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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2001
[ ] 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, 2002 (BASED UPON THE LAST REPORTED SALE PRICE OF $14.88 PER SHARE) WAS
APPROXIMATELY $ 90,744,326 ON SUCH DATE.
THE NUMBER OF SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE $.10 PER SHARE,
OUTSTANDING AS OF FEBRUARY 28, 2002 WAS 9,710,809 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S PROXY
STATEMENT RELATING TO THE 2002 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY
8, 2002, 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................................................... 9
Item 3. Legal Proceedings............................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Item 4a. Executive Officers of the Company............................ 10
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters.......................................... 11
Item 6. Selected Financial Data...................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
Item 7a. Quantitative and Qualitative Disclosures about Market Risks.. 17
Item 8. Financial Statements......................................... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ......................... 18
PART III
Item 10. Directors and Executive Officers............................. 18
Item 11. Executive Compensation....................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 18
Item 13. Certain Relationships and Related Transactions............... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 19
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 effective 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 flail cutting
technology in 1983 and sickle-bar technology in 1984. The Company added to its
presence in the industrial and governmental markets with the acquisition of
Tiger Corporation ("TIGER") at the end of 1994.
A major thrust into agricultural mowing markets began in 1986 with the
acquisition of Rhino Products ("RHINO"), 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 and integration where appropriate remains a
primary focus of the Company's marketing plans for agricultural and industrial
uses. The addition of M&W GEAR COMPANY ("M&W") 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.
In late 1995 the Company expanded its business in the agricultural market
with the acquisition of Herschel Corporation ("HERSCHEL"), a leading
manufacturer and distributor of farm equipment replacement and wear 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 Ltd. ("MCCONNEL), a United Kingdom ("U.K.") manufacturer of
vegetation maintenance equipment, principally hydraulic boom-mounted hedge and
grass cutters and related parts. Bomford-Turner Ltd. ("BOMFORD"), also a U.K.
company, was acquired in 1993. BOMFORD is a manufacturer of heavy duty,
tractor-mounted grass and hedge mowing equipment.
In 1994, the Company acquired S.M.A S.A. ("SMA") located in Orleans, France.
S.M.A. manufacturers and sells principally a line of heavy duty, tractor-mounted
grass and hedge mowing equipment and associated replacement parts to departments
of the French government. 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 Schwarze Industries, Inc.
("SCHWARZE"). SCHWARZE is a manufacturer of a broad range of street sweeping
equipment, which is sold to governmental agencies, and contractors. The Company
believes the SCHWARZE sweeper products fit the Company's strategy of identifying
product offerings with brand recognition in the industrial markets the Company
serves.
3
On September 8, 2000, the Company purchased the product line and associated
assets of Twose of Tiverton LTD ("TWOSE") in the U.K. and incorporated its
production into the existing facilities at MCCONNELL and BOMFORD. 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
in the U.K.
On November 6, 2000, the Company acquired SCHULTE INDUSTRIES, LTD.
("SCHULTE") and its related entities. SCHULTE is a Canadian manufacturer of
mechanical rotary mowers, snow blowers, and rock removal equipment. SCHULTE
brought the Company a stronger Canadian presence including both marketing and
manufacturing. It also expanded the Company's range of large heavy-duty rotary
mowers.
On August 14, 2001, the Company acquired all of the assets of SMC Corporation
("SMC"). SMC manufactures front-end loaders and backhoes principally for
Original Equipment Manufacturers ("OEM") customers and its own SMC brand. This
acquisition expanded the product range of our agricultural division.
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 various marketing
organizations, and extensive, world-wide dealer networks under the ALAMO
INDUSTRIAL(R), TIGER(TM), SCHWARZE(TM), RHINO(R), M&W(R), HERSCHEL-ADAMS(R),
SCHULTE(TM), MCCONNEL(R), BOMFORD(R), S.M.A.(R) , TWOSE(TM) 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, other types of cutters and replacement parts for
heavy-duty, intensive use applications including the maintenance of highway,
airport, recreational and other public areas. A portion of ALAMO INDUSTRIAL
sales includes tractors, which are not manufactured by ALAMO INDUSTRIAL.
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.. TIGER sells to state, county and
local governmental entities through a network of dealers. In many cases, TIGER'S
larger dealers' principal product line is TIGER equipment. TIGER'S dealership
network is independent of ALAMO INDUSTRIAL'S dealership network.
SCHWARZE equipment includes air, mechanical broom, and regenerative air
sweepers along with a high-efficiency environmental sweeper and replacement
parts. SCHWARZE primarily sells its products to governmental agencies and
independent contractors. The Company believes that SCHWARZE compliments Alamo
INDUSTRIAL because the end user for both products in many cases is the same. In
2001, the ALAMO INDUSTRIAL territory managers began marketing SCHWARZE products
along with ALAMO INDUSTRIAL products in Mexico and other Latin American
countries. In the first half of 2002, the dealer sales force of ALAMO INDUSTRIAL
and SCHWARZE will be combined into ALAMO INDUSTRIAL and trained to cross-sell
products. 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 haymaking. 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-powered 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
haymaking 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 heavy-duty mechanical rotary mowers, snow blowers,
rock removal equipment and related replacement parts. SCHULTE serves both the
agricultural and industrial markets primarily in Canada and the U.S. The Company
has plans for market synergies in Canada for both TIGER and RHINO product lines
with expectation of broadening product offerings to the existing customer base.
SCHULTE sells some of its products through BOMFORD in the U.K and other
independent distributors throughout the world.
4
SMC equipment includes a broad line of front-end loaders and backhoes that
fit many tractors on the market today. The majority of the products are sold to
OEM's. In the fall of 2001, the Company introduced RHINO(R) branded loaders and
backhoes to be sold through its agricultural dealer network. In addition, the
SMC backhoe line will be manufactured at the Company's M&W facility in Gibson
City, Illinois beginning in the first half of 2002 to relieve capacity
constraints at SMC'S Sioux Falls, South Dakota manufacturing facility.
HERSCHEL-ADAMS replacement parts are sold for many types of tillage equipment
and tractors and certain types of mowing and construction equipment.
HERSCHEL-ADAMS products include a wide 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 in North America through the Company's dealers as well as independent
dealers and distributors. MCCONNEL primarily focuses on the agricultural and
commercial end-user. MCCONNEL products are sold in the U.K. through a network of
agricultural tractor dealers, with exports sold primarily through distributors.
BOMFORD equipment includes hydraulic, boom-mounted hedge and hedgerow
cutters, industrial grass mowers, agricultural seedbed 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, other countries in Europe, North America, Australia
and the Far East. BOMFORD'S sales network is very similar to that of MCCONNEL in
the U.K. RHINO and TIGER sell some of BOMFORD'S product line in the U.S.
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
25% of the Company's total sales for the year ended December 31, 2001.
Replacement parts are more profitable and generally less cyclical than
wholegoods.
While the Company believes that the end-users of its products evaluate 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 as well as other factors such as
availability.
Demand for product tends to be strongest in the spring and summer seasons.
The Company provides incentives for off-season purchases for many of its
products, 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. As of December 31, 2001 the Company employed 109 people in its various
engineering departments, 42 of whom are professionals and the balance of whom
are support staff. Amounts expended on research and development activities were
approximately $2,405,000 in 2001, $2,396,000 in 2000, and $1,722,000 in 1999. As
a percent of sales Research and Development was 1.0% in 2001, 1.1% in 2000, and
1.0% in 1999 respectively and is expected to continue at similar levels in 2002.
