-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ChwMacPHm60J2ocU8Yv0A9B0cfwedy2/TW00C/JH6KuuxrVAf11BtIO7/Z5SewCE OUjVnO4MfFtwyJSt16O3Mw== 0000890566-00-000423.txt : 20000331 0000890566-00-000423.hdr.sgml : 20000331 ACCESSION NUMBER: 0000890566-00-000423 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALAMO GROUP INC CENTRAL INDEX KEY: 0000897077 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 741621248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13854 FILM NUMBER: 586192 BUSINESS ADDRESS: STREET 1: 1502 E WALNUT CITY: SEGUIN STATE: TX ZIP: 78155 BUSINESS PHONE: 8303791480 MAIL ADDRESS: STREET 1: P.O. BOX 549 STREET 2: 1502 EAST WALNUT CITY: SEGUIN STATE: TX ZIP: 78155 10-K 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21220 ALAMO GROUP INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1621248 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1502 EAST WALNUT, SEGUIN, TEXAS 78155 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 830-379-1480 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE Common Stock, par value ON WHICH REGISTERED $.10 per share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FOR THE PAST 90 DAYS. Yes [X] No [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK (WHICH CONSISTS SOLELY OF SHARES OF COMMON STOCK) HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 29, 2000 (BASED UPON THE LAST REPORTED SALE PRICE OF $12.00 PER SHARE) WAS APPROXIMATELY $65,570,748 ON SUCH DATE. THE NUMBER OF SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE $.10 PER SHARE, OUTSTANDING AS OF FEBRUARY 29, 2000 WAS 9,695,209 SHARES. DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S PROXY STATEMENT RELATING TO THE 2000 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 2, 2000, HAVE BEEN INCORPORATED BY REFERENCE HEREIN (PART III). - -------------------------------------------------------------------------------- ALAMO GROUP INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-K TABLE OF CONTENTS Page ---- PART I Item 1. Business .......................................................... 3 Item 2. Properties ........................................................ 8 Item 3. Legal Proceedings ................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders ............... 9 Item 4a. Executive Officers of the Company ................................. 9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters .............................................. 10 Item 6. Selected Financial Data ........................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................ 11 Item 7a. Quantitative and Qualitative Disclosures About Market Risks ....... 15 Item 8. Financial Statements .............................................. 16 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........................... 16 PART III Item 10. Directors and Executive Officers .................................. 17 Item 11. Executive Compensation ............................................ 17 Item 12. Security Ownership of Certain Beneficial Owners and Management .... 17 Item 13. Certain Relationships and Related Transactions .................... 17 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 18 Index to Consolidated Financial Statements ................................. F-1 2 PART I ITEM 1. BUSINESS GENERAL Alamo Group Inc., which includes its subsidiaries ("Alamo Group," "Alamo" or the "Company"), is a leading manufacturer of high quality, tractor-mounted mowing and other vegetation maintenance equipment and replacement parts for industrial and agricultural end-users. The Company believes it is one of a few vegetation maintenance equipment manufacturers offering a comprehensive product line that employs the three primary heavy-duty cutting technologies: rotary, flail and sickle-bar. The Company emphasizes high quality, cost efficient products for its customers and strives to develop and market innovative products while constantly monitoring and containing its manufacturing and overhead costs. The Company has a long-standing policy of supplementing its internal growth through acquisitions of businesses or product lines that currently command, or have the potential to achieve, a leading share of their niche markets. The predecessor corporation to the Company was incorporated in Texas in 1969 as successor to a business that began selling mowing equipment in 1955. The Company was reincorporated in Delaware in 1987. As used herein and otherwise required by the context, the terms "Alamo Group" and "the Company" shall mean Alamo Group Inc. and its direct and indirect subsidiaries. Since its founding in 1969, the Company has focused on satisfying customer needs through geographic market expansion, product development and refinement and selected acquisitions. The Company's first products were based on the rotary cutting technology. Through acquisitions, the Company added the flail cutting technology in 1983 and the sickle-bar technology in 1984. The Company added to its presence in the industrial and governmental markets with the acquisition of TIGER(R) at the end of 1994. A major thrust into agricultural mowing markets was begun in 1986 with the acquisition of RHINO(R), a leading manufacturer in this field. With this acquisition, the Company embarked on an aggressive strategy to increase the RHINO dealer network during a period of industry contraction. Distribution network expansion remains a primary focus of the Company's marketing plans for agricultural and industrial uses. The addition of M&W GEAR COMPANY in early 1995 allowed the Company to enter into the manufacturing and distribution of hay-making equipment that complements the RHINO product line. M&W has been integrated into the agricultural marketing group utilizing the same sales force to cross sell RHINO and M&W products throughout their dealer networks. Another strategic move was made in late 1995 with the acquisition of HERSCHEL(R), a leading manufacturer and distributor of high wear, high turnover farm equipment replacement parts. In addition, the Company has concentrated on developing new products which meet the needs of its niche market customers and on adapting its existing products to serve other applications. In 1991, the Company began its international expansion with the acquisition of MCCONNEL(R), a United Kingdom ("U.K.") manufacturer of vegetation maintenance equipment, principally hydraulic boom-mounted hedge and grass cutters and related parts. BOMFORD(R), also a U.K. company, was acquired in 1993. BOMFORD is a manufacturer of heavy duty, tractor-mounted grass and hedge mowing equipment. In 1994, the Company acquired S.M.A.(R) located in Orleans, France. S.M.A. manufacturers and sells principally to the French government, a line of heavy duty, tractor mounted grass and hedge mowing equipment and associated replacement parts. This acquisition along with smaller ones made in France and the Netherlands, when combined with MCCONNEL and BOMFORD, has made the Company one of the largest manufacturer in the European market for the kind of equipment sold by the Company. On March 1, 2000, the Company announced the acquisition of 100% of the outstanding shares of SCHWARZE INDUSTRIES, INC. for approximately $15,000,000 in cash. The effective date of the acquisition was February 29, 2000. Schwarze Industries is a manufacturer of sweeping equipment which is sold to governmental and contractor users. The Company believes the Schwarze sweeper products fit the Company's strategy of identifying product offerings with brand recognition in the industrial market place. 3 The principal executive offices of the Company are located at 1502 East Walnut, Seguin, Texas 78155, and its telephone number is (830) 379-1480. TERMINATION OF MERGER AGREEMENT As previously reported by the Company in prior filings with the Securities and Exchange Commission, the Company had entered into a merger agreement (the "Merger Agreement") among the Company, WEC Company, a subsidiary of Woods Equipment Company ("WEC"), and AGI Acquisition Corp., a subsidiary of WEC Company, which provided for the acquisition of the Company by WEC at a purchase price of $18.50 per share for the Company's common stock. The Merger Agreement was approved by the Company's stockholders at a special meeting held on November 18, 1998. Subsequent to the special meeting, after disagreement between the parties as to the satisfaction of certain closing conditions WEC Company and Alamo mutually agreed to terminate the Merger Agreement and abandon the proposed merger on February 23, 1999. Since that time, the Company has focused its attention on growing and strengthening its operations as an independent company. MARKETING AND MARKETING STRATEGY The Company's products are sold through the Company's seven marketing organizations, and extensive, world-wide dealer networks under the ALAMO INDUSTRIAL(R), TIGER(R), RHINO(R), M&W(R), HERSCHEL-ADAMS(R), MCCONNEL(R), BOMFORD(R), S.M.A.(R) and other trademarKS. ALAMO INDUSTRIAL equipment is principally sold to governmental end-users and, to a lesser extent, to the agricultural market and commercial turf market. Domestic governmental agencies and contractors that perform services for such agencies purchase primarily hydraulically-powered, tractor-mounted mowers, including boom-mounted mowers, and replacement parts for heavy-duty, intensive use applications, including the maintenance of highway, airport, recreational and other public areas. Municipal park agencies, golf courses and landscape maintenance contractors purchase certain ALAMO INDUSTRIAL mowers that deliver a fine manicured cut. TIGER equipment includes heavy-duty, tractor-mounted mowing and vegetation maintenance equipment and replacement parts. A portion of TIGER sales includes tractors, which are not manufactured by TIGER. TIGER sells to state, county and local governmental entities through a network of dealers. In most cases, the larger dealers' principal product line is TIGER equipment. TIGER'S dealership network is independent of ALAMO'S dealership network. RHINO and M&W equipment is generally sold to farmers and ranchers to clear brush, maintain pastures and unused farmland, shred crops and for hay-making. It is also sold to other customers, such as mowing contractors and construction contractors, for non-agricultural purposes. RHINO equipment consists principally of a comprehensive line of tractor-mounted equipment, including rotary cutters, finishing mowers, flail mowers and disc mowers. RHINO also sells post hole diggers, scraper blades and replacement parts for all RHINO equipment. Farm equipment dealers play the primary role in the sale of RHINO equipment. M&W hay-making equipment uses a fixed chamber, round bale technology. A portion of the RHINO product line is also sold through MCCONNEL'S network of agricultural tractor dealers in the U.K. HERSCHEL-ADAMS replacement parts are sold for most types of tillage equipment and tractors, certain types of mowing and construction equipment. HERSCHEL-ADAMS products include a full range of cutting parts, chromium carbide treated hard-faced and plain replacement tillage tools, disc blades and fertilizer application components. HERSCHEL-ADAMS replacement tools are sold throughout the United States, Canada and Mexico to five major customer groups: farm equipment dealers, fleet stores, wholesale distributors, original equipment manufacturers and construction equipment dealers. MCCONNEL equipment principally includes a line of hydraulic, boom-mounted hedge and grass cutters, as well as other tractor attachments and implements such as hydraulic backhoes, cultivators, subsoilers, buckets and other digger implements and replacement parts. MCCONNEL also sells turf maintenance equipment to the golf course and leisure markets. MCCONNEL equipment is sold primarily in the U.K. and France, and to a lesser extent in other parts of Europe, Australia, and North America. MCCONNEL primarily focuses on the agricultural and commercial end-user. MCCONNEL products are sold in the U.K. through a network of agricultural tractor dealers, with exports sold primarily through distributors. 