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 March 31, 1999.
[ ] 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 March 31, 1999
Common Stock, par value $0.20 19,022,160
ASTEC INDUSTRIES, INC.
INDEX
Page Number
PART I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 1
Consolidated Statements of Income
for the Three Months Ended March 31,
1999 and 1998 2
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999
and 1998 3
Notes to Unaudited Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 5
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 9
PART II - Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
PART I ITEM I FINANCIAL STATEMENTS
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, December 31,
ACCOUNT DESCRIPTION 1999 1998
(Unaudited) (Note 1 )
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $7,191 $5,353
RECEIVABLES - NET 67,654 52,427
INVENTORIES 83,401 76,729
PREPAID EXPENSES AND OTHER 10,415 10,373
TOTAL CURRENT ASSETS 168,661 144,882
PROPERTY AND EQUIPMENT - NET 84,841 81,142
OTHER ASSETS 28,522 23,140
TOTAL ASSETS $282,024 $249,164
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
NOTES PAYABLE $88 $146
CURRENT MATURITIES OF LONG-TERM DEBT 500 500
ACCOUNTS PAYABLE - TRADE 38,917 27,418
OTHER ACCRUED LIABILITIES 38,249 34,953
TOTAL CURRENT LIABILITIES 77,754 63,017
LONG-TERM DEBT, LESS CURRENT MATURITIES 53,004 47,220
OTHER LONG-TERM LIABILITIES 9,286 6,269
TOTAL SHAREHOLDERS' EQUITY 141,980 132,658
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $282,024 $249,164
See notes to consolidated financial statements.
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
NET SALES $112,478 $88,164
COST OF SALES 84,469 65,860
GROSS PROFIT 28,009 22,304
S,G, A & E EXPENSES 13,940 12,673
INCOME FROM OPERATIONS 14,069 9,631
INTEREST EXPENSE 694 549
OTHER INCOME, NET OF EXPENSE 643 173
INCOME BEFORE INCOME TAXES 14,018 9,255
INCOME TAXES 5,451 3,696
NET INCOME $8,567 $5,559
EARNINGS PER COMMON SHARE (1)
BASIC $0.45 $0.30
DILUTED $0.43 $0.29
WEIGHTED AVERAGE COMMON SHARES
(1) OUTSTANDING
BASIC 18,988,549 18,670,494
DILUTED 19,814,701 19,156,014
(1) All amounts reflect the 2-for-1 stock split that took effect
on January 18, 1999.
See notes to consolidated financial statements.
ASTEC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 MARCH 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $8,567 $5,559
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 2,727 1,842
PROVISION FOR DOUBTFUL ACCOUNTS 506 128
PROVISION FOR INVENTORY RESERVE 698 504
PROVISION FOR WARRANTY RESERVE 1,880 1,332
(GAIN) LOSS ON SALE OF FIXED ASSETS (103) (50)
(GAIN) ON SALE OF LEASE PORTFOLIO (80)
(INCREASE) DECREASE IN:
TRADE RECEIVABLES (13,193) (8,746)
FINANCE RECEIVABLES (11,983) (9,386)
INVENTORIES (7,370) (5,166)
PREPAID EXPENSES AND OTHER (41) (2,579)
OTHER RECEIVABLES (83) (236)
OTHER NON-CURRENT ASSETS (14) (169)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE 11,499 6,182
ACCRUED PRODUCT WARRANTY (1,423) (958)
OTHER ACCRUED LIABILITIES 2,711 2,622
INCOME TAXES PAYABLE 3,146 3,730
TOTAL ADJUSTMENTS (11,123) (10,950)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,556) (5,391)
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT - NET 3,194 284
EXPENDITURES FOR PROPERTY AND EQUIPMENT (5,282) (3,578)
NET CASH USED BY INVESTING ACTIVITIES (2,088) (3,294)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS (REPAYMENTS) UNDER REVOLVING
CREDIT AGREEMENT 5,727 7,485
PROCEEDS FROM ISSUANCE OF COMMON STOCK 755 55
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,482 7,540
NET INCREASE (DECREASE) IN CASH 1,838 (1,145)
CASH AT BEGINNING OF PERIOD 5,353 2,926
CASH AT END OF PERIOD $7,191 $1,781
See notes to consolidated financial statements.
