Alamo (ALG) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents interim condensed consolidated financial statements and management's analysis of financial condition and results Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) This section presents unaudited interim condensed consolidated financial statements, covering key financial reports and detailed notes on accounting policies and business combinations Interim Condensed Consolidated Balance Sheets This section presents the company's financial position at specific points in time, detailing assets, liabilities, and equity | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Total Assets | $852,253 | $721,633 | +18.1% | | Total Current Assets | $531,987 | $452,843 | +17.5% | | Total Liabilities | $330,765 | $214,262 | +54.4% | | Total Current Liabilities | $114,894 | $100,852 | +13.9% | | Total Stockholders' Equity | $521,484 | $507,371 | +2.8% | Interim Condensed Consolidated Statements of Income This section details the company's financial performance over specific periods, including net sales, gross profit, and net income | Metric (in thousands, except per share) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Total Net Sales | $261,934 | $238,087 | +10.0% | | Cost of Sales | $198,626 | $177,830 | +11.7% | | Gross Profit | $63,308 | $60,257 | +5.1% | | Selling, General and Administrative Expenses | $40,702 | $38,896 | +4.6% | | Income from Operations | $22,606 | $21,361 | +5.8% | | Net Income | $15,253 | $14,583 | +4.6% | | Basic EPS | $1.30 | $1.26 | +3.2% | | Diluted EPS | $1.30 | $1.24 | +4.8% | | Dividends Declared per Share | $0.12 | $0.11 | +9.1% | Interim Condensed Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income components | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Income | $15,253 | $14,583 | +4.6% | | Other Comprehensive Income | $890 | $3,243 | -72.6% | | Comprehensive Income | $16,143 | $17,826 | -9.4% | - Foreign currency translation adjustments significantly decreased from $3,117,000 in Q1 2018 to $720,000 in Q1 2019, contributing to the decline in other comprehensive income[9] Interim Condensed Consolidated Statement of Stockholders' Equity This section details changes in stockholders' equity, including retained earnings and treasury stock, over the reporting period | Metric (in thousands) | Balance at March 31, 2019 | Balance at December 31, 2018 | Change | | :-------------------- | :------------------------ | :--------------------------- | :----- | | Total Stockholders' Equity | $521,484 | $507,371 | +2.8% | | Retained Earnings | $456,889 | $443,040 | +3.1% | | Treasury Stock | $(1,916) | $(426) | -349.8%| - The company repurchased common stock totaling $1,490,000 during the three months ended March 31, 2019[11] Interim Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Cash Used in Operating Activities | $(32,361) | $(28,146) | -14.9% | | Net Cash Used in Investing Activities | $(55,289) | $(7,548) | -632.5%| | Net Cash Provided by Financing Activities | $92,306 | $85,990 | +7.3% | | Net Change in Cash and Cash Equivalents | $4,980 | $50,477 | -90.1% | | Cash and Cash Equivalents at End of Period | $39,023 | $75,850 | -48.5% | - Investing activities saw a significant increase in cash outflow primarily due to acquisitions, net of cash acquired, totaling $50,477,000 in Q1 2019[14] Notes to Interim Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the interim condensed consolidated financial statements, covering accounting policies, business combinations, and various financial details 1. Basis of Financial Statement Presentation This section outlines the basis for preparing financial statements, including adherence to U.S. GAAP and adoption of new accounting standards - Financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions[15] - Adopted ASU No. 2016-02, "Leases (Topic 842)" on January 1, 2019, recognizing right-of-use assets of $7,747,000 and corresponding lease liabilities of $7,868,000; the adoption had no impact on results of operations or liquidity[16][17] - Adopted ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which did not have a material impact[18] 2. Accounting Policies This section details significant accounting policies applied, particularly the new lease accounting standard (ASC Topic 842) and practical expedients - New lease accounting policy (ASC Topic 842) effective January 1, 2019, requires recognition of ROU assets and lease liabilities for operating leases, measured at the present value of lease payments using the incremental borrowing rate[22] - Elected practical expedients to not separate lease and non-lease components for most asset classes (except real estate) and to exclude leases with initial terms of 12 months or less[23] 3. Business Combinations This section describes the acquisition of Dutch Power Company B.V. and its impact on consolidated financial statements - On March 4, 2019, the Company acquired 100% of Dutch Power Company B.V. for approximately $53 million to enhance product portfolio and capabilities in the European market[25] - Operating results of Dutch Power are included in consolidated financial statements since acquisition, with estimated values still subject to finalization[26] 4. Accounts Receivable This section details accounts receivable balances and reserves for sales discounts, highlighting changes and their causes | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Reserves for Sales Discounts | $20,741 | $18,123 | +14.5% | - Increase in sales discounts primarily due to additional discounts reserved related to increased sales of agricultural products in Q1 2019[27] 5. Inventories This section provides a breakdown of inventory components and their valuation methods, noting changes over the period | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Inventories, net | $211,355 | $176,630 | +19.7% | | Finished goods | $178,413 | $149,298 | +19.5% | | Work in process | $17,675 | $12,732 | +38.8% | | Raw materials | $15,267 | $14,600 | +4.6% | - Inventories valued at LIFO cost represented 54% of total inventory at March 31, 2019, down from 60% at December 31, 2018[28] 6. Rental Equipment This section details the net value of rental equipment and associated depreciation expense over the reporting periods | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Rental equipment, net | $49,342 | $43,978 | +12.2% | | Accumulated depreciation | $12,463 | $11,145 | +11.8% | | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Depreciation expense | $2,088 | $1,405 | +48.6% | 7. Fair Value Measurements This section discusses the fair value of financial instruments, noting that carrying values approximate fair values for short-term instruments and debt - Carrying values of short-term financial instruments (cash, receivables, payables, accrued expenses) approximate their fair value[31] - Carrying value of debt approximates fair value due to floating rates, based on Level 2 inputs[31] 8. Goodwill and Definite and Indefinite-lived Intangible Assets This section details changes in goodwill and intangible assets, including increases from acquisitions and specific asset categories | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Consolidated Goodwill | $88,821 | $83,243 | +6.7% | | Total Intangible Assets | $63,568 | $48,857 | +30.1% | - Goodwill increased primarily due to $5,651,000 acquired in the European segment, likely from the Dutch Power acquisition[32] - Intangible assets increased significantly, with definite-lived trade names and trademarks rising from $23,938,000 to $32,940,000 and patents and drawings from $2,061,000 to $6,562,000[33] 9. Debt This section outlines the company's debt structure, primarily focusing on the bank revolving credit facility and available borrowings | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Total Debt | $180,368 | $85,298 | +111.4%| | Bank revolving credit facility | $180,000 | $85,000 | +111.8%| - Available borrowings under the revolving credit facility were $66,812,000 as of March 31, 2019, with $3,188,000 committed to standby letters of credit[36] 10. Common Stock and Dividends This section reports on common stock and dividends declared and paid, including the per-share amounts for the reporting periods | Metric (per share) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :----------------- | :-------------------------------- | :-------------------------------- | :----- | | Dividends declared | $0.12 | $0.11 | +9.1% | | Dividends paid | $0.12 | $0.11 | +9.1% | - A quarterly cash dividend of $0.12 per share was declared on April 2, 2019, and paid on April 29, 2019[37] 11. Earnings Per Share This section provides detailed calculations for basic and diluted earnings per share, including net income and weighted-average shares | Metric (in thousands, except per share) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Income | $15,253 | $14,583 | +4.6% | | Basic EPS | $1.30 | $1.26 | +3.2% | | Diluted EPS | $1.30 | $1.24 | +4.8% | | Basic (weighted-average outstanding shares) | 11,698 | 11,606 | +0.8% | | Diluted (weighted-average outstanding shares) | 11,777 | 11,739 | +0.3% | 12. Revenue and Segment Information This section breaks down net sales by revenue type and operating segment, also providing geographical sales distribution | Revenue Type (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Wholegoods | $207,771 | $187,929 | +10.6% | | Parts | $48,255 | $46,433 | +3.9% | | Other | $5,908 | $3,725 | +58.6% | | Consolidated Net Sales | $261,934 | $238,087 | +10.0% | | Segment (in thousands) | Net Sales (2019) | Net Sales (2018) | Change (Sales) | Income from Operations (2019) | Income from Operations (2018) | Change (Income) | | :--------------------- | :--------------- | :--------------- | :------------- | :---------------------------- | :---------------------------- | :-------------- | | Industrial | $158,425 | $132,167 | +19.9% | $16,472 | $11,800 | +39.6% | | Agricultural | $53,173 | $58,647 | -9.3% | $2,172 | $5,253 | -58.6% | | European | $50,336 | $47,273 | +6.5% | $3,962 | $4,308 | -8.0% | | Consolidated | $261,934 | $238,087 | +10.0% | $22,606 | $21,361 | +5.8% | - United States accounted for the largest share of net sales at $185,313,000 in Q1 2019, an increase of 12.2% YoY[40] 13. Contingent Matters This section addresses potential liabilities from legal actions, product liability, and environmental regulations, and management's assessment - The Company is subject to various legal actions, primarily product liability, generally covered by insurance; management believes the ultimate outcome will not materially adversely affect financial position or results[44] - The Company is subject to environmental and workplace safety laws and regulations, with inherent risks