5
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
second and third quarters. Agricultural and governmental end-users typically
purchase new equipment during the first and second calendar quarters. Weather
conditions and general economic conditions, however, may affect the timing of
these purchases. 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 twelve month sales forecast provided by the Company's
marketing divisions and order backlog in order to develop a production plan for
its manufacturing facilities. Additionally, many of the Company's marketing
divisions attempt 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, availability,
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 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
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, 2001, the Company had unfilled customer orders of
$40,649,000 compared to $44,269,000 at the end of 2000. The decrease is
primarily attributable to soft market conditions in the agricultural markets
served by the Company. Management expects that substantially all of the
Company's backlog as of December 31, 2001 will be shipped during fiscal year
2002. 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 any time 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 Company through its subsidiaries purchases tractors, truck chassis and
engines as well as steel, gearboxes, drivelines, hydraulic components and other
industrial parts and supplies. During 2001, these products were readily
available from a variety of sources in adequate quantities and at prevailing
market rates. A number of the Company's products are mounted and shipped with a
tractor. Tractors are generally available, but some delays in receiving tractors
have been experienced during the year. 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.
6
PATENTS AND TRADEMARKS
The Company owns various U.S. and international 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. The Company amortizes approximately
$132,000 annually in patents and trademarks.
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(TM), SCHULTE(TM), TWOSE(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. The Company
vigorously protects its trademarks against infringement and believes it has
applied for or 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 knows that the Indianola, Iowa property on
which its Herschel facility operates is contaminated with chromium. The
contamination likely resulted from chrome-plating operations which were
discontinued several years before the Company purchased the property. The
Company is working with an environmental consultant, the previous owner of the
property, and the state of Iowa to develop and implement a plan to remediate the
contamination. All present and future remediation costs have been or should be
paid by the previous owner of the property pursuant to the agreement by which
the Company purchased said property. However, the successor to the previous
owner is in Chapter 11 Bankruptcy proceedings and we have no way of knowing at
this time if or when they will be able to meet their contractual obligations.
The amount of potential liability cannot be reasonably estimated at this time.
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, 2001, the Company employed 1,652 full-time employees. The
HERSCHEL AND SMC facilities in the U.S. have collective bargaining agreements,
which cover approximately 60 and 149 employees respectively, and the two U.K.
subsidiaries, MCCONNEL and BOMFORD, also have collective bargaining agreements
covering 170 persons. The Company considers its employee relations to be
satisfactory.
INTERNATIONAL 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.
7
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 North American and European
agricultural markets; increased competition in the Company's business from
competitors that have greater financial resources; deterioration in the
Company's industrial market due to reduced governmental budgets that could
affect their purchases of goods and services; the impact of the strong dollar
and British pound which increase the cost of the Company's products in
international 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 hire and retain 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 domestic and international 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; the
inability of the Company's suppliers, customers, creditors, government agencies,
public utility providers and financial service organizations to deliver or
provide their products or services to the Company; 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 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.
8
ITEM 2. PROPERTIES
At December 31, 2001, the Company utilized seven 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 Owned Mowers and Hay Balers, Deep Tillage Equipment and Mechanical
Mowers for RHINO and M&W and backhoes for SMC
Seguin, Texas 230,000 Owned Hydraulic and Mechanical Rotary, Flail Mowers, Sickle-Bar
25,000 Leased Mowers, and Boom-Mounted Equipment for ALAMO INDUSTRIAL
Hydraulic Boom-Mounted Hedge and Grass Cutters and other
Equipment for
Ludlow, England 160,000 Owned MCCONNEL and TWOSE
Holton, Kansas 150,000 Owned Mechanical Rotary Mowers, Blades and Post Hole Diggers for RHINO
Indianola, Iowa 150,000 Owned After Market Farm Equipment Replacement and Wear parts for
HERSCHEL-ADAMS
Huntsville, Alabama 100,000 Leased Air and Mechanical Sweeping Equipment for SCHWARZE
36,000 Owned
Salford Priors, England 106,000 Owned Tractor Mounted Power Arm Flails and other Equipment for BOMFORD
and TWOSE
Sioux Falls, South Dakota 60,000 Leased Hydraulic and Mechanical Mowing Equipment for TIGER
Sioux Falls, South Dakota 50,000 Owned Front-end loaders and Backhoes for SMC
Englefeld, Saskatchewan Canada 46,000 Owned Mechanical Rotary Mowers, Snow Blowers, and Rock Removal
Equipment for SCHULTE
Orleans, France 40,000 Owned Heavy Duty, Tractor-Mounted Grass and Hedge Mowing Equipment
for SMA
Queensland, Australia 15,000 Leased Air and Mechanical Sweeping Equipment for SCHWARZE
Peschadores, France 12,000 Owned Manufactures Replacement Parts for Blades, Knives and Shackles
by FORGES GORCE
Warehouses 45,000 Leased
20,000 Owned
---------------
Total 1,480,000
Approximately 83% of the manufacturing, warehouse and office space is owned.
The Company closed its manufacturing facility in LaGrange, Illinois during 1999
and the facility was subsequently sold on January 24, 2001. Further, the Company
closed its manufacturing facilities in Guymon and Wakita, Oklahoma on November
30, 2001 and both of these facilities are currently assets held for sale. On
February 27, 2001 the Company sold it's trucking operation and on December 31,
2001 sold its related land and building in Seguin, Texas. 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
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 might be substantial and the ultimate liability with respect to such
litigation cannot be determined at
9
this time, the Company believes that the ultimate outcome of these matters will
not have a material adverse effect on the Company's consolidated financial
position.
ITEM 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, 2001.
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 elected to serve until the 2002 annual
meeting of directors or until his successor is duly elected and qualified.
NAME Age POSITION
---------------- ------ ------------------------------------------------
Donald J. Douglass 70 Chairman of the Board
Ronald A. Robinson 50 President and Chief Executive Officer
Robert H. George 55 Vice President, Secretary and Treasurer
Richard J. Wehrle 45 Vice President and Corporate Controller
Donald C. Duncan 50 General Counsel
Douglas W. Anderson 58 Executive Vice President, Alamo Group (USA) Inc.
Ian Burden 47 Executive Vice President, Alamo Group (USA) Inc.
Geoffrey Davies 54 Managing Director, Alamo Group (EUR) Ltd.
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.
Richard J. Wehrle has been Vice President and Corporate Controller of the
Company since May 2001. Prior to his appointment, Mr. Wehrle has served in
various accounting management capacities within the Company since 1988.
Donald C. Duncan has been General Counsel of the Company since January 2002.
Prior to his appointment, Mr. Duncan was counsel for various publicly and
privately held companies in Houston, Texas and most recently was Counsel for
EGL, Inc, Weatherford International Inc. and Lendmark Graphics Corporation.
Douglas W. Anderson has been Executive Vice President of Alamo Group (USA)
Inc. since July 2001 and manages the Agricultural division. Prior to his
appointment as Executive Vice President, Mr. Anderson has served as Senior Vice
President in charge of marketing for various public and private companies and
most recently was Vice President for Telemotive Industrial Controls and
PCC/Merriman Division.
10
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.
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 28, 2002, there were 9,710,809 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
28, 2002, the closing price of the common stock on the New York Stock Exchange
was $ 14.88 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, markdowns or
commissions, and may not necessarily represent actual transactions.
HIGH AND LOW STOCK PRICES FOR THE LAST TWO FISCAL YEARS WERE:
2001 2000
-------------------------------------------------------------- ---------------------------------------------------------------
CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED QUARTER ENDED HIGH LOW DECLARED
-------------------- --------------------------------------- ----------------------------------------------------------------
March 31, 2001 $15.63 $13.06 $.06 March 31, 2000 $12.25 $9.94 $.06
June 30, 2001 15.12 13.60 .06 June 30, 2000 13.44 10.69 .06
September 30, 2001 14.70 12.60 .06 September 30, 2000 13.44 12.00 .06
December 31, 2001 14.05 12.95 .06 December 31, 2000 13.63 12.50 .06
-------------------- --------------------------------------- ----------------------------------------------------------------
On January 4, 2002, the Board of Directors of the Company declared a
quarterly dividend of $.06 per share which was paid on February 5, 2002, to
holders of record as of January 18, 2002. 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. 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.