Notes To Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to From 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have bee
included. Operating results for the three-month period
ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31,
1999.
The balance sheet at December 31, 1998 has been derived
from the audited financial statements at that date but does
not include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Astec Industries, Inc. and subsidiaries annual report on
Form 10-K for the year ended December 31, 1998.
Note 2. Receivables
Receivables are net of allowance for doubtful accounts
of $1,551,000, and $1,459,000 for March 31, 1999 and
December 31, 1998, respectively.
Note 3. Inventories
Inventories are stated at the lower of first-in, first-
out, cost or market and consist of the following:
(in thousands)
March December
31, 31,
1999 1998
Raw Materials $25,872 $35,275
Work-in-Process 22,156 18,138
Finished Goods 35,373 23,316
Total $83,401 $76,729
Note 4. Property and Equipment
Property and equipment is stated at cost, net of
accumulated depreciation of $38,607,000 and $36,759,000 for
March 31, 1999 and December 31, 1998, respectively.
Note 5. Earnings Per Share
Earnings per share are computed in accordance with SFAS
No. 128 and are based on the weighted average number of
shares outstanding for each respective period.
Note 6. Contingent Matters
Certain customers have financed purchases of Astec
products through arrangements in which the Company is
contingently liable for customer debt aggregating
approximately $1,362,000 at March 31, 1999, and $1,271,000
at December 31, 1998.
Note 7. Segment Information
Three months ended
March 31, 1999
Hot-mix Aggregate Mobile Asphalt
Asphalt Processing Construction All
Plants Equipment Equipment Others Total
Revenues from
external customers $49,700 $38,207 $17,503 $7,067 $112,477
Intersegment revenues 2,414 2,916 0 1,157 6,487
Segment profit $6,852 $ 5,444 $ 3,180 ($6,729) $ 8,747
Three months ended
March 31, 1998
Hot-mix Aggregate Mobile Asphalt
Asphalt Processing Construction All
Plants Equipment Equipment Others Total
Revenues from
external customers $47,745 $28,359 $12,955 $7,239 $96,298
Intersegment revenues 2,809 1,436 2 3,888 8,135
Segment profit $6,917 $2,974 $1,887 ($5,619) $ 6,159
Reconciliations of the reportable segment totals for profit or loss to the
Company's consolidated totals are as follows:
Three months ended
March 31,
1999 1998
Profit:
Total profit for reportable $15,476 $11,778
segments
Other profit (loss) (6,729) (5,619)
Equity in income of joint venture 43 22
Elimination of intersegment profit (223) (622)
Total consolidated net income $8,567 $5,559
Note 8. Legal Matters
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.
Note 9. Seasonality
Approximately 20-30% of the Company's business volume
normally occurs during the first three months of each year.
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, including, but not limited to,
acquisition strategy, competition, regulation, Year 2000
compliance, product liability, seasonality and cyclicality,
international exposure, intellectual property, dependence on
key personnel and anti-takeover provisions, and other risk
factors that are discussed from time to time in the
Company's SEC reports. For a complete discussion of these
factors, please see "Management's Discussion and Analysis of
Financial Condition and Results of
Operations "Risk Factors." 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 March 31, 1999, net sales
increased to $112,478,000 from $88,164,000 for the three-
months ended March 31, 1998, representing a 27.6% increase.
Net sales of Johnson Crushers International, Inc. ("JCI"),
acquired in October 1998, accounts for approximately 35.8%
of the increase. The remainder of the increase in sales for
the first quarter of 1999 compared to the first quarter of
1998 related to internal growth, primarily increased sales
of road paving equipment and asphalt plants and related
components. Domestic sales growth relates to both the
strong economy coupled with customer purchases prompted by
the initiation of spending under the new six-year federal
highway bill (TEA 21). International sales for the first
quarter of 1999 decreased only slightly to $10,236,000 from
$10,782,000 during the first quarter of 1998. International
sales represented 9.1% and 12.2% of total sales for the
first quarter of 1999 and 1998, respectively.
