SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to section
13 or 15(d) of the Securities Exchange Act
of 1934. For the quarterly period ended June
30, 1998.
[ ] 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 0-14714
Astec Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-0873631
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4101 Jerome Avenue, Chattanooga, Tennessee 37407
(Address of Principal Executive Offices) (Zip Code)
(423) 867-4210
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the
registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934
during the preceding 12 months (or for such
shorter period that the registrant was
required to file such reports), and (2) has
been subject to such filing requirements for
the past 90 days.
YES X NO _______
Indicate the number of shares
outstanding of each of the registrant's
classes of stock as of the latest practicable
date.
Class Outstanding at June 30, 1998
Common Stock, par value $0.20 9,404,580
ASTEC INDUSTRIES, INC.
INDEX
Page Number
PART I - Financial Information
Item 1. Financial Statements-Unaudited
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 1
Consolidated Statements of Income
for the Three and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998
and 1997 3
Notes to Unaudited Consolidated Financial
Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5
PART II - Other Information
Item 1. Legal Proceedings 7
Item 5. Other Items 7
Item 6. Exhibits and Reports on Form 8-K 7
PART I ITEM I FINANCIAL STATEMENTS
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ACCOUNT DESCRIPTION JUNE 30, DECEMBER 31,
1998 1997
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $18,449 $2,926
RECEIVABLES - NET 54,065 38,771
INVENTORIES 63,878 69,395
PREPAID EXPENSES AND OTHER 14,228 7,530
TOTAL CURRENT ASSETS 150,620 118,622
PROPERTY AND EQUIPMENT - NET 67,047 61,605
OTHER ASSETS 15,980 12,016
TOTAL ASSETS $233,647 $192,243
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF LONG-TERM DEBT $500 $500
ACCOUNTS PAYABLE - TRADE 24,949 21,422
OTHER ACCRUED LIABILITIES 35,385 25,242
TOTAL CURRENT LIABILITIES 60,834 47,164
LONG-TERM DEBT, LESS CURRENT MATURITIES 48,341 35,230
OTHER LONG-TERM LIABILITIES 5,522 4,237
TOTAL SHAREHOLDERS' EQUITY 118,950 105,612
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $233,647 $192,243
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
NET SALES $108,124 $73,159 $196,288 $136,139
COST OF SALES 82,298 55,394 148,158 102,499
GROSS PROFIT 25,826 17,765 48,130 33,640
S,G, & A EXPENSES 12,841 9,557 25,514 19,130
INCOME FROM OPERATIONS 12,985 8,208 22,616 14,510
INTEREST EXPENSE 852 625 1,401 1,178
OTHER INCOME, NET OF EXPENSE 127 92 300 196
INCOME BEFORE INCOME TAXES 12,260 7,675 21,515 13,528
INCOME TAXES 4,871 3,050 8,567 5,378
NET INCOME $7,389 $4,625 $12,948 $8,150
EARNINGS PER COMMON SHARE
BASIC $0.79 $0.48 $1.38 $0.83
DILUTED $0.76 $0.48 $1.34 $0.82
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 9,392,228 9,557,125 9,363,895 9,797,189
DILUTED 9,699,341 9,690,053 9,638,831 9,916,223
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, JUNE 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $12,948 $8,150
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 3,855 3,066
PROVISION FOR DOUBTFUL ACCOUNTS 245 160
PROVISION FOR INVENTORY RESERVE 939 841
PROVISION FOR WARRANTY RESERVE 2,682 1,713
(GAIN) LOSS ON SALE OF FIXED ASSETS (59) 462
PROVISION FOR PENSION RESERVE 121
(INCREASE) DECREASE IN:
TRADE RECEIVABLES (10,183) (5,227)
FINANCE RECEIVABLES (9,258) (10,454)
INVENTORIES 3,286 (386)
PREPAID EXPENSES AND OTHER (6,699) (2,636)
OTHER RECEIVABLES (183) (1,236)
OTHER NON-CURRENT ASSETS (91) 242
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE 3,527 6,758
ACCRUED PRODUCT WARRANTY (1,755) (811)
OTHER ACCRUED LIABILITIES 1,736 804
INCOME TAXES PAYABLE 8,644 8,333
TOTAL ADJUSTMENTS (3,193) 1,629
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,755 9,779
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT - NET 304 285
EXPENDITURES FOR PROPERTY AND EQUIPMENT (8,037) (3,828)
NET CASH USED BY INVESTING ACTIVITIES (7,733) (3,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS (REPAYMENTS) UNDER
REVOLVING CREDIT AGREEMENT 13,111 (1,756)
TENDER OFFER STOCK REPURCHASE (7,733)
BORROWINGS UNDER LOAN AND
NOTE AGREEMENTS 8,564
PROCEEDS FROM ISSUANCE OF COMMON STOCK 390 32
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 13,501 (893)
NET INCREASE IN CASH 15,523 5,343
CASH AT BEGINNING OF PERIOD 2,926 3,382
CASH AT END OF PERIOD $18,449 $8,725
ASTEC INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The information contained in the unaudited consolidated
balance sheets, the unaudited consolidated statements of
income, and the unaudited consolidated statements of cash
flows reflect all adjustments consisting of normal
recurring accruals which are, in the opinion of management,
necessary to present a fair statement of the results for the
periods covered.