11
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,
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net sales ......................................... $246,047 $215,874 $176,608 $200,553 $203,092
Income before income taxes ........................ 16,606 15,890 9,696 6,535 20,595
Net income ........................................ 10,812 10,770 6,102 4,115 13,600
Percent of sales .................................. 4.4% 5.0% 3.5% 2.1% 6.7%
Earnings per share
Basic .......................................... 1.11 1.11 0.63 0.42 1.42
Diluted ........................................ 1.11 1.11 0.63 0.42 1.41
Dividends per share ............................... .24 .24 0.34 0.43 0.40
Average common shares
Basic .......................................... 9,706 9,698 9,722 9,714 9,602
Diluted ........................................ 9,787 9,759 9,726 9,730 9,674
FINANCIAL POSITION:
Total assets ...................................... $185,921 $173,408 $132,795 $161,638 $156,124
Short-term debt and current maturities ............ 3,013 1,484 526 487 727
Long-term debt, excluding current maturities ...... 36,315 30,355 5,469 35,858 28,617
Stockholders' equity .............................. 121,813 114,539 108,030 106,906 106,265
(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:
FISCAL YEAR ENDED
-------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
-------------- -------------- --------------
Sales data in thousands:
North American
Agricultural .............................................. $ 97,978 $ 79,752 $ 75,931
Industrial ................................................ 108,001 95,867 58,719
European ..................................................... 40,068 40,255 41,958
---------- ---------- ----------
Total net sales .............................................. $ 246,047 $ 215,874 $ 176,608
========== ========== ==========
Cost and profit margins, as percentages of net sales:
Cost of sales ............................................. 75.8% 75.8% 76.8%
Gross margin .............................................. 24.2% 24.2% 23.2%
Selling, general and administrative expense ............... 16.3% 16.1% 17.1%
Income from operations .................................... 7.9% 8.1% 6.1%
Income before income taxes ................................ 6.8% 7.4% 5.5%
Net income ................................................ 4.4% 5.0% 3.5%
12
RESULTS OF OPERATIONS
FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales in the fiscal year ending December 31, 2001 ("2001")
were $246,047,000, an increase of $30,173,000 or 14.0% compared to $215,874,000
for the fiscal year ended December 31, 2000 ("2000"). The increase in sales was
primarily attributable to the acquisition of SMC on August 14, 2001 as well as a
full year of SCHULTE revenue in 2001 and to a lesser extent internal growth.
North American Agricultural sales (Net) were $97,978,000 in 2001 compared to
$79,752,000 in 2000, representing an increase of $18,226,000 or 22.9%. The
revenue growth was primarily from the SCHULTE and SMC acquisitions, however
the Rhino product line continued to show internal growth despite soft
conditions in the agricultural market. The M&W and HERSCHEL products showed
decreases in sales as demand for balers and tillage equipment continued to be
down throughout the year.
North American Industrial sales (Net) in 2001 were $108,001,000 compared to
$95,867,000 in 2000, a $12,134,000 or 12.7% increase. The acquisition of
SCHULTE Industries was reflected for a full year representing the majority of
the increase as well as increased revenue from ALAMO INDUSTRIAL products.
Sales of SCHWARZE sweepers to direct contract markets were down throughout
the year due to the soft market and highly competitive bids from major
competitors though their dealer sales mainly to governmental entities were
up. The Industrial market was adversely affected by the tragic events of
September 11th , which resulted in a decline in new orders during the fourth
quarter of 2001 compared to the fourth quarter of the previous year.
European sales (Net) decreased $187,000 or less than 1.0% to $40,068,000 in
2001 compared to $40,255,000 in 2000. The decrease was attributed to the
sluggish economic conditions as well as the foot and mouth epidemic which had
a severe effect for much of the year, mainly in the U.K., our largest
European market. In addition, the strength of the British Pound compared to
the Euro and French Franc negatively affected sales throughout Europe. The
European sector saw some improvement during the fourth quarter of 2001.
Gross Margins for 2001 were $59,529,000 (24.2% of net sales) compared to
$52,151,000 (24.2% of net sales) in 2000. 2001 margins were up mainly from the
acquisitions of SCHULTE and SMC. Closure costs from the shutdown of the
Company's Guymon facility had a negative affect on margins during the year. In
addition margin percentages for 2001 were negatively impacted by product mix of
lower replacement parts sales, which are generally at higher margins.
Selling, general and administrative expenses ("SG&A") were $40,173,000 (16.3%
of net sales) in 2001 compared to $34,650,000 (16.1% of net sales) in 2000. The
increase of $5,523,000 over 2000 was primarily due to the addition of SCHULTE
and SMC as well as costs from the Company's Enterprise Resource Planning ("ERP")
project during the year. Additional costs for the ERP project are expected for
2002 but not at the levels of costs incurred during 2001.
Interest expense for 2001 was $3,284,000 compared to $2,190,000 in 2000, a
$1,094,000 or 50.0% increase. The purchase of SCHULTE and SMC with bank
borrowings were the primary reason for the increase in interest expense for the
year.
Net Income for 2001 was $10,812,000 compared to $10,770,000 in 2000 due to
the factors described above.
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 an 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.
13
Both the M & W and HERSCHEL products showed no significant change in sales as
demand for balers 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 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 did not 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 addition 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.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company has on going cash
requirements, which are necessary to expand the Company's business including
inventory purchases and capital expenditures. The Company's inventory and
accounts payable levels typically build in the first quarter and early spring of
the year and partly in the fourth quarter in anticipation of the spring and fall
selling seasons. Accounts receivable historically build in the first and fourth
quarters of each year as a result of preseason sales. These sales help balance
the Company's production during the first and fourth quarters.
As of December 31, 2001, the Company had working capital of $106,718,000,
which represents an increase of $14,375,000 from working capital of $92,343,000
as of December 31, 2000. The increase in working capital was primarily due to
the acquisition of SMC, which provided increased levels of accounts receivable
and inventory.
Capital expenditures were $7,074,000 for 2001, compared to $12,650,000 for
2000. Capital expenditures for 2002 are expected to be in line with 2001. The
2001 amount included increased spending on the Company's ERP project, which was
approximately $1,800,000 in 2001 compared to $700,000 in 2000. The significant
increase in 2000 was attributable to several items, the largest one being the
purchase of the Bomford manufacturing facility and adjacent land in the U.K.,
which had been 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 was 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 capital expenditures from operating cash flows or through its
revolving credit facility, described below.
14
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. In 2001 there
were 2,000 shares repurchased during the third quarter.
Net cash provided by operating activities was $8,230,000 for 2001, compared
to $9,010,000 for 2000. The decrease of cash from operating activities resulted
primarily from lower accounts payable and accrued liabilities.
Net cash provided by financing activities was $5,546,000 for 2001, compared
to net cash provided of $25,853,000 for 2000. The change in activity was
primarily the result of the SCHWARZE and SCHULTE acquisitions totaling
approximately $25,000,000 during 2000.
The Company entered into a $70,000,000 contractually committed, unsecured,
long-term bank revolving credit facility on August 31, 2001, under which the
Company can borrow and repay until September 30, 2003, with interest at variable
rate options based upon Prime or Libor rates, with such rates either floating on
a daily basis or fixed for periods up to 180 days. Proceeds may be used for
general corporate purposes or, subject to certain limitations, acquisition
activities. The loan agreement contains certain financial covenants, which are
customary in credit facilities of this nature including minimum financial ratio
requirements and limitations on dividends, indebtedness, liens and investments.
The Company is in compliance with all such covenants as of December 31, 2001. As
of December 31, 2001, there was $35,200,000 borrowed under the revolving credit
facility. At December 31, 2001, $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. There are two smaller additional
lines of credit, one for the Company's European operation in the amount of
4,000,000 British pounds and the other is for our Canadian operation in the
amount of 3,000,000 Canadian dollars. As of December 31, 2001 there was 174,000
British pounds borrowed against the European line of credit and no borrowings
against the Canadian line of credit. Only the Canadian revolving credit facility
is guaranteed by the Company. 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 remained legal tender
until December 31, 2001. During this transition period, goods and services could
be paid for with the Euro or the local currency under the EMU's "no compulsion,
no prohibition" principle. France and Netherlands, countries where the Company
has locations, were participating countries in the first group to adopt the EMU.