Gross profit for the quarter ended March 31, 1999
increased to $28,009,000, from $22,304,000 for the quarter
ended March 31, 1998, while the gross profit percentage for
the three months ended March 31, 1999 decreased slightly to
24.9% from 25.3% for the months ended March 31, 1998. The
decrease in gross profit percentage for the quarter ended
March 31, 1999 compared to the same quarter in 1998 relates
primarily to decreased efficiencies related to training of
new manufacturing personnel at the asphalt plant
manufacturing locations and training personnel at the newly-
acquired manufacturing subsidiary.
Selling, general, administrative and engineering
expenses for the first quarter of 1999 were $13,940,000 or
12.4% of net sales, compared to $12,673,000 or 14.4% of net
sales for the same period of 1998. The increase in selling,
general, administrative and engineering expenses for the
quarter ended
March 31, 1999 compared to the same quarter in 1998, related
primarily to the acquisition of JCI, which accounted for
approximately 46.3% of the increase in selling, general,
administrative and engineering expenses. The remainder of
the increase relates primarily to increased selling expenses
from additional sales personnel at various locations.
Interest expense increased slightly to $694,000 for the
quarter ended March 31, 1999 from $549,000 for the quarter
ended March 31, 1998. Interest expense as a percentage of
net sales remained constant at .6% of net sales for the
quarters ended March 31, 1999 and 1998.
Other income, net of other expense, was $643,000, or
.6% of net sales for the quarter ended March 31, 1999,
compared to other income, net of other expense, of
$173,000, or .2% of net sales for the quarter ended March
31, 1998. The increase in other income for the current
quarter compared to the same period in the prior year
related primarily to an increase in interest income, income
from servicing equipment leases and from a gain on the sale
of equipment leases.
Income tax expense for the first quarter of 1999
increased to $5,451,000 from $3,696,000 at March 31, 1998,
an increase of $1,755,000, or 47.5%. Tax expense is 4.8%
and 4.2% of net sales for the quarters ended March 31, 1999
and 1998, respectively. The effective tax rate for the
first quarter of 1999 is 38.9% compared to an effective rate
of 39.9% for the first quarter of 1998.
Backlog of orders at March 31, 1999 was $100,890,000
compared to $81,601,000 at March 31, 1998. For comparison
purposes, the backlog of JCI is included in the prior year
backlog amount. The majority of the increase in the backlog
for the current quarter compared to the prior year quarter
relates to a significant increase in domestic orders for
asphalt plants and related components and for aggregate
equipment.
Liquidity and Capital Resources
As of March 31, 1999, the Company had working capital
of $90,908,000 compared to $81,865,000 at December 31,
1998.
Total short-term borrowings, including current
maturities of long-term debt, were $588,000 at March 31,
1999 compared to $646,000 at December 31, 1998. Long-term
debt less current maturities was $53,005,000 at March 31,
1999 and $47,220,000 at December 31, 1998. The increase in
outstanding debt at March 31, 1999 compared to the year-end
of 1998 is due to the utilization of the Company's revolving
credit loan by Astec Financial Services, Inc., the Company's
captive finance company, to finance leases.
Capital expenditures in 1999 for plant expansion and
for further modernization of the Company's manufacturing
processes are expected to approach approximately
$22,500,000. The Company expects to finance these
expenditures using internally generated funds and the
Company's revolving credit loan with First Chicago NBD.
Capital expenditures at March 31, 1999 were $5,282,000.
The Company has an unsecured revolving credit loan
agreement with First Chicago NBD. The current line of
credit totals $70,000,000. This credit facility expires
November 22, 2002. At March 31, 1999, $32,805,000 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 March 31,
1999, Astec Financial Services had utilized $22,805,000 of
this line which in included in the above stated utilization.
Advances under this line are limited to _Eligible
Receivables_ of Astec Financial Services 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 March 31, 1999.
