UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 0-21220 ALAMO GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 74-1621248 (State of incorporation) (I.R.S. Employer Identification Number) 1502 E. Walnut, Seguin, Texas 78155 (Address of principal executive offices) (830) 379-1480 (Telephone number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was requiredto file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ___ At July 31, 1997, 9,604,714 shares of common stock, $.10 par value, of the Registrant were outstanding. Alamo Group Inc. and Subsidiaries INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Interim Condensed Consolidated Statements of Income - Three months and Six months ended June 30, 1997 and June 29, 1996 3 Interim Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 4 Interim Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and June 29, 1996 5 Notes to Interim Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. None Item 3. None Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. None Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 2 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Income (in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 29, June 30, June 29, 1997 1996 1997 1996 -------- -------- -------- -------- Net Sales $58,433 $50,727 $110,076 $95,773 Cost of Sales 41,864 36,288 80,771 71,117 ------- ------- -------- ------- Gross Profit 16,569 14,439 29,305 24,656 Selling,General & Admin- istrative expense 7,925 7,195 15,066 13,557 ------- ------- -------- ------- Income from operations 8,644 7,244 14,239 11,099 Interest expense (654) (791) (1,185) (1,405) Interest Income 91 213 222 312 Other income (net) (61) 168 (55) 461 ------- ------- -------- ------- Income before income taxes 8,020 6,834 13,221 10,467 Provision for income taxes 2,830 2,600 4,753 3,907 ------- ------- -------- ------- Net income $ 5,190 $ 4,234 $ 8,468 $ 6,650 ======= ======= ======== ======= Net income per share $ .54 $ .44 $ .88 $ .68 ======= ======= ======== ======= Weighted average common shares and equivalents 9,677 9,699 9,673 9,680 See accompanying notes 3 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Balance Sheets (in thousands, except share amounts) (Unaudited) June 30, 1997 December 31, 1996 ------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 3,966 $ 2,228 Accounts receivable 58,527 43,925 Inventories 59,797 60,171 Deferred income taxes 2,206 2,206 Preferred expenses and other 2,302 1,327 -------- -------- Total current assets 126,798 109,857 Property, plant and equipment 50,213 48,932 Less: Accumulated depreciation (27,751) (26,546) -------- -------- 22,462 22,386 Goodwill 13,214 14,237 Other assets 7,633 7,382 -------- -------- Total assets $ 170,107 $ 153,862 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Trade accounts payable $ 17,713 $ 11,066 Income taxes payable 2,646 930 Accrued liabilities 7,998 6,725 -------- -------- Total current liabilites 29,174 19,752 Long-term debt,net of current maturities 36,794 35,299 Deferred income taxes 1,580 1,561 Stockholders' equity: Common stock, $.10 par value, 20,000,000 shares authorized; 9,604,714 and 9,589,851 issued and outstanding at June 30,1997 and December 31, 1996, respectively 960 959 Additional paid-in capital 49,751 49,592 Retained Earnings 51,621 45,071 Translation adjustment 227 1,628 -------- -------- Total stockholders' equity 102,559 97,250 -------- -------- Total liabilities and stockholders' equity $ 170,107 $ 153,862 ======== ======== See accompanying notes. 4 Alamo Group Inc. and Subsidiaries Interim Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Six Months Ended June 30, 1997 June 29, 1996 ------------- ------------- Operating Activities Net income $ 8,468 $ 6,560 Adjustment to reconcile net income to net cash provided (used) by operating activities: Provision for doubtful accounts 391 151 Depreciation 1,857 1,625 Amortization 704 600 Realized gain on marketable securities - (370) Gain on sale of equipment (151) (98) Changes in operating assets and liabilities: Accounts receivable (15,607) (5,597) Inventories (259) (4,458) Prepaid expenses and other assets (1,435) (3,038) Trade accounts payable and accrued liabilities 8,473 3,312 Income taxes payable 1,752 2,922 --------- --------- Net cash provided by operating activities 4,204 1,556 Investing Activites Purchase of property, plant and equipment (2,496) (1,326) Proceeds from sale of property, plant and