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 has not had 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 ultimately 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 Euro introduction did not have a material impact on the Company's overall
currency risk. The Company anticipates the Euro will simplify financial issues
related to cross-border trade in the EMU and reduce the transaction costs and
administrative time necessary to manage this trade and related risks. However,
the Company believes that the associated savings will not be material to
corporate results.
15
NEW ACCOUNTING STANDARDS AND DISCLOSURES
In June 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations" (FAS 141), and Statement No. 142, "Goodwill and
Other Intangible Assets" (FAS 142). FAS 141 will require the purchase method of
accounting to be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. FAS 141 also
provides new criteria to determine whether an acquired intangible asset should
be recognized separately from goodwill.
Upon adoption of FAS 142, amortization of existing goodwill would cease and
the remaining book value would be tested for impairment at least annually at the
reporting unit level using a detailed impairment test. Provisions of FAS No.
142, any impairment loss identified upon adoption of this standard is recognized
as a cumulative effect of a change in accounting principle. Any impairment loss
recognized subsequent to initial adoption of FAS No. 142 will be recorded as a
charge to current period earnings.
On January 1, 2002, the Company adopted both statements FAS 141 and FAS 142
and tested for impairment as of December 31, 2001. Based on the analysis
completed, the Company's review indicated no impairment of Goodwill and Other
Intangible Assets and no write-offs will be required in first quarter 2002 Form
10-Q. The Company will review for impairment on an annual basis or more
frequently if deemed necessary. At December 31, 2001 the net book value of
goodwill was $18,470,000.
The FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. FAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of: and other related accounting guidance. FAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
application encouraged. The provisions of this Statement generally are to be
applied prospectively. We will adopt FAS No. 144 in the first quarter of
fiscal year 2002. We are evaluating the effect of the adoption of FAS No. 144,
however the Company does not expect a material impact to its consolidated
financial statements.
The Company adopted Statement of Financial Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities," and its
amendments, Statements 137 and 138, on January 1, 2001. FAS 133 requires that
all derivative instruments be recorded on the balance sheet at fair value. The
Company has designed its foreign currency hedge agreements as cash flow hedge
instruments. The hedge agreements are used to manage exposure to exchange rate
movement by effectively changing the variable rate to a fixed rate. The critical
terms of the foreign currency hedge agreements and the sales associated with the
hedging agreements are the same; therefore, the Company has assumed that there
is no ineffectiveness in the hedge relationship. Changes in fair value of the
foreign currency hedging agreements will be recognized in other comprehensive
income, net of tax effects, until the hedged items are recognized in earnings.
The Company has hedged 87% of its exposure to foreign exchange rate movement
through March 28, 2002.
At January 1, 2001, the foreign currency hedge agreements were in an
unfavorable position by approximately $77,000. In accordance with the transition
provisions of FAS 133, the net-of-tax cumulative effect of an accounting change
adjustment on January 1, 2001, was a loss of $50,000 in accumulated other
comprehensive income with a deferred income tax asset of $27,000. At December
31, 2001, the fair value of the hedge agreements were in an unfavorable
position; therefore, the derivative financial instruments were adjusted to a
liability of $22,000. Accumulated other comprehensive income was adjusted to an
accumulated loss of $14,000 and the deferred income tax was adjusted to a $8,000
tax asset. As the hedge agreements are deemed to be effective cash flow hedges,
there was no income statement impact related to hedge ineffectiveness. The
Company has reclassifed approximately $7,000 of existing losses in accumulated
other comprehensive income, net of taxes, into net income (loss) through
December 31, 2001.
CRITICAL ACCOUNTING POLICIES
INVENTORIES - OBSOLESCENCE AND SLOW MOVING
At December 31, 2001, the Company had $3,857,000 in reserve to cover
obsolescence and slow moving inventory. The reserve is calculated on a basis of
: 1) no inventory usage over a three year period on inventory with quantity on
hand is deemed obsolete and reserved at 100 percent and 2) slow moving inventory
with little usage requires a 100 percent reserve on items that have a quantity
greater than three year supply. The Company relies on historical information to
support its reserve.
16
SALES DISCOUNTS
At December 31, 2001 the Company had $4,549,000 in reserves for sales
discounts on product shipped to our customers under various promotional
programs. The Company basis its reserves on historical data relating to
discounts taken by the customer under each program.
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 INTERNATIONAL SALES
A portion of the Company's operations consist of manufacturing and sales
activities in international jurisdictions. The Company primarily manufactures
its products in the United States, the U.K., France and Canada. 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 their 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, 2001, the Company had $1,547,981 outstanding forward exchange
contracts related to sales, additionally there was an exchange contract of
$8,120,000 relating to a short-term inter-company cash transfer. A 15%
fluctuation in exchange rates for these currencies would change the fair value
by approximately $2,000,000. 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 INTERNATIONAL 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 international markets. Foreign
currency options and forward contracts are used to hedge against the earnings
effects of such fluctuations. At December 31, 2001, 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
$1,580,000 for the year ending December 31, 2001. Comparatively, 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
have resulted in a decrease in gross profit of approximately $1,226,000 for the
year-ended December 31, 2000. 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 may 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 2001 was a loss of $1,497,000. On December 31, 2001, the
British pound closed at .6868 relative to 1.00 U.S. dollar, and the French franc
closed at .0957 relative to 1.00 British pound. At December 31, 2001 the Euro
dollar closed at .8915 relative to 1.00 U.S. dollar. By comparison, 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. No assurance
can be given as to future valuation of the British pound or Euro or how further
movements in those or other currencies could affect future earnings or the
financial position of the Company.
INTEREST RATE RISK
At December 31, 2001 the Company's long-term debt bears interest at variable
rates. Accordingly, the Company's net income is affected by changes in interest
rates. Assuming the current level of borrowings at variable
17
rates and a two hundred basis point change in the 2001 average interest rate
under these borrowings, the Company's 2001 interest expense would have changed
by approximately $725,000. 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 in this item 10, by reference, that portion of the
Company's definitive proxy statement for the 2002 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 2002 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 2002 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 2002 Annual Meeting of
Stockholders, which appears under the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
Participation."
18
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 Balance Sheets.............................. F-3
Consolidated Statements of Income........................ 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.
19
(A)3. EXHIBITS
The following Exhibits are incorporated by reference to the filing indicated
or are included following the Index to Exhibits.