4 BOMFORD equipment includes hydraulic, boom-mounted hedge and hedgerow cutters, industrial grass mowers, agricultural seed bed preparation cultivators and replacement parts. BOMFORD equipment is sold to governmental agencies, contractors and agricultural end-users in the U.K., and France and to a lesser extent Germany, Scandinavia, North America, Australia and the Far East. BOMFORD'S sales network is very similar to that of MCCONNEL in the U.K. SMA equipment includes hydraulic, boom-mounted hedge and hedgerow cutters and associated replacement parts. SMA'S principal customers are French local authorities. SMA'S product offerings were expanded in 1994 to include certain quick-attach boom mowers manufactured by the Company in the U.K. to expand its presence in agricultural dealerships. In addition to the sales of HERSCHEL-ADAMS replacement parts, the Company derives a significant portion of its revenues from sales of replacement parts for each of its whole goods lines. Replacement parts represented approximately 35% of the Company's total sales for the year ended December 31, 1999. Replacement parts are more profitable and generally less cyclical than wholegoods. While the Company believes that the end-user of its products evaluates the purchase of such products on the basis of price and product quality, such purchases are also based on a dealer's service and support and loyalty to the dealer based on previous purchases. Demand for products tend to be strongest in the spring and summer growing seasons. The Company provides incentives for off-season purchases, including discounts, as a way to even out seasonal variations in its manufacturing cycles. TERMINATION OF RHINO INTERNATIONAL'S OPERATIONS On December 31,1998, the Company announced its decision to cease operations of its Chinese tractor import and marketing business, Rhino International. Disposal of the assets of the Rhino International operation and the wind-up of its business were substantially concluded in 1999. PRODUCT DEVELOPMENT The Company's ability to provide innovative responses to customer needs, to develop and manufacture new products and to enhance existing product lines is important to its success. The Company continually conducts research and development activities in an effort to improve existing products and develop new products. The Company currently employs 75 people in its engineering department, 31 of whom are professionals and the balance of whom are support staff. Amounts expended on research and development activities were approximately $1,722,000 in 1999, $1,685,000 in 1998 and $1,712,000 in 1997. SEASONALITY In general, the vegetation maintenance equipment industry tends to follow the seasonal buying patterns of its major customers with peak sales occurring in the summer from May through August. Agricultural and governmental end-users typically purchase new equipment during the first and second calendar quarters. The timing of these purchases, however, may be affected by weather conditions and general economic conditions. In order to achieve efficient utilization of manpower and facilities throughout the year, the Company estimates seasonal demand months in advance, and equipment is manufactured in anticipation of such demand. The Company utilizes a rolling monthly sales forecast provided by the Company's marketing divisions and order backlog in order to develop a production plan for its manufacturing facilities. Additionally, the Company attempts to equalize demand for its products throughout the calendar year by offering seasonal sales programs which may provide additional incentives on equipment that is ordered during off-season periods. COMPETITION The Company's products are sold in highly competitive markets throughout the world. The principal competitive factors are price, quality, service and reputation. The Company competes with several large national and international companies that offer a broad range of agricultural equipment and replacement parts, as well as numerous small, privately-held manufacturers and suppliers of a limited number of products. However, the Company has fewer competitors in wide-swath and boom-mounted mowing equipment within the governmental niche. Some of the Company's competitors are significantly larger than the Company and have substantially greater 5 financial and other resources at their disposal. The Company believes that it is able to compete successfully in its markets by containing its manufacturing costs, offering high quality products, developing and designing innovative products and, to some extent, avoiding direct competition with significantly larger competitors. There can be no assurance that such competitors will not substantially increase the resources devoted to the development and marketing of products competitive with those of the Company. The Company believes that within the U.S. it is the largest supplier within governmental markets for its kind of equipment, a major supplier in the U.S. agricultural market for such equipment and one of the largest suppliers in the European market for such equipment. UNFILLED ORDERS As of December 31, 1999, the Company had unfilled customer orders of $34,266,000 compared to $18,932,000 at the end of 1998. The increase is primarily attributable to a gradual recovery in the agricultural market, which the Company believes is evidenced by an increase in the incoming orders during the fourth quarter of 1999 for these products. Management expects that substantially all of the Company's backlog as of December 31, 1999, will be shipped during fiscal year 2000. The amount of unfilled orders at a particular time is affected by a number of factors, including the scheduling of manufacturing and shipping of the product, which in most instances are dependent on the Company's seasonal sales programs and the requests of its customers. Certain of the Company's orders are subject to cancellation anytime before shipment; therefore, a comparison of unfilled orders from period to period is not necessarily meaningful and may not be indicative of future actual shipments. SOURCES OF SUPPLY The principal raw materials used by the Company include steel and purchased components. During 1999, the raw materials used by the Company were available from a variety of sources in adequate quantities and at prevailing market prices. A number of the Company's units are mounted on and shipped with a tractor. Tractors are generally available, but in some periods delays in receiving tractors have been experienced. No single supplier is responsible for supplying more than 10% of the principal raw materials used by the Company. While the Company manufactures many of the parts for its products, a significant percentage of parts, including most drive lines, gear boxes and hydraulic pumps and motors, are purchased from outside suppliers which manufacture to the Company's specifications. Approximately 15% of the aggregate dollar amount of parts purchased by the Company's U.S. operations are imported. PATENTS AND TRADEMARKS The Company owns U.S. and foreign patents. While the Company considers its patents to be advantageous to its business, it is not dependent on any single patent or group of patents. Products manufactured by the Company are advertised and sold under numerous trademarks. The ALAMO INDUSTRIAL(R), RHINO(R), M&W(R), FUERST(R), MCCONNEL(R), BOMFORD(R), SMA(R), TIGER(R) and HERSCHEL-ADAMS(R) trademarks are the primary marks for the Company's products. The Company also owns other trademarks which it uses to a lesser extent such as TERRAIN KING(R), TRIUMPH(R), MOTT(R), TURNER(R), and DANDL(R). Management believes that the Company's trademarks are well known in its markets and are valuable and that their value is increasing with the development of its business, but that the business is not dependent on such trademarks. The Company, however, vigorously protects its trademarks against infringement. The Company believes it has registered its trademarks in the appropriate jurisdictions. ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS The Company is subject to numerous environmental laws and regulations concerning air emissions, discharges into waterways and the generation, handling, storage, transportation, treatment and disposal of waste materials. The Company's policy is to comply with all applicable environmental, health and safety laws and regulations, and the Company believes it is currently in material compliance with all such applicable laws and regulations. These laws and regulations are constantly changing, and it is impossible to predict with accuracy the effect that changes to such laws and regulations may have on the Company in the future. Like other industrial concerns, the Company's manufacturing operations entail the risk of noncompliance, and there can be no assurance that material costs or liabilities will not be incurred by the Company as a result thereof. The Company has learned that the Indianola, Iowa property on which its Herschel facility operates is contaminated with chromium. The contamination likely 6 resulted from chrome-plating operations which were discontinued several years before the Company purchased the property. The Company is working with an environmental consultant and the state of Iowa to develop and implement a plan to remediate the contamination. All present and future remediation costs have or will be paid pursuant to the agreement by which the Company purchased said property. The Company is subject to various other federal, state and local laws affecting its business, as well as a variety of regulations relating to such matters as working conditions, equal employment opportunities and product safety. A variety of state laws regulate the Company's contractual relationships with its dealers, some of which impose substantive standards on the relationship between the Company and its dealers, including events of default, grounds for termination, non-renewal of dealer contracts and equipment repurchase requirements. The Company believes it is currently in material compliance with all such applicable laws and regulations. EMPLOYEES As of December 31, 1999, the Company employed 1,117 full-time employees. The HERSCHEL facility in Indianola, Iowa has a collective bargaining agreement which covers approximately 48 employees, and the two U.K. subsidiaries, MCCONNEL and BOMFORD, employing approximately 220 persons, also have collective bargaining agreements. The Company considers its employee relations to be satisfactory. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION See Note 13 of the accompanying consolidated financial statements. FORWARD-LOOKING INFORMATION Part I of this Annual Report on Form 10-K and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II of this Annual Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, forward-looking statements may be made orally or in press releases, conferences, reports or otherwise, in the future by or on behalf of the Company. Statements that are not historical are forward-looking. When used by or on behalf of the Company, the words "estimate," "believe," "intend" and similar expressions generally identify forward-looking statements made by or on behalf of the Company. Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses operating in a global market, as well as matters specific to the Company and the markets it serves. Particular risks and uncertainties facing the Company at the present include continued deterioration in the Company's United States agricultural market and softening in its international markets; increased competition in the Company's businesses from competitors that have greater financial resources; the impact of the strong dollar and British pound which increase the cost of the Company's products in foreign markets; competitive implications and price transparencies related to the euro conversion; the Company's ability to develop and manufacture new and existing products profitably; market acceptance of existing and new products; the Company's ability to maintain good relations with its employees; and the ability to retain and hire quality employees. In addition, the Company is subject to risks and uncertainties facing its industry in general, including changes in business and political conditions and the economy in general in both foreign and domestic markets; weather conditions affecting demand; slower growth in the Company's markets; financial market changes including increases in interest rates and fluctuations in foreign exchange rates; unanticipated problems or costs associated with the transition of European currencies to the euro currency; actions of competitors; unanticipated problems or costs associated with accommodation of the year 2000 in computer applications or products; the inability of the Company's suppliers, customers, creditors, government agencies, public utility providers and financial service organizations to implement computer applications accommodating the year 2000; seasonal factors in the Company's industry; unforeseen litigation; government actions including budget levels, regulations and legislation, primarily legislation relating to the environment, commerce, infrastructure spending, health and safety; and availability of materials. 7 The Company wishes to caution readers not to place undue reliance on any forward-looking statement and to recognize that the statements are not predictions of actual future results. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive, and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. It is not possible for management to predict all risk factors or to assess the impact of such risk factors on the Company's businesses. ITEM 2. PROPERTIES At December 31, 1999, the Company utilized six principal manufacturing plants located in the United States and four in Europe. Listed below are the facilities:
