Item 1. Business
Item 1. Business
Unless the context otherwise requires, the terms “the Company,” “we,” “our” and “us” refer to Alamo Group Inc. and its subsidiaries on a consolidated basis.
General
The Company is a leader in the design and manufacture of high quality agricultural equipment and infrastructure maintenance equipment for governmental and industrial use. The Company’s products include tractor-mounted mowing and other vegetation maintenance equipment, street sweepers, excavators, vacuum trucks, forestry and tree maintenance equipment, snow removal equipment, leaf collection equipment, pothole patchers, zero turn radius mowers, agricultural implements and related aftermarket parts. The Company emphasizes high quality, cost-effective products for its customers and strives to develop and market innovative products while constantly monitoring and seeking to contain its manufacturing and overhead costs. The Company has a long-standing strategy of supplementing its internal growth through acquisitions of businesses or product lines that currently complement, command, or have the potential to achieve a meaningful share of their niche markets.
The Company has approximately 3,990 employees and operates a total of 27 plants in North America, South America, Europe, and Australia. The Company sells its products primarily through a network of independent dealers and distributors to governmental end-users, related independent contractors, as well as to the agricultural and commercial turf markets. The primary markets for our products are North America, South America, Europe and Australia.
The predecessor corporation to Alamo Group Inc. was incorporated in the State of Texas in 1969, as a successor to a business that began selling mowing equipment in 1955, and Alamo Group Inc. was reincorporated in the State of Delaware in 1987.
History
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 rotary cutting technology. Through acquisitions, the Company added flail cutting technology in 1983 and sickle-bar cutting technology in 1984. The Company added to its presence in the industrial and governmental vegetation markets with the acquisition of Tiger Corporation (“Tiger”) in late 1994.
The Company entered the agricultural mowing markets in 1986 with the acquisition of Rhino Products Inc. (“Rhino”) , a leading manufacturer in this field. With this acquisition, the Company embarked on a strategy to increase the Rhino dealer distribution network during a period of industry contraction. The addition of M&W Gear Company (“M&W”) in early 1995 allowed the Company to enter into the manufacturing and distribution of tillage equipment, which complements the Rhino distribution network. M&W is part of the agricultural marketing group.
In 1991, the Company began its international expansion with the acquisition of McConnel Ltd . (“McConnel”) , a United Kingdom (“U.K.”) manufacturer of vegetation maintenance equipment, principally hydraulic boom-mounted hedge and grass cutters and related parts. Bomford-Turner Ltd . (“Bomford”) , also a U.K. company, was acquired in 1993. Bomford is a manufacturer of heavy-duty, tractor-mounted grass and hedge mowing equipment. McConnel and Bomford sell their products to dealers and distributors through their respective sales forces.
In 1994, the Company acquired Signalisation Moderne Autoroutiere S.A . (“SMA”) located in Orleans, France. SMA manufactures and sells principally a line of heavy-duty, tractor-mounted grass and hedge mowing equipment and associated replacement parts primarily to departments of the French government. This acquisition, along with the acquisitions of Forges Gorce (" Forges Gorce "), a flail blade manufacturer in France, in 1996 and Rousseau Holdings S.A. (“ Rousseau ”), a leading French manufacturer of hedge and verge mowers, in 2004, when combined with McConnel and Bomford, has made the Company one of the largest manufacturers in the European market for the kind of equipment sold by the Company.
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In 1995, the Company expanded its business in the agricultural market with the acquisition of Herschel Corporation (“Herschel”) , a manufacturer and distributor of aftermarket farm equipment replacement and wear parts.
In 2000, the Company acquired Schwarze Industries, Inc . (“Schwarze”) . Schwarze is a manufacturer of a broad range of street sweeping equipment which is sold to governmental agencies and contractors. The Company believes the Schwarze sweeper products fit the Company’s strategy of identifying product offerings with brand recognition in the industrial markets the Company serves. In 2004, the Company purchased the pothole patcher product line from Wildcat Manufacturing, Inc. The product line was merged into the Schwarze operation and is complementary to its current product offerings.
In 2000, the Company purchased the product line and associated assets of Twose of Tiverton Ltd. (“Twose”) a small regional manufacturer of power arm flail mowers and parts, as well as harrows and rollers, in the U.K. Twose consolidated its operations into the existing facilities at McConnel and Bomford and its brand name has been merged into the McConnel product line.
In 2000, the Company acquired Schulte Industries Ltd. and its related entities (“Schulte”) . Schulte is a Canadian manufacturer of mechanical rotary mowers, snow blowers, and rock removal equipment. Schulte strengthened the Company’s Canadian presence in both marketing and manufacturing. It also expanded the Company’s range of large, heavy-duty rotary mowers.
In 2001, the Company acquired all of the assets of SMC Corporation (“SMC”). SMC manufactures front-end loaders and backhoes principally for Original Equipment Manufacturer (“OEM”) customers and its own SMC brand. This acquisition expanded the product range of our agricultural division and has since been consolidated into the Company's Gibson City, Illinois location under the RhinoAg brand.
In 2002, the Company purchased inventory, fixed assets and certain other assets of Valu-Bilt Tractor Parts (“Valu-Bilt”) , a subsidiary of Quality Stores, Inc., located in Des Moines, Iowa. Valu-Bilt is a distributor of new, used and rebuilt tractor parts and other agricultural spare and wear parts sold directly to customers through its catalog and the internet and on a wholesale basis to dealers. Subsequent to the purchase, the operations of Valu-Bilt in Des Moines, Iowa, were consolidated into the Company’s Herschel facility in Indianola, Iowa.