INDEX TO EXHIBITS
INCORPORATED BY REFERENCE
FROM THE FOLLOWING
EXHIBITS EXHIBIT TITLE DOCUMENTS
---------- ------------------------------------------------------------------------------------ -----------------------------
3.1 -- Certificate of Incorporation, as amended, of Alamo Group Inc. Form S-1, February 5, 1993
3.2 -- By-Laws of Alamo Group Inc. Form 10-K, March 29, 1996
10.1 -- Warrant Agreement between Alamo Group Inc. and Capital Southwest Corporation, dated Form S-1, February 5, 1993
November 25, 1991
*10.2 -- 1993 Non-Qualified Stock Option Plan, adopted by the Board of Directors on Form S-1, February 5, 1993
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 between Form 10-K, March 29, 1996
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 Loan Form 10-K, March 27, 1997
Agreement dated April 10, 1996
10.7 -- Second Amendment to Third Amended and Restated Revolving Credit and Term Loan Form 10-K, March 27, 1997
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 Alamo Group Inc. Form 10-Q, May 15, 1997
10.10 -- Third Amendment to Third Amended and Restated Revolving Credit and Term Loan Form 10-Q, August 15, 1997
Agreement dated June 23, 1997
10.11 -- Fourth Amendment to Third Amended and Restated Revolving Credit and Term Loan Form 10-K, March 31, 1998
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 Compensated Employees, adopted on December 9, 1997 Form 10-K, March 31, 1998
10.18 -- Fifth Amendment to Third Amended and Restated Revolving Credit and Term Loan Form 10-K, March 31, 1999
Agreement dated effective as of December 31, 1998
*10.19 -- 1999 Non-Qualified Stock Option Plan, adopted by the Board of Directors on July 7, 1999 Schedule 14A, July 30, 1999
*10.20 -- Amended and Restated 1994 Incentive Stock Option Plan adopted by the Board of Schedule 14A, July 30, 1999
Directors on July 7, 1999
*10.21 -- First Amended and Restated 1999 Non-Qualified Stock Option Plan, adopted by the Schedule 14A, May 3, 2001
Board of Directors on February 13,2001
10.22 -- $70,000,000 Unsecured Revolving Credit Agreement among Alamo Group Inc., the Form 10-Q, September 30, 2001
Guarantors, and Bank of America, N.A., Chase Manhattan Bank, and Guaranty Bank dated
August 31, 2001
21.1 -- Subsidiaries of the Registrant Form 10-K, March 28, 2002
23.1 -- Consent of Ernst & Young LLP Filed Herewith
* Compensatory Plan
(B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 2001
(None)
20
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 25, 2002 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 25, 2002
- --------------------------------------
Donald J. Douglass
/s/ RONALD A. ROBINSON President, Chief Executive Officer and March 25, 2002
- -------------------------------------- a Director (Principal Executive Officer,
Ronald A. Robinson Principal Financial Officer)
/s/ RICHARD J. WEHRLE Vice President and Corporate Controller March 25, 2002
- -------------------------------------- (Principal Accounting Officer)
Richard J. Wehrle
/s/ JERRY E. GOLDRESS Director March 25, 2002
- --------------------------------------
Jerry E. Goldress
/s/ DAVID H. MORRIS Director March 25, 2002
- --------------------------------------
David H. Morris
/s/ JAMES B. SKAGGS Director March 25, 2002
- --------------------------------------
James B. Skaggs
/s/ WILLIAM R. THOMAS Director March 25, 2002
- --------------------------------------
William R. Thomas
21
ALAMO GROUP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors................ F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000.................................. F-3
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001, 2000 and 1999................ F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2001, 2000 and 1999................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999................ 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, 2001 and December 31,
2000, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 2001. 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, 2001 and
2000 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
San Antonio, Texas
March 15, 2002
F-2
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
2001 2000
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 4,186 $ 2,929
Accounts receivable ............................................................. 57,768 50,359
Inventories ..................................................................... 64,044 59,608
Deferred income taxes ........................................................... 4,307 4,335
Prepaid expenses and other ...................................................... 1,773 2,183
--------- ---------
Total current assets ....................................................... 132,078 119,414
Property, plant and equipment ...................................................... 66,779 66,305
Less: Accumulated depreciation ................................................. (37,961) (38,197)
--------- ---------
28,818 28,108
Goodwill ........................................................................... 18,470 21,833
Assets held for sale ............................................................... 1,595 --
Other assets ....................................................................... 4,960 4,053
--------- ---------
Total assets ............................................................... $ 185,921 $ 173,408
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .......................................................... $ 12,860 $ 15,708
Income taxes payable ............................................................ 161 (69)
Accrued liabilities ............................................................. 9,326 9,948
Current maturities of long-term debt ............................................ 3,013 1,484
--------- ---------
Total current liabilities .................................................. 25,360 27,071
Long-term debt, net of current maturities .......................................... 36,315 30,355
Deferred income taxes .............................................................. 2,433 1,443
Stockholders' equity:
Common stock, $.10 par value, 20,000,000 shares authorized; 9,753,409 and
9,744,259 issued at December 31, 2001 and
December 31, 2000, respectively ............................................... 975 974
Additional paid-in capital ...................................................... 51,282 50,969
Treasury stock, at cost; 42,600 and 40,600 shares at December 31, 2001 and
December 31, 2000, respectively ............................................... (426) (400)
Retained earnings ............................................................... 74,493 66,010
Accumulated other comprehensive income .......................................... (4,511) (3,014)
--------- ---------
Total stockholders' equity ................................................. 121,813 114,539
--------- ---------
Total liabilities and stockholders' equity ...................................... $ 185,921 $ 173,408
========= =========
See accompanying notes.
F-3
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
---------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------- ------------- -------------
Net sales:
North American
Agricultural ...................................... $ 97,978 $ 79,752 $ 75,931
Industrial ........................................ 108,001 95,867 58,719
European ............................................. 40,068 40,255 41,958
--------- --------- ---------
Total net sales ....................................... 246,047 215,874 176,608
Cost of sales ......................................... 186,518 163,723 135,705
--------- --------- ---------
Gross profit ....................................... 59,529 52,151 40,903
Selling, general and administrative expense ........... 40,173 34,650 30,123
--------- --------- ---------
Income from operations ............................. 19,356 17,501 10,780
Interest expense ...................................... (3,284) (2,190) (1,495)
Interest income ....................................... 609 760 604
Other income (expense), net ........................... (75) (181) (193)
--------- --------- ---------
Income before income taxes ......................... 16,606 15,890 9,696
Provision for income taxes ............................ 5,794 5,120 3,594
--------- --------- ---------
Net income ......................................... $ 10,812 $ 10,770 $ 6,102
========= ========= =========
Net income per common share:
Basic .............................................. $ 1.11 $ 1.11 $ 0.63
========= ========= =========
Diluted ............................................ $ 1.11 $ 1.11 $ 0.63
========= ========= =========
Average common shares:
Basic .............................................. 9,706 9,698 9,722
========= ========= =========
Diluted ............................................ 9,787 9,759 9,726
========= ========= =========
See accompanying notes.
F-4
ALAMO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCK-
--------------------- PAID-IN TREASURY RETAINED COMPREHENSIVE HOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS INCOME EQUITY
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 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
Net income ............................ -- -- -- -- 10,812 -- 10,812
Cumulative effect of a change in
accounting for derivative financial
instruments upon adoption of FAS
133, net of taxes $27 ................ -- -- -- -- -- (50)
Net derivative loss, net of taxes $27 . -- -- -- -- -- (49)
Reclassification adjustment for
loss included in net income, net of
taxes $41 ............................. -- -- -- -- -- 76
---------
(23)
Translation adjustment ................ -- -- -- -- -- (1,474) (1,497)
--------- ---------
Total comprehensive income ............ -- -- -- -- -- -- 9,315
Purchase of treasury stock, at cost ... (2) -- -- (26) -- -- (26)
Sale of common stock .................. 9 1 313 -- -- -- 314
Dividends paid ($.24 per share) ....... -- -- -- -- (2,329) -- (2,329)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 2001 ............. 9,711 $ 975 $ 51,282 $ (426) $ 74,493 $ (4,511) $ 121,813
========= ========= ========= ========= ========= ========= =========
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,
2001 2000 1999
------------- ------------- -------------
OPERATING ACTIVITIES
Net income ................................................................... $ 10,812 $ 10,770 $ 6,102
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts ........................................ 372 450 133
Depreciation ........................................................... 4,416 4,441 3,967
Amortization ........................................................... 1,914 1,558 1,185
Provision for deferred income tax benefit .............................. 1,136 266 693
Gain on sale of equipment ............................................. (1,676) (219) (1,048)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable .................................................... (4,241) (6,358) 7,379
Inventories ............................................................ (998) (2,511) 18,278
Prepaid expenses and other ............................................. 1,459 (236) 1,449
Trade accounts payable and accrued liabilities ......................... (5,215) 2,167 414
Income taxes payable ................................................... 251 (1,318) 636
-------- -------- --------
Net cash provided by operating activities .................................... 8,230 9,010 39,188
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ........................................... (7,880) (24,453)
Purchase of property, plant and equipment .................................... (7,074) (12,650) (3,616)
Proceeds from sale of property, plant and equipment .......................... 2,516 530 1,120
Purchase of long-term investment ............................................. -- (500) (500)
Sale of long-term investment ................................................. -- -- --
-------- -------- --------
Net cash used by investing activities ........................................ (12,438) (37,073) (2,996)
FINANCING ACTIVITIES
Net change in bank revolving credit facility ................................. 6,400 28,800 (29,600)
Principal payments on long-term debt and capital leases ...................... 1,189 (813) (443)
Dividends paid ............................................................... (2,329) (2,328) (3,309)
Proceeds from sale of common stock and related ............................... 312 194 269
Cost of common stock repurchased ............................................. (26) -- (400)
-------- -------- --------
Net cash provided (used) by financing activities ............................. 5,546 25,853 (33,483)
Effect of exchange rate changes on cash ...................................... (81) (220) (98)
-------- -------- --------
Net change in cash and cash equivalents ...................................... 1,257 (2,430) 2,611
Cash and cash equivalents at beginning of the year ........................... 2,929 5,359 2,748
-------- -------- --------
Cash and cash equivalents at end of the year ................................. $ 4,186 $ 2,929 $ 5,359
======== ======== ========
Cash paid during the year for:
Interest .................................................................. $ 3,379 $ 1,876 $ 1,742
Income taxes .............................................................. 5,091 7,561 2,300
See accompanying notes.