FACILITY SQUARE FOOTAGE PRINCIPAL TYPES OF PRODUCTS MANUFACTURED AND ASSEMBLED ------------------------- -------------- ------------------------------------------------------ Gibson City, Illinois 235,000 Hay Mowers and Balers, Deep Tillage Equipment and Mechanical Mowers for RHINO and M&W Seguin, Texas 230,000 Mechanical and Hydraulic Rotary and Flail Mowers, Boom-Mounted Equipment for ALAMO and RHINO Guymon, Oklahoma 171,000 Hard-Faced and Plain Tillage Tools, Replacement Parts for HERSCHEL and ADAMS Ludlow, England 160,000 Hydraulic Boom-Mounted Hedge and Grass Cutters and other Equipment for MCCONNEL Holton, Kansas 150,000 Mechanical Rotary Mowers, Blades and Post Hole Diggers for RHINO Indianola, Iowa 150,000 High Wear, High Turnover Farm Equipment and Replacement Parts for HERSCHEL and ADAMS Salford Priors, England 106,000 Tractor Mounted Power Arm Flails and other Equipment for BOMFORD Sioux Falls, South Dakota 60,000 Assembly of Hydraulic and Mechanical Mowing Equipment for TIGER Orleans, France 40,000 Heavy Duty, Tractor-Mounted Grass and Hedge Mowing Equipment for SMA Peschadores, France 12,000 Manufactures Replacement Parts for Blades, Knives and Shackles -------------- Total 1,314,000
About 87% of the manufacturing and office space is owned, with the balance being leased. The Company also has 79,700 square feet of warehouse space in four locations, of which 35,000 square feet is owned. The Company closed one of its manufacturing facilities in LaGrange, Illinois during the year and the facility is presently held for sale. Further, the Company is in the process of closing its warehouse location in Harrisburg, Pennsylvania which is expected to be completed by March 31, 2000. Except as otherwise stated herein, the Company considers each of its facilities to be well maintained, in good operating condition, and adequate for its present level of operations. ITEM 3. LEGAL PROCEEDINGS In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which substantial damages are sought, the Company, cannot state what the eventual outcome of pending matters will be. The Company is contesting the allegations made in each pending matter and believes, based on current knowledge and after consultation with counsel, that the outcome of such matters will not have a material adverse effect on the consolidated financial condition of the Company, but may be material to the Company's operating results for any particular period, depending on the level of the Company's income for such period. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended December 31, 1999. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY Certain information is set forth below concerning the executive officers of the Company, each of whom has been selected to serve until the 2000 annual meeting of directors or until his successor is duly elected and qualified. NAME AGE POSITION --------------------- ----- ---------------------------------------------- Donald J. Douglass 68 Chairman of the Board Ronald A. Robinson 48 President and Chief Executive Officer Robert H. George 53 Vice President, Secretary and Treasurer Ian Burden 45 Vice President, Alamo Group (USA) Inc., Geoffrey Davies 52 Managing Director, Alamo Group (EUR) Ltd. John C. Moon 44 Vice President, Alamo Group (USA) Inc., Richard J. Wehrle 43 Vice President and Corporate Controller, Alamo Group (USA), Inc. Donald J. Douglass founded the Company in 1969 and served as Chairman of the Board and Chief Executive Officer of the Company since 1969. Mr. Douglass resigned his position as Chief Executive Officer on July 7, 1999, but continues to serve as a director and Chairman of the Board for the Company. Ronald A. Robinson, age 48, was appointed President, Chief Executive Officer and a director of the Company on July 7, 1999. Mr. Robinson had previously been President of Svedala Industries, Inc. the U. S. subsidiary of Svedala Industries AB of Malmo, Sweden, a leading manufacturer of equipment and systems for the worldwide construction, mineral processing and materials handling industries. Mr. Robinson joined Svedala in 1992 when it acquired Denver Equipment Company of which he was Chairman and Chief Executive Officer. Robert H. George joined the Company in May 1987 as Vice President and Secretary and has served the Company in various executive capacities since that time. Prior to joining the Company, Mr. George was Senior Vice President of Frost National Bank from 1978 to 1987. Ian Burden has been Vice President of Alamo Group (USA) Inc. since January 1994 and manages the Alamo Industrial division. Since 1981 Mr. Burden served in various sales and marketing capacities for Bomford Turner, Ltd., a U.K. company acquired by Alamo in 1993. Geoffrey Davies has been Managing Director of Alamo Group (EUR) Ltd. since December 1993. From 1988 to 1993, Mr. Davies served McConnel Ltd., a U.K. company acquired by Alamo in 1991, in various capacities including serving as its Marketing Director from February 1992 until December 1993. John C. Moon has been Vice President of Alamo Group (USA) Inc. since May 1991 and manages the Agricultural division. Prior to his appointment as Vice President, Mr. Moon has served Rhino in a number of sales and marketing positions since 1983. Richard J. Wehrle has been Vice President and Corporate Controller of Alamo Group (USA) Inc. since September 1995. Prior to his appointment, Mr. Wehrle has served in various accounting management capacities within the Company since 1988. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the New York Stock Exchange under the symbol: ALG. On February 29, 2000, there were 9,695,209 shares of common stock outstanding, held by approximately 200 holders of record. The total number of beneficial owners of the Company's common stock exceeds this number. On February 29, 2000, the closing price of the common stock on the New York Stock Exchange was $12.00 per share. The following table sets forth for the period indicated, on a per share basis, the range of high and low sales prices for the Company's common stock as quoted by the New York Stock Exchange. These price quotations reflect inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. HIGH AND LOW STOCK PRICES FOR THE LAST TWO FISCAL YEARS WERE:
1999 1998 ------------------------------------------------------ ------------------------------------------------------ CASH CASH SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS QUARTER ENDED HIGH LOW DECLARED QUARTER ENDED HIGH LOW DECLARED ------------------------------------------------------ ------------------------------------------------------ March 31, 1999 $ 12-5/8 $ 7-7/8 $.11 March 31, 1998 $21-13/16 $15-3/8 $.10 June 30, 1999 10-1/4 6-7/8 .11 June 30, 1998 19 14-1/2 .11 September 30, 1999 10-1/8 8-1/2 .06 September 30, 1998 19-3/4 13-1/2 .11 December 31, 1999 10-1/4 8-1/4 .06 December 31, 1998 15-7/16 10-5/8 .11 ------------------------------------------------------ ------------------------------------------------------
On July 7, 1999, the Board of Directors of the Company reduced its quarterly dividend from $0.11 per share to $0.06 per share effective for the second quarter of 1999. The change was made in order to increase the Company's ability to grow its business both internally and externally. On January 6, 2000, the Board of Directors of the Company declared a quarterly dividend of $0.06 per share which was paid on February 3, 2000, to holders of record as of January 18, 2000. The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends as they depend on future earnings, capital requirements and financial condition. In addition, the payment of dividends is subject to restrictions under the Company's bank revolving credit agreement. The Company's bank revolving credit agreement prohibits the Company from paying quarterly dividends on its Common Stock in excess of $0.11 per share through March 31, 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in Item 7 of Part II of this Annual Report on Form 10-K for a further description of the bank revolving credit agreement. 10 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data is derived from the consolidated financial statements of Alamo Group Inc. and Subsidiaries. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein. (in thousands, except per share amounts)
FISCAL YEAR ENDED(1) --------------------------------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 30, 1999 1998 1997 1996 1995(2) ----------- ----------- ----------- ----------- ----------- OPERATIONS: Net sales ....................................... $176,608 $200,553 $203,092 $183,595 $163,852 Income before income taxes ...................... 9,696 6,535 20,595 13,722 17,779 Net income ...................................... 6,102 4,115 13,600 8,762 11,615 Percent of sales ................................ 3.5% 2.1% 6.7% 4.8% 7.1% Earnings per share Basic ........................................ 0.63 0.42 1.42 0.91 1.36 Diluted ...................................... 0.63 0.42 1.41 0.91 1.35 Dividends per share ............................. 0.29 0.43 0.40 0.40 0.40 Average common shares Basic ........................................ 9,722 9,714 9,602 9,585 8,541 Diluted ...................................... 9,726 9,730 9,674 9,641 8,619 FINANCIAL POSITION: Total assets .................................... $132,795 $161,638 $156,124 $153,862 $151,571 Short-term debt and current maturities .......... 526 487 727 1,031 1,290 Long-term debt, excluding current maturities .... 5,469 35,858 28,617 35,299 37,309 Stockholders' equity ............................ 108,030 106,906 106,265 97,250 90,705
(1) All references to 1995 herein are to the fiscal years ended December 30, 1995 (52 week period). Until 1996, the Company's fiscal years comprised 52 or 53 week periods ending on the Saturday closest to December 31. In 1996, the Company changed to a calendar year basis. There were no material differences in the results presented from this change. (2) Includes the results of operations of companies acquired from the effective dates of acquisitions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. The following tables set forth, for the periods indicated, certain financial data:
FISCAL YEAR ENDED ---------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ---------- ---------- ---------- Sales data in thousands: Domestic Agricultural ............................................. $ 75,931 $ 98,393 $ 100,398 Industrial ............................................... 58,719 61,133 56,453 European .................................................... 41,958 41,027 46,241 ---------- ---------- ---------- Total net sales ............................................. $ 176,608 $ 200,553 $ 203,092 ========== ========== ========== Cost and profit margins, as percentages of net sales: Cost of sales ............................................ 76.8% 78.2% 73.8% Gross margin ............................................. 23.2% 21.8% 26.2% Selling, general and administrative expense .............. 17.1% 17.5% 15.3% Income from operations ................................... 6.1% 4.2% 10.9% Income before income taxes ............................... 5.5% 3.3% 10.1% Net income ............................................... 3.5% 2.1% 6.7%
