THIS DOCUMENT IS A COPY OF THE QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED SEPTEMBER 30, 2000 FILED ON NOVEMBER 15, 2000 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 September 30, 2000.
[ ] 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 November 8, 2000
Common Stock, par value $0.20 19,265,209
ASTEC INDUSTRIES, INC.
INDEX
Page Number
PART I - Financial Information
Item 1. Financial Statements-Unaudited
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income
for the Three and Nine Months Ended
September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
2000 and 1999 3
Notes to Unaudited Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II - Other Information
Item 1. Legal Proceedings 14
Item 5. Other Items 14
Item 6. Exhibits and Reports on Form 8-K 14
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ACCOUNT DESCRIPTION SEPTEMBER 30, DECEMBER 31,
2000 1999
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 2,723 $ 3,725
RECEIVABLES, NET 75,394 81,366
INVENTORIES 118,143 104,842
PREPAID EXPENSES AND OTHER 14,278 13,418
TOTAL CURRENT ASSETS 210,538 203,351
PROPERTY AND EQUIPMENT, NET 124,218 109,388
GOODWILL 34,073 36,300
OTHER ASSETS 10,220 6,398
TOTAL ASSETS $ 379,049 $ 355,437
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
NOTES PAYABLE $ 4,159 $ 85
CURRENT MATURITIES OF LONG-TERM DEBT 532 511
ACCOUNTS PAYABLE, TRADE 29,421 36,430
OTHER ACCRUED LIABILITIES 39,380 38,757
TOTAL CURRENT LIABILITIES 73,492 75,783
LONG-TERM DEBT, LESS CURRENT MATURITIES 105,959 102,685
OTHER LONG-TERM LIABILITIES 6,788 9,711
TOTAL SHAREHOLDERS' EQUITY 192,810 167,258
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $379,049 $355,437
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
NET SALES $103,036 $106,886 $403,634 $339,322
COST OF SALES 78,428 79,107 304,410 249,695
GROSS PROFIT 24,608 27,779 99,224 89,627
S,G, A & E EXPENSES 17,955 14,830 55,927 44,600
INCOME FROM OPERATIONS 6,653 12,949 43,297 45,027
INTEREST EXPENSE 1,916 1,065 6,204 2,707
OTHER INCOME, NET
OF EXPENSE 596 989 3,485 2,851
INCOME BEFORE
INCOME TAXES 5,333 12,873 40,578 45,171
INCOME TAXES 1,926 4,958 15,825 17,534
NET INCOME $ 3,407 $ 7,915 $ 24,753 $ 27,637
EARNINGS PER
COMMON SHARE
BASIC $ 0.18 $ 0.41 $ 1.29 $ 1.45
DILUTED $ 0.17 $ 0.40 $ 1.25 $ 1.38
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
BASIC 19,181,748 19,100,919 19,180,756 19,047,564
DILUTED 19,608,758 20,018,128 19,763,262 19,981,991
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30 SEPTEMBER 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 24,753 $ 27,637
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 11,602 8,355
PROVISION FOR DOUBTFUL ACCOUNTS 365 519
PROVISION FOR INVENTORY RESERVE 600 427
PROVISION FOR WARRANTY RESERVE 2,519 3,116
(GAIN) ON SALE OF FIXED ASSETS (66) (232)
(GAIN) ON SALE OF LEASE PORTFOLIO (2,119) (657)
(INCREASE) DECREASE IN:
TRADE RECEIVABLES 985 (13,105)
FINANCE RECEIVABLES (13,938) (14,340)
INVENTORIES (13,902) (5,603)
PREPAID EXPENSES AND OTHER (859) (1,578)
OTHER RECEIVABLES (1,357) 229
OTHER NON-CURRENT ASSETS (4,141) 939
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (7,008) 369
ACCRUED PRODUCT WARRANTY (2,867) (2,800)
OTHER ACCRUED LIABILITIES (5,977) (43)
INCOME TAXES PAYABLE 4,025 3,706
_________ _________
(32,138) (20,698)
_________ _________
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (7,385) 6,939
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY AND
EQUIPMENT, NET 124 109
PROCEEDS FROM SALE AND REPAYMENT
OF LEASE PORTFOLIO 56,055 32,368
EXPENDITURES FOR - PROPERTY
AND EQUIPMENT (13,743) (21,095)
EXPENDITURES FOR EQUIPMENT
ON OPERATING LEASE (44,221) (27,245)
CASH PAYMENTS IN CONNECTION
WITH BUSINESS COMBINATION,
NET OF ACQUISITION'S CASH BALANCE (18,500)
________ ________
NET CASH USED BY INVESTING
ACTIVITIES (1,785) (34,363)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER REVOLVING CREDIT
AGREEMENT 3,294 8,158
NET BORROWINGS UNDER LOAN AND NOTE
AGREEMENTS 4,074 14,939
PROCEEDS FROM ISSUANCE OF
COMMON STOCK 834 1,673
______ _______
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,202 24,770
________ ________
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (34) (106)
________ ________
NET (DECREASE) IN CASH (1,002) (2,760)
CASH AT BEGINNING OF PERIOD 3,725 5,353
________ ________
CASH AT END OF PERIOD
$ 2,723 $ 2,593
ASTEC INDUSTRIES, INC.