F-6
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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, 2001, the Company had
$1,547,981 in outstanding forward exchange contracts related to sales and a
foreign currency forward contract of $8,120,000 relating to a short-term
inter-company cash transfer maturing in January 2002. The maximum exposure of
the December 31, 2001 contracts that the Company expects to incur during the
first quarter of 2002 is approximately a $36,000 loss. Foreign currency
transaction gains or losses are included in Other income (expense), net. For
2001, 2000 and 1999, such transactions netted a loss of $117,000, a loss of
$204,000, and a loss of $906,000, 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, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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
international 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, was
being amortized over fifteen years from respective acquisition dates. Goodwill
is shown net of amortization of $8,435,000 and $6,520,000 for the years ended
December 31, 2001 and 2000, respectively. In June 2001, the Financial Accounting
Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets"
(FAS 142).
Upon adoption of FAS 142, amortization of existing goodwill would cease and
the remaining book value would be tested for impairment at least annually at the
reporting unit level using a detailed impairment test. Provisions of FAS No.
142, required any impairment loss identified upon adoption of this standard be
recognized as a cumulative effect of a change in accounting principle. Any
impairment loss recognized subsequent to initial adoption of FAS No. 142 will be
recorded as a charge to current period earnings.
On January 1, 2002, the Company adopted statement FAS 142 and tested for
impairment as of December 31, 2001. Based on the analysis completed, the
Company's review indicated no impairment of Goodwill and Other Intangible Assets
and no write-offs will be required in first quarter 2002 Form 10-Q. The Company
will review for impairment on an annual basis or more frequently if deemed
necessary. At December 31, 2001 the net book value of goodwill was $18,470,000.
LONG-TERM INVESTMENTS
At December 31, 2001 and 2000, respectively, the Company had $2,000,000
invested in a Small Business Investment Company which is carried at cost in
Other assets. Due to inherent risk factors in such investments, the ultimate
realization of these amounts, included in Other assets in the accompanying
financial statements, is not determinable at this date.
PATENTS AND TRADEMARKS
The Company owns various U.S. and international patents. It amortized
approximately $132,000 in 2001.
RELATED PARTY TRANSACTIONS
Notes receivable from a retired officer of the Company was $970,000 for the
years ended December 31, 2001 and 2000, respectively, are included in Other
assets.
F-8
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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 and title has been transferred or services have been
rendered; 3) the price of the products or services is fixed or determinable; and
4) collectibility is reasonably assured.
ACCOUNTING FOR INTERNAL USE OF SOFTWARE
The American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1) in March 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and identifies characteristics of internal-use software. The
Company's accounting policy with respect to accounting for computer software
developed or obtained for internal use is consistent with SOP 98-1. The Company
has purchased and capitalized approximately $2,220,000 net of depreciation at
December 31, 2001. The internal use software is amortized for financial
reporting purposes using the straight-line method over the estimated life of
seven years.
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.
ADVERTISING
We charge advertising costs to expense as incurred. Advertising and marketing
expense related to continuing operations for fiscal years 2001, 2000 and 1999
was approximately $2,335,000, $2,171,000 and $1,802,000, respectively.
RESEARCH AND DEVELOPMENT
Product development and engineering costs charged to Selling, general and
administrative expense amounted to $ 2,405,000, $2,396,000, and $1,722,000 for
the years ended December 31, 2001, 2000 and 1999, respectively.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting basis and tax basis of assets and liabilities
and are measured using presently enacted tax rates and laws.
STOCK-BASED COMPENSATION
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, and
elected to continue to use the intrinsic value method in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in the
financial statements for these plans. The pro forma effects of fair value
accounting for compensation costs related to options, on net income and earnings
per share, would not be material.
F-9
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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)
2001 2000 1999
------- ------- -------
Net income .......................................... $10,812 $10,770 $ 6,102
======= ======= =======
Average common shares:
BASIC (weighted-average outstanding shares) ...... 9,706 9,698 9,722
Dilutive potential common shares from stock
options and warrants .......................... 81 61 4
------- ------- -------
DILUTED (weighted-average outstanding shares) .... 9,787 9,759 9,726
======= ======= =======
Basic earnings per share ............................ $ 1.11 $ 1.11 $ 0.63
======= ======= =======
Diluted earnings per share .......................... $ 1.11 $ 1.11 $ 0.63
======= ======= =======
Stock options totaling 16,083 shares in 2001 and 5,000 shares in 2000, and
were not included in the diluted earnings per share calculation as the exercise
price was below the market price at December 31, 2001 which made it
antidilutive.
3. TERMINATION OF OPERATIONS OF SUBSIDIARY
On November 30, 2001, the Company completed the closing of its manufacturing
facilities in Guymon and Wakita Oklahoma. The inventory and some of the assets
were relocated to its Indianola, Iowa location. The remaining machinery and
equipment as well as the land and building are currently assets held for sale at
their net book value of $1,595,000. On February 27, 2001, the Company sold its
trucking operations and on December 31, 2001 sold its related land and building
in Seguin, Texas. The Company had previously closed its manufacturing facility
located in La Grange, Illinois during 1999 and the facility was subsequently
sold on January 24, 2001.
F-10
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
4. VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included the following (in thousands):
NET
BALANCE CHARGED TO TRANSLATIONS, BALANCE
BEGINNING OF COSTS AND RECLASSIFICATIONS NET WRITE-OFFS OR END OF
YEAR EXPENSES AND ACQUISITIONS DISCOUNTS TAKEN YEAR
-------------- ------------ ------------------ ------------------- ---------
2001
- ----
Allowance for doubtful accounts .............. 1,322 361 27 (443) 1,266
Reserve for sales discounts .................. 4,105 14,802 (3) (14,355) 4,549
Reserve for inventory obsolescence ........... 4,201 421 227 (1,217) 3,857
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
5. INVENTORIES
Inventories valued at LIFO cost represented 63% and 61% of total inventory
for the years ended December 31, 2001 and 2000, respectively. The excess of
current costs over LIFO-valued inventories was $4,755,000 and $4,238,000 at
December 31, 2001 and December 31, 2000, respectively. Inventories consisted of
the following on a basis net of reserves (in thousands):
DECEMBER 31, DECEMBER 31,
2001 2000
------------- --------------
Finished wholegoods and parts .......... $41,947 $40,135
Work in process ........................ 13,844 9,711
Raw materials .......................... 8,253 9,762
------- -------
$64,044 $59,608
======= =======
F-11
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
DECEMBER 31, DECEMBER 31, USEFUL
2001 2000 LIVES
------------- ------------- ------------
Land .................................. $ 3,935 $ 3,819
Buildings and improvements ............ 21,592 21,411 15-25 yrs.