In 2005, the Company, through its European subsidiary Alamo Group (EUR) Ltd., acquired 100% of the issued and outstanding stock of Spearhead Machinery Limited (“Spearhead”) and subsequently merged its manufacturing operations into Bomford ’ s facility. Spearhead manufactures a range of tractor-mounted vegetation maintenance equipment, including reach mowers, flail mowers and rotary cutters. This acquisition extended our product lines and market coverage in Europe.
In 2006, the Company purchased substantially all of the assets of the Gradall excavator business (“Gradall”) of JLG Industries, Inc., including their manufacturing plant in New Philadelphia, Ohio. Gradall is a leading manufacturer of both wheeled and crawler telescopic excavators in North America. This acquisition enhanced our Industrial Division product offering sold to governmental buyers and related contractors for maintenance along right-of-ways.
In 2006, the Company purchased the vacuum truck and sweeper lines of Clean Earth Environmental Group, LLC and Clean Earth Kentucky, LLC (collectively referred to as “VacAll” ) . This included the product lines, inventory and certain other assets that relate to this business. The production of the vacuum truck and sweeper lines were moved to the Gradall facility in New Philadelphia, Ohio.
In 2006, the Company acquired 100% of the ownership interests in Nite-Hawk Sweepers LLC (“Nite-Hawk”) , a manufacturer of truck mounted sweeping equipment primarily for the contract sweeping market, which expanded our presence in that market and complements our Schwarze sweeper line.
In 2007, the Company purchased Henke Manufacturing Corporation (“Henke”) , a manufacturer of specialty snow removal attachments. Henke’s products are mounted on both heavy industrial equipment and medium to heavy-duty trucks. The primary end-users are governmental agencies, related contractors and other industrial users.
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In 2008, the Company acquired Rivard Developpement S.A.S. (“Rivard”) , a leading French manufacturer of vacuum trucks, high pressure cleaning systems and trenchers. The acquisition broadened the Company’s product offering to our customers in Europe and other markets we serve.
In 2009, the Company acquired substantially all the assets of Bush Hog, LLC (“Bush Hog”) , a leading agricultural equipment manufacturer of rotary cutters, finishing mowers, zero turn radius mowers, front-end loaders, backhoes, landscape equipment and a variety of other implements. This acquisition, combined with the Company’s existing range of agricultural mowers, created one of the largest manufacturers of agricultural mowers in the world.
In 2011, the Company acquired substantially all of the assets and assumed certain specified liabilities of Tenco Group, Inc. ( "Tenco" ) and its subsidiaries. Tenco is a Canadian-based manufacturer of snow removal equipment including snow blades, blowers, dump bodies, spreaders and associated parts and service. Tenco has operations in Quebec as well as New York and Vermont. The equipment is sold primarily through dealers to governmental end-users as well as snow removal contractors.
In 2013, the Company acquired substantially all of the assets and assumed certain specified liabilities of Superior Equipment Australia PTY LTD ( "Superior" ). Superior is a small Australian-based manufacturer of agricultural mowing equipment and other attachments, parts, and services. The equipment is sold through dealers primarily to agricultural end-users with some sold to governmental entities in Australia. The Superior operations have been consolidated with the Company's Fieldquip location.
In 2014, the Company acquired Kellands Agricultural Ltd. and its subsidiary Multidrive Tractors Ltd. ( "Kellands" ). Kellands is a U.K.-based manufacturer of self-propelled sprayers and a range of multi-purpose load-carrying tractor vehicles. This acquisition enhanced our manufacture and distribution of our agricultural machinery in Europe and allowed the Company to enter into the self-propelled sprayer market. The Kellands operations were consolidated into the Company's Salford Priors facility and its products are sold under the McConnel brand name.
In 2014, the Company acquired Fieldquip Australia PTY LTD ( "Fieldquip" ), a manufacturer of rotary cutters as well as a distributor of various agricultural products. This acquisition allowed the Company to broaden its presence in both the manufacturing and distribution of agricultural machinery in Australia.
In 2014, the Company acquired all of the operating units of Specialized Industries LP. The purchase included the businesses of Super Products LLC ( "Super Products" ), Wausau-Everest LP (" Wausau " & " Everest ") and Howard P. Fairfield LLC (" H.P. Fairfield ") as well as several related entities ( "Specialized" ), including all brand names and related product names and trademarks. The primary reason for the Specialized acquisition was to broaden the Company's existing equipment lines. This acquisition increased our product offering and enhanced our market position both in vacuum trucks and snow removal equipment primarily in North America.
In 2015, the Company acquired Herder Implementos e Maquinas Agricolas Ltda. ( "Herder" ). Herder is a manufacturer of flail mowers and other agricultural implements which are sold direct and through dealers to a wide variety of agricultural markets as well as the roadside maintenance market. This acquisition allowed the Company to establish a presence in Brazil, one of the largest agricultural markets in the world. The Herder manufacturing operations have been consolidated into our Santa Izabel facility.
In 2017, the Company acquired 100% of the outstanding shares of Santa Izabel Agro Industria Ltda. ( "Santa Izabel" ). Santa Izabel designs, manufactures and markets a variety of agricultural implements and trailers sold throughout Brazil. This acquisition, along with our existing Herder operation in Brazil, augmented our product portfolio and improved our manufacturing capabilities in one of the world's largest agricultural markets.