of noncompliance and potential material costs[45] 14. Leases This section details lease costs by component and lease liabilities, including weighted-average remaining lease terms and discount rates | Lease Cost Component (in thousands) | Three Months Ended March 31, 2019 | | :---------------------------------- | :-------------------------------- | | Finance lease cost (Amortization) | $31 | | Finance lease cost (Interest) | $2 | | Operating lease cost | $1,024 | | Short-term lease cost | $52 | | Variable lease cost | $105 | | Total lease cost | $1,214 | | Lease Liabilities (in thousands) | March 31, 2019 | December 31, 2018 | | :------------------------------- | :------------- | :---------------- | | Total operating lease liabilities | $7,886 | $8,312 | | Total finance lease liabilities | $368 | $298 | - Weighted average remaining lease term for operating leases is 2.86 years with a discount rate of 3.18%, and for finance leases is 3.73 years with a discount rate of 3.31%[50] 15. Retirement Benefit Plans This section reports on pension and supplemental retirement plan expenses, noting the company's contribution requirements | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Pension expense (income) | $23 | $(87) | | Supplemental Retirement Plan (SERP) expense | $214 | $212 | - The Company is not required to contribute to pension plans for the 2019 plan year[51] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of financial condition and results of operations, covering performance, liquidity, and critical accounting estimates Overview This section provides a high-level summary of the company's financial performance, including net income, division sales, backlog, and key operational challenges - Net income increased by approximately 4.6% in Q1 2019 compared to Q1 2018, driven by improved sales in the Industrial Division and the acquisition of Dutch Power[56] - Industrial Division sales increased by 19.9%, while Agricultural sales decreased by 9.3% due to soft market conditions and declining farm incomes; European sales were up 6.5% due to Dutch Power acquisition[57] | Metric (in millions) | Q1 2019 | Q1 2018 | Change | | :------------------- | :------ | :------ | :----- | | Consolidated Income from Operations | $22.6 | $21.4 | +5.6% | | Backlog | $257.8 | $237.8 | +8.4% | - Challenges include increased raw material, freight, tariff surcharges, and labor costs, longer lead times for components, tight labor market, and potential impacts from trade disputes and economic weakness[59] Results of Operations This section provides a detailed analysis of the company's financial results, including net sales, gross profit, SG&A expenses, and net income | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Sales | $261,934 | $238,087 | +10.0% | | Industrial Net Sales | $158,425 | $132,167 | +19.9% | | Agricultural Net Sales | $53,173 | $58,647 | -9.3% | | European Net Sales | $50,336 | $47,273 | +6.5% | | Gross Profit | $63,308 (24.2% of sales) | $60,257 (25.3% of sales) | +5.1% | | SG&A Expenses | $40,702 (15.5% of sales) | $38,896 (16.3% of sales) | +4.6% | | Net Income | $15,253 | $14,583 | +4.6% | | Diluted EPS | $1.30 | $1.24 | +4.8% | - Gross profit margin decreased from 25.3% to 24.2% due to higher commodity costs (e.g., steel), lower sales volume in some divisions, and a manufacturing facility shutdown in the Agricultural Division[64][66] - SG&A expenses increased by $1,806,000, primarily due to higher selling expenses from increased sales, increased R&D spending, and $611,000 from the Dutch Power acquisition[67] Liquidity and Capital Resources This section discusses the company's working capital, capital expenditures, cash flow from financing, and available credit facilities | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Working Capital | $417,093 | $351,991 | +18.5% | | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Capital Expenditures | $5,284 | $7,645 | -30.9% | | Net Cash Provided by Financing Activities | $92,306 | $85,990 | +7.3% | - Working capital increased due to seasonality and increased demand; capital expenditures are expected to be higher in 2019 for production capacity, operational efficiencies, technology, and a new manufacturing facility[72][73] - Foreign cash and cash equivalents of $36,023,000 are held by foreign subsidiaries; the Company intends to repatriate excess foreign cash to reduce debt and fund company-wide investments, facilitated by changes in U.S. tax laws[75][76] - The Company has an unsecured revolving credit facility of $250,000,000, with $180,000,000 outstanding and $66,812,000 available borrowings as of March 31, 2019; the Company was in compliance with all covenants[77] Critical Accounting Estimates This section highlights the significant estimates and assumptions management makes in preparing the financial statements - Financial statements require management to make estimates and assumptions affecting reported amounts, based on historical experience and reasonable assumptions[79] Critical Accounting Policies This section identifies accounting policies requiring significant judgment and complexity, noting no material changes since the 2018 Form 10-K - Critical accounting policies involve a high degree of judgment and complexity, including business combinations, allowance for doubtful accounts, sales discounts, inventories (obsolete and