equipment 184 134 Proceeds from sale of marketable securities - 445 --------- --------- Net cash (used) by investing activities (2,312) (747) Financing Activities Net change in bank revolving credit facility 2,000 4,000 Principal payments on long-term debt and capital leases (284) (940) Dividends paid (1,918) (1,916) Proceeds from sale of common stock 201 223 --------- --------- (1) 1,367 Effect of exchange rate changes on cash (153) (8) --------- --------- Net change in cash and cash equivalents 1,738 2,168 Cash and cash equivalents at beginning of the period 2,228 1,839 --------- --------- Cash and cash equivalents at end of the period $ 3,966 $ 4,007 ========= ========= Cash paid during the period for: Interest $ 752 $ 1,125 Income taxes 2,604 2,375 See Accompanying notes 5 Alamo Group Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements (Unaudited) June 30, 1997 1. Basis of Financial Statement Presentation The accompanying unaudited interim condensed consolidated financial state- ments have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. 2 Accounts Receivable Accounts Receivable is shown less allowance for doubtful accounts of $1,594,000 and $1,521,000 at June 30, 1997 and December 31, 1996, respectively. 3. Inventories Inventories valued at LIFO cost represented 80% of total inventory at each of June 30, 1997 and December 31, 1996. The excess of current costs over LIFO valued inventories was $3,221,000 at each of June 30, 1997 and December 31, 1996. Inventory obsolescence reserves were $4,323,000 at June 30, 1997 and $4,110,000 at December 31, 1996. Net inventories consist of the following (in thousands): June 30, 1997 December 31, 1996 ------------- ----------------- Finished goods $ 51,609 $ 53,748 Work in process 3,788 2,858 Raw materials 4,400 3,565 -------- -------- $ 59,797 $ 60,171 ======== ======== An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. 6 Alamo Group Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements - (Unaudited) June 30, 1997 - (Continued) 4. Common Stock and Dividends Dividends declared and paid on a per share basis were as follows: Three Months Ended Six Months Ended June 30, 1997 June 29, 1996 June 30, 1997 June 29, 1996 Dividends declared $ 0.10 $ 0.10 $ 0.20 $ 0.20 Dividends paid $ 0.10 $ 0.10 $ 0.20 $ 0.20 5. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. The impact of Statement 128 on the calculation of the Company's earnings per share for these quarters is not expected to be material. 6. Contingent Matters The Company is subject to various unresolved legal actions which arise in the ordinary course of its business. The most prevalent of such actions relate to product liability which are generally covered by insurance. While amounts claimed may be substantial and the ultimate liability with respect to such litigation cannot be determined at this time, the Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's consolidated financial position. The Company has been named in a suit by the former owner of Rhino Inter- national which includes aggregate claims totaling $8 million. The Company believes it has meritorious defenses against these matters and will vigorously defend the pending claims and prosecute appropriate counterclaims. While the ultimate outcome of this litigation cannot be determined at this time, the Company believes this matter will not have a material effect on the Company's consolidated financial position. 7 Alamo Group Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The following tables set forth, for the periods indicated, certain financial data: Sales in Thousands Three Months Ended Six Months Ended June 30, 1997 June 29, 1997 June 30, 1997 June 29,1996 ------------- ------------- ------------- ------------ American Agricultural $ 27,612 $ 21,751 $ 54,228 $ 44,368 Industrial 16,726 16,311 29,384 27,532 European 14,095 12,665 26,464 23,873 -------- -------- -------- -------- Total sales,net $ 58,433 $ 50,727 $110,076 $ 95,773 ======== ======== ======== ======== Three Months Ended Six Months Ended June 30,1997 June 29, 1996 June 30, 1997 June 29, 1996 ------------ ------------- ------------- ------------- Cost Trends and Profit Margin, as Percentage of Net Sales Gross margin 28.4 % 28.5 % 26.6 % 25.7 % Income from opera 14.8 % 14.3 % 12.9 % 11.6 % Income before income taxes 13.7 % 13.5 % 12.0 % 10.9 % Net income 8.9 % 8.3 % 7.7 % 6.8 % Results of Operations Three Months Ended June 30, 1997 Compared to Three