In 2017, the Company acquired substantially all of the assets and assumed certain specified liabilities of Old Dominion Brush Company, Inc. ( "ODB" ). ODB manufactures leaf collection equipment as well as replacement brooms for street sweepers, both of which are sold to municipalities, contractors and commercial landscape markets in North America. ODB is based in Richmond, Virginia. This acquisition provided new and complementary products to our existing range of infrastructure maintenance equipment and parts.
In 2017, the Company acquired R.P.M. Tech Inc. (" RPM "), a manufacturer of heavy duty snow removal equipment and associated parts. RPM primarily sells to governmental agencies, related contractors, airports and other industrial users. This acquisition complemented our existing range of snow removal products with RPM's
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range of heavy duty snow removal equipment, including their line of mechanical snow blowers. In 2020, RPM's operations were consolidated into the Company's nearby Tenco facility and the former RPM facility in Drummondville was sold.
In 2019, the Company acquired 100% of the outstanding capital shares of Dutch Power B.V. ("Dutch Power") in the Netherlands. Dutch Power designs and manufactures a variety of landscape and vegetation management machines and attachments. This acquisition expanded our existing platform and increased our capabilities in the European market.
In 2019, the Company acquired substantially all of the assets of the Dixie Chopper ("Dixie Chopper" ) business. Dixie Chopper manufactures a wide range of commercial and high end residential Zero Turn ("ZT") mowers. This acquisition provided a new channel and increased the Company's exposure in the outdoor power equipment market. Dixie Chopper was relocated into the Company's RhinoAg facility in Gibson City, Illinois.
In 2019, the Company acquired 100% of the outstanding capital shares of Morbark, LLC (" Morbark" ) which included its subsidiaries Rayco Manufacturing LLC (" Rayco ") and Denis Cimaf Inc. (" Denis Cimaf "). Morbark is a leading manufacturer of equipment and aftermarket parts for forestry, tree care, biomass, land management and recycling markets. This acquisition expanded the Company's product line and complemented its range of vegetation maintenance equipment in an adjacent market. Morbark is based in Winn, Michigan with subsidiary locations in Wooster, Ohio and Roxton Falls, Quebec. At the end of 2020, the Denis Cimaf manufacturing operations based in Roxton Falls were consolidated into the Rayco facility in Wooster, Ohio.
Impact of COVID-19
In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") outbreak a global pandemic. COVID-19 continues to spread throughout the U.S. and the rest of the world and has negatively impacted portions of the global economy, disrupted global supply chains, and created volatility in financial markets. COVID-19 caused government authorities around the world to implement stringent measures to attempt to help control the spread of the virus, including business shutdowns and curtailments, travel restrictions, prohibitions on group events and gatherings, quarantines, "shelter-in-place" and "stay-at-home" orders, curfews, social distancing, and other measures. The adverse global economic impact of this pandemic negatively and materially impacted our business, customers, and suppliers and caused many challenges for our business and manufacturing operations during 2020. The Company continues to experience negative impacts of COVID-19 on our markets and operations as well as ongoing business uncertainty. The full extent to which COVID-19 will adversely impact the Company’s business depends on future developments, potential new virus strains or variations, and the effectiveness of actions globally to contain or limit the spread of the virus, including the impact of vaccines. Additional information regarding the impact of COVID-19 on our business can be found under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K and risks related to COVID-19 can be found under Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.
Sales and Marketing Strategy
The Company believes that within the U.S. it is a leading supplier to governmental markets, a leading supplier in the U.S. agricultural market, and one of the largest suppliers in the European market for its key niche product offerings. The Company’s products are sold through the Company’s various marketing organizations and extensive worldwide dealer and distributor networks under the Gradall ® , VacAll ® , Super Products ® , Rivard ® , Alamo Industrial ® , Terrain King ® , Tiger ® , Herder ® , Conver ® , Roberine ® , Votex ® , Schwarze ® , NiteHawk ® , ODB ™ , Henke ® , Tenco ® , Wausau ® , Everest ® , H.P. Fairfield ™ , R.P.M. Tech ™ , Morbark ® , Rayco ® ,Denis Cimaf ® , Boxer ® , Bush Hog ® , Rhino ® , Earthmaster ® , RhinoAg ® , Dixie Chopper ® , Herschel ® , Valu-Bilt ™ , CT Farm & Country ™ , Schulte ® , Fieldquip ® , Santa Izabel ™ , McConnel ® , Bomford ® , Spearhead ™ , Twose ™ , SMA ® , Forges Gorce ™ , Faucheux ™ , Rousseau ® and trademarks (some with related designs) as well as other trademarks and trade names.
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Products and Distribution Channels
At the beginning of the fourth quarter of 2019, the Company began reporting operating results on the basis of two segments: the Industrial Division and the Agricultural Division. Prior to the fourth quarter of 2019, the Company had been reporting its operating results on the basis of three segments which included the Company's European Division. The Company's European Division was a mixture of industrial and agricultural products similar to those within our other two segments. We believe that by combining similar products under two reporting segments, each operating globally, we will achieve better alignment of our products along functional lines, which will allow the Company to operate more efficiently.
Industrial Division
Gradall produces a range of excavators based on high-pressure hydraulic telescoping booms which are sold through dealers primarily to governmental agencies and related contractors, and to a lesser extent the mining industry, steel mills and other specialty applications in the U.S. and other countries. Many of these products are designed for excavation, grading, shaping and similar tasks involved in land clearing, road building or maintenance. These products are available mounted on various types of undercarriages: wheels for full-speed highway travel, wheels for on/off road use, and crawlers. A portion of Gradall’s sales includes truck chassis which are not manufactured by Gradall .