slow-moving), warranty, and goodwill and other intangible assets[80] - No material changes to the nature of estimates, assumptions, and subjectivity related to critical accounting estimates since the 2018 Form 10-K[80] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements that would materially affect the company's financial condition - The Company has no off-balance sheet arrangements that have or are likely to have a current or future material effect on its financial condition[81] Forward-Looking Information This section discusses forward-looking statements, outlining inherent risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements based on current expectations, with actual results potentially differing due to various risks and uncertainties[82][83] - Key risks include changes in market conditions, weakness in the agricultural sector, tariff changes, strong U.S. dollar, increased competition, geopolitical events, input cost increases, acquisition integration issues, budget constraints, credit availability, adverse weather, raw material prices, energy costs, new regulations, and cyber security risks[84][85] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially from expectations[86] Item 3. Quantitative and Qualitative Disclosures About Market Risks This section details the Company's exposure to market risks, including foreign currency and interest rate risks, and mitigation strategies, without using financial instruments for speculation Foreign Currency Risk This section discusses the company's exposure to foreign currency exchange rate changes and the hedging strategies employed, including forward contracts and cross-currency swaps - Company operations in international jurisdictions (U.S., U.K., France, Canada, Brazil, Australia, Netherlands) expose it to foreign currency exchange rate changes and weak economic conditions[88] - The Company uses foreign exchange forward contracts to hedge approximately 90% of future net foreign currency collections over six months, with $1,369,000 outstanding as of March 31, 2019[89] - In March 2019, the Company entered into fixed-to-fixed cross-currency swaps (€40 million / $45 million maturing December 2021) to hedge a portion of its net investment in a euro-denominated subsidiary[90] - A uniform 10% strengthening or decrease in the U.S. dollar would change gross profit by approximately $1,923,000 for Q1 2019[92] Interest Rate Risk This section addresses the company's sensitivity to interest rate changes due to variable-rate long-term debt and quantifies the potential impact on interest expense - The Company's long-term debt bears variable interest rates, making net income sensitive to interest rate changes[93] - A two percentage point change in the average interest rate on variable-rate borrowings would change interest expense by approximately $900,000 for Q1 2019[93] Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms management's conclusion on the effectiveness of the company's disclosure controls and procedures at the reporting period end - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[94] Changes in internal control over financial reporting This section reports that there have been no material changes in internal control over financial reporting during the last fiscal quarter - There have been no material changes in internal control over financial reporting during the last fiscal quarter[95] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures Item 1. Legal Proceedings This section refers to Note 13 for a description of legal proceedings, indicating no new material information beyond what is already disclosed - For a description of legal proceedings, refer to Note 13 Contingent Matters in the interim condensed consolidated financial statements[95] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's 2018 Form 10-K - No material changes from the risk factors previously disclosed in the 2018 Form 10-K[96] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides a summary of the Company's common stock repurchase activity during the first quarter of 2019 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :---------- | :------------------------------- | :--------------------------- | :-------------------------------------------------------------------- | | January 2019 | — | — | — | | February 2019 | — | — | — | | March 2019 | 15,000 | $99.34 | $28,510,398 | Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - None[96] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Not Applicable[97] Item 5. Other Information This section confirms that there were no reports on Form 8-K and no other information to disclose - No reports on Form 8-K were filed[97] - No other information to disclose[97] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, Sarbanes-Oxley Act certifications, and XBRL-related documents - Includes Certificate of Incorporation, By-Laws, and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[97] - XBRL Instance Document and Taxonomy Extension documents are filed herewith[97] SIGNATURES This section contains the official signatures of the Company's key executives certifying the report's accuracy - The report was signed on May 1, 2019, by Ronald A. Robinson (President & Chief Executive Officer), Dan E. Malone (Executive Vice President & Chief Financial Officer), and Richard J. Wehrle (Vice President, Controller & Treasurer)[99]