11 RESULTS OF OPERATIONS FISCAL 1999 COMPARED TO FISCAL 1998 The Company's net sales in the fiscal year ending December 31, 1999 ("1999") were $176,608,000, a decrease of $23,945,000 or 11.9% compared to $200,553,000 for the fiscal year ended December 31, 1998 ("1998"). The decrease in sales was primarily attributable to the cyclical decline in the agricultural market which began in late 1998 and continued throughout 1999. Domestic Agricultural sales (Net) were $75,931,000 in 1999 compared to $98,393,000 in 1998, representing a decline of $22,462,000 or 22.8%. The continued weakness in the overall agricultural economy affected all product lines during the first three quarters of 1999. The Company began to see some gradual improvement in the fourth quarter with increased new orders, especially in the Rhino and Herschel Adams products. Demand for M&W products continued to be less than anticipated and has not rebounded to historical backlog levels. Domestic Industrial sales (Net) in 1999 were $58,719,000 compared to $61,133,000 in 1998, a $2,414,000 or 3.9% decrease. Wholegood sales improved over 1998 but tractor shipments declined due to a slowdown in deliveries from major tractor suppliers which is expected to last through the first quarter of 2000. Also affecting sales were drought conditions that affected the northeast areas of the U.S. Industrial backlogs improved during the fourth quarter of 1999 increasing over last year's levels due to higher state governmental agency spending. European sales (Net) increased $931,000 or 2.3% to $41,958,000 in 1999 compared to $41,027,000 in 1998. Exchange rates between the French franc and the British pound were stable during the first half of 1999 but weakened during the third and fourth quarter of 1999. European markets rebounded somewhat during the fourth quarter of 1999 resulting in improved sales. Gross Margins for 1999 were $40,930,000 (23.2% of net sales) compared to $43,658,000 (21.8% of net sales) in 1998. Margin percentages for 1999 were negatively impacted by lower production volumes primarily for agricultural products as well as an inventory obsolescence charge in the third quarter of $3,201,000 from a fundamental change in business policy relating to inventory. The 1998 margin percentages were substantially impacted due to the writeoff of Rhino International assets relating to the shutdown of the operations totaling $4,513,000. Selling, general and administrative expenses ("SG&A") were $30,123,000 (17.1% of net sales) in 1999 compared to $35,169,000 (17.5% of net sales) in 1998. In the last quarter of 1999, the Company expensed a post retirement benefit for Donald J. Douglass, Chairman of the Board of the Company, who retired as an employee of the Company on December 31, 1999. The total expense was $707,000. The Company also expensed a Consulting and Non-Competition Agreement with its previous President and Chief Operating Officer, Oran Logan in the amount of $400,000. Mr. Logan's agreement was filed with the Company's 10-Q for the third quarter of 1999. The Company's 1999 marketing expenses were down due to lower agricultural sales volumes which translated to reduced commission levels and a reduction of advertising costs. During 1998, the Company experienced costs relating to the settlement of a lawsuit as well as writeoff of goodwill relating to its Rhino International operations. The Company also incurred expenses relating to the terminated WEC acquisition. Interest expense for 1999 was $1,495,000 compared to $2,647,000 in 1998, a $1,152,000 or 43.5% decrease. Increased cash flow from operations was primarily responsible for lowering debt levels throughout the year thereby reducing interest expense. FISCAL 1998 COMPARED TO FISCAL 1997 Net sales for 1998 were $200,553,000, a decrease of $2,539,000 or 1.3% compared to $203,092,000 for 1997. Domestic Agricultural sales (Net) for 1998 were $98,393,000 compared to $100,398,000 for 1997, representing a $2,005,000 or 2.0% decrease due primarily to severe drought conditions in the Company's major domestic markets, which reduced replacement part sales in such markets, and what the Company believes is the beginning of a cyclical decline in the domestic agricultural market. Also reducing agricultural sales for 1998 were lower sales from the Company's Rhino International operation, described more fully in the paragraph below. 12 Domestic Industrial sales (Net) for 1998 were $61,133,000 compared to $56,453,000 in the prior year, a $4,680,000 or 8.3% increase, as a result of continued strength in customer orders. European sales (Net) for 1998 were $41,027,000, a decrease of $5,214,000 or 11.3% compared to $46,241,000 for last year. The decrease in European sales was primarily due to continued weakness in farm income in the United Kingdom and the impact of currency movements, particularly the strength of the British pound against the French franc, which negatively impacted sales of the Company's U.K. manufactured products. European sales showed some firming in the second half of 1998, but are still below historical levels. In December 1998, the Company announced its decision to terminate the operations of the Company's Chinese tractor import and marketing business, Rhino International. These operations had experienced a decline in sales and profitability related to business factors. Sales in 1998 were $2,197,000 versus $7,828,000 in 1997. The Company is in the process of collection of accounts receivable of Rhino International and disposing of its remaining inventory. This process is substantially complete. Cost of sales in 1998 was $156,895,000 or 78.2% of net sales compared to $149,940,000 or 73.8% of net sales in 1997. Impacting costs of sales in the first quarter of 1998 were production inefficiencies, including supplier delays, caused by the need to rapidly accelerate production to meet increasing order rates, and in the last half of the year manufacturing cost variances as production levels were reduced to accommodate lower business volume. Costs of sales in 1998 included the impacts of inventory writedowns related to disposing of the remaining inventory at Rhino International. Gross margins in 1998 were also reduced by heavier discounts given in agricultural markets, obsolescence charges in inventory particularly in operations acquired in 1995 and costs of operations of regional warehouse additions. Selling, general and administrative expenses in 1998 were $35,169,000 or 17.5% of net sales compared to $31,026,000 or 15.3% of net sales for 1997. The increase in selling, general and administrative expenses of $4,143,000 was primarily attributable to the settlement of and legal costs related to certain litigation relating to Rhino International, accounts receivable writedowns of Rhino International and legal and other costs related to the Company's proposed merger transaction with Woods Equipment Company, which was terminated subsequent to December 31, 1998. Merger costs were $770,000 after tax, or $0.08 per share in 1998. Interest expense was $2,647,000 in 1998 compared to $2,262,000 in 1997. The Company's net income before income taxes from its U.S. operations decreased approximately $12,596,000 from $14,195,000 in 1997 to $1,614,000 in 1998. The Company's income before income taxes from its foreign operations decreased approximately $1,479,000 from $6,400,000 in 1997 to $4,921,000 in 1998. Net income for 1998 was $4,115,000 or $0.42 per diluted share compared to $13,600,000 or $1.41 per diluted share for 1997 as a result of the factors described above. Without the effect of the net losses of Rhino International as described above, 1998 net income would have been $10,508,000 or $1.08 per diluted share and 1997 net income would have been $14,414,000 or $1.49 per diluted share. LIQUIDITY AND CAPITAL RESOURCES In addition to normal operating expenses, the Company has on going cash requirements which are necessary to expand the Company's business including inventory purchases and capital expenditures. The Company's inventory and accounts payable levels typically build in the first quarter and early spring of the year and partly in the fourth quarter in anticipation of the spring and fall selling seasons. Accounts receivable historically build in the first and fourth quarters of each year as a result of preseason sales. These sales balance the Company's production during the off season. During the latter part of 1998, an inventory reduction plan was put in place to reduce excess and obsolete inventory levels that had continued to hamper liquidity. Since the end of 1998, tighter controls on inventory purchases as well as just in time inventory procedures for raw materials have aided in reducing inventory by approximately $18,278,000 of which $3,201,000 was a writedown due to a change in the Company's obsolescence reserve policy. As of December 31, 1999, the Company had working capital of $79,854,000 which represents a decrease of $26,038,000 from working capital of $105,892,000 as of December 31, 1998. The decrease in working capital was primarily due to lower inventory levels as mentioned above. 13 Capital expenditures were $3,616,000 for 1999, compared to $4,403,000 for 1998. Capital expenditures for 2000 are expected to be approximately $12,000,000. The significant increase is attributable to several items, the largest one being the proposed purchase of the Company's Bomford manufacturing facility and adjacent land in the U.K. which is currently leased on a long-term basis. The purchase price is approximately $5,300,000 and the transaction is expected to be complete by mid 2000. Other major components of the increase are related to improvements at the Company's Seguin and Holton plants to improve their overall efficiency and increase capacity to take on production being transferred as a result of the closure of the Company's LaGrange facility. And, approximately $900,000 of the increase is a result of rebuilding the office building at the Company's Gibson City plant which was destroyed in January 1999 by a snowstorm. This cost has been recovered from the Company's insurance provider. The Company expects to fund expenditures from operating cash flows or through its revolving credit facility, described below. The Company was authorized by its Board of Directors in 1997 to repurchase up to 1,000,000 shares of the Company's common stock to be funded through working capital and credit facility borrowings. In 1997 the Company repurchased 79,840 shares. No shares were repurchased in 1998. In 1999, the Company repurchased 40,600 shares in the third quarter. Net cash provided by operating activities was $39,188,000 for 1999 compared to $463,000 for 1998. The significant increase of cash from operating activities came from a reduction in inventory and accounts receivable. Net inventory was reduced by $18,278,000 due to the inventory reduction plan mentioned above. Accounts receivable was reduced by $7,379,000 from collections as well as lower sales from our agricultural division. Net cash used by financing activities was $33,483,000 for 1999 compared to net cash provided of $2,813,000 for 1998. The change in activity was primarily a result of payment on the bank revolving credit facility. The Company has a $45,000,000 contractually committed, unsecured, long-term bank revolving credit facility under which the Company can borrow and repay until December 31, 2002, with interest at variable rate options based upon Prime or Libor rates, with such rates either floating on a daily basis or fixed for periods up to 180 days. Proceeds may be used for general corporate purposes or, subject to certain limitations, acquisition activities. The loan agreement contains certain financial covenants which are customary in credit facilities of this nature including minimum financial ratio requirements and limitations on dividends, indebtedness, liens and investments. The Company is in compliance with all such covenants as of December 31, 1999. As of December 31, 1999, there were no borrowings under the revolving credit facility. At December 31, 1999, $1,233,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by vendors contracts. The Company's borrowing levels for working capital are seasonal with the greatest utilization generally occurring in the first quarter and early spring. Management believes that the bank credit facility and the Company's ability to internally generate funds from operations should be sufficient to meet the Company's cash requirements for the foreseeable future. On March 1, 2000, the Company announced it had acquired 100% of the outstanding shares of Schwarze Industries, Inc. for approximately $15,000,000 in cash. The effective date of the transaction was February 29, 2000. The Company borrowed the funds for this acquisition from its revolving credit facility discussed above. INFLATION The Company believes that inflation generally has not had a material impact on its operations or liquidity to date. IMPACT OF YEAR 2000 In 1998, the Company discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result of this planning and implementation effort, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $70,000 during 1999 in connection with remediating its 14 systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. EURO CONVERSION On January 1, 1999, the European Economic and Monetary Union (EMU) entered a three-year transition phase during which a new common currency, the "euro," was introduced in participating countries which established fixed conversion rates through the European Central Bank (ECB) between existing local currencies and the euro. From that date, the euro is traded on currency exchanges. Following introduction of the euro, local currencies will remain legal tender until December 31, 2001. During this transition period, goods and services may be paid for with the euro or the local currency under the EMU's "no compulsion, no prohibition" principle. France was a participating country in the first group to adopt the EMU, which effects the Company's French operations. The U.K. is currently not a part of the EMU. Based on its evaluation to date, management believes that the introduction of the euro will not have a material adverse impact on the Company's financial position, results of operations or cash flows. However, uncertainty exists as to the effects the euro will have on the marketplace, and there is no guarantee that all issues will be foreseen and corrected or that other third parties will address the conversion successfully. The Company has reviewed its information systems software and identified modifications necessary to ensure business transactions can be conducted consistent with the requirements of the conversion to the euro. Certain of these modifications have been implemented, and others will be implemented during the course of