VacAll produces catch basin cleaners and roadway debris vacuum systems. These units are powerful and versatile with uses including, but not limited to, removal of wet and dry debris, spill elimination, and cleaning of sludge beds. VacAll also offers a line of sewer cleaners. Its products are primarily sold through dealers to industrial and commercial contractors as well as governmental agencies. A portion of VacAll’s sales includes truck chassis which are not manufactured by the Company.
Super Products produces truck-mounted vacuum trucks, combination sewer cleaners and hydro excavators. Its products are sold to municipalities, utilities and contractors through a nationwide distributor network. Super Products also operates a network of rental stores that provides short and long-term rental contracts for its products. Rental customers are primarily contractors serving the petrochemical, petroleum production and refining industries. A portion of the sales of Super Products includes truck chassis which are not manufactured by the Company.
Rivard manufactures vacuum trucks, high pressure cleaning systems and trenchers. Rivard’s equipment is sold primarily in France and certain other markets, mainly in Europe, the Middle East and North Africa, and to governmental entities and related contractors. This business also complements our product offerings in North America. The majority of Rivard's customers provide their own truck chassis.
Morbark manufactures a broad range of tree chippers, stump grinders, mulchers, brush cutters, flails and debarkers sold under the Morbark , Rayco , Denis Cimaf and Boxer brand names. Its products are sold to industrial and commercial contractors mainly through a network of independent dealers and distributors and, to a lesser extent, direct sales to end-users.
Tenco and RPM both design and manufacture a heavy-duty line of snow removal equipment, including truck-mounted snow plows, snow blowers, dump bodies and spreaders. Their products are primarily sold through independent dealers. End-users are governmental agencies, contractors, airports and other industrial users.
Wausau designs and manufactures a comprehensive range of snow removal and ice control products. Products include snowplows, snow blowers, snow throwers, brooms, deicers, brine sprayers and other related accessories and parts. Wausau sells its products through its established dealer network to both governmental and non-governmental end-users and sells directly to airports and fixed-base operators.
Everest designs and manufactures a range of snow removal and ice control products including snowplows, wing systems, spreader bodies, and other related accessories and parts. Everest also manufactures custom-engineered underground construction forms for tunnels.
Henke designs and manufactures snow plows and heavy duty snow removal equipment, hitches and attachments for trucks, loaders and graders sold primarily through independent truck and industrial equipment dealers. Henke’s primary end-users are governmental agencies, related contractors and other industrial users.
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H.P. Fairfield is a full-service distributor of public works and runway maintenance products, parts and service, whose sales and service outlets are located in the northeastern part of the U.S. H.P. Fairfield’s offerings include custom municipal snow and ice removal equipment, a range of salt spreaders and truck bodies, street sweepers, a line of industrial rotary, flail and boom mowers, solid waste and recycling equipment, water and sewer maintenance equipment, municipal tractors and attachments, and asphalt maintenance patchers, some of which are sourced from other Alamo Group companies. H.P. Fairfield also provides truck up-fitting services as part of its business.
Schwarze equipment includes truck-mounted air vacuum, mechanical broom, and regenerative air sweepers, pothole patchers and replacement parts. Schwarze sells its products primarily to governmental agencies and independent contractors, either directly or through its independent dealer network. A portion of Schwarze’s sales includes truck chassis which are not manufactured by Schwarze .
ODB manufactures and sells leaf collection equipment and replacement brooms for street sweepers, both of which are sold to municipalities, contractors and commercial landscape markets in North America.
Nite-Hawk manufactures parking lot sweepers with unique and innovative hydraulic designs. By eliminating the auxiliary engine, Nite-Hawk sweepers have proven to be fuel-efficient, environmentally conscious, and cost-effective to operate. Nite-Hawk focuses mainly on and sells direct to parking lot contractors. A portion of Nite-Hawk’s sales includes truck chassis which are not manufactured by Nite-Hawk .
Alamo Industrial equipment is principally sold through independent dealers to governmental end-users, related independent contractors and, to a lesser extent, utility and other dealers serving infrastructure maintenance operators and other applications in the U.S. and other countries. Governmental agencies and contractors that perform services for such agencies purchase primarily hydraulically-powered, tractor - and off-road chassis mounted mowers, including boom-mounted mowers, other types of cutters and replacement parts for heavy-duty, intensive use applications, including maintenance around highway, airport, recreational and other public areas. A portion of Alamo Industrial’s sales includes tractors, which are not manufactured by Alamo Industrial.
Tiger equipment includes heavy duty, tractor- and truck-mounted mowing and vegetation maintenance equipment and replacement parts. Tiger sells to state, county and local governmental entities and related contractors, primarily through a network of independent dealers. Tiger’s dealer distribution network is independent of Alamo Industrial’s dealer distribution network. A portion of Tiger’s sales includes tractors, which are not manufactured by Tiger.
Dutch Power produces a variety of landscape and vegetation maintenance equipment and attachments under several brand names including Herder , Conver , Roberine , and Votex . Dutch Power primarily sells to contractors who perform infrastructure maintenance for governmental agencies and private landowners.