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 Form 10-Q and
Article 10 of Regulation S-X promulgated under the Securities Act of 1933.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The balance sheet at December 31, 1999 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.
Certain reclassifications were made to the prior year presentation to
conform to the current year presentation. For further information, refer to
the consolidated financial statements and footnotes included in the Astec
Industries, Inc. and subsidiaries annual report on Form 10-K for the year ended
December 31, 1999.
Note 2. Receivables.
Receivables are net of allowance for doubtful accounts of $2,028,000
and $1,966,000 for September 30, 2000 and December 31, 1999, 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)
September 30, 2000 December 31, 1999
Raw Materials $ 39,952 $ 45,641
Work-in-Process 24,505 15,884
Finished Goods 53,686 43,317
Total $ 118,143 $ 104,842
Note 4. Property and Equipment
Property and equipment is stated at cost. Property and equipment is
net of accumulated depreciation of $52,532,000 and $44,013,000 for September
30, 2000 and December 31, 1999, respectively.
Notes to Unaudited Financial Statements - Continued
Note 5. Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with
SFAS No. 128. Basic earnings per share exclude any dilutive effects of
options, warrants and convertible securities.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Numerator:
<CAPTION>
<S> <C> <C> <C> <C>
Net income $3,407,000 $7,915,000 $24,753,000 $27,637,000
Denominator:
Denominator for
basic earnings
per share 19,181,748 19,100,919 19,180,756 19,047,564
Effect of dilutive
securities:
Employee stock
options 427,010 917,209 582,506 934,427
Denominator for
diluted
earnings per share 19,608,758 20,018,128 19,763,262 19,981,991
Earnings per
common share:
Basic $ 0.18 $ 0.41 $ 1.29 $ 1.45
Diluted $ 0.17 $ 0.40 $ 1.25 $ 1.38
</TABLE>
Note 6. Comprehensive Income
Total comprehensive income was $24,753,000 for the nine months
ended September 30, 2000 and $27,637,000 for the nine months ended
September 30, 1999.
Note 7. Contingent Matters
Certain customers have financed purchases of Astec products
through arrangements in which the Company is contingently liable for
customer debt aggregating approximately $12,131,000 at September 30, 2000
and $11,776,000 at December 31, 1999.
Note 8. Segment Information
<TABLE>
(in thousands)
Three months ended
September 30, 2000
Hot-mix Aggregate Mobile Asphalt Pipeline and
Asphalt Processing Construction Underground Utility All
Plants Equipment Equipment Construction Group Others Total
Revenues
from
external
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
customers $41,785 $31,401 $10,840 $17,971 $1,039 $103,036
Intersegment
revenues 6,686 5,776 167 99 716 13,444
Segment
profit 3,494 1,721 546 1,896 (4,250) 3,407
</TABLE>
<TABLE>
Three months ended
September 30, 1999
Hot-mix Aggregate Mobile Asphalt Pipeline and
Asphalt Processing Construction Underground Utility All
Plants Equipment Equipment Construction Group Others Total
Revenues from
external
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
customers $44,652 $41,629 $14,810 $4,887 $ 908 $106,886
Intersegment
revenues 4,958 1,854 303 20 913 8,048
Segment
profit 6,522 4,781 2,307 (535) (5,160) 7,915
</TABLE>
<TABLE>
(in thousands)
Nine months ended
September 30, 2000
Mobile Pipeline and
Hot-mix Aggregate Asphalt Underground
Asphalt Processing Construction Utility All
Plants Equipment Equipment Construction Group Others Total
Revenues from
external
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
customers $150,484 $143,262 $51,340 $56,664 $1,884 $403,634
Intersegment
revenues 12,670 12,859 221 505 2,624 28,879
Segment profit 16,750 16,044 7,996 5,408 (21,445) 24,753
</TABLE>
<TABLE>
Nine months ended
September 30, 1999
Hot-mix Aggregate Mobile Asphalt Pipeline and
Asphalt Processing Construction Underground Utility All
Plants Equipment Equipment Construction Group Others Total
Revenues from
external
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
customers $142,222 $118,045 $58,154 $18,083 $2,818 $339,322
Intersegment
revenues 13,317 9,399 (1,826) 55 2,823 23,768
Segment
profit 20,676 15,605 11,063 273 (19,980) 27,637
</TABLE>
In prior periods the Pipeline and Underground Utility Construction
Group did not meet the requirements for disclosure as a separate reportable
segment. American Augers, Inc., which the Company acquired in October
1999, and Trencor, Inc. comprise the Pipeline and Underground Utility
Construction segment.