Machinery and equipment ............... 28,506 31,249 5 yrs.
Office furniture and equipment ........ 7,142 5,918 5 yrs.
Computer Software ..................... 2,220 -- 7 yrs.
-------- --------
Transportation equipment .............. 3,384 3,908 3-5 yrs.
-------- --------
66,779 66,305
Accumulated depreciation .............. (37,961) (38,197)
-------- --------
$ 28,818 $ 28,108
======== ========
Property, plant and equipment at December 31, 2001 and December 31, 2000
includes $2,295,000 and $2,540,000, 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,
2001 2000
-------------- -------------
Salaries, wages and bonuses ........ $3,323 $3,272
Warranty ........................... 2,138 2,121
Other .............................. 3,865 4,555
------ ------
$9,326 $9,948
====== ======
8. LONG-TERM DEBT
The components of long-term debt at December 31 are as follows (in
thousands):
2001 2000
------- -------
Bank revolving credit facility .......... $35,200 $28,800
Capital lease obligations ............... 1,525 1,962
Other notes payable ..................... 2,603 1,077
------- -------
Total long-term debt .................... 39,328 31,839
Less current maturities ................. 3,013 1,484
------- -------
$36,315 $30,355
======= =======
As of December 31, 2001, the Company had a $70,000,000 contractually
committed, unsecured, long-term bank revolving credit facility under which the
Company can borrow and repay until September 30, 2003, 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
F-12
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
this nature, including minimum financial ratio requirements and limitations on
dividends, indebtedness, liens and investments. The Company is in compliance
with all convenants at December 31, 2001. At December 31, 2001, $35,200,000 was
outstanding on the revolving credit facility. At December 31, 2001, $3,052,000
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. There are two smaller additional lines of credit, one for the
Company's European operation in the amount of 4,000,000 British pounds and the
other is for our Canadian operation in the amount of 3,000,000 Canadian dollars.
As of December 31, 2001 there was 174,000 British pounds borrowed against the
European line of credit and no borrowings against the Canadian line of credit.
Only the Canadian revolving credit facility is guaranteed by the Company.
The aggregate maturities of long-term debt, as of December 31, 2001, are as
follows: $2,966,000 in 2002, $35,652,000 in 2003, $465,000 in 2004, $213,000 in
2005 and $9,000 in 2006 and $24,000 thereafter.
Long-term debt is stated at estimated contractual fair value.
9. INCOME TAXES
U.S. and non-U.S. income before income taxes is as follows (in thousands):
2001 2000 1999
------- ------- -------
Income before income taxes:
North American .................. $11,473 $11,742 $ 5,262
International ................... 5,133 4,148 4,434
------- ------- -------
$16,606 $15,890 $ 9,696
======= ======= =======
The provision for income taxes consists of (in thousands):
2001 2000 1999
------- ------- -------
Current:
Federal ....................... $ 2,848 $ 3,527 $ 1,096
Foreign ....................... 1,654 1,331 1,678
State ......................... 274 217 122
------- ------- -------
4,776 5,075 2,896
Deferred:
Federal ....................... 992 (37) 742
Foreign ....................... 26 82 (44)
------- ------- -------
1,018 45 698
------- -------
Total income taxes .......... $ 5,794 $ 5,120 $ 3,594
======= ======= =======
Reconciliation of the statutory U.S. federal rate to actual tax rate is as
follows (in thousands):
2001 2000 1999
------- ------- -------
Statutory U.S. federal tax at 34% ..... 5,646 $ 5,403 $ 3,297
Increase (reduction) from:
Non-U.S. taxes ..................... (65) 22 126
U.S. State taxes ................... 180 143 81
Other .............................. 33 (448) 90
------- ------- -------
Provision for income taxes ............ $ 5,794 $ 5,120 $ 3,594
======= ======= =======
Actual tax rate ....................... 35% 32% 37%
F-13
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
The $448,000 credit amount in 2000 was from research and development tax
credits filed during the year. At December 31, 2001, the Company had unremitted
earnings of international subsidiaries of $26,995,000. 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.
The components of deferred tax assets and liabilities included in the
balance sheets are as follows (in thousands):
2001 2000
------ ------
Deferred tax asset:
Inventory ................................... $1,268 $1,463
Accounts receivable ......................... 1,341 1,316
Depreciation ................................ 1,015 1,344
Deferred compensation ....................... 324 284
Net operating loss carry-forwards ........... 37 78
Insurance ................................... 304 288
Other current ............................... 795 800
Other non-current ........................... 981 1,214
------ ------
Total deferred asset ........................ $6,065 $6,787
====== ======
Deferred tax liability:
Difference between book basis
and tax basis of assets ................... $3,061 $2,965
Other ....................................... 1,130 930
------ ------
Total deferred liability .................... $4,191 $3,895
====== ======
At December 31, 2001, net current deferred tax assets were $4,307,000
($4,335,000 in 2000). Net non-current deferred tax liabilities were $2,433,000
($1,443,000 in 2000).
10. COMMON STOCK
In the third quarter of 2001, the Company repurchased 2,000 shares in the
open market under its Repurchase Plan authorized by its Board of Directors in
1997.
Subsequent to December 31, 2001, 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 would 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-14
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
Following is a summary of activity in the Incentive Stock Option Plan for the
periods indicated:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------- ------------- -------------
Options outstanding at beginning of year ............ 92,550 101,800 51,200
Granted ......................................... 16,000 -- 101,000
Exercised ....................................... (9,150) (8,450) (50)
Cancelled ....................................... (12,800) (800) (50,350)
-------- -------- --------
Options outstanding at end of year .................. 86,600 92,550 101,800
======== ======== ========
Options exercisable at end of year .................. 8,300 11,750 400
======== ======== ========
Options available for grant at end of year .......... 172,200 175,400 174,600
======== ======== ========
PER SHARE OPTION PRICES, FOR OPTIONS OUTSTANDING AT DECEMBER 31, 2001, RANGED
FROM $8.9375 TO $14.63.
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 2001, 2000 and 1999, no shares
were 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 to Mr. Robinson, CEO and
President at an 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 shares
after each succeeding year until the option is fully exercisable.
On May 3, 2001, the Stockholders of the Company approved the First Amended
and Restated 1999 Non-Qualified Stock Option Plan ("FAR 1999 NQSO Plan") to add
non-employee directors as eligible persons to receive grants of stock options.
The Company then granted an option to purchase 5,000 shares of the Company's
Common Stock to Messrs. Goldress, Morris, Simpson, Skaggs, and Thomas
respectively at an exercise price of $13.96 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. Mr. Simpson's
options were cancelled as a result of his death in 2001.
Following is a summary of activity in the nonqualified option plans for the
periods indicated:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
-------------- -------------- --------------
Options outstanding at beginning of year .......... 220,000 220,000 20,000
Granted ....................................... 25,000 -- 200,000
Exercised ..................................... -- -- --
Cancelled ..................................... 5,000 -- --
------- ------- -------
Options outstanding at end of year ................ 240,000 220,000 220,000
======= ======= =======
Options exercisable at end of year ................ 100,000 60,000 20,000
======= ======= =======
Options available for grant at end of year ........ 180,000 200,000 200,000
======= ======= =======
F-15
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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
2001, 2000 and 1999 were $643,000, $508,000, and $578,000, respectively.
Four of the Company's international subsidiaries also participate in a
defined contribution and savings plan covering eligible employees. The Company's
international subsidiaries contribute between 3% and 7.5% of the participant's
salary up to a specific limit. Contributions were $350,000 in 2001, $312,000 in
2000, and $282,000 in 1999.