Agricultural Division
Bush Hog, Rhino and Earthmaster equipment is generally sold to farmers, ranchers and other end-users to clear brush, mow grass, maintain pastures and unused farmland, shred crops, till fields, and for haymaking and other applications. Bush Hog and Rhino equipment consists principally of a comprehensive line of tractor-powered equipment, including rotary mowers, finishing mowers, flail mowers, disc mowers, front-end loaders, backhoes, rotary tillers, posthole diggers, scraper blades and replacement parts. The equipment also includes a range of self-propelled zero turn radius mowers.
Schulte equipment includes heavy-duty mechanical rotary mowers, snow blowers, rock removal equipment and related replacement parts. Schulte serves both the agricultural and governmental markets primarily in Canada and the U.S. It also sells some of the Company’s other product lines in its markets and some of its products through independent distributors throughout the world.
Dixie Chopper produces a wide range of commercial and high end residential zero turn ("ZT") mowers. It sells its products through its independent dealers in the outdoor power equipment channel throughout the U.S.
McConnel equipment principally includes a broad line of hydraulic, boom-mounted hedge and grass cutters, remote control mowers as well as other tractor attachments and implements such as cultivators, subsoilers and other implements and related replacement parts. McConnel equipment is sold primarily in the U.K., Ireland and
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France and in other parts of Europe and, to a lesser extent, throughout the world, through independent dealers and distributors. McConnel also sells a range of self-propelled sprayers and a variety of multi-drive load-carrying vehicles. These products are sold through its existing dealer network as well as various marketing groups within the European region of the Agricultural Division.
Bomford equipment includes hydraulic boom-mounted hedge and hedgerow cutters, industrial grass mowers, agricultural seedbed preparation cultivators and related replacement parts. Bomford equipment is sold to governmental agencies, contractors and agricultural end-users in the U.K., Ireland and France and, to a lesser extent, other countries in Europe, North America, Australia and Asia. Bomford’s sales network is similar to that of McConnel in the U.K.
Spearhead manufactures a range of tractor-mounted vegetation maintenance equipment, including reach mowers, flail mowers and rotary cutters. These products are manufactured in the Company's Salford Priors facility.
Rousseau sells hydraulic and mechanical boom mowers, primarily in France, through its own sales force and dealer distribution network mainly to agricultural and governmental markets. These products have also been introduced into other markets outside of France. These products are manufactured at our facility near Lyon, France.
SMA equipment includes hydraulic boom-mounted hedge and hedgerow cutters and related replacement parts. SMA’s principal customers are French local authorities. SMA’s product offerings include certain quick-attach boom mowers manufactured by the Company in the U.K. to expand its presence in agricultural dealerships. The Company consolidated its SMA operations located in Orleans, France, and production was relocated to its manufacturing facility near Lyon, France.
Forges Gorce manufactures cutting blades which are sold to some of the Company’s subsidiaries as well as to other third party customers and distributors.
Herder and Santa Izabel give the Company a presence in the Brazilian agricultural market. Herder manufactures and distributes flail and rotary mowers and various other agricultural equipment, direct and through dealers. Its products are used in a wide variety of agricultural and governmental markets. Santa Izabel designs, manufactures and markets a variety of agricultural implements, including sugar cane trailers sold throughout Brazil.
Herschel/Valu-Bilt aftermarket replacement parts are sold for many types of farm equipment and tractors and certain types of mowing and construction equipment. Herschel products include a wide range of cutting parts, plain and hard-faced replacement tillage tools, disc blades and fertilizer application components. Herschel replacement tools and parts are sold throughout the United States, Canada and Mexico to five major customer groups: farm equipment dealers; fleet stores; wholesale distributors; OEMs; and construction equipment dealers. Valu-Bilt complements the Herschel product lines while also expanding the Company’s offering of aftermarket agricultural parts and added catalog and internet sales direct to end-users.
Fieldquip broadens the Company's presence in Australia. The company sells a variety of agricultural equipment, specifically rotary mowers and tractor attachments. Fieldquip sells to customers ranging from large agricultural and commercial operators to small farm hobbyist and residential users, as well as agricultural dealers who serve owners and operators in the turf, golf, park and airport industries and growers with orchards, vineyards and plantations in Australia and the South Pacific.
Replacement Parts
The Company derives a significant portion of its revenues from sales of replacement parts for each of its wholegoods lines. Replacement parts represented approximately 21%, 19% and 19% of the Company’s total sales for the years ended December 31, 2020, 2019 and 2018, respectively. Replacement parts generally are more profitable and less cyclical than wholegoods.
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Product Development
The Company’s ability to provide innovative responses to customer needs, to develop and manufacture new products, and to enhance existing product lines is important to its success. The Company continually conducts research and development activities in an effort to improve existing products and develop new products. As of December 31, 2020, the Company employed 261 people in its various engineering departments, 174 of whom are degreed engineers and the balance of whom are support staff. Amounts expended on research and development activities were approximately $12.4 million in 2020, $12.0 million in 2019 and $10.4 million in 2018. As a percentage of sales, research and development was approximately 1.1% in 2020, 1.1% in 2019 and 1.0% in 2018, and is expected to continue at similar levels in 2021.
Seasonality
The Company’s unit sales are fairly constant quarter to quarter. However, replacement parts are generally higher in the second and third quarters of the year, because a substantial number of the Company’s products are used for maintenance activities such as vegetation maintenance, highway right-of-way maintenance, construction, and street and parking lot sweeping. Usage of this equipment is typically lower in harsh weather. The Company utilizes an annual twelve-month sales forecast provided by the Company’s marketing departments which is updated quarterly in order to develop a production plan for its manufacturing facilities. In addition, many of the Company’s marketing departments attempt to equalize demand for products throughout the calendar year by offering seasonal sales programs which may provide additional incentives, including discounts and extended payment terms.