Reconciliations of the reportable segment totals for profit or loss to the
Company's consolidated totals are as follows:
(in thousands)
Three months ended September 30,
2000 1999
Profit:
Total profit for reportable segments $8,218 $13,120
Other profit (loss) (4,255) (5,160)
Equity in (loss)/income of
joint venture 5 -
Elimination of intersegment profit (561) (45)
Total consolidated net income 3,407 7,915
Notes to Unaudited Financial Statements - Continued
(in thousands)
Nine months ended September 30,
2000 1999
Profit:
Total profit for reportable segments $46,038 $47,662
Other profit (loss) (21,411) (20,032)
Equity in (loss)/income of joint venture (34) 52
Elimination of intersegment profit 160 (45)
Total consolidated net income $24,753 $27,637
Note 9. 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 - Contingencies" in Part I - Item 2 of this
Report.
Note 10. Seasonality
Due to varied product lines, the Company's business is becoming less
seasonal. Approximately 50% to 55% of the Company's business volume
typically occurs during the first six months of the year.
Item 2. Management's Discussion and Analysis Of Financial
Condition And Results Of Operations
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 (within the meaning of the Private Securities
Litigation Reform Act of 1995) 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, which include the
risk factors discussed in this report, and other risk factors that are discussed
from time to time in the Company's reports filed with the SEC. 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 September 30, 2000, net sales decreased
to $103,036,000 from $106,886,000 for the three months ended September 30,
1999, representing a 3.6% decrease. The Company completed three
acquisitions during the last two quarters of 1999. The 1999 third quarter
consolidated financial statements include the operating results of Breaker
Technology, Inc. since August 13, 1999, and include operating results of
American Augers, Inc. and Superior Industries of Morris, Inc. for the last two
months of 1999. The prior year acquisitions accounted for $22,741,000 or
approximately 28.3% of the net sales during the third quarter of 2000.
International sales for the third quarter of 2000 increased to $13,425,000 from
$8,938,000 for the same period of 1999 with approximately 19% of the third
quarter international sales coming from Breaker Technology, Inc.
Net sales for the nine months ended September 30, 2000 increased
approximately 19.0% to $403,634,000 from $339,322,000 for the same period of
1999. For the nine months ended September 30, 2000, $80,160,000 of total net
sales is attributable to the three acquisitions that occurred during the last
two quarters of 1999.
Gross profit for the three months ended September 30, 2000 decreased
to $24,608,000 from $27,779,000 for the three months ended September 30, 1999,
while the gross profit percentage for the three months ended September 30,
2000 decreased to 23.9% from 26.0% for the three months ended September 30,
1999. One aggregate company and the pipeline and underground utility
construction group had improved gross profit margins for the third quarter of
2000 compared to the same prior year period.
Gross profit for the nine months ended September 30, 2000 was
$99,224,000 compared to $89,627,000 for the same period of 1999. The gross
profit percentage for the nine months ended September 30, 2000 was 24.6%
compared to 26.4% for the nine months ended September 30, 1999. The
decrease in the gross profit percentage for the three and nine months ended
September 30, 2000 related primarily to less than expected sales volume, under
utilization of plant capacity and competitive pricing strategies.
