--------------- --------------
Salaries, wages and bonuses .................. $ 3,272 $ 2,635
Warranty ..................................... 2,121 1,467
Other......................................... 4,555 3,818
--------------- ---------------
$ 9,948 $ 7,920
=============== ===============
8. LONG-TERM DEBT
The components of long-term debt at December 31 are as follows (in
thousands):
2000 1999
-------------- ------------
Bank revolving credit facility ............... $ 28,800 $ --
Capital lease obligations .................... 1,962 5,812
Other notes payable .......................... 1,077 183
-------------- ------------
Total long-term debt ......................... 31,839 5,995
Less current maturities ...................... 1,484 526
-------------- ------------
$ 30,355 $ 5,469
============== ============
As of December 31, 2000, 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
F-11
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
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, 2000. At December
31, 2000, $28,800,000 was outstanding on the revolving credit facility. At
December 31, 2000, $2,982,000 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, 2000, are as
follows: $1,383,000 in 2001, $29,246,000 in 2002, $470,000 in 2003, $471,000 in
2004 and $214,000 in 2005 and $55,000 thereafter.
Long-term debt is stated at estimated fair value.
9. INCOME TAXES
U.S. and non-U.S. income before income taxes is as follows (in thousands):
2000 1999 1998
-------------- --------------- --------------
Income before income taxes:
North American ...................... $ 11,742 $ 5,262 $ 1,614
Foreign ............................. 4,148 4,434 4,921
-------------- --------------- --------------
$ 15,890 $ 9,696 $ 6,535
============== =============== ==============
The provision for income taxes consists of (in thousands):
2000 1999 1998
-------------- -------------- ---------------
Current:
Federal ............................. $ 3,527 $ 1,096 $ 3,289
Foreign ............................. 1,331 1,678 1,907
State ............................... 217 122 (63)
-------------- -------------- ---------------
5,075 2,896 5,133
Deferred:
Federal ............................. (37) 742 (2,718)
Foreign ............................. 82 (44) 5
-------------- -------------- ---------------
45 698 (2,713)
-------------- -------------- ---------------
Total income taxes.............. $ 5,120 3,594 $ 2,420
============== ============== ===============
Reconciliation of the statutory U.S. federal rate to actual tax rate is as
follows (in thousands):
2000 1999 1998
-------------- -------------- --------------
Statutory U.S. federal tax at 34%..... $ 5,403 $ 3,297 $ 2,222
Increase (reduction) from:
Non-U.S. taxes................... 22 126 240
U.S. State taxes................. 143 81 (42)
Other ........................... (448) 90 --
-------------- -------------- --------------
Provision for income taxes............ $ 5,120 $ 3,594 $ 2,420
============== ============== ==============
Actual tax rate....................... 32% 37% 37%
At December 31, 2000, the Company had unremitted earnings of foreign
subsidiaries of $22,995,000. 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, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
The components of deferred tax assets and liabilities included in the
balance sheets are as follows (in thousands):
2000 1999
------------- -------------
Deferred tax asset:
Inventory..................................... $ 1,463 $ 1,770
Accounts receivable .......................... 1,316 1,531
Depreciation.................................. 1,344 1,069
Deferred compensation......................... 284 269
Net operating loss carryforwards.............. 78 78
Insurance..................................... 288 365
Other current................................. 800 593
Other non-current............................. 1,214 1,040
------------- -------------
Total deferred asset......................... $ 6,787 $ 6,715
============= =============
Deferred tax liability:
Difference between book basis and tax basis
of assets..................................... $ 2,965 $ 2,965
Other......................................... 930 813
------------- -------------
Total deferred liability..................... $ 3,895 $ 3,778
============= =============
At December 31, 2000, net current deferred tax assets were $4,335,000
($4,193,000 in 1999). Net non-current deferred tax liabilities were $1,443,000
($1,256,000 in 1999).