Competition
The Company’s products are sold in highly competitive markets throughout the world. The principal competitive factors are price, quality, availability, service and reputation. The Company competes with several large national and international companies that offer a broad range of equipment and replacement parts, as well as with numerous small, privately-held manufacturers and suppliers of a limited number of products, mainly on a regional basis. Some of the Company’s competitors are significantly larger than the Company and have substantially greater financial and other resources at their disposal. The Company believes that it is able to compete successfully in its markets by effectively managing its manufacturing costs, offering high quality products, developing and designing innovative products and, to some extent, avoiding direct competition with significantly larger potential competitors. There can be no assurance that the Company’s competitors will not substantially increase the resources devoted to the development and marketing of products competitive with the Company’s products or that new competitors with greater resources will not enter the Company’s markets.
Unfilled Orders
As of December 31, 2020, the Company had unfilled customer orders of $354.1 million compared to $261.0 million at December 31, 2019. Management expects that substantially all of the Company’s unfilled orders as of December 31, 2020 will be shipped during fiscal year 2021. The amount of unfilled orders at a particular time is affected by a number of factors, including manufacturing and shipping schedules which, in most instances, are dependent on the Company’s seasonal sales programs and the requirements of its customers. It is possible that unanticipated effects of the COVID-19 pandemic, including supply chain disruptions or customer issues could continue to cause delays in delivery or an inability to complete unfilled customer orders. The Company’s orders are subject to cancellation at any time before shipment; therefore, a comparison of unfilled orders from period to period is not necessarily meaningful and may not be indicative of future actual shipments. No single customer or group of customers is responsible for 10% or more of the aggregate revenue of the Company or of a segment of the Company.
Sources of Supply
The principal raw materials used by the Company include steel, other metal components, hydraulic hoses, paint and tires. During 2020, the raw materials needed by the Company were available from a variety of sources in adequate quantities and at prevailing market prices.
While the Company manufactures many of the parts for its products, a significant percentage of parts, including most drivelines, gearboxes, industrial engines, and hydraulic components, are purchased from outside suppliers
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which manufacture to the Company’s specifications. In addition, the Company, through its subsidiaries, purchases tractors and truck chassis as a number of the Company’s products are mounted and shipped with a tractor or truck chassis. Tractors and truck chassis are generally available, but some delays in receiving tractors or truck chassis can occur throughout the year. The Company sources its purchased goods from international and domestic suppliers. No one supplier is responsible for supplying more than 10% of the principal raw materials or purchased goods used by the Company.
Patents, Trademarks and Trade Names
The Company owns various U.S. and international patents, trademarks and trade names. While the Company considers its patents, trademarks and trade names to be advantageous to its business, it is not dependent on any single patent, trademark, trade name or group of patents, trademarks, or trade names. The net book value of patents, trademarks and trade names was $89.2 million and $94.0 million as of December 31, 2020 and 2019, respectively.
Environmental and Other Governmental Regulations
Like other manufacturers, the Company is subject to a broad range of federal, state, local and foreign laws and requirements, including those concerning air emissions, discharges into waterways, and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, as well as the remediation of contamination associated with releases of hazardous substances at the Company’s facilities and off-site disposal locations, workplace safety and equal employment opportunities. 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 the Company will not incur material costs or other liabilities as a result thereof.
Certain assets of the Company contain asbestos that may have to be remediated over time. The Company believes that any subsequent change in the liability associated with the asbestos removal will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
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 restrictive 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.
Human Capital Resources and Management
We recognize that the success of our Company is dependent upon the talents and dedication of our employees, and we are committed to investing in their success. We focus on attracting, developing and retaining a team of highly talented and motivated employees. We conduct regular assessments of our pay and benefit practices to help ensure that staff members are compensated fairly and competitively. We also devote significant resources to staff training and development, including tuition assistance for career-enhancing academic and professional programs. The Company provides competitive compensation and benefits. In addition to salaries, our compensation programs, which vary by country and region, can include annual bonuses, stock-based compensation awards, company-sponsored retirement savings plans with employee matching opportunities (or similar local retirement benefit), healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance programs, and tuition assistance.
Employee health and safety is of paramount importance to us. We believe it is our responsibility to maintain a safe and healthy workplace in each of our facilities and to make continuous improvements in this area. We do this by embedding safety into every level of the organization as one of our core values. We ensure that safety performance is tracked, aggregated, and reviewed on an ongoing basis. Our corporate technical affairs and safety team collects data on recordable injury rates, serious injury rates, and near misses from each Alamo Group company, and conducts root cause analysis with corrective action to prevent future occurrences . This data is reviewed monthly by the executive leadership team and shared with the Company's Board of Directors on a
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quarterly basis. Regular safety meetings are also held at our facilities on an ongoing basis. With the onset of the COVID-19 pandemic in early 2020, we immediately responded by prioritizing the safety and well-being of our employees, and all of our facilities quickly adapted to the COVID-19 environment by implementing various health and safety measures including COVID-19 case tracking and quarantining where and when necessary, daily temperature checks, mandating face coverings (except where hazardous), regular facility sanitization, widely distributing hand-sanitizer, reconfiguration of workstations to allow for appropriate distancing, expanding the use of internal video meetings and installation of related technology, and implementing remote work policies, among other things.