the transition period. The Company expects that modifications not yet implemented will be made on a timely basis and expects the incremental cost of the euro conversion to be immaterial. Any costs associated with implementing changes to comply with the euro conversion are expensed as incurred. The euro introduction did not have a material impact on the Company's overall currency risk. The Company anticipates the euro will simplify financial issues related to cross-border trade in the EMU and reduce the transaction costs and administrative time necessary to manage this trade and related risks. However, the Company believes that the associated savings will not be material to corporate results. PENDING ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133. "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to various market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. FOREIGN CURRENCY RISK AS A RESULT OF FOREIGN SALES A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions. The Company primarily manufactures its products in the United States, the U.K. and France. The Company sells its products primarily within the markets where the products are produced, but certain of the Company's sales from its U.K. operations are denominated in other European currencies. As a result, the Company's financial results could 15 be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the other markets in which the U.S. or U.K. subsidiaries of the Company distributes its products. To mitigate the short-term effect of changes in currency exchange rates on the Company's functional currency based sales, the Company regularly hedges by entering into foreign exchange forward contracts to hedge approximately 80% of its future net foreign currency sales transactions over a period of six months. As of December 31, 1999, the Company had no outstanding forward exchange contracts related to sales, however there was an exchange contract of $8,560,000 relating to a short-term inter-company cash transfer. A 15% fluctuation in exchange rates for these currencies would change the fair value by approximately $2,100,000. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts should be offset by changes in the underlying value of the transaction being hedged. EXPOSURE TO EXCHANGE RATES AS A RESULT OF FOREIGN SALES The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately in European countries, as a result of the sales of its products in foreign markets. Foreign currency options and forward contracts are used to hedge against the earnings effects of such fluctuations. At December 31, 1998, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are denominated would result in a decrease in gross profit of $1,226,000 for the year ending December 31, 1999. Comparatively, at December 31, 1997, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are denominated would have resulted in a decrease in gross profit of $1,235,000 for the year-ended December 31, 1998. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. The translation adjustment during 1999 was a loss of $1,538,000. On December 31, 1999, the British pound closed at .6191 relative to 1.00 U.S. dollar, and the French franc closed at .0953 relative to 1.00 British pound. By comparison, on December 31, 1998, the British pound closed at .6026 relative to 1.00 U.S. dollar, and the French franc closed at .1076 relative to 1.00 British pound. No assurance can be given as to future valuation of the British pound or French franc or how further movements in those currencies could affect future earnings or the financial position of the Company. INTEREST RATE RISK At December 31, 1999 the Company's long-term debt bears interest at variable rates. Accordingly, the Company's net income is affected by changes in interest rates. Assuming the current level of borrowings at variable rates and a two hundred basis point change in the 1999 average interest rate under these borrowings, the Company's 1999 interest expense would have changed by approximately $120,000. In the event of an adverse change in interest rates, management could take actions to mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such actions. Further, this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. ITEM 8. FINANCIAL STATEMENTS The financial statements and supplementary data described in Item 14(a)1 of this report and included on pages F-1 through F-17 of this Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS There is incorporated herein, by reference, that portion of the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders, which appears therein under the captions "Item 1: Election of Directors," "Information Concerning Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance." See also the information in Item 4a. of Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION There is incorporated in this Item 11, by reference, that portion of the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders, which appears under the caption "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is incorporated in this Item 12, by reference, that portion of the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders, which appears under the caption "Beneficial Owners of Common Stock." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is incorporated in this Item 13, by reference, that portion of the Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders, which appears under the captions "Certain Relationships and Related Transactions" and "Compensation Committee Interlocks and Insider Participation." 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)1. FINANCIAL STATEMENTS The following consolidated financial statements of the Company are included following the Index to Consolidated Financial Statements on page F-1 of this Report. PAGE ------ Report of Ernst & Young LLP, Independent Auditors............... F-2 Consolidated Statements of Income............................... F-3 Consolidated Balance Sheets..................................... F-4 Consolidated Statements of Stockholders' Equity................. F-5 Consolidated Statements of Cash Flows........................... F-6 Notes to Consolidated Financial Statements...................... F-7 (A)2. FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because they are not applicable or not required under the instructions or the information requested is set forth in the consolidated financial statements or related notes thereto. (A)3. EXHIBITS The following Exhibits are incorporated by reference to the filing indicated or are included following the Index to Exhibits. 18 INDEX TO EXHIBITS
INCORPORATED BY REFERENCE FROM THE FOLLOWING EXHIBITS EXHIBIT TITLE DOCUMENTS - ----------- ----------------------------------------------------------------- -------------------------- 3.1 -- Certificate of Incorporation, as amended, of Alamo Group Inc. Form S-1, February 5, 1993 3.2 -- By-Laws of Alamo Group Inc. Form 10-K, March 29, 1996 10.1 -- Warrant Agreement between Alamo Group Inc. and Capital Southwest Corporation, dated November 25, 1991 Form S-1, February 5, 1993 *10.2 -- 1993 Non-Qualified Stock Option Plan, adopted by the Board of Directors on February 2, 1993 Form S-1, February 5, 1993 *10.3 -- Alamo Group Inc. Executive Loan Program of 1991 Form S-1, March 18, 1993 *10.4 -- 1994 Incentive Stock Option Plan, adopted by the Board of Directors on January 25, 1994 Form 10-K, March 28, 1994 10.5 -- Third Amended and Restated Revolving Credit and Term Loan Agreement between NationsBank of Texas, N.A. and Alamo Group Inc. and certain subsidiaries dated December 29, 1995 Form 10-K, March 29, 1996 10.6 -- First Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated April 10, 1996 Form 10-K, March 27, 1997 10.7 -- Second Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated December 23, 1996 Form 10-K, March 27, 1997 10.8 -- Form of indemnification agreements with Directors of Alamo Group Inc. Form 10-Q, May 15, 1997 10.9 -- Form of indemnification agreements with certain executive officers of Alamo Group Inc. Form 10-Q, May 15, 1997 10.10 -- Third Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated June 23, 1997 Form 10-Q, August 15, 1997 10.11 -- Fourth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated December 31, 1997 Form 10-K, March 31, 1998 *10.12 -- Incentive Compensation Plan, adopted on December 9, 1997 Form 10-K, March 31, 1998 *10.13 -- 401(k) Restoration Plan for Highly Compensated Employees, adopted on December 9, 1997 Form 10-K, March 31, 1998 *10.14 -- Severance Pay Agreement for Twelve Months Between Alamo Group Inc. and Certain Officers and Employees of Alamo Group Form 10-Q, August 14, 1998 *10.15 -- Severance Pay Agreement for Eighteen Months Between Alamo Group Inc. and Certain Officers and Employees of Alamo Group Form 10-Q, August 14, 1998 10.16 -- Amended and Restated Agreement and Plan of Merger by and among Alamo Group Inc., WEC Company and AGI Acquisition Corp. dated as of September 4, 1998 Schedule 14A, October 22, 1998 10.17 -- Letter Agreement Between Alamo Group Inc., WEC Company and AGI Acquisition Corp. dated February 23, 1999 terminating the Merger Agreement Between the Parties dated September 4, 1998 Form 10-K, March 31, 1999 10.18 -- Fifth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated effective as of December 31, 1998 Form 10-K, March 31, 1999 *10.19 -- 1999 Non-Qualified Stock Option Plan, adopted by the Board of Directors on July 7, 1999 Schedule 14A, July 30, 1999 *10.20 -- Amended and Restated 1994 Incentive Stock Option Plan adopted by the Board of Directors on July 7, 1999 Schedule 14A, July 30, 1999 21.1 -- Subsidiaries of the Registrant Form 10-K, March 31, 2000 23.1 -- Consent of Ernst & Young LLP Filed Herewith 27.1 -- Financial Data Schedule Electronic Filing Only * Compensatory Plan (B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 1999 (None)
19 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. ALAMO GROUP INC. Date: March 23, 2000 By: /s/ RONALD A. ROBINSON President and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE - ---------------------- ------------------------------------ -------------- /s/ DONALD J. DOUGLASS Chairman of the Board and Director March 23, 2000 Donald J. Douglass /s/ RONALD A. ROBINSON President, Chief Executive Officer March 23, 2000 Ronald A. Robinson and a Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) /s/ ORAN F. LOGAN Director March 23, 2000 Oran F. Logan /s/ DAVID H. MORRIS Director March 23, 2000 David H. Morris /s/ O.S. SIMPSON, JR. Director March 23, 2000 O.S. Simpson, Jr. /s/ JAMES B. SKAGGS Director March 23, 2000 James B. Skaggs /s/ WILLIAM R. THOMAS Director March 23, 2000 William R. Thomas 20 ALAMO GROUP INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors......................... F-2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1999, 1998 and 1997........................ F-3 CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998.......................................... F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998 and 1997........................ F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997........................ F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................. F-7 F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Stockholders Alamo Group Inc. We have audited the accompanying consolidated balance sheets of Alamo Group Inc. and its subsidiaries as of December 31, 1999 and December 31, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alamo Group Inc. and its subsidiaries at December 31, 1999 and 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP San Antonio, Texas March 1, 2000 F-2 ALAMO GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED ------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ----------- ----------- ----------- Net sales ...................................... $ 176,608 $ 200,553 $ 203,092 Cost of sales .................................. 135,705 156,895 149,940 --------- --------- --------- Gross profit ............................... 40,903 43,658 53,152 Selling, general and administrative expense .... 30,123 35,169 31,026 --------- --------- --------- Income from operations ..................... 10,780 8,489 22,126 Interest expense ............................... (1,495) (2,647) (2,262) Interest income ................................ 604 697 523 Other income (expense), net .................... (193) (4) 208 --------- --------- --------- Income before income taxes ................. 9,696 6,535 20,595 Provision for income taxes ..................... 3,594 2,420 6,995 --------- --------- --------- Net income ................................. $ 6,102 $ 4,115 $ 13,600 ========= ========= ========= Net income per common share: Basic ...................................... $ 0.63 $ 0.42 $ 1.42 ========= ========= ========= Diluted .................................... $ 0.63 $ 0.42 $ 1.41 ========= ========= ========= Average common shares: Basic ...................................... 9,722 9,714 9,602 ========= ========= ========= Diluted .................................... 9,726 9,730 9,674 ========= ========= =========