13. SEGMENT REPORTING
At December 31, 2001 the following audited financial information is
segmented: (in thousands)
DECEMBER 31, DECEMBER 31,
2001 2000
------------- -------------
NET REVENUE
Agricultural .................... $ 97,978 $ 79,752
Industrial ...................... 108,001 95,867
European ........................ 40,068 40,255
-------- --------
Consolidated ....................... 246,047 215,874
OPERATING INCOME
Agricultural .................... $ 7,259 $ 3,471
Industrial ...................... 8,374 9,793
European ........................ 3,723 4,237
-------- --------
Consolidated ....................... 19,356 17,501
TOTAL IDENTIFIABLE
ASSETS
Agricultural .................... $ 82,219 $ 73,128
Industrial ...................... 63,835 61,040
European ........................ 39,867 39,240
-------- --------
Consolidated ....................... 185,921 173,408
14. INTERNATIONAL OPERATIONS AND GEOGRAPHIC INFORMATION
Following is selected financial information on the Company's international
operations (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
-------------- ---------------- --------------
Net sales ........................................ $57,627 $44,505 $41,958
Income from operations ........................... 5,778 4,253 5,312
Income before income taxes and allocated
interest expense ................................. 5,133 4,148 4,434
Identifiable assets .............................. 52,134 53,344 42,009
F-16
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
Following is other selected geographic financial information on the Company's
operations (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------- ------------ ------------
Geographic net sales:
United States ....................................... $190,983 $173,802 $133,130
United Kingdom ...................................... 16,570 15,212 14,505
France .............................................. 16,949 17,981 19,070
Canada ............................................. 13,730 540 --
Other ............................................... 7,815 8,339 9,903
-------- -------- --------
Total net sales .......................................... $246,047 $215,874 $176,608
======== ======== ========
Geographic location of long lived assets:
United States ....................................... $ 35,165 $ 36,145 $ 21,838
United Kingdom ...................................... 9,740 10,698 9,395
France .............................................. 2,661 3,033 3,564
Canada ............................................. 5,862 6,873 --
Australia .......................................... 278 391 --
-------- -------- --------
Total long lived assets .................................. $ 53,706 $ 57,140 $ 34,797
======== ======== ========
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 2001, 2000 and 1999 the Company's Comprehensive Income was $9,315,000,
$8,643,000, and $4,564,000, respectively.
The components of Accumulated Other Comprehensive Income are as follows (in
thousands):
2001 2000 1999
------- ------- -------
Foreign currency translation adjustments ............ $(4,488) $(3,014) $ (887)
Net derivative loss, net of taxes ................... (23) -- --
------- ------- -------
Total accumulated other Comprehensive Income ........ (4,511) (3,014) (887)
F-17
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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
------------ ------------
2002 ......................................... $ 981 $ 557
2003 ......................................... 778 536
2004 ......................................... 624 505
2005 ......................................... 181 219
2006 ......................................... 30 --
Thereafter ................................... -- --
------ ------
Total minimum lease payments ................. $2,594 1,817
======
Less amount representing interest ............ 291
------
Present value of net minimum lease payments .. 1,961
Less current portion ......................... 468
------
Long-term portion ............................ $1,056
======
Rental expense for operating leases was $1,687,000 for 2001, $1,928,000 for
2000, and $1,351,000 for 1999.
OTHER
The Company is subject to various unresolved legal actions that 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 might be substantial and the ultimate liability with respect to such
litigation cannot be determined at this time, the Company believes that the
ultimate outcome of these matters will not have a material adverse effect on the
Company's consolidated financial position.
The Company is subject to numerous environmental laws and regulations
concerning air emissions, discharges into waterways and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
The Company's policy is to comply with all applicable environmental, health and
safety laws and regulations, and the Company believes it is currently in
material compliance with all such applicable laws and regulations. These laws
and regulations are constantly changing, and it is impossible to predict with
accuracy the effect that changes to such laws and regulations may have on the
Company in the future. Like other industrial concerns, the Company's
manufacturing operations entail the risk of noncompliance, and there can be no
assurance that material costs or the Company will not incur liabilities as a
result thereof. The Company knows that the Indianola, Iowa property on which its
Herschel facility operates is contaminated with chromium. The contamination
likely resulted from chrome-plating operations which were discontinued several
years before the Company purchased the property. The Company is working with an
environmental consultant, the previous owner of the property, and the state of
Iowa to develop and implement a plan to remediate the contamination. All present
and future remediation costs have been or should be paid by the previous owner
of the property pursuant to the agreement by which the Company purchased said
property. However, the successor to the previous owner is in Chapter 11
Bankruptcy proceedings and we have know way of knowing at this time if or when
they will be able to meet their contractual obligations. The amount of potential
liability cannot be reasonably estimated at this time.
F-18
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
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 were subject to approval by the Compensation Committee of the
Board of Directors. All loans are secured by a pledge of the shares being
purchased. Each loan bears interest at prime and is payable quarterly. The
executive loan program has been terminated and beginning March 2001, each
employee must make annual principal payments equal to 10% of the amount loaned
to the employee. As of December 31, 2001, and 2000, $32,000 and $261,000,
respectively, were outstanding under the program and are included in additional
paid-in capital. The executive loan program has expired.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2001 and 2000 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):
2001 2000
------------------------------------------------- --------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Sales ................ $ 56,830 $ 66,766 $ 63,892 $ 58,559 $ 49,966 $ 60,725 $ 55,653 $ 49,530
Gross profit ......... 14,391 16,205 16,777 12,156 12,645 15,316 14,696 9,494
Net income (loss) .... 2,893 3,476 3,784 660 2,682 4,150 3,668 270
Earnings per share
Diluted ........... $ .30 $ .36 $ .39 $ .07 $ .28 $ .42 $ .38 $ .03
Average shares
Diluted ........... 9,792 9,788 9,790 9,779 9,752 9,754 9,769 9,774
Dividends per share .. $ .06 $ .06 $ .06 $ .06 $ .06 $ .06 $ .06 $ .06
Market price of common
stock
High .............. $ 15.63 $ 15.12 $ 14.70 $ 14.05 $ 12.25 $ 13.44 $ 13.44 $ 13.63
Low ............... $ 13.06 $ 13.60 $ 12.60 $ 12.95 $ 9.94 $ 10.69 $ 12.00 $ 12.50
18. ACQUISITIONS AND INVESTMENTS
During 2001 the Company made the following acquisition:
o On August 14, 2001, the Company acquired substantially all of the assets of
SMC Corporation for approximately $8,000,000 in cash. SMC manufactures front
end loaders and backhoes principally for OEM customers and under its own
brand. This acquisition expanded the product range of our agricultural
division.
The pro forma statement of the Company assuming the transaction was completed
at January 1, 2000 is listed in the following table (in thousands except for
per share):
DECEMBER 31, DECEMBER 31,
2001 2000
------------ -------------
Net Sales ......................... $265,194 $235,450
Net Income ........................ $ 11,783 $ 11,320
Diluted Earnings per Share ........ $ 1.20 $ 1.16
F-19
ALAMO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, DECEMBER 31, 2000 AND DECEMBER 31, 1999
19. SUBSEQUENT EVENTS
On February 20, 2002 the Company announced that it had entered into a Asset
Purchase Agreement with Quality Stores, Inc. to purchase inventory, fixed assets
and certain other assets of its Valu-Bilt Tractor Parts division based in Des
Moines, Iowa. Valu-Bilt sells new, used and rebuilt tractor parts and other
agricultural parts direct to customers through its catalogue offerings and on a
wholesale basis to its dealers. The Seller is currently in Chapter 11 bankruptcy
and the consummation of this transaction is subject to approval of the
Bankruptcy court. Should the Company ultimately be successful in purchasing
Valu-Bilt, it would be part of the Company's agricultural division. The purchase
price is $7,500,000 and is subject to certain contractual adjustments as well as
the assumption of certain limited liabilities of Valu-Built necessary for the
continuation of business. Valu-Bilt's unaudited sales for the year ending
February 2, 2002 were approximately $14,100,000.
F-20