The Company's focus on supervisor and manager development and a culture of promoting a diverse, inclusive, and respectful workplace supports our ability to attract, engage, and retain industry-leading talent to meet our customer’s needs and sustain the Company’s growth. Formal welder training, apprenticeships, and local partnerships with vocational training programs, junior colleges, and high schools ensure our business units continue to attract and grow their critical manufacturing skills. The Company’s emphasis on our core competencies, including Leading People and Leading Change , continues to favorably impact our employee retention with below industry average annual turnover rates.
Employee engagement and development is another important focus for the Company. We believe in empowering our employees to develop new ideas, create new products, processes, or services, or solve significant organizational or industry problems through continuous improvement and innovation. We continuously offer employees relevant training and learning opportunities for advancement and growth.
We also recognize, value, and respect the individual differences of our employees and believe that a diverse set of backgrounds, experiences, and perspectives is crucial to our ability to continue to innovate, collaborate, and meet the needs of our global workforce and customers. Accordingly, we are committed to encouraging and fostering an inclusive culture where diversity and individual differences are accepted, respected, and valued, and that employees feel empowered to contribute fully to the Company's ongoing success.
As of December 31, 2020, we employed approximately 3,990 employees. In North America, the Company has collective bargaining agreements at its Gradall facility which covers 173 employees and will expire on April 11, 2021, and its Tenco facility in Canada which covered 113 employees which expired on December 31, 2020. The Company is currently in negotiations for a new collective bargaining agreement for the Tenco facility. R.P.M. in Canada has an agreement covering 4 employees and expires in February 1, 2025. Everest has a collective bargaining agreement covering 70 employees which will expire on November 30, 2023. The Company’s European locations, McConnel, Bomford, Spearhead, AMS-UK, SMA Faucheux, Forges Gorce, Rousseau and Rivard, have various collective bargaining agreements covering 816 employees. The Company considers its employee relations to be satisfactory.
Available Information
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements, and other information that issuers (including the Company) file electronically with the SEC. The SEC’s website is www.sec.gov.
The Company’s website is www.alamo-group.com. The Company makes available free of charge through its website, via a link to the SEC’s website at www.sec.gov, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company also makes available through its website, via a link to the SEC’s website, statements of beneficial ownership of the Company’s equity securities filed by its directors, officers, 10% or greater shareholders, and others required to file under Section 16 of the Exchange Act.
The Company also makes available free of charge on its website its most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year, its most recent proxy statement and its most recent annual report to stockholders, although in some cases these documents are not available on our site as soon as they are available on the SEC’s site. You will need to have on your computer the Adobe Acrobat Reader ® software to view the documents, which are in PDF format. In addition, the Company posts on its website its Charters for its
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Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee, as well as its Corporate Governance Policies and its Code of Conduct and Ethics for its directors, officers and employees. You can obtain a written copy of these documents, excluding exhibits, at no cost, by sending your request to the Corporate Secretary, Alamo Group Inc., 1627 E. Walnut Street, Seguin, Texas 78155, which is the principal corporate office of the Company. The telephone number is 830-379-1480. The information on the Company’s website is not incorporated by reference into this report.
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 in other documents filed or furnished with the SEC, or by management orally or in press releases, conferences, reports or otherwise to analysts, investors, representatives of the media and others, in the future by or on behalf of the Company. Generally, forward-looking statements are not based on historical facts but instead represent the Company's and its management's beliefs regarding future events.
Statements that are not historical are forward-looking. When used by us or on our behalf, the words "expect," “will,” “estimate,” “believe,” “intend,” "would," “could,” "predict," “should,” “anticipate,” "continue," “project,” “forecast,” “plan,” “may” and similar expressions generally identify forward-looking statements made by us or on our behalf. 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 we serve. Certain particular risks and uncertainties that continually face us include the following:
• budget constraints and revenue shortfalls which could affect the purchases of our type of equipment by governmental customers and related contractors in both domestic and international markets;
• market acceptance of new and existing products;
• our ability to maintain good relations with our employees;
• our ability to develop and manufacture new and existing products profitably;
• the inability of our suppliers, creditors, public utility providers and financial and other service organizations to deliver or provide their products or services to us;
• legal actions and litigation;
• adverse impacts on our supply chain and other parts of our business resulting from the sudden unrestrained outbreak of human disease including those caused by the coronavirus;
• impairment in the carrying value of goodwill;
• our ability to successfully integrate acquisitions and operate acquired businesses or assets;
• current and changing tax laws in the U.S. and internationally;
• our ability to hire and retain quality skilled employees; and
• changes in the prices of agricultural commodities, which could affect our customers’ income
levels.
In addition, we are subject to risks and uncertainties facing the industry in general, including the following:
• negative impacts on our business and financial results attributable to the ongoing COVID-19 pandemic which may include a softening of customer demand, operational and supply chain disruptions or other negative unanticipated effects;
• changes in business and political conditions and the economy in general in both domestic and international markets;
• an increase in unfunded pension plan liability due to financial market deterioration;
• price and availability of energy and critical raw materials, particularly steel and steel products;
• increased competition;
• repercussions resulting from the U.K.'s exit from the European Union;
• increases in input costs on items we use in the manufacturing of our products;
• adverse weather conditions such as droughts, floods, snowstorms, etc., which can affect the buying patterns of our customers and end-users;
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• increased costs of complying with governmental regulations which affect corporations including related fines and penalties (such as the European General Data Protection Regulation (GDPR) and the California Consumer Privacy Act);
• the potential effects on the buying habits of our customers due to animal disease outbreaks and other epidemics;
• adverse market conditions and credit constraints which could affect our customers and end-users, such as cutbacks on dealer stocking levels;
• changes in market demand;
• cyber security risks including the potential loss of proprietary data or data security breaches and related fines, penalties and other liabilities;
• financial market changes including changes in interest rates and fluctuations in foreign exchange rates;
• abnormal seasonal factors in our industry;
• changes in domestic and foreign governmental policies and laws, including increased levels of government regulation and changes in agricultural policies, including the amount of farm subsidies and farm payments as well as changes in trade policy that may have an adverse impact on our business;
• government actions, including but not limited to budget levels, change in tax laws, regulations and legislation, relating to the environment, commerce, infrastructure spending, health and safety;
• risk of governmental defaults and resulting impact on the global economy and particularly financial institutions.