Year 2000
The Company recognizes the need to ensure its
operations will not be adversely impacted by Year 2000
software failures. The term _Year 2000_ is a general term
used to describe the various problems that may result from
the improper processing of dates and date-sensitive
calculations by computers and other machinery as the year
2000 is approached and reached. Many computer systems
process dates using two
digits rather than four to define a specific year. Absent
corrective actions, a program may recognize a date using
_00_ as the year 1900 rather than the year 2000. Such an
occurrence could result in system failures
or miscalculations causing disruptions to various
activities. Software failures due to processing errors
potentially arising from calculations using the Year 2000
date are a known risk.
Management presently believes that with modifications
or replacements of existing software and certain hardware,
the Year 2000 issue will be mitigated. However, in the
unlikely event such modifications and replacements are not
made, or are not completed timely, the Year 2000 issue could
have a material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue
involves four phases: assessment, remediation, testing and
implementation. As previously reported, with the exception
of the newly-acquired aggregate processing manufacturer and
the third party inquiries of Year 2000 compliance, the
Company has completed its assessment of all systems that
could be significantly affected by the Year 2000. The
newly-acquired manufacturer is approximately 80% complete in
the assessment phase of its Year 2000 compliance plan.
A limited amount of operating equipment, mainly used in
manufacturing, is date sensitive. Manufacturers of the
affected equipment were contacted and the Company has either
already installed update modifications or has the
appropriate modification on order to install and test prior
to September 30, 1999. The remediation phase of updating
the operating equipment is more than 95% complete, and the
testing and implementation phases of modifying the operating
equipment is approximately 80% complete.
The Company manufactures products that use either
internally or externally developed software that is
susceptible to Year 2000. Various measures were taken to
notify and assist customers to become Year 2000 compliant.
The Company is more than 95% complete in the remediation,
testing and implementation phases of modifying product
systems.
The Company is in the process of querying its
significant suppliers and any other external agents (no
external agents share information systems with the Company).
The assessment phase of querying significant third party
associations is approximately 80% complete. As related to
information technology exposure, the Company is
approximately 85% complete in remediation and approximately
70% complete in testing and implementation.
The total cost of the Year 2000 project is estimated to
be approximately $3,000,000 and is being funded through
operating cash flows. During 1998, the Company incurred
approximately $2,200,000, related to all phases of the Year
2000 project. The originally budgeted capitalized
expenditures for 1999 were estimated at $620,000. Currently, with
additional information, and considering additional software and
hardware requirements, the Company expects 1999 capital
expenditures related to the Year 2000 project to reach
$1,000,000. The related project costs expected to be
expensed have decreased from approximately $180,000 to
$140,000.
Management of the Company believes it has an effective
program in place to timely resolve the Year 2000 issue. In
the event that the company does not complete any additional
phases, the Company could lose revenues due to inability to
manufacture its product to specified quality or deliver
equipment as scheduled.
Year 2000 issues could also hinder the Company's
ability to provide customer technical support or to provide
customer parts orders as quickly as necessary, among other
potential risks. In addition, the Company could be subject
to litigation for computer systems product failure or for
failure to properly date business records. Also, for
applications using software and systems dependent on outside
technical support, depending upon demand, technical support
may not be available with sufficient time to prevent adverse
effects on operations. The amount of potential liability
and lost revenues cannot be reasonably estimated at this
time.
The Company does not have a fully documented
contingency plan in place in the event it does not complete
all phases of the Year 2000 project, but it has begun to
investigate and document prudent preventive measures that
can be undertaken to secure operational capabilities in case
of their failure. These measures include identifying
secondary sources for raw materials, goods and services;
identifying alternate manufacturing routing methods;
stocking additional critical raw materials; printing of
paper documents and reports as reference tools; and
performing disaster recovery testing for potential power
interruptions or machine failures. The Company plans to
evaluate the status of completion of the Year 2000 project
after June 1999 and determine whether a full contingency
plan is necessary.
The Company designates each of the statements made by
it in this section entitled Year 2000 as a Year 2000
Readiness Disclosure. Such statements are made pursuant to
the Year 2000 Information and Readiness Disclosure Act.