Selling, general and administrative expenses for the three months
ended September 30, 2000 were $17,955,000 or 17.4% of net sales, compared to
$14,830,000 or 13.9% of net sales for the three months ended September 30,
1999. Approximately $3,066,000, or 98.1% of the increase in selling, general
and administrative expenses for the three months ended September 30, 2000
compared to the same quarter in 1999, related to the 1999 acquisitions that
occurred during the last two quarters of 1999.
Selling, general and administrative expenses for the nine months
ended September 30, 2000 increased to $55,927,000, or 13.9% of net sales, from
$44,600,000, or 13.1% of net sales, for the nine months ended September 30,
1999, an increase of $11,327,000, or 25.4%. Approximately 84.8% of the increase
in selling, general and administrative expenses for the nine months ended
September 30, 2000 compared to the same period last year related to the 1999
acquisitions.
Interest expense increased to $1,916,000 for the three months ended
September 30, 2000 from $1,065,000 for the three months ended September 30,
1999. Interest expense as a percentage of net sales increased to approximately
1.9% for the three months ended September 30, 2000 from 1.0% for the quarter
ended September 30, 1999. Interest expense for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999
increased to $6,204,000 from $2,707,000. Interest expense was 1.5% and 0.8% of
net sales for the nine months ended September 30, 2000 and 1999, respectively.
The increase in interest expense related mainly to debt incurred in connection
with the 1999 acquisitions.
Other income, net of other expense, was $596,000, or 0.6% of net sales
for the quarter ended September 30, 2000, compared to other income, net of
expense of $989,000, or 0.9% of net sales for the quarter ended September 30,
1999. The decline in other income, net of other expense, was the result of less
gain due to the sale of a smaller portfolio of leases during the third quarter
of 2000 compared to the third quarter of 1999. Other income, net of other
expense for the nine months ended September 30, 2000 was $3,485,000 compared to
other income, net of other expense for the nine months ended September 30,
1999 of $2,851,000, an increase of $634,000. The increase in other income, net
of other expense, for the nine months ended September 30, 2000 related largely
to gains from lease portfolio sales during the entire period.
Income tax expense for the third quarter of 2000 decreased to
$1,926,000 from $4,958,000 for the quarter ended September 30, 1999, a decrease
of $3,032,000 or 61.1%. Tax expense is 1.9% and 4.6% of net sales for the three
months ended September 30, 2000 and 1999, respectively. Income tax expense
for the nine months ended September 30, 2000 was $15,825,000 or 3.9% of net
sales, while income tax expense for the nine months ended September 30, 1999
was $17,534,000, or 5.2% of net sales. The effective tax rate for the three
and nine months ended September 30, 2000 was 36.1% and 39.0%, respectively.
The effective tax rate for the three and nine months ended September 30, 1999
was 38.5% and 38.8%, respectively.
Backlog of orders at September 30, 2000 was $62,882,000 compared to
$85,352,000 at September 30, 1999, restated for acquisitions. The backlog of
confirmed orders on September 30, 2000 was down due primarily to decreased
asphalt plant orders at Astec, Inc.
Liquidity and Capital Resources
As of September 30, 2000, the Company had working capital of
$137,046,000 compared to $114,889,000 at December 31, 1999.
Total short-term borrowings, including current maturities of long-term
debt, were $4,690,000 at September 30, 2000 compared to $596,000 at September
30, 1999. A financing agreement for imported manufacturing inventory
accounts for $4,044,000 of the short-term borrowings at September 30, 2000,
while outstanding Industrial Development Revenue Bonds accounted for
$500,000 of the current maturities of long-term debt at September 30, 2000 and
December 31, 1999.
Long-term debt, less current maturities, increased to $105,959,000 at
September 30, 2000 from $102,685,000 at December 31, 1999, an increase of
$3,274,000. At September 30, 2000 debt of approximately $86,195,000 was
outstanding under the revolving credit facility and $19,700,000 was the
aggregate principal amount of Industrial Revenue Bonds outstanding. The
increase in debt from December 31, 1999 relates to use of the revolving credit
facility to fund working capital needs.
Capital expenditures in 2000 for plant expansion and for further
modernization of the Company's manufacturing processes are expected to be
approximately $19,000,000. The Company expects to finance these
expenditures using the revolving credit facility. Capital expenditures for the
nine months ended September 30, 2000 were $13,716,000.