We wish 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 and under “Risk Factors,” as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us and our businesses, including factors that could potentially materially affect our 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. Any forward-looking statements made by or on behalf of the Company speak only to the date they are made and we do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the forward-looking statements were made.
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Information About our Executive Officers
Certain information is set forth below concerning the executive officers of the Company (the "Executives"), each of whom has been appointed to serve until the 2021 annual meeting of directors or until their successor is duly appointed and qualified.
Name Age Position
Ronald A. Robinson *
68 President and Chief Executive Officer
Dan E. Malone 60 Executive Vice President and Chief Financial Officer
Jeffery A. Leonard 61 Executive Vice President, Alamo Group Inc. and Executive Vice President Alamo Group (USA) Inc., Industrial Division
Richard H. Raborn 55 Executive Vice President, Alamo Group Inc. and Executive Vice President Alamo Group (USA) Inc., Agricultural Division
Richard J. Wehrle 64 Vice President, Controller and Treasurer
Edward T. Rizzuti 51 Vice President, General Counsel and Secretary
Janet S. Pollock 62 Vice President, Human Resources
Lori L. Sullivan 51 Vice President, Internal Audit
* On December 10, 2020, Mr. Robinson notified the Company's Board of his intention to retire as President and Chief Executive Officer by mid-year 2021 and upon the appointment of his successor
Ronald A. Robinson was appointed President, Chief Executive Officer and a director of the Company on July 7, 1999. Mr. Robinson had previously been President of Svedala Industries, Inc., the U.S. subsidiary of Svedala Industries AB of Malmo, Sweden, a leading manufacturer of equipment and systems for the worldwide construction, mineral processing and materials handling industries. Mr. Robinson joined Svedala in 1992 when it acquired Denver Equipment Company of which he was Chairman and Chief Executive Officer.
Dan E. Malone was appointed Executive Vice President, Chief Financial Officer on January 15, 2007. Prior to joining the Company, Mr. Malone held the position of Executive Vice President, Chief Financial Officer & Corporate Secretary at Igloo Products Corporation, a manufacturer of insulated consumer goods, from 2002 to January 2007. Mr. Malone was Vice President and Chief Financial Officer of The York Group, Inc. from 2000 to 2002, and held various financial positions from 1987 to 2000 with Cooper Industries, Inc. and its various subsidiaries.
Jeffery A. Leonard joined Alamo Group in September 2011 as Executive Vice President of Alamo Group Inc. and Executive Vice President of Alamo Group (USA) Inc., in charge of the Industrial Division. Mr. Leonard previously was Senior Vice President of Metso Minerals Industries Inc., a supplier of technology and services for mining, construction, power generation, automation, recycling, and pulp and paper industries.
Richard H. Raborn was appointed Executive Vice President of Alamo Group Inc. effective April 6, 2015. Mr. Raborn is also Executive Vice President of Alamo Group (USA) Inc. and is in charge of the Agricultural Division. Prior to joining the Company, Mr. Raborn was Vice President and General Manager of the Powertrain Metal Division for Illinois Tool Works (ITW) from 2009 to 2015. ITW is one of the world's leading diversified manufacturers of specialized industrial equipment, consumables and related service business.
Richard J. Wehrle has been Vice President, Controller and Treasurer of the Company since May 2001. He assumed Treasury responsibilities in May of 2018. Prior to his appointment, Mr. Wehrle served in various accounting management capacities within the Company since 1988.
Edward T. Rizzuti was appointed Vice President, General Counsel of Alamo Group Inc. effective July 15, 2015 and assumed the Secretary role in May of 2018. Prior to joining the Company, Mr. Rizzuti previously served from 2010 to 2015 as Vice President, General Counsel and Secretary for Erickson Incorporated, a publicly traded aircraft manufacturing and operating company based in Portland, Oregon.
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Janet S. Pollock was appointed Vice President, Human Resources of Alamo Group Inc. effective May 3, 2018. Ms. Pollock joined Alamo Group in June of 2013 as Vice President of Human Resources for U.S. Operations. Prior to joining the Company, Ms. Pollock was previously Vice President of Human Resources with CPS Energy in San Antonio, Texas and Vice President of Strategic Initiatives for Coca-Cola Enterprises, Inc.
Lori L. Sullivan was appointed Vice President, Internal Audit of Alamo Group Inc. effective May 2, 2019. Prior to this appointment, Ms. Sullivan was Vice President of Internal Audit for U.S. Operations and Director of Internal Audit for Alamo Group Inc. Ms. Sullivan has held audit positions within various industries including research and development, public utilities, and public accounting prior to joining Alamo Group in July of 2011.