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.
Item 3. Quantitative and Qulaitative Disclosure of Market
Risk
Risk Factors
Acquisition Strategy; Integration of Acquired Businesses
As part of its growth strategy, the Company intends to
evaluate the acquisitions of other companies, assets or
product lines that would complement or expand its existing
businesses or broaden its customer relationships. Although
the Company conducts due diligence reviews of potential
acquisition candidates, the Company may not be able to
identify all material liabilities or risks related to
potential acquisition candidates. There can be no assurance
that the Company will be able to locate and acquire any
business, retain key personnel and customers of an acquired
business or integrate any acquired business successfully,
including its recent acquisitions.
Competition
The Company faces strong competition in price, service
and product performance in each of its product lines. While
the Company does not compete with any one manufacturer in
all of its product lines, it does compete as to certain
products with both large publicly held companies with
resources significantly greater than the Company and various
smaller manufacturers. Furthermore, demand for the
Company's products is generally affected by economic
conditions in the United States. A weak domestic economy
could result in increased competition and reduced margins on
sales of the Company's products.
Imports do not constitute significant competition for
most of the Company's products marketed in the United
States. In connection with its international sales,
however, the Company generally competes with foreign
manufacturers, which may have a local presence in the
market, that the Company is attempting to penetrate. The
competition of foreign manufacturers and weak foreign
economies could have a material impact on the Company's
international sales and results of operations.
Regulation
The Company does not operate within a highly regulated
industry. However, air pollution equipment manufactured by
the Company principally for hot mix asphalt plants must
comply with certain performance standards promulgated by the
Environmental Protection Agency under the Clean Air Act
applicable to "new sources" or new plants. While the
Company's products are designed to meet or exceed current
regulatory requirements and applicable state pollution
standards and environmental protection laws, there can be no
assurance that any future changes to such requirements will
not adversely affect the Company. In addition, due to the
size and weight of certain component equipment, which the
Company manufacturers, the Company and its customers
sometimes confront, conflicting state regulations on maximum
weights transportable on highways and roads. Also, some
states have regulations governing the operation of the
Company's component equipment, including asphalt mixing
plants and soil remediation equipment, and most states have
regulations relating to the accuracy of weights and measures
which affect some of the control systems manufactured by the
Company.
Year 2000 Compliance
Many existing computer systems and applications, and
other control devices use only two digits to identify a year
in the date field, without considering the impact of the
upcoming change in the century. As a result, such systems
and applications could fail or create erroneous results
unless corrected so that they can process data related to
the year 2000. The Company relies on its computer systems,
applications and devices in operating and monitoring all
major aspects of its business. The Company has for some
time been pursuing a Year 2000 compliance program. The
Company believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 issue
will be mitigated. However, if the Company is unable to make
the required modifications and
replacements, or are if they are not made on a timely basis,
the Year 2000 issue could have a material impact on the
operations of the Company.
Product Liability
The Company is engaged in a business that could expose
it to possible liability claims for personal injury or
property damage due to alleged design or manufacturing
defects in the Company's products. The Company believes that
it meets existing professional specification standards
recognized or required in the industries in which it
operates. Although the Company currently maintains product
liability coverage which it believes is adequate for the
continued operation of its business, such insurance may
prove inadequate or become difficult to obtain or
unobtainable in the future on terms acceptable to the
Company.
Seasonality and Cyclicality in Operating Results
The Company's business can generally be characterized
as seasonal with sales tending to be stronger in the first
and second quarters to fill orders placed in the fourth
quarter of the preceding year in anticipation of warmer
summer months when most asphalt paving and heavy
construction work is performed. The Company's business is
also somewhat cyclical with operating results typically
affected by general economic conditions and other factors
affecting the construction industry as a whole.
Historically, during periods of a weak domestic economy,
economic pressures have adversely affected the construction
industry and have resulted in increased competition and
reduced margins on sales of the Company's products.