Effective April 7, 2000, the Company renegotiated its revolving credit
facility and increased the amount of available credit from $90,000,000 to
$150,000,000. As part of the revolving credit facility, Astec Industries, Inc.
may borrow up to $130,000,000, while Astec Financial Services, Inc. has a
segregated portion of up to $50,000,000 for a total borrowing limit of
$150,000,000. The Company had two term loans related to the 1999 acquisitions
outstanding at December 31, 1999 totaling $35,000,000, which were rolled into
the revolving credit facility. At September 30, 2000, the Company's total
outstanding debt under the revolving credit facility was $86,195,000 with Astec
Financial Services' portion at $20,195,000 on that date. Advances to Astec
Financial Services, Inc. under this line of credit are limited to "Eligible
Receivables" of Astec Financial Services, Inc. as defined in the credit
agreement that governs the credit facility. The Company was in compliance
with all financial covenants related to the revolving credit facility as of
September 30, 2000.
In early October 2000, the Company completed two strategic
acquisitions. Carlson Paving Products, Inc., located in Tacoma, Washington,
which designs, manufactures and markets asphalt paver screeds. A screed is a
critical component of an asphalt paver which places, spreads and smoothes
asphalt being applied to the road surface. The purchase price for the
acquisition was $9,400,000 of which approximately $6,900,000 was paid in cash
and the remainder, based on final net worth of the acquisition, will be paid in
the form of Astec stock.
The Company also acquired Osborn, a South African-based materials
handling and processing products arm of the Boart-Longyear Division of
Anglo Operations Limited. The acquired company will be known as Osborn
Engineered Products SA (Pty.), Ltd., a subsidiary of Astec Industries, Inc.,
and will continue to be headquartered in Johannesburg, South Africa. The
Company paid approximately $2,800,000 cash for eighty-eight percent of the net
assets of Osborn.
The cash paid for the above acquisitions was borrowed from the
Company's unsecured revolving credit facility with Bank One.
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.
Risk Factors
A decrease in government funding of highway construction and
maintenance may adversely affect our operating results
Many of our customers depend substantially on government funding
of highway construction and maintenance and other infrastructure projects.
Federal government funding of infrastructure projects is usually accomplished
through bills, which establish funding over a multi-year period. The most
recent spending bill was signed into law in June 1998 and covers federal
spending through 2003. We cannot assure you that this legislation will not be
revised in future congressional sessions, that recent increases in federal
funding of infrastructure will continue or that federal funding will not
decrease in the future, especially in the event of an economic recession. In
addition, Congress could pass legislation in future sessions, which would allow
for the diversion of highway funds for other national purposes or could restrict
funding of infrastructure projects unless states comply with certain federal
policies. Any decrease or delay in government funding of highway
construction and maintenance and other infrastructure projects could reduce
our revenues and profits.
An increase in the price of oil or decrease in the availability of oil could
reduce demand for our products.
A significant portion of our revenues relates to the sale of equipment
that produces asphalt mix. A major component of asphalt is oil and asphalt
prices correlate with the price and availability of oil. A material rise in
the price of oil or a material decrease in the availability of oil would
increase the cost of producing asphalt, which would likely decrease demand for
asphalt, resulting in decreased demand for our products. This could have a
material adverse effect on our revenues and results of operations. In fact,
rising gasoline, diesel
fuel and liquid asphalt prices have significantly increased the operating and
raw material costs and therefore reduced the profits of our contractor
customers, causing them to delay some of their equipment purchases. We
expect this market condition to remain throughout the fourth quarter of 2000
and to result in intensified pricing competition that will continue to
negatively impact sales and earnings for the remainder of the year.
Downturns in the general economy or the commercial construction industry
may adversely affect our revenues and operating results
Demand for many of our products, especially in the commercial
construction industry, is cyclical. Sales of our products are sensitive to the
state of the U.S., foreign and regional economies in general, and in particular,
changes in commercial construction spending and government infrastructure
spending. We could face a downturn in the commercial construction industry
based upon a number of factors, including:
-including rising interest rates;
-a decrease in the availability of funds for construction;
-labor disputes in the construction industry causing work stoppages;
-rise in gas and fuel oil prices;
-energy or building materials shortages; and
-inclement weather.
General economic downturns, including any downturns in the commercial
construction industry, could result in a material decrease in our revenues and
operating results.