Months Ended June 29, 1996 Net sales increased $7,706,000, up 15.2% over 1996's second quarter. Second quarter results benefited from the return of more normalized domestic weather and operating conditions. Accordingly, Alamo's American agricultural and industrial markets achieved results more in-line with the Company's traditional levels of profitability as both its wholegoods and replacement parts sales increased. Sales in Alamo's European operations increased 11.3%. The period's results were also favorably impacted by the continued integra- tion of the Company's 1995 acquisitions. Expense increases were in line with Company growth. Six Months Ended June 30, 1997 Compared to Six Months Ended June 29, 1996 Net Sales increased $ 14,303,000, up 14.9%. Six-months results, like the second quarter, were benefited throughout the period by a return to more normalized domestic weather conditions and improved performance, particularly from the 1995 acquisitions. Order rates improved in the current six-month period, up 20% over 1996, but some softening in European markets was noted late in the second quarter which resulted, in part, from currency related issues. Liquidity and Capital Resources Cash provided by operations was $4,204,000 for the six-month period ended June 30, 1997, with net income cash flows for the period partially offset by a net increase in working capital accounts related primarily to sales growth and seasonal effects. 8 Alamo Group Inc. and Subsidiaries Management Discussion and Analysis of Financial Condition and Results of Operations - (Continued) As of June 30, 1997, $32,554,000 was utilized under the Company's bank revolving credit facility, of which $3,054,000 was for standby letters of credit and $29,500,000 was borrowed. On June 23, 1997 the credit facility was increased to $45,000,000. The Company's borrowings are seasonal in nature with the greatest utilization generally occurring in the first quarter and early spring. During the second quarter of 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 1,000,000 shares of its common stock. Any such purchases will be funded through working capital or borrowing under the credit facility. 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 on the near future. - ------------------------------------------------------------------------------ This report may be deemed to contain forward-looking statements which involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following: market demand, competition, weather, and other risk factors listed from time to time in the Company's SEC reports. 9 Alamo Group Inc. and Subsidiaries PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to various unresolved legal actions which arise in the ordinary course of its business. The most prevalent of such actions relate to product liability which are generally covered by insurance. While amounts claimed 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. Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on April 29, 1997, with the following results of elections and approvals Votes Cast ----------------------------------------------- Against/ Abstentions/ For Withheld Non-Votes a. The following Directors were elected to serve until the next Annual Meeting of Stockholders. Donald J. Douglass 9,329,236 15,738 N/A Oran F. Logan 9,329,474 15,500 N/A Joseph C. Graf 9,320,374 24,600 N/A O.S. Simpson, Jr. 9,329,574 15,400 N/A William R. Thomas 9,322,374 22,600 N/A David Morris 9,328,974 16,000 N/A James B. Skaggs 9,328,974 16,000 N/A b. Ernst & Young was approved as the Company's auditors for the 1997 fiscal year. 9,328,403 100 16,471 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are included herein: (10.1) Third Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement dated June 23, 1997 (11.1) Statement Re: Computation of Per Share Earnings (27.1) Financial Data Schedule (b) Reports on Form 8-K None 10 Alamo Group Inc. and Subsidiaries SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Alamo Group Inc. (Registrant) / Jim A. Smith / -------------------------------- Jim A. Smith Executive Vice President and CFO (Principal Accounting and Financial Officer) 11 Exhibit 10.1 THIRD AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (WITH LETTER OF CREDIT FACILITY) This Third Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (With Letter of Credit Facility) (this "Third Amendment") ie entered into effective the 23rd day of June, 1997, by and between ALAMO GROUP INC., a Delaware corporation (the "Company"), Alamo Group (USA) Inc., Alamo Group (TX) Inc., Alamo Group (KS) Inc., Alamo Group (IL) Inc., Alamo Sales Corp., Tiger Corporation f/k/a Alamo Group (SD) Inc., Alamo Group (WA) Inc., M&W Gear Company, Adams Hard-Facing Company, Inc., Herschel-Adams Inc., Alamo Group(IA) Inc.