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, 2000, the Company declared and paid a dividend
of $.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, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
Following is a summary of activity in the incentive stock option plans for the
periods indicated:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
--------------- ----------------- -----------------
Options outstanding at beginning of year..... 101,800 51,200 83,385
Granted ................................. -- 101,000 --
Exercised ............................... (8,450) (50) (30,885)
Cancelled ............................... (800) (50,350) (1,300)
--------------- ----------------- -----------------
Options outstanding at end of year .......... 92,550 101,800 51,200
=============== ================= =================
Options exercisable at end of year .......... 11,750 400 26,750
=============== ================= =================
Options available for grant at end of year .. 175,400 174,600 225,250
=============== ================= =================
PER SHARE OPTION PRICES, FOR OPTIONS OUTSTANDING AT DECEMBER 31, 2000,
RANGED FROM $8.9375 TO $9.25.
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 2000 and 1999, no shares were
exercised, in 1998 there were 20,000 shares exercised, 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,
2000 1999 1998
--------------- ----------------- -----------------
Options outstanding at beginning of year..... 220,000 20,000 40,000
Granted ................................. -- 200,000 --
Exercised ............................... -- -- 20,000
Cancelled ............................... -- -- --
--------------- ----------------- -----------------
Options outstanding at end of year .......... 220,000 220,000 20,000
=============== ================= =================
Options exercisable at end of year .......... 60,000 20,000 20,000
=============== ================= =================
Options available for grant at end of year .. 200,000 200,000 --
=============== ================= =================
F-14
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
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
2000, 1999 and 1998 were $508,000, $578,000, and $620,000, respectively.
Three 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 3% and 7.5% of the participant's salary up to a
specific limit. Contributions were $312,000 in 2000, $282,000 in 1999, and
$428,000 in 1998.
13. SEGMENT REPORTING
At December 31, 2000 the following audited financial information is segmented:
(in thousands)
DECEMBER 31, DECEMBER 31,
2000 1999
----------------- -----------------
NET REVENUE
Agricultural............ $ 79,752 $ 75,931
Industrial............... 95,867 58,719
European............... 40,255 41,958
----------------- -----------------
Consolidated................ $ 215,874 $ 176,608
OPERATING INCOME
Agricultural............ $ 3,471 $ (3,536)
Industrial............... 9,793 8,754
European............... 4,237 5,562
----------------- -----------------
Consolidated................ $ 17,501 $ 10,780
TOTAL IDENTIFIABLE ASSETS
Agricultural............ $ 73,128 $ 60,284
Industrial............... 61,040 30,502
European............... 39,240 42,009
----------------- -----------------
Consolidated................ $ 173,408 $ 132,795
14. 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,
2000 1999 1998
----------------- ---------------- ----------------
Net sales................................................... $ 44,505 $ 41,958 $ 41,027
Income from operations ..................................... 4,253 5,312 5,060
Income before income taxes and allocated interest expense .. 4,148 4,434 4,921
Identifiable assets ........................................ 53,344 42,009 42,117
F-15
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
Following is other selected geographic financial information on the Company's
operations (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
---------------- --------------- ----------------
Geographic net sales:
United States........................................... $ 173,802 $ 133,130 $ 156,809
United Kingdom.......................................... 15,212 14,505 13,534
France.................................................. 17,981 19,070 19,466
Other................................................... 8,879 9,903 10,744
---------------- --------------- ---------------
Total net sales............................................. $ 215,874 $ 176,608 $ 200,553
================ =============== ===============
Geographic location of long lived assets:
United States........................................... $ 36,145 $ 21,838 $ 23,697
United Kingdom.......................................... 10,698 9,395 10,132
France.................................................. 3,033 3,564 4,495
Canada.................................................. 6,873 -- --
Australia............................................... 391 -- --
---------------- --------------- ---------------
Total long lived assets..................................... $ 57,140 $ 34,797 $ 38,324
================ =============== ===============
Net sales are attributed to countries based on the location of customers.
15. 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 2000, 1999 and 1998 the Company's Comprehensive Income was $8,643,000,
$4,564,000, and $4,699,000, respectively.
