FORM 10-Q SECURITIES & EXCHANGE COMMISSION Washington, D. C. 20549 (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, 1995. [ ] 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 incorporation or organization) Identification No.) 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__________ APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of registrant's Common Stock, par value $0.20 per share, as of September 30, 1995 was 10,092,199.
ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets as of September 30, 1995, December 31, 1994 and September 30, 1994 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1995 and 1994 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 Notes to Unaudited Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II - Other Information Item 1. Legal Proceedings Item 6. Exhibits Signature Page
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 $1,671,000, $1,684,000 and $1,054,000 for September 30, 1995, December 31, 1994 and September 30, 1994, respectively. 3. Inventories are stated at the lower of first-in, first-out, cost or market and consist of the following: (in thousands) September 30,1995 December 31, 1994 September 30, 1994 Raw Materials $25,471 $ 26,705 $ 19,028 Work-in-Process 9,526 14,380 7,242 Finished Goods 21,413 15,225 19,885 Total $56,410 $ 56,310 $ 46,155 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $23,264,000, $23,529,000 and $22,414,000 for September 30, 1995, December 31, 1994 and September 30, 1994, respectively. 5. Earnings per share are computed in accordance with APB No. 15 and are based on the weighted average number of shares outstanding for each respective period. 6. Certain customers have financed purchases of Astec products through arrangements in which Astec is contingently liable for customer debt aggregating approximately $7,639,000 at September 30, 1995, $13,800,000 at December 31, 1994, and $12,215,000 at September 30, 1994. 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 80% of Astec's business volume normally occurs during the first nine months of each year.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONT. 9. As disclosed in Note 2 to the Company's financial statements included in the 1994 Annual Report, the Company acquired the remaining shares of Wibau-Astec on November 7, 1994 and on October 17, 1994 the Company acquired the operating assets and liabilities of Gibat Ohl. Effective June 30, 1995 the Company sold 100% of the stock of Wibau-Astec to Wirtgen Gesellschaft mit beschrankter Haftung, a German equipment manufacturer. The following unaudited pro forma summary presents the consolidated results of operations for the three and nine months ended September 30, 1995 and 1994 as if the acquisition of Gibat Ohl and the disposition of Wibau-Astec had occurred at the beginning of these years after giving effect to certain adjustments. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results that would have occurred had the transaction occurred at the beginning of 1994 and 1995 or of results which may occur in the future. <TABLE> (in thousands) Three Three Nine Nine months months months months ended ended ended ended September 30, September 30, September 30, September 30, 1994 1995 1994 1995 <CAPTION> <S> <C> <C> <C> <C> Net sales $49,987 $65,015 $168,618 $188,116 Net income 3,522 2,768 13,291 8,483 Net income per common and common equivalent share $.36 $.27 $1.35 $.84 </TABLE> Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations For the three-month period ended September 30, 1995, net sales increased to $65,015,000 from $49,021,000 for the same period of 1994, representing a 32.6% increase. At September 30, 1994 the Company owned only 50% of Wibau-Astec and its operations were accounted for on the equity basis of accounting and were not included in consolidated sales, gross profit or selling, general & administrative expenses. Excluding the sales of CEI Enterprises, Inc. ("CEI"),which was acquired in the first quarter of 1995, and Wibau-Astec and Gibat Ohl, which were acquired in the fourth quarter of 1994, sales increased to $55,014,000 or 12.2% for the third quarter ended September 30, 1995. International sales by domestic subsidiaries, increased from $14,846,000 for the quarter ended September 30, 1994, to $15,203,000 for the quarter ended September 30, 1995, representing a 2.4% increase. International sales represent 23.4% and 30.3% of total sales for the three months ended September 30, 1995 and 1994, respectively. For the nine-month period ended September 30, 1995, net sales were $192,927,000 compared to net sales of $157,941,000 for the same period of 1994, representing a 22.2% increase. CEI, Wibau-Astec and Gibat Ohl accounted for $9,396,000 or 26.9% of the $34,986,000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. increase in sales for