(collectively, the "Guarantors") and NATIONSBANK OF TEXAS,N.A. (the "Bank") R E C I T A L S A. Company and Bank executed a Third Amended and Restated Revolving Credit and Term Loan Agreement (With Letter of Credit Facility), dated December 29, 1995 (the "Third Amended Loan Agreement"), pursuant to which Bank provided to Company a $35,000,000 loan facility to be used for general working capital purposes, financing new acquisitions, and to support letter of credit; B. Among the credit support for this facility are the Guaranty Agreements , dated December 29, 1995 (collectively, the "Guaranties"), executed by Alamo Group (USA) Inc., Alamo Group (TX) Inc., Alamo Group (KS) Inc., Alamo Group (IL) Inc., Alamo Sales Corp., Tiger Corporation f/k/a Alamo Group (SD) Inc., Alamo Group (WA) Inc., M&W Gear Company, Adams Hard-Facing Company Inc., Herschel-Adams Inc., Alamo Group (IA) Inc. (collectively, the "Guarantors"); C. Effective April 10, 1996, Company and Bank executed First Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (With Letter of Credit Facility) (the "First Amendment"), pursuant to which Bank increased the amount available under this facility to $40,000,000.00, on the terms and conditions stated in the First Amendment. D. Effective December 23, 1996, Company and Bank executed Second Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (With Letter of Credit Facility) (the "Second Amendment"), pursuant to which Bank agreed to (i) give a one-year extension of the maturity of the term and revolving loans evidenced by this facility; (ii) reduce the interest rate margin on certain LIBOR-priced borrowings under the facility; and (iii) adjust the threshold for application of an unused facility fee and the timing of payment thereof. E. Company has requested, and Bank has agreed to (i) increase the loan and note amounts to $45,000,000.00; (ii) reduce the interest rate margin on certain LIBOR-priced borrowings under the facility; (iii) delete the requirement for a separate Consolidated Tangible Net Worth Retention Percentage of 60% on Tier 1 pricing; (iv) establish the minimum Consolidated Tangible Net Worth amount for calendar year 1996 at $80,000,000.00 less adjustments for certain Treasury stock additions; and (v) consent to stock repurchases of up to $17,000,000. F. Although not required to do so for the Guaranties to continue to be fully effective, the Guarantors confirm by their execution of this Third Amendment that they acknowledge the amendments affected hereby and that their Guaranties are unaffected. G. Each capitalized term used in this Third Amendment shall have the meaning given to it in the Third Amended Loan Agreement, as previously amended by the First and Second Amendments. NOW, THEREFORE, in consideration of the mutual promises herein contained and for other valuable consideration, Company and Bank agree as follows; A G R E E M E N T 1. Recitals. The foregoing recitals are true and correct. 2. Amendments. The following provisions of the Third Amended Loan Agreement are hereby amended. (a) The definitions of Commitment and Revolving Credit Commitment contained in Section 1.01 of the Third Amended Loan Agreement are amended and restated to change from $40,000.000.00 to $45,000,000.00, and any references in the Third Amended Loan Agreement to $40,000,000.00 or to the total or revolving commitment amounts are likewise deemed to now mean $45,000.000.00. (b) Section 2.04 (d)(i) is amended and restated to read as follows: (1) if, on any date of determination, all of the following are met: the Current Maturity Coverage Ratio is equal to or greater than 2.75 to 1.0, the Leverage Ratio is equal to or less than 1.25 to 1.0, the Operating Leverage Ratio is equal to or less than 1.75 to 1.0, then the Applicable Margin during the fiscal quarter following the date of determination, expressed as a rate per annum, shall be (-1%) for Floating Base Advances, and 5/8 of 1% for Eurodollar Advances; and if not, then . . The foregoing change reflects that the Applicable Margin for Eurodollar Advances is reduced by 12.5 basis points (.125%) for the pricing