Acquisitions that we have made in the past and future acquisitions involve
risks that could adversely affect our future financial results
We have completed ten acquisitions since 1994 and plan to acquire
additional businesses in the future. We cannot guarantee that we will achieve
the benefits expected to be realized from our acquisitions. Our future success
may be limited because of unforeseen expenses, difficulties, complications,
delays and other risks inherent in acquiring businesses, including the
following:
-we may have difficulty integrating the financial and administrative
functions of acquired businesses
-acquisitions may divert management's attention from our existing
operations
-we may have difficulty in competing successfully for available acquisition
candidates, completing future acquisitions or accurately estimating the
financial effect of any businesses we acquire
-we may have delays in realizing the benefits of our strategies for an
acquired business
-we may not be able to retain key employees necessary to continue the
operations of the acquired business
-acquisition costs may deplete significant cash amounts or may decrease
our operating income
-we may choose to acquire a company that is less profitable than we are or
has lower profit margins than we do
-future acquired companies may have unknown liabilities that could require
us to spend significant amounts of additional capital
Competition could reduce revenue from our products and services
We currently face strong competition in product performance, price
and service. Some of our national competitors have greater financial, product
development and marketing resources than we have. If competition in our
industry intensifies or our current competitors lower their prices for competing
products, we may be required to lower the prices we charge for our products.
We may also lose sales and be required to lower our prices as our competitors
further develop and enhance their product lines. This may reduce revenue
from our products and services.
We may face product liability claims or other liabilities due to the nature of
our business
We manufacture heavy machinery, which is used by our customers at
excavation and construction sites and on high-traffic roads. Any defect in, or
improper operation of, our equipment can result in personal injury and death,
and damage to or destruction of property, any of which could cause product
liability claims to be filed against us. The amount and scope of our insurance
coverage may not be adequate to cover all losses or liabilities we may incur in
the event of a product liability claim. We may not be able to maintain
insurance of the types or at the levels we deem necessary or adequate or at
rates we consider reasonable. Any liabilities not covered by insurance could
reduce our profitability or have an adverse effect on our financial condition.
We may be adversely affected by governmental regulations
Our hot-mix asphalt plants contain air pollution control equipment that
must comply with performance standards promulgated by the Environmental
Protection Agency. We cannot assure you that these performance standards
will not be increased in the future. Changes in these requirements could cause
us to undertake costly measures to redesign or modify our equipment or
otherwise adversely affect the manufacturing processes of our products. Such
changes could have a material adverse effect on our operating results.
Also, due to the size and weight of some of the equipment that we
manufacture, we often are required to comply with conflicting state regulations
on the maximum weight transportable on highways and roads. In addition,
some states regulate the operation of our component equipment, including
asphalt mixing plants and soil remediation equipment, and most states regulate
the accuracy of weights and measures, which affect some of the control
systems that we manufacture. We cannot assure you that we will not incur
material costs or liabilities in connection with the regulatory requirements
applicable to our business.
We rely on proprietary technologies that we may be unable to protect from
infringement or which may infringe technology owned by others
We hold numerous patents covering technology and applications
related to many of our products and systems, and numerous trademarks and
trade names registered with the U.S. Patent and Trademark Office and in foreign
countries. There can be no assurance that the breadth or degree of protection
of our existing or future patents or trademarks will adequately protect us
against infringements, or that any pending patent or trademark applications will
result in issued patents or trademarks. There can also be no assurance that our
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 our patents. This could reduce demand
for our products and materially decrease our revenues. It is possible that our
existing patents, trademarks or other rights may not be valid or that we may
infringe existing or future patents, trademarks or proprietary rights of our
competitors. In the event that our products are deemed to infringe upon the
patents or proprietary rights of others, we could be required to modify the
design of our products, change the name of our products or obtain a license for
the use of some of the technologies used in our products. There can be no
assurance that we 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 an adverse effect on our business and results of operations.
Our success depends on key members of our management and other
employees
Dr. J. Don Brock, our Chairman and President, is of significant
importance to our business and operations. The loss of his services may
adversely affect our business. In addition, our ability to attract and retain
qualified engineers, skilled manufacturing personnel and other professionals,
either through direct hiring, or acquisition of other businesses employing such
professionals, will also be an important factor in determining our future
success.
We face risks of managing and expanding in international markets
For the first three quarters of 2000, international sales represented
approximately 10.5% of our total sales. We plan to continue to increase our
presence in international markets. In connection with any increase in
international sales efforts, we will need to hire, train and retain qualified
personnel in countries where language, cultural or regulatory barriers may
exist. In addition, international revenues are subject to the following risks:
-fluctuating currency exchange rates which can reduce the profitability of
foreign sales;
-the burden of complying with a wide variety of foreign laws and
regulations;
-dependence on foreign sales agents;
-political and economic instability of governments; and
-the imposition of protective legislation such as import or export barriers.