See accompanying notes. F-3 ALAMO GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents .................. $ 5,359 $ 2,748 Accounts receivable ........................ 41,764 49,834 Inventories ................................ 45,570 64,578 Deferred income taxes ...................... 4,193 5,087 Prepaid expenses and other ................. 1,008 1,067 --------- --------- Total current assets ................ 97,894 123,314 Property, plant and equipment .................. 54,161 55,893 Less: Accumulated depreciation ............ (32,343) (32,989) --------- --------- 21,818 22,904 Goodwill ....................................... 9,937 11,411 Other assets ................................... 3,146 4,009 --------- --------- Total assets ........................ $ 132,795 $ 161,638 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable ..................... $ 8,514 $ 9,461 Income taxes payable ....................... 1,080 478 Accrued liabilities ........................ 7,920 6,996 Current maturities of long-term debt ....... 526 487 --------- --------- Total current liabilities ........... 18,040 17,422 Long-term debt, net of current maturities ...... 5,469 35,858 Deferred income taxes .......................... 1,256 1,452 Stockholders' equity: Common stock, $.10 par value, 20,000,000 shares authorized; 9,735,809 and 9,735,759 issued at December 31, 1999 and December 31, 1998 respectively ......................... 974 973 Additional paid-in capital ................. 50,775 50,507 Treasury stock, at cost; 40,600 shares at December 31, 1999 ............... (400) -- Retained earnings .......................... 57,568 54,775 Accumulated other comprehensive income ..... (887) 651 --------- --------- Total stockholders' equity .......... 108,030 106,906 --------- --------- Total liabilities and stockholders' equity . $ 132,795 $ 161,638 ========= ========= See accompanying notes. F-4 ALAMO GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED TOTAL COMMON STOCK ADDITIONAL OTHER STOCK- ----------------------- PAID-IN TREASURY RETAINED COMPREHENSIVE HOLDERS' SHARES AMOUNT CAPITAL STOCK EARNINGS INCOME EQUITY --------- --------- --------- --------- --------- --------- --------- Balance at December 31, 1996 .......... 9,590 $ 959 $ 49,502 $ -- $ 45,071 $ 1,718 $ 97,250 Net income ........................ -- -- -- -- 13,600 -- 13,600 Change in unrealized gains on securities, net of income ........ -- -- -- -- -- (90) (90) Translation adjustment ............ -- -- -- -- -- (1,561) (1,561) --------- Total comprehensive income ........ 11,949 Purchase of treasury stock, at cost (80) -- -- (1,631) -- -- (1,631) Sale of common stock and related .. 175 9 893 1,631 -- -- 2,533 Dividends paid ($.40 per share) ... -- -- -- -- (3,836) -- (3,836) --------- --------- --------- --------- --------- --------- --------- Balance at December 31, 1997 .......... 9,685 968 50,395 -- 54,835 67 106,265 Net income ........................ -- -- -- -- 4,115 -- 4,115 Translation adjustment ............ -- -- -- -- -- 584 584 --------- Total comprehensive income ........ 4,699 Sale of common stock .............. 51 5 112 -- -- -- 117 Dividends paid ($.43 per share) ... -- -- -- -- (4,175) -- (4,175) --------- --------- --------- --------- --------- --------- --------- Balance at December 31, 1998 .......... 9,736 973 50,507 -- 54,775 651 106,906 Net income ........................ -- -- -- -- 6,102 -- 6,102 Translation adjustment ............ -- -- -- -- -- (1,538) (1,538) --------- Total comprehensive income ........ -- -- -- -- -- -- 4,564 Purchase of treasury stock, at cost (41) -- -- (400) -- -- (400) Sale of common stock .............. -- 1 268 -- -- -- 269 Dividends paid ($.34 per share) ... -- -- -- -- (3,309) -- (3,309) --------- --------- --------- --------- --------- --------- --------- Balance at December 31, 1999 .......... 9,695 $ 974 $ 50,775 $ (400) $ 57,568 $ (887) $ 108,030 ========= ========= ========= ========= ========= ========= =========
See accompanying notes. F-5 ALAMO GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED -------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ----------- ----------- ----------- OPERATING ACTIVITIES Net income ................................................. $ 6,102 $ 4,115 $ 13,600 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts .................... 133 1,099 675 Depreciation ....................................... 3,967 3,938 3,700 Amortization ....................................... 1,185 1,897 1,364 Provision for deferred income tax benefit .......... 693 (2,711) (286) Realized gain on marketable securities ............. -- -- (70) Gain on sale of equipment ......................... (1,048) (124) (152) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable ................................ 7,379 (8,540) 321 Inventories ........................................ 18,278 1,470 (6,367) Prepaid expenses and other ......................... 1,449 1,731 (1,655) Trade accounts payable and accrued liabilities ..... 414 (2,617) 1,756 Income taxes payable ............................... 636 205 (583) -------- -------- -------- Net cash provided by operating activities .................. 39,188 463 12,303 INVESTING ACTIVITIES Purchase of property, plant and equipment .................. (3,616) (4,403) (4,685) Proceeds from sale of property, plant and equipment ........ 1,120 342 224 Purchase of long-term investment ........................... (500) (500) -- Sale of long-term investment ............................... -- 3,200 -- Proceeds from sale of marketable securities ................ -- -- 150 -------- -------- -------- Net cash (used) by investing activities .................... (2,996) (1,361) (4,311) FINANCING ACTIVITIES Net change in bank revolving credit facility ............... (29,600) 7,600 (5,500) Principal payments on long-term debt and capital leases ............................................ (443) (729) (841) Dividends paid ............................................. (3,309) (4,175) (3,836) Proceeds from sale of common stock and related ............. 269 117 2,533 Cost of common stock repurchased ........................... (400) -- (1,631) -------- -------- -------- Net cash provided (used) by financing activities ........... (33,483) 2,813 (9,275) Effect of exchange rate changes on cash .................... (98) 44 (156) -------- -------- -------- Net change in cash and cash equivalents .................... 2,611 1,959 (1,439) Cash and cash equivalents at beginning of the year ......... 2,748 789 2,228 -------- -------- -------- Cash and cash equivalents at end of the year ............... $ 5,359 $ 2,748 $ 789 ======== ======== ======== Cash paid during the year for: Interest ............................................... $ 1,742 $ 2,547 $ 2,215 Income taxes ........................................... 2,300 5,100 6,979
See accompanying notes. F-6 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS AND SEGMENTS The Company manufactures tractor-mounted mowing and vegetation maintenance equipment and replacement parts for industrial and agricultural end-users. Effective January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (Statement 131). Statement 131 superseded FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of Statement 131 did not affect results of operations or financial position. The Company operates in one business segment, the tractor-mounted mowing and vegetation maintenance equipment and replacement parts segment. The adoption of Statement 131 requires certain geographic disclosures which are included in Footnote 13. BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Alamo Group Inc. and its subsidiaries ("the Company"), all of which are wholly owned. Other investments are accounted for under the equity method or the cost method. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform with the 1998 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FOREIGN CURRENCY The Company translates the assets and liabilities of foreign-owned subsidiaries at rates in effect at the end of the year. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments are included in accumulated comprehensive income within the statement of stockholders' equity. The Company enters into foreign currency forward contracts to hedge its exposure on material foreign currency transactions. The Company does not hold or issue financial instruments for trading purposes. Changes in the market value of the foreign currency instruments are recognized in the financial statements upon settlement of the hedged transaction. At December 31, 1999, the Company had a foreign currency forward contract, maturing in January 2000, for $8,569,000. Foreign currency transaction gains or losses are included in Other income (expense), net. For 1999, 1998 and 1997, such transactions netted a loss of $906,000, gain of $99,000 and loss of $346,000, respectively. CASH EQUIVALENTS Cash equivalents are highly liquid investments with a maturity date no longer than 90 days. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The credit risk is limited because of the large numbers and types of customers and their geographic dispersion. F-7 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 INVENTORIES Inventories of U.S. operating subsidiaries are principally stated at the lower of cost (last-in, first-out method) ("LIFO") or market, and the Company's foreign subsidiaries' inventories are stated at the lower of cost (first-in, first-out) ("FIFO") or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated on the basis of cost. Major renewals and betterments are charged to the property accounts while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed currently. Depreciation is provided at amounts calculated to amortize the cost of the assets over their estimated useful economic lives using the straight-line method. GOODWILL Goodwill is related to purchase acquisitions and, with minor exceptions, is being amortized over fifteen years from respective acquisition dates. Goodwill is shown net of amortization of $5,343,000 and $5,036,000 for the years ended December 31, 1999 and 1998, respectively. The Company continually evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected, undiscounted net cash flows of the related business unit. LONG-TERM INVESTMENTS At December 31, 1999 and 1998, respectively, the Company had $1,500,000 and $1,000,000 invested in a Small Business Investment Company which is carried at cost in Other assets. The Company is committed to invest an additional $500,000. Due to inherent risk factors in such investments, the ultimate realization of these amounts, included in Other assets in the accompanying financial statements, is not determinable at this date. RELATED PARTY TRANSACTIONS Notes receivable from officers of the Company for $970,000 and $1,300,000 for the years ended December 31, 1999 and 1998, respectively, are included in Other assets. REVENUE RECOGNITION Product revenue is recognized when the product is shipped. Pre-season sales orders are solicited in the fall in advance of the dealer's sales season in the spring and summer. Pre-season sales orders are shipped beginning in the fall and continuing through the spring and represent an opportunity for the Company's factories to level their production/shipping volumes through the winter months. These pre-season shipments carry descending discounts in conjunction with delayed payment terms of up to six months from the dealer's requested delivery date. Revenue from sales is recorded net of a provision for discounts that are anticipated to be earned and deducted at time of payment by the customer. These approximated discounts represent an average of historical amounts taken and are adjusted as program terms are changed. The reserves for discounts are reviewed and adjusted quarterly. RESEARCH AND DEVELOPMENT Product development and engineering costs charged to Selling, general and administrative expense amounted to $1,722,000, $1,685,000 and $1,712,000 for the years ended December 31, 1999, 1998 and 1997, respectively. FEDERAL INCOME TAXES Deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using presently enacted tax rates and laws. F-8 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 STOCK-BASED COMPENSATION Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, and elected to continue to use the intrinsic value method in accounting for its stock option plans. Accordingly, no compensation cost has been recognized in the financial statements for these plans. The pro forma effects of fair value accounting for compensation costs related to options, on net income and earnings per share, would not be material. 2. EARNINGS PER SHARE The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net income per common share. Net income for basic and diluted calculations do not differ. (In thousands, except per share amounts).