tier specified in Section 2.04(d)(i) and the phrase "Consolidated Net Worth Retention Percentage" is at least 60% is deleted. The same adjustments shall be considered to have been made to the Pricing Grid attached to the Third Amended Loan Agreement as Exhibit "K." (c) Section 8.15 is hereby amended and restated to read in its entirety as follows: 8.15. Minimum Consolidated Tangible Net Worth and Minimum Consolidated Tangible Net Worth Retention Percentage. Beginning with the calendar year ending December 31, 1996, the Company shall maintain, at all times that any part of the Obligation is outstanding or the Revolving Credit Commitment is still available, a minimum Consolidated Tangible Net Worth of $80,000,000.00, less the amount expended by the Company after calendar year 1996 to repurchase outstanding stock of the Company, plus for each Fiscal Year after calendar year 1996, an amount equal to fifty percent (50%) of the Consolidated Adjusted Net Income of the Company for the immediately preceding Fiscal Year. Upon each such increase of the minimum Consolidated Tangible Net Worth, the Company shall at all times thereafter maintain such increased minimum Consolidated Tangible Net Worth. (d) Section 9.04 is hereby amended and restated to read in its entirety as follows: 9.04. Repurchase of Shares. The Company shall make no expenditures for repurchases of its capital stock in an amount in excess of $17,000,000.00, in the aggregate, during the term hereof after the execution of this Agreement. The foregoing $17,000,000.00 aggregate limitation on repurchases of the Company's capital stock shall be calculated based on the aggregate dollar value of capital stock repurchases made by the Company. 3. Guaranties. The Guarantors hereby confirm that the Guaranties cover the entire amount of the Loan, as increased to $45,000,000.00, are in full force and effect and are in no way diminished or adversely affected by this Third Amendment. 4. No Other Amendments. All other provisions of the Third Amended Loan Agreement, as previously amended by the First Amendment and Second Amendment, that are not specifically modified or amended by this Third Amendment shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have executed this Third Amendment as of the day and year first above written. COMPANY: BANK: ALAMO GROUP INC. NATIONSBANK OF TEXAS, N.A. By: By: Robert H. George D. Kirk McDonald Vice President Senior Vice President GUARANTORS: ALAMO GROUP (USA) INC. TIGER CORPORATION By: By: Robert H. George Robert H. George Vice President - Administration Vice President - Administration ALAMO GROUP (TX) INC. ALAMO GROUP (WA) INC. By: By: Robert H. George Robert H. George Vice President - Administration Vice President - Administration ALAMO GROUP (KS) INC. M&W GEAR COMPANY By: By: Robert H. George Robert H. George Vice President - Administration Vice President - Administration ALAMO GROUP (IL) INC. ADAMS HARD-FACING COMPANY, INC. By: By: Robert H. George Robert H. George Vice President - Administration Vice President - Administration ALAMO SALES CORP. HERSCHEL-ADAMS INC. By: By: Robert H. George Robert H. George Vice President - Administration Vice President - Administration ALAMO GROUP (IA) INC. By: Robert H. George Vice President - Administration Alamo Group Inc. and Subsidiaries Exhibit (11.1) - Statement Re: Computation of Per Share Earnings Three Months Ended Six Months Ended June 30, 1997 June 29, 1996 June 30, 1997 June 29, 1996 ------------- ------------- ------------- ------------- (000's omitted, except per share data) Primary Average shares outstanding 9,595 9,590 9,590 9,577 Net effect of dilutive stock options and war- rants --based on the treasury stock method using average market price 82 109 83 103 ----- ------ ----- ----- Total 9,677 9,699 9,673 9,680 ===== ===== ===== ===== Net Income $ 5,190 $ 4,234 $ 8,468 $ 6,560 ===== ===== ===== ===== Per share amount $ 0.54 $ 0.44 $ 0.88 $ 0.68 ===== ===== ===== ===== Fully Diluted Average shares outstanding 9,595 9,590 9,577 Net effect of dilutive stock options and war- rants --based on the treasury stock method using the year- end market price, if higher than average market price 132 136 112 ----- ----- ----- Total 9,727 9,726 9,689 ----- ----- ----- Net Income $ 5,190 $ 8,468 $ 6,560 ===== ===== ===== Per share amount $ 0.53 (1) $ 0.87 $ 0.68 ===== ===== ===== ===== (1) Not applicable as price at end of the period was lower than the average for the period.