2. Receivables are net of allowance for doubtful accounts
of $1,118,000 and $1,342,000 for June 30, 1998 and December
31, 1997, respectively.
3. Inventories are stated at the lower of first-in, first-
out, cost or market and consist of the following:
(in thousands)
June 30, December 31,
1998 1997
Raw Materials $28,534 $ 27,987
Work-in-Process 16,095 15,920
Finished Goods 19,249 25,488
Total $63,878 $ 69,395
4. Property and equipment is stated at cost. Property and
equipment is net of accumulated depreciation of $34,388,000
and $31,747,000 for June 30, 1998 and December 31, 1997,
respectively.
5. Earnings per share are computed in accordance with SFAS
No. 128.
6. Certain customers have financed purchases of Astec
products through arrangements in which the Company is
contingently liable for customer debt aggregating
approximately $982,000 at June 30, 1998, $3,174,000 at June
30, 1997 and $1,793,000 at December 31, 1997.
7. There have been no material developments in legal
proceedings previously reported. See "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" in Part I - Item 2 "Contingencies" of this
Report.
8. Approximately 60% of the Company's business volume
normally occurs during the first six months of each year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
When used in this report, press releases and elsewhere
by management or the Company from time to time, the words,
"believes," "anticipates," and "expects" and similar
expressions are intended to identify forward-looking
statements that involve certain risks and uncertainties. A
variety of factors could cause actual results to differ
materially from those anticipated in the Company's forward-
looking statements, some of which include market conditions
in the road building and related construction equipment
industry, competition in the Company's markets from existing
and new competitors and the products or services they
provide, the ability to expand in existing markets and
penetrate new markets, federal and state legislation
affecting infrastructure, and other risk factors that are
discussed from time to time in the Company's SEC reports.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
such statements are made. The Company undertakes no
obligations to publicly release the results of any revisions
to these forward-looking statements that may be made to
reflect events or circumstances after the date such
statements are made or to reflect the occurrence of
unanticipated events.
Results of Operations
For the three-months ended June 30, 1998, net sales
increased to $108,124,000, from $73,159,000 for the three-
months ended June 30, 1997, representing a 47.8% increase.
The acquisition of Kolberg-Pioneer, Inc. during December
1997, accounted for approximately $13,435,000 of the
increase in sales for the second quarter of 1998 compared to
the second quarter of 1997. The remainder of the increase
in net sales for the second quarter of 1998 compared to the
second quarter of 1997 related to increased sales of
aggregate crushing equipment and asphalt mixing plants and
related components. International sales for the second
quarter of 1998 increased to $16,000,000, from $11,673,000
for the same period of 1997.
Net sales for the six months ended June 30, 1998
increased approximately 44.2% to $196,288,000 from
$136,139,000 for the same period of 1997. For the six
months ended June 30, 1998, approximately 45% of the
increase in net sales is attributable to net sales of
Kolberg-Pioneer, Inc. The remainder of the increase in net
sales for the six months ended June 30, 1998 is attributable
increased sales of asphalt mixing plants and related
components and of aggregate crushing equipment.