the nine months ended September 30, 1995. For the nine months ended September 30, 1995 international sales increased to $43,086,000 from $35,537,000 for the nine months ended September 30, 1994, representing a 21.2% increase. International sales from domestic subsidiaries represent 22.3% and 22.5% of total net sales, for the nine months ended September 30, 1995 and 1994, respectively. Gross profit for the quarter ended September 30, 1995 increased to $13,298,000, from $11,216,000 for the quarter ended September 30, 1994. The gross profit percentage for the three months ended September 30, 1995 and 1994 was 20.5% and 22.9%, respectively. Gross profit for the nine months ended September 30, 1995 increased to $40,946,000 from $36,258,000 at September 30, 1994, a 12.9% increase, but the gross profit percentage declined from 23.0% to 21.2%. The quarter and year-to-date declines in the gross profit percentage is primarily attributable to the softness in the trencher market, a new product line recently introduced by Trencor which has yet to attain positive margins, and low margins in the German operation. Selling, general, and administrative expenses for the third quarter of 1995 were $9,255,000 or 14.2% of net sales, compared to $7,998,000 or 16.3% of net sales for the same period of 1994. Selling, general and administrative expenses for the third quarter of 1995 include the expenses of Wibau-Astec, CEI and Gibat Ohl which total approximately $973,000. The Company did not own Gibat Ohl or CEI during the third quarter of 1994. For the nine months ended September 30, 1995 and 1994, selling, general and administrative expenses were $29,651,000 or 15.4% of net sales and $23,832,000 or 15.1% of net sales, respectively. Wibau-Astec, CEI and Gibat Ohl account for $4,861,000 of the increases in selling, general and administrative expenses for the nine months ended September 30, 1995. Other increases in expenses for the nine months ended September 30, 1995 include legal, international travel, commissions and promotion expenses related to equipment shows. Interest expense increased to $546,000 for the quarter ended September 30, 1995 from $119,000 for the quarter ended September 30, 1994. Interest expense as a percentage of net sales increased to 0.8% for the quarter ended September 30, 1995 from 0.2% for the same period of 1994. The increase in interest expense for the third quarter of 1995 is attributable to usage of the Company's revolving line of credit. Interest expense for the nine months ended September 30, 1995 and 1994 was $1,618,000 and $331,000, respectively, with the majority of the increase relating to usage of the Company's revolving line of credit. Inventory built in anticipation of an even larger increase in sales and the increase in trade receivables are principally responsible for the increase in the usage of the revolving line of credit. Other income, net of other expense, was $367,000, or 0.6% of net sales for the quarter ended September 30, 1995, compared to other income net of expense of $321,000, or 0.7% of net sales for the quarter ended September 30, 1994. Other income, net of expense for the quarter ended September 30, 1995 includes $150,000 from a settlement related to the violation of a patent owned by the Company. Other income, for the third quarter of 1994 included a loss of approximately $517,000 from the Wibau-Astec
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. joint venture. Excluding the effect of the loss from the joint venture for the third quarter of 1994, the other income, net of expense was $838,000 or 1.7% of net sales for the nine months. Other income, net of expense increased to $3,313,000 at September 30, 1995 from a net other expense of $2,000 at September 30, 1994. For the nine months ended September 30, 1994, other income net of expense included a loss from the Wibau-Astec joint venture of $1,740,000. Excluding the loss, other income was $1,738,000 for the nine months ended September 30, 1994. In addition to the cash settlement above, other income for the nine months ended September 30, 1995 includes a pre-tax gain and related other income from the sale of Wibau-Astec of approximately $2,000,000. Income tax expense for the third quarter of 1995 increased to $1,096,000 from $246,000 for the third quarter of 1994. Income tax expense for the nine months ended September 30, 1995 and 1994 was $5,196,000 and $669,000, respectively. Years prior to 1995 benefited from tax loss carryforwards, but most of 1995 and future earnings will be fully taxed. Backlog at September 30, 1995 was $29,721,000 compared to $28,737,000 at September 30, 1994. The backlog at September 30, 1995 includes amounts from the newly acquired CEI and from Gibat Ohl. Excluding the backlog of these companies, the backlog at September 30, 1995 compared to that of September 