International Exposure
For the first quarter of 1999, international sales
represented approximately 9.1% of the Company's total
revenues. The Company anticipates that international
operations will continue to account for a portion of its
business for the foreseeable future. As a result, the
Company may be subject to certain risks, including
difficulty in managing distributors and dealers, adverse tax
consequences, political and economic
instability of governments, and difficulty in accounts
receivable collection. The Company is subject to the risks
associated with the imposition of protective legislation and
regulations, including those relating to import or export or
otherwise resulting from trade or foreign policy, in the
nations in which it now or in the future will conduct
business. The Company cannot predict whether quotas,
duties, taxes or other charges or restrictions will be
implemented by the U.S. or any other country upon the import
or export of the Company's products. There can be no
assurance that any of these factors, or the adoption of
restrictive policies, will not have a material adverse
effect on the Company's business, financial condition and
results of operations.
Intellectual Property Matters
The Company holds numerous patents covering technology
and applications related to various products, equipment and
systems, and numerous trademarks and trade names registered
with the U.S. Patent and Trademark Office and in various
foreign countries. There can be no assurance as to the
breadth or degree of protection that existing or future
patents or trademarks may afford the Company, or that any
pending patent or trademark applications will result in
issued patents or trademarks, or that the Company's patents,
registered trademarks or patent applications, if any, will
be upheld if challenged, or that competitors will not
develop similar or superior methods or products outside the
protection of any patents issued, licensed or sublicensed to
the Company. Although the Company believes that none of its
patents, technologies, products or trademarks infringe upon
the patents, technologies, products or trademarks of others,
it is possible that its existing patent, trademark or other
rights may not be valid or that infringement of existing or
future patents, trademarks or proprietary rights may occur.
In the event that the Company's
products are deemed to infringe upon the patent or
proprietary rights of others, the Company could be required
to modify the design of its products, change the name of its
products or obtain a license for the use of certain
technologies incorporated into its products. There can be
no assurance that the Company would be able to do any of the
foregoing in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do so could have a
material adverse effect on the Company.
Dependence on Key Personnel
The success of the Company's business will continue to
depend substantially upon the efforts, abilities and
services of its executive officers and certain other key
employees. The loss of one or more key employees could
adversely affect the Company's operations. The Company's
ability to attract and
retain qualified engineers and other professionals, either
through direct hiring, or acquisition of other businesses
employing such professionals, will also be an important
factor in determining the Company's future success.
Anti-takeover Provisions
The Company's charter and its bylaws contain various
provisions that may have the affect, either alone or in
combination with each other, of making more difficult or
discouraging a business combination or an attempt to obtain
control of the Company that is deemed undesirable by the
Board of Directors. These provisions include (i) the right
of the Board of Directors to issue shares of Preferred Stock
and one or more series and designate the number of shares of
each such series and the relative rights and preferences of
such series, including voting rights, terms of redemption,
redemption prices and conversion rights without further
shareholder approval; (ii) a classified Board of Directors
elected in three year
staggered terms; (iii) prohibitions on the right of
shareholders to remove directors other than for cause, and
any such removal requiring at least two-thirds of the total
number of shares issued and outstanding; (iv) requirements
for advanced notice of actions proposed by shareholders for
consideration at meetings of the shareholders; (v)
limitations on the right of shareholders to call a special
meeting of the shareholders or from acting by written
consent in lieu of a meeting unless all shareholders
entitled to vote on such action consent to taking such
action without a meeting; and (vi) an election to be
governed by the Tennessee Control Share Acquisition Act.
The Company's charter and bylaws also limit the liability of
directors in certain cases and provide for the Company to
indemnify its directors and officers to the fullest extent
permitted by applicable law. In addition, as a Tennessee
Corporation, the Company is subject to the Tennessee
Business Combination Act, which may have the affect of
discouraging a non-negotiated bid or proposal to acquire the
Company.
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, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Contingencies" in Part I - Item 2 "Contingencies" of this
Report.
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 March 31, 1999.
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)
5/14 /99 /s/ J. Don Brock
Date J. Don Brock
Chairman of the Board
and President
5/14 /99 /s/ F. McKamy Hall
Date F. McKamy Hall
Vice President and Chief
Financial Officer
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