Gross profit for the quarter ended June 30, 1998
increased to $25,826,000, from $17,765,000 for the quarter
ended June 30, 1997, while the gross profit percentage for
the three months ended June 30, 1998 decreased slightly to
23.9% from 24.3% at June 30, 1997. The decrease in the
gross profit percentage for the quarter ended June 30, 1998
compared to the same quarter in 1997 relates mainly to lower
profit margins on two product lines.
Gross profit for the six months ended June 30, 1998 was
$48,130,000 compared to gross profit of $33,640,000 for the
same period of 1997. The gross profit percentage for the
six months ended June 30, 1998 was 24.5% compared to 24.7%
for the six months ended June 30, 1997.
Selling, general, and administrative expenses for the
second quarter of 1998 were $12,841,000 or 11.9% of net
sales, compared to $9,557,000 or 13.1% of net sales for the
same period of 1997. Approximately 60% of the increase in
selling, general and administrative expenses for the quarter
ended June 30, 1998 compared to the same quarter in 1997,
related to increased sales expense for both domestic and
international sales forces and increased legal expenses.
The remaining increase in selling, general and
administrative expenses for the second quarter ended June
30, 1998 compared to the same period of 1997 related to
selling, general and administrative expenses of Kolberg-
Pioneer, Inc. which was acquired in December 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - CONT.
Selling, general and administrative expenses for the
six months ended June 30, 1998 increased to $25,514,000,
from $19,130,000 for the six months ended June 30, 1997, an
increase of $6,384,000, or 33.4%. Approximately half of the
increase in selling, general and administrative expenses for
the six months ended June 30, 1998 compared to the same
period of 1997 related to Kolberg-Pioneer, Inc. The
remaining increase in selling, general and administrative
expenses related to increased selling expense.
Interest expense increased to $852,000 for the quarter
ended June 30, 1998 from $625,000 for the quarter ended
June 30, 1997. Interest expense as a percentage of net
sales decreased to .8% for the quarter ended June 30, 1998
from .9% for the same period of 1997.
Interest expense for the six months ended June 30, 1998
compared to the six months ended June 30, 1997 increased to
$1,401,000 from $1,178,000, respectively. The increase in
interest expense for the three and six months ended June 30,
1998 compared to the three and six months ended June 30,
1997, is due mainly to increased borrowing under of the
Company's revolving credit facility.
Other income, net of other expense, was $127,000, or
.1% of net sales for the quarter ended June 30, 1998,
compared to other income, net of other expense, of $92,000,
or .1% of net sales for the quarter ended June 30, 1997.
Other income, net of other expense for the six months
ended June 30, 1998 was $300,000 compared to other income,
net of other expense for the six months ended June 30, 1997
of $196,000, an increase of $104,000.
Income tax expense for the second quarter of 1998
increased to $4,871,000 from $3,050,000 at June 30, 1997, an
increase of $1,821,000 or 59.7%. Tax expense is 4.5% and
4.2% of net sales for the quarters ended June 30, 1998 and
1997, respectively. The effective tax rate for the second
quarter of 1998 and 1997 was 39.7%.
Backlog of orders at June 30, 1998 was $66,674,000
compared to $54,663,000 at June 30, 1997. For comparison,
the June 30, 1997 backlog of Kolberg-Pioneer was included in
the June 30, 1997 backlog amount. The majority of the
increase in the backlog at June 30, 1998 compared to that of
June 30, 1997 related to a significant increase in domestic
and international orders for asphalt mixing plants and
related components and for increased domestic orders for
aggregate crushing equipment.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of
$89,786,000 compared to $71,621,000 at June 30, 1997.
Total short-term borrowings, including current
maturities of long-term debt, were $500,000 at June 30,
1998 compared to $602,000 at June 30, 1997. The total
current maturities of long-term debt at June 30, 1998
represents current maturities of outstanding Industrial
Revenue Bonds. Long-term debt less current maturities was
$48,341,000 at June 30, 1998 and $38,754,000 at June 30,
1997. The increase in outstanding debt at June 30, 1998
compared to the same period of 1997 is due to the
utilization of the revolving line of credit by the Company's
captive finance subsidiary and due to the purchase of
Kolberg-Pioneer, Inc. in December 1997 and for working
capital needs. During the third quarter of 1998, the
Company plans to convert $9,000,000 of the outstanding
credit line related to the acquisition of Kolberg-Pioneer,
Inc. to industrial revenue bonds.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - CONT.