1999 1998 1997 ------ ------ ------- Net income ............................................. $6,102 $4,115 $13,600 ====== ====== ======= Average common shares: BASIC (weighted-average outstanding shares) ........ 9,722 9,714 9,602 Dilutive potential common shares from stock options and warrants ........................... 4 16 72 ------ ------ ------- DILUTED (weighted-average outstanding shares) ...... 9,726 9,730 9,674 ====== ====== ======= Basic earnings per share ............................... $ 0.63 $ 0.42 $ 1.42 ====== ====== ======= Diluted earnings per share ............................. $ 0.63 $ 0.42 $ 1.41 ====== ====== =======
Stock options and warrants were 101,000 shares in 1999 and 48,000 shares in 1998 and they were not included in the diluted earnings per share calculation as they were antidilutive. 3. TERMINATION OF OPERATIONS OF SUBSIDIARY In December 1998, the Company announced its decisions to terminate the operations of the Company's Chinese tractor import and marketing business, Rhino International. This operation experienced a decline in sales and profitability related to business factors. Sales in 1999 were $1,223,000 million versus $2,197,000 million in 1998 and $7,828,000 million in 1997. Disposal of the assets of the Rhino International operation were substantially concluded in 1999, and resulted in an after-tax loss of $665,000. In 1998, the effect of Rhino International, including settlement of certain litigation, charges of $955,000 related to impairment of goodwill and other intangibles, $650,000 of various other costs involved in terminating operations, and reserves for inventory and accounts receivable losses expected in final collection and disposition, was an after-tax loss of $6,417,000 compared to an after-tax loss in 1997 of $853,000. These charges are included in net sales, cost of sales and selling, general and administrative expense as appropriate. F-9 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 4. VALUATION AND QUALIFYING ACCOUNTS Valuation and qualifying accounts included the following (in thousands):
BALANCE CHARGED TO TRANSLATIONS, NET WRITE-OFFS BALANCE BEGINNING OF NET COSTS AND RECLASSIFICATIONS OR DISCOUNTS END OF YEAR EXPENSES AND ACQUISITIONS TAKEN YEAR ----------- ------------- ----------------- --------------- -------- 1999 - ---- Allowance for doubtful accounts ............. $ 2,247 $ 133 $ (33) $ (1,116) $ 1,231 Reserve for sales discounts ................. 5,189 12,537 (1) (14,134) 3,591 Reserve for inventory obsolescence .......... 5,706 2,485 (100) (2,875) 5,216 1998 - ---- Allowance for doubtful accounts ............. $ 1,840 $ 1,099 $ 9 $ (701) $ 2,247 Reserve for sales discounts ................. 3,484 16,241 -- (14,536) 5,189 Reserve for inventory obsolescence .......... 3,779 2,363 13 (449) 5,706 1997 - ---- Allowance for doubtful accounts ............. $ 1,521 $ 675 $ (27) $ (329) $ 1,840 Reserve for sales discounts ................. 3,866 14,177 (2) (14,557) 3,484 Reserve for inventory obsolescence .......... 4,110 281 (113) (499) 3,779
5. INVENTORIES Inventories valued at LIFO cost represented 82% and 87% of total inventory for the years ended December 31, 1999 and 1998, respectively. The excess of current costs over LIFO-valued inventories was $3,925,000 and $3,981,000 at December 31, 1999 and December 31, 1998, respectively. Net inventories consist of the following (in thousands): DECEMBER 31, DECEMBER 31, 1999 1998 ----------- ----------- Finished wholegoods and parts ...... $39,310 $57,571 Work in process .................... 2,754 2,840 Raw materials ...................... 3,506 4,167 ------- ------- $45,570 $64,578 ======= ======= 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands): DECEMBER 31, DECEMBER 31, USEFUL 1999 1998 LIVES -------- -------- ---------- Land .......................... $ 1,904 $ 1,965 Buildings and improvements .... 18,917 19,484 15-25 yrs. Machinery and equipment ....... 25,471 25,485 5 yrs. Office furniture and equipment 4,414 5,602 5 yrs. Transportation equipment ...... 3,455 3,357 3-5 yrs. -------- ---------- 54,161 55,893 Accumulated depreciation ...... (32,343) (32,989) -------- ---------- $ 21,818 $ 22,904 ======== ========== F-10 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 Property, plant and equipment at December 31, 1999 and December 31, 1998 includes $6,272,000 and $6,513,000, respectively, for buildings held under capitalized leases. 7. ACCRUED LIABILITIES Accrued liabilities consist of the following balances (in thousands): DECEMBER 31, DECEMBER 31, 1999 1998 ----------- ----------- Salaries, wages and bonuses ........ $2,635 $3,227 Warranty ........................... 1,467 1,750 Other .............................. 3,818 2,019 ------ ------ $7,920 $6,996 ====== ====== 8. LONG-TERM DEBT The components of long-term debt at December 31 are as follows (in thousands): 1999 1998 ------- ------- Bank revolving credit facility ............... $ -- $29,600 Capital lease obligations .................... 5,812 6,514 Other notes payable .......................... 183 231 ------- ------- Total long-term debt ......................... 5,995 36,345 Less current maturities ...................... 526 487 ------- ------- $ 5,469 $35,858 ======= ======= As of December 31, 1999, the Company had a $45,000,000 contractually committed, unsecured, long-term bank revolving credit facility under which the Company can borrow and repay until December 31, 2002, with interest at various rate options based upon Prime or Eurodollar rates, with such rates either floating on a daily basis or fixed for periods up to 180 days. Proceeds may be used for general corporate purposes or, subject to some limitations, acquisitions. The loan agreement contains certain financial covenants, customary in credit facilities of this nature, including minimum financial ratio requirements and limitations on dividends, indebtedness, liens and investments. Due to the losses related to Rhino International discussed in Note 3, the Company was not initially in compliance with certain of the covenants at December 31, 1998. The bank amended the covenant requirements effective for the period ended December 31, 1998 and for future periods. After this amendment the Company was in compliance with all covenants as of December 31, 1998. The Company is in compliance with all convenants at December 31, 1999. At December 31, 1999, no amounts were outstanding on the revolving credit facility. At December 31, 1999, $1,233,000 of the revolver capacity was committed to irrevocable standby letters of credit issued in the ordinary course of business as required by certain vendor contracts. The aggregate maturities of long-term debt, as of December 31, 1999, are as follows: $526,000 in 2000, $537,000 in 2001, $582,000 in 2002, $636,000 in 2003 and $694,000 in 2004 and $3,020,000 thereafter. Long-term debt is stated at estimated fair value. F-11 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 9. INCOME TAXES U.S. and non-U.S. income before income taxes is as follows (in thousands): 1999 1998 1997 ------- ------- ------- Income before income taxes: Domestic ................ $ 5,262 $ 1,614 $14,210 Foreign ................. 4,434 4,921 6,385 ------- ------- ------- $ 9,696 $ 6,535 $20,595 ======= ======= ======= The provision for income taxes consists of (in thousands): 1999 1998 1997 ------- ------- ------- Current: Federal ................ $ 1,096 $ 3,289 $ 4,892 Foreign ................ 1,678 1,907 2,176 State .................. 122 (63) 419 ------- ------- ------- 2,896 5,133 7,487 Deferred: Federal ................ 742 (2,718) (492) Foreign ................ (44) 5 -- ------- ------- ------- 698 (2,713) (492) ------- ------- ------- Total income taxes $ 3,594 2,420 $ 6,995 ======= ======= ======= Reconciliation of the statutory U.S. federal rate to actual tax rate is as follows (in thousands): 1999 1998 1997 ------- ------- ------- Statutory U.S. federal tax (34% in 1999 and 1998 and 35% in 1997) .............. $ 3,297 $ 2,222 $ 7,208 Increase (reduction) from: Non-U.S. taxes ............ 126 240 (292) U.S. State taxes .......... 81 (42) 272 Other ..................... 90 -- (193) ------- ------- ------- Provision for income taxes .... $ 3,594 2,420 $ 6,995 ======= ======= ======= Actual tax rate ............... 37% 37% 34% At December 31, 1999, the Company had unremitted earnings of foreign subsidiaries of $20,274,000. These earnings, which reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or can be remitted without substantial additional tax. Accordingly, no provision has been made for taxes that might be payable upon remittance of such earnings nor is it practicable to determine the amount of this liability. F-12 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 The components of deferred tax assets and liabilities included in the balance sheets are as follows (in thousands): 1999 1998 ------ ------ Deferred tax asset: Inventory ........................... $1,770 $1,942 Accounts receivable ................. 1,531 2,127 Depreciation ........................ 1,069 1,151 Deferred compensation ............... 269 -- Net operating loss carryforwards .... 78 48 Insurance ........................... 365 322 Other current ....................... 593 948 Other non-current ................... 1,040 1,005 ------ ------ Total deferred asset ............... $6,715 $7,543 ====== ====== Deferred tax liability: Difference between book basis and tax basis of assets ............... $2,965 $3,232 Other ............................... 813 676 ------ ------ Total deferred liability ........... $3,778 $3,908 ====== ====== At December 31, 1999, net current deferred tax assets were $4,193,000 ($5,087,000 in 1998). Net non-current deferred tax liabilities were $1,256,000 ($1,452,000 in 1998). The net deferred tax asset for the Company decreased from $3,635,000 at December 31, 1998 to $2,937,000 at December 31, 1999. This is in part due to the utilization of Rhino International's current deferred tax asset. In 1998, this asset was increased as a result of a $4,907,000 write-down related to the shutdown of that subsidiary. The net deferred tax asset for Rhino International was $807,000 and $2,297,000 as of December 31, 1999 and December 31, 1998, respectively. 10. COMMON STOCK In conjunction with the issuance of debt in a prior year, the Company issued warrants to purchase 62,500 shares of common stock to the lender. The exercise price of $16 per share was subject to adjustment, and the warrants expired in January 2000 without being exercised. Subsequent to December 31, 1999, the Company declared and paid a dividend of $0.06 per share. 11. STOCK OPTIONS INCENTIVE OPTIONS On April 28, 1994, the stockholders approved the 1994 Incentive Stock Option Plan ("1994 ISO Plan") for key employees. Each option becomes vested and exercisable for up to 20% of the total optioned shares each year after grant. Under the terms of this plan, the exercise price of the shares subject to each option granted will not be less than the fair market value of the common stock at the date the option is granted. On August 31, 1999, the stockholders of the Company approved amending the 1994 ISO Plan. During the period ended December 31, 1999, options to purchase 101,000 shares have been granted. The amendment was filed on Schedule 14A, dated July 30, 1999. At December 31, 1999, the Company has reserved 385,525 shares of common stock for these options. F-13 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 Following is a summary of activity in the incentive stock option plans for the periods indicated: DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 -------- -------- -------- Options outstanding at beginning of year .............................. 51,200 83,385 123,373 Granted .......................... 101,000 -- -- Exercised ........................ (50) (30,885) (14,863) Cancelled ........................ (50,350) (1,300) (25,125) -------- -------- -------- Options outstanding at end of year .. 101,800 51,200 83,385 ======== ======== ======== Options exercisable at end of year .. 400 26,300 44,385 ======== ======== ======== Options available for grant at end of year ........................... 