The components of Accumulated Other Comprehensive Income are as follows (in
thousands):
2000 1999 1998
----------------- ----------------- -----------------
Foreign currency translation adjustments... $ (3,013) $ (887) $ 651
----------------- ----------------- -----------------
Accumulated other comprehensive income..... $ (3,013) $ (887) $ 651
================= ================= =================
F-16
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
16. 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, 2000, 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
------------- -------------
2001 ........................................................ $ 1,213 $ 578
2002 ........................................................ 1,023 578
2003 ........................................................ 509 556
2004 ........................................................ 359 512
2005 ........................................................ 78 219
Thereafter .................................................. 5 --
------------- -------------
Total minimum lease payments ................................ $ 3,187 2,443
=============
Less amount representing interest ........................... 482
-------------
Present value of net minimum lease payments ................. 1,961
Less current portion ........................................ 498
-------------
Long-term portion ........................................... $ 1,463
=============
Rental expense for operating leases was $ 1,928,000 for 2000, $1,351,000
for 1999, and $1,404,000 for 1998.
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 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, 2000, and 1999, $261,000 and $317,000, respectively, were
outstanding under the program and are included in additional paid-in capital.
The executive loan program has expired.
F-17
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000 and 1999 is presented below.
Seasonal influences affect the Company's sales and profits with peak business
occurring in May through August. (In thousands, except per share amounts):
2000 1999
---------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
---------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Sales.................$ 49,966 $ 60,725 $ 55,653 $ 49,530 $ 42,168 $ 51,095 $ 43,936 $ 39,409
Gross profit.......... 12,645 15,316 14,696 9,494 10,078 13,345 8,268 9,212
Net income (loss) .... 2,682 4,150 3,668 270 1,620 3,608 131 743
Earnings per share
Diluted............$ .28 $ .42 $ .38 $ .03 $ .17 $ .37 $ .01 $ .08
Average shares
Diluted............ 9,752 9,754 9,769 9,774 9,736 9,736 9,743 9,705
Dividends per share...$ .06 $ .06 $ .06 $ .06 $ .11 $ .11 $ .06 $ .06
Market price of
common stock
High...............$ 12-1/4 $ 13-7/16 $ 13-7/16 $ 13-5/8 $ 12-5/8 $ 10-1/4 $ 10-1/8 $ 10-1/4
Low................$ 9-15/16 $ 10-11/16 $ 12 $ 12-1/2 $ 7-7/8 $ 6-7/8 $ 8-1/2 $ 8-1/4
18. ACQUISITIONS AND INVESTMENTS
During 2000 the Company made the following acquisitions:
o On February 29, 2000, the Company acquired 100% of the outstanding shares
of Schwarze Industries Inc. ("Schwarze"). Schwarze is a manufacturer of
sweeping equipment which is sold to governmental and contractor users. The
Company acquired assets for a purchase price of approximately $15,000,000.
All goodwill will be amortized over 15 years.
o On September 8, 2000, the Company purchased the product line and associated
assets out of receivership of Twose of Tiverton LTD ("Twose") in the U.K.
Twose was a small regional manufacturer of power arm flail mowers and
parts. The acquisition price was approximately $1,200,000.
o On November 6, 2000, the Company acquired 100% of the issued and
outstanding shares of Schulte Industries, LTD ("Schulte") and all its
affiliated and related companies for approximately $9,000,000. Schulte is a
Canadian manufacturer of mechanical rotary mowers, snow blowers, and rock
removal equipment. All related goodwill will be amortized over 15 years.
The pro forma statement of the Company assuming the transactions were
completed at January 1, 1999 is listed in the following table (in thousands
except for per share):
DECEMBER 31, DECEMBER 31,
2000 1999
-------------- --------------
Net Sales .................................... $ 243,068 $ 228,098
Net Income ................................... $ 12,123 $ 7,752
Other......................................... $ 1.24 $ 0.80
19. SUBSEQUENT EVENTS
The Company closed on the sale of its La Grange, Illinois, facility on January
24, 2001, which ceased production at the end of 1999. Sales price for the
building and the land was $1,755,000.
F-18