Our quarterly operating results are likely to fluctuate, which may
decrease our stock price
Our quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. As a result, our operating results may
fall below the expectations of securities analysts and investors in
some quarters, which could result in a decrease in the market price of
our common stock. The reasons our quarterly results may fluctuate
include:
-general competitive and economic conditions;
-delays in, or uneven timing in the delivery of, customer orders;
-the introduction of new products by us or our competitors;
-product supply shortages; and
-reduced demand due to adverse weather conditions.
Period to period comparisons of such items are not
necessarily meaningful and, as a result, should not be relied on as
indications of future performance.
Our Articles of Incorporation, Bylaws, Rights Agreement and
Tennessee law may inhibit a takeover
Our charter, bylaws and Tennessee law contain provisions that may
delay, deter or inhibit a future acquisition, or an attempt to obtain control,
of Astec. This could occur even if our shareholders are offered an attractive
value for their shares or if a substantial number or even a majority of our
shareholders believe the takeover is in their best interest. These provisions
are intended to encourage any person interested in acquiring us or obtaining
control of us to negotiate with and obtain the approval of our Board of
Directors in connection with the transaction. Provisions that could delay,
deter or inhibit a future acquisition, or an attempt to obtain control, of us
include the following:
-a staggered Board of Directors;
-requiring a two-thirds vote of the total number of shares issued and
outstanding to remove directors other than for cause;
-requiring advanced notice of actions proposed by shareholders for
consideration at shareholder meetings;
-limiting the right of shareholders to call a special meeting of shareholders;
-requiring that all shareholders entitled to vote on an action provide written
consent in order for shareholders to act without holding a shareholders
meeting; and
-the Tennessee Control Share Acquisition Act.
In addition, the rights of holders of our common stock will be subject
to, and may be adversely affected by, the rights of the holders of our preferred
stock that may be issued in the future and that may be senior to the rights of
holders of our common stock. On December 22, 1995, our Board of Directors
approved a Shareholder Protection Rights Agreement, which provides for one
preferred stock purchase right in respect of each share of our common stock.
These rights become exercisable upon a person or group of affiliated persons
acquiring 15% or more of our then-outstanding common stock by all persons
other than an existing 15% shareholder. This Rights Agreement also could
discourage bids for your shares of common stock at a premium and could have
a material adverse effect on the market price of your shares.
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, 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Contingencies" in Part I - Item 2 of this Report.
Item 5. Other Items
The proxy statement solicited by the Board of Directors of the
Company with respect to the 2000 Annual Meeting of Shareholders will confer
discretionary authority on the proxies named therein to vote on any
shareholder proposals intended to be presented for consideration at such
Annual Meeting that are submitted to the Company after November 23, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
3.1 Restated Charter of the Company (incorporated by reference
to the Company's Registration Statement on Form S-1,
effective June 18, 1986, File No. 33-5348).
3.2 Articles of Amendment to the Restated Charter of the
Company, effective
September 12, 1988 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 0-14714).
3.3 Articles of Amendment to the Restated Charter of the
Company, effective June 8, 1989 (incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 0-14714).
3.4 Articles of Amendment to the Restated Charter of the
Company, effective January 15, 1999 (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999, File No. 0-14714).
3.5 Amended and Restated Bylaws of the Company, adopted
March 14, 1990 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December
31, 1989, File No. 0-14714).
4.1 Trust Indenture between City of Mequon and FirstStar Trust
Company, as Trustee, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, File No.
0-14714).
4.2 Indenture of Trust, dated April 1, 1994, by and between
Grapevine Industrial Development Corporation and Bank
One, Texas, NA, as Trustee (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.3 Shareholder Protection Rights Agreement, dated December
22, 1995 (incorporated by reference to the Company's
Current Report on Form 8-K dated December 22, 1995, File
No. 0-14714).
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
September 30, 2000.
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)
/s/ J. Don Brock
Date 11/14/2000 J. Don Brock
Chairman of the Board
and President
/s/ F. McKamy Hall
Date 11/14/2000 F. McKamy Hall
Vice President
and Chief Financial
Officer