174,600 225,250 224,400 ======== ======== ======== PER SHARE OPTION PRICES, FOR OPTIONS OUTSTANDING AT DECEMBER 31, 1999, RANGED FROM $8.9375 TO $18.75. NONQUALIFIED OPTIONS On February 2, 1993, the Company granted nonqualified options for 200,000 shares of common stock to key employees of the Company at $11.50 per share. Each option becomes vested and exercisable for up to 20% of the total optioned shares after one year following the grant of the option and for an additional 20% of the total optioned shares after each succeeding year until the option is fully exercisable at the end of the fifth year. During 1999 and 1998, -0- and 20,000 shares were exercised, respectively, and 20,000 shares remain outstanding and exercisable until January 30, 2003. On July 7, 1999, the Company granted 200,000 shares of the Company's Common Stock from the 1999 Non-Qualified Stock Option Plan at the exercised price of $8.9375 per share being the closing price of the Company's Common Stock on the grant date. Each option becomes vested and exercisable for up to 20% of the total optioned shares after one year following the grant of the option and for an additional 20% of the total optioned shared after each succeeding year until the option is fully exercisable. Following is a summary of activity in the nonqualified option plans for the periods indicated: DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------- ------- ------- Options outstanding at beginning of year ............................. 20,000 40,000 200,000 Granted .......................... 200,000 -- -- Exercised ........................ -- 20,000 160,000 Cancelled ........................ -- -- -- ------- ------- ------- Options outstanding at end of year . 220,000 20,000 40,000 ======= ======= ======= Options exercisable at end of year . 20,000 20,000 40,000 ======= ======= ======= Options available for grant at end of year .......................... 200,000 -- -- ======= ======= ======= F-14 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 12. RETIREMENT BENEFIT PLANS The Company provides a defined contribution 401(k) retirement and savings plan for eligible U.S. employees. Company matching contributions are based on a percentage of employee contributions. Company contributions to the plan during 1999, 1998 and 1997 were $578,000, $620,000 and $399,000, respectively. Two of the Company's foreign subsidiaries also participate in a defined contribution and savings plan covering eligible employees. The Company's foreign subsidiaries contribute between 5.8% and 9.6% of the participant's salary up to a specific limit. Contributions were $282,000 in 1999, $428,000 in 1998 and $453,000 in 1997. 13. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION Following is selected financial information on the Company's foreign operations (located in Europe) (in thousands): DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ----------- ----------- ----------- Net sales ........................ $41,958 $41,027 $46,241 Income from operations ........... 5,312 5,060 7,053 Income before income taxes and allocated interest expense ..... 4,434 4,921 6,385 Identifiable assets .............. 42,009 42,117 39,744 Following is other selected geographic financial information on the Company's operations (in thousands): DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 -------- -------- -------- Geographic net sales: United States ................. $133,130 $156,809 $152,492 United Kingdom ................ 14,505 13,534 17,446 France ........................ 19,070 19,466 19,305 Other ......................... 9,903 10,744 13,849 -------- -------- -------- Total net sales .................. $176,608 $200,553 $203,092 ======== ======== ======== Geographic location of long lived assets: United States ................. $ 21,838 $ 23,697 $ 27,684 United Kingdom ................ 9,395 10,132 10,686 France ........................ 3,564 4,495 4,608 -------- -------- -------- Total long lived assets .......... $ 34,797 $ 38,324 $ 42,978 ======== ======== ======== Net sales are attributed to countries based on the location of customers. F-15 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 14. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement 130, REPORTING COMPREHENSIVE INCOME. The adoption of this Statement has no impact on the net income or stockholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported in stockholders' equity, to be included, along with net income, in Comprehensive income. Prior years' data have been conformed to the requirements of Statement 130. For 1999, 1998 and 1997 the Company's Comprehensive Income was $4,564,000, $4,699,000 and $11,949,000, respectively. The components of Accumulated Other Comprehensive Income are as follows (in thousands): 1999 1998 1997 ----- ----- ----- Foreign currency translation adjustments ........................ $(887) $ 651 $ 67 ----- ----- ----- Accumulated other comprehensive income ............................. $(887) $ 651 $ 67 ===== ===== ===== 15. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space and transportation equipment under various operating leases which generally are expected to be renewed or replaced by other leases. The Company has certain capitalized leases consisting principally of leases of buildings. At December 31, 1999, future minimum lease payments under these noncancelable leases and the present value of the net minimum lease payments for the capitalized leases are (in thousands): OPERATING CAPITALIZED LEASES LEASES --------- ----------- 2000 ........................................... $ 488 $ 936 2001 ........................................... 446 936 2002 ........................................... 171 936 2003 ........................................... 35 936 2004 ........................................... 27 936 Thereafter ..................................... 24 3,907 ------ ------ Total minimum lease payments ................... $1,191 8,587 ====== Less amount representing interest .............. 2,775 ------ Present value of net minimum lease payments .... 5,812 Less current portion ........................... 479 ------ Long-term portion .............................. $5,333 ====== Rental expense for operating leases was $1,351,000 for 1999, $1,404,000 for 1998 and $1,176,000 for 1997. F-16 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 OTHER The Company is subject to various unresolved legal actions which arise in the ordinary course of its business. The most prevalent of such actions relate to product liability which are generally covered by insurance. While amounts claimed may be substantial and the ultimate liability with respect to such litigation cannot be determined at this time, the Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's consolidated financial position. The Company was involved in a lawsuit between Rhino International and certain of its former dealers. This lawsuit involved claims against Rhino International totaling $3.8 million. In April 1998, a judgment was entered requiring the Company to pay $110,000, net of its recovery. The judgment is being appealed by both parties. While the ultimate outcome of this matter cannot be determined at this time, the Company believes this matter will not have a material adverse effect on the Company's consolidated financial position. In 1998, the Company settled (with prejudice) certain other litigation relating to the Company's acquisition of Rhino International. The cost to the Company of the settlement of this litigation is reflected in Selling, General and Administrative expense in 1998. The Company had an executive loan program pursuant to which the Company made loans to certain officers and employees of the Company to purchase stock of the Company. The loans are subject to approval by the Compensation Committee of the Board of Directors. All loans are secured by a pledge of the shares being purchased. The maximum aggregate amount which officers and employees may borrow is $400,000 and $200,000, respectively. Each loan bears interest at prime and is payable quarterly. Beginning March 2001, each employee must make annual principal payments equal to 10% of the amount loaned to the employee. As of December 31, 1999, and 1998, $317,000 and $585,000, respectively, were outstanding under the program and are included in additional paid-in capital. The executive loan program has expired. 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1999 and 1998 is presented below. Seasonal influences affect the Company's sales and profits with peak business occurring in May through August. (In thousands, except per share amounts):
1999 1998 -------------------------------------------- --------------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH -------- -------- -------- -------- --------- -------- -------- -------- Sales ............................. $ 42,168 $ 51,095 $ 43,936 $ 39,409 $ 48,727 $ 60,392 $ 51,024 $ 40,410 Gross profit ...................... 10,078 13,345 8,268 9,212 11,348 16,200 13,631 2,479 Net income (loss) ................. 1,620 3,608 131 743 1,926 4,472 2,061 (4,344) Earnings per share Diluted ....................... $ .17 $ .37 $ .01 $ .08 $ .20 $ .46 $ .21 $ (.45) Average shares Diluted ....................... 9,736 9,736 9,728 9,705 9,715 9,720 9,747 9,736 Dividends per share ............... $ .11 $ .11 $ .06 $ .06 $ .10 $ .11 $ .11 $ .11 Market price of common stock High .......................... $ 12-5/8 $ 10-1/4 $ 10-1/8 $ 10-1/4 $21-13/16 $ 19 $ 19-3/4 $15-7/16 Low ........................... $ 7-7/8 $ 6-7/8 $ 8-1/2 $ 8-1/4 $ 15-3/8 $ 14-1/2 $ 13-1/2 $ 10-5/8
Financial data for the 1998 third and fourth quarters is impacted by the settlement of certain litigation and termination of operations of Rhino International, as described in Footnote 3. F-17 ALAMO GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997 17. SUBSEQUENT EVENTS On February 29, 2000 the Company acquired 100% of the issued and outstanding shares of Schwarze Industries, Inc., a privately owned manufacturer of sweeping equipment which sells to governmental and contract customers. The purchase price was approximately $15,000,000 paid in cash and drawn on the revolving credit facility and will be treated as a purchase for accounting purposes. Schwarze Industries in headquartered in Huntsville, Alabama and employs approximately 165 people. Schwarze Industries occupies approximately 40,000 square feet which is owned and approximately 100,000 square feet which is leased. The Company has agreed in principle to purchase the manufacturing facility and adjacent land located at the Company's Bomford location. The purchase price is approximately $5,300,000 and the transaction is expected to be complete by mid 2000. Currently, the Bomford facility is accounted for in the capital lease section in Footnote 15. F-18 EX-21.1 2 EXHIBIT 21.1 SUBSIDIARIES OF ALAMO GROUP INC. NAME JURISDICTION OF INCORPORATION Alamo Group (USA) Inc.(1) Delaware Alamo Group (EUR) Limited(1) United Kingdom Alamo Capital Inc.(1) Nevada Alamo Group International, Inc.(1) U. S. Virgin Islands Herschel-Adams Inc.(1) Nevada Alamo Financial Inc.(2) Delaware Alamo Group (IL) Inc.(2) Illinois Alamo Group (KS) Inc.(2) Kansas Alamo Group (TX) Inc.(2) Nevada Alamo Group (WA) Inc.(2) Delaware Alamo Sales Corp.(2) Delaware Alamo Group Trucking, Inc.(2) Delaware M&W Gear Company(2) Delaware Tiger Corporation(2) Nevada Electronics Parts Counter Inc.(2) Nevada Adams Hard-Facing Company, Inc.(3) Oklahoma Alamo Group (IA) Inc.(3) Nevada Herschel (PA) Inc.(3) Nevada Adams Sales Corp.(4) Nevada Alamo Group (FR) S.A.(5) France Bomford Turner(5) United Kingdom McConnel Limited(5) United Kingdom NJM Dabekausen Beheer B.V.(6) Netherlands Agri-Projects International Limited(6) United Kingdom Bomford & Evershed Limited(6) United Kingdom Bomford Bros. Limited(6) United Kingdom Turner International (Engineering) Limited(6) United Kingdom Signalisation Moderne Autoroutiere S. A.(7) France Betrac S. A.(7) France S.C.I. Industrielle La Saussaie(7) France Forges Gorce(7) France - ------------------------- (1) 100% owned by Alamo Group Inc. (2) 100% owned by Alamo Group (USA) Inc. (3) 100% owned by Herschel-Adams Inc. (4) 100% owned by Adams Hard-Facing Company, Inc. (5) 100% owned by Alamo Group (EUR) Limited (6) 100% owned by Bomford Turner Limited (7) 100% owned by Alamo Group (FR) S.A. EX-23.1 3 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No 33-92986) pertaining to the Alamo Group, Inc. 1994 Incentive Stock Option Plan of our report dated March 1, 2000, with respect to the consolidated financial statements of Alamo Group, Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1999. ERNST & YOUNG LLP San Antonio, Texas March 24, 2000 EX-27.1 4
5 1,000 YEAR DEC-31-1999 DEC-31-1999 5,359 0 41,764 0 45,570 97,894 54,161 32,343 132,795 18,040 0 0 0 974 107,056 132,795 176,608 176,608 135,705 135,705 30,123 0 1,495 9,696 3,594 6,102 0 0 0 6,102 .63 .63
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