On June 30, 1998, approximately $11,000,000 cash was
received for the sale of finance leases. Due to timing of
the receipt of these funds, the outstanding line of credit
could not be reduced until July 1998. In addition, on June
30, 1998, approximately $7,000,000 of cash was received in
the normal course of business that could not be applied to
the outstanding line of credit until July 1998.
Capital expenditures in 1998 for plant expansion and
for further modernization of the Company's manufacturing
processes, are expected to approach $10,000,000. The
Company expects to finance these expenditures using
internally generated funds. Capital expenditures for the
six months ended June 30, 1998 were $8,037,000.
The Company has an unsecured revolving credit loan
agreement with First Chicago NBD. The line of credit is
$70,000,000. This credit facility expires November 22,
2002. At June 30, 1998, $36,841,000 of the line of credit
was utilized. Principal covenants under the First Chicago
credit agreement include ( i ) the maintenance of certain
levels of net worth and compliance with certain net worth,
leverage and interest coverage ratios, (ii) a limitation on
capital expenditures and rental expense, (iii) a prohibition
against dividends, and (iv) a prohibition on large
acquisitions except upon the consent of the lenders.
As part of the Company's $70,000,000 revolving credit
facility, Astec Financial Services, Inc. has a segregated
portion of up to a $30,000,000 line of credit. At June 30,
1998, Astec Financial Services, Inc. had utilized
$21,841,000 of this line, which is included in the above
stated utilization. Advances under this line of credit are
limited to _Eligible Receivables_ of Astec Financial
Services, Inc. as defined in the credit agreement. The
Company and Astec Financial Services were in compliance with
all financial covenants related to the line of credit at
June 30, 1998.
Contingencies
The Company is engaged in certain pending litigation
involving claims or other matters arising in the ordinary
course of business. Most of these claims involve product
liability or other tort claims for property damage or
personal injury against which the Company is insured. As a
part of its litigation management program, the Company
maintains general liability insurance covering product
liability and other similar tort claims providing the
Company coverage of $8,000,000 subject to a substantial
self-insured retention under the terms of which the Company
has the right to coordinate and control the management of
its claims and the defense of these actions.
Management has reviewed all claims and lawsuits and,
upon the advice of its litigation counsel, has made
provision for any estimable losses. Notwithstanding the
foregoing, the Company is unable to predict the ultimate
outcome of any outstanding claims and lawsuits.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the legal
proceedings previously reported by the registrant since the
filing of its Annual Report on Form 10-K for the year ended
December 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
in Part I - Item 2 "Contingencies" of this Report.
PART II - OTHER INFORMATION - CONT.
Item 5. Other Items
Shareholder Proposals
The proxy statement solicited by the Board of Directors
of the Company with respect to the 1999 Annual Meeting of
Shareholders will confer discretionary authority on the
Company to vote on any shareholder proposals intended to be
presented for consideration at such Annual Meeting that are
submitted to the Company after February 8, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits:
(27) Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the
quarter ended June 30, 1998.
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.
ASTEC INDUSTRIES, INC.
(Registrant)
8/10/98
Date /s/ J. Don Brock
J. Don Brock
Chairman of the Board
and President
8/10/98 /s/ Richard W. Bethea, Jr.
Date Richard W. Bethea, Jr.
Vice President, Corporate
Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,449
<SECURITIES> 0
<RECEIVABLES> 54,065
<ALLOWANCES> 1,118
<INVENTORY> 63,878
<CURRENT-ASSETS> 150,620
<PP&E> 67,047
<DEPRECIATION> 34,388
<TOTAL-ASSETS> 233,647
<CURRENT-LIABILITIES> 60,834
<BONDS> 0
0
0
<COMMON> 2,039
<OTHER-SE> 116,911
<TOTAL-LIABILITY-AND-EQUITY> 233,647
<SALES> 196,288
<TOTAL-REVENUES> 196,288
<CGS> 148,158
<TOTAL-COSTS> 148,158
<OTHER-EXPENSES> 25,514
<LOSS-PROVISION> 245
<INTEREST-EXPENSE> 1,401
<INCOME-PRETAX> 21,515
<INCOME-TAX> 8,567
<INCOME-CONTINUING> 12,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,948
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.34
</TABLE>