30, 1994 for the remaining companies, in total, has decreased approximately $1,788,000. Earnings per share were $.27 for the third quarter of 1995 compared to $.32 for the same period of 1994. Earnings per share for the nine months ended September 30, 1995 were $.77 compared to $1.14 for the same period in 1994. Liquidity and Capital Resources As of September 30, 1995, the Company had working capital of $68,759,000 compared to $53,710,000 at September 30, 1994. Total short-term borrowings, including current maturities of long-term debt, were $2,417,000 September 30, 1995. Long-term debt less current maturities was $26,780,000 at September 30,1995. Debt outstanding at September 30, 1995 consists of industrial revenue bonds issued to finance capital expenditures, short term notes payable issued by foreign subsidiaries for working capital and the outstanding balance on the revolving line of credit. Capital expenditures in 1995, for plant expansion and for further modernization of the Company's manufacturing processes, are expected to approach $15,000,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures at September 30, 1995 were $13,740,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. In July, 1994, an unsecured revolving line of credit was signed for $15,000,000 with The First National Bank of Chicago that expires September 30, 1997. On May 22, 1995, the Company amended the agreement to increase the revolving line to $22,000,000. The outstanding balance on the revolving line of credit at September 30, 1995 was $13,740,000. The Company was in violation of the capital expenditures covenant which limits 1995 capital expenditures to $10,000,000. A waiver for this violation has been received from The First National Bank of Chicago. The Company was in compliance with all remaining financial covenants at September 30, 1995. On July 24, 1995, the Company announced the sale of 100% of the stock of Wibau-Astec, a German subsidiary, to Wirtgen Gesellschaft mit beschrankter Haftung, a German equipment manufacturer for cash and other considerations including the assumption of Wibau debt by Wirtgen. The Astec technology used by Wibau-Astec was not included in the sale but was purchased by the Company's remaining German subsidiary, Gibat Ohl. Contingencies The Company is engaged in certain pending litigation involving claims or other matters arising in the normal 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 $13,000,000 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. The Company's Milwaukee based subsidiary, Telsmith, Inc., was a defendant in a patent infringement action brought by Nordberg, Inc., a manufacturer of a competing line of rock crushing equipment, seeking monetary damages and an injunction to cease an alleged infringement of a patent on certain components used in the production of its rock crushing equipment. In the patent suit on March 30, 1995, the United States district Court for the Eastern District of Wisconsin issued a ruling in favor of the Company and entered a declaratory judgment in favor of Telsmith, Inc. and against Plaintiff Nordberg, Inc. declaring that claims 8 through 11 and 13 of Nordberg's United States patent No. 4,478, 373, entitled "Conical Crusher" are invalid. The Court also entered judgment in favor of Telsmith, Inc. and against Nordberg, Inc. dismissing Nordberg's claim of infringement against Telsmith. The Company was pleased with the court's decision, but has filed a Notice of Appeal asking the United States Court of Appeals for the Federal Circuit to overturn the trial court's decision not to award Telsmith its attorney's fees in the case. Nordberg did not cross-appeal to the Federal Circuit on the Telsmith judgment. The time for doing so has now expired. The judgment has therefore become "final" as to those issues not raised by Telsmith on appeal. Briefing on the Telsmith appeal has been complete, and the parties are awaiting word from the Court as to where oral argument will be held.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. On October 28, 1993, the Company was also named as a defendant in a patent infringement action brought by Gencor, Inc., a manufacturer of a competing line of asphalt plants, seeking monetary damages and an injunction to cease an alleged plant product line. This case was filed in the U.S. District Court for the Middle District of Florida, and is still in the discovery phase. On July 14, 1995, the court entered an order granting in part the Company's motion for summary judgment on the issue of infringement of the subject Gencor patent. The court held as a matter of law that the Company is not guilty of literal infringement of the subject patent. The court did, however, rule that there is a triable issue of fact as to whether the Company's double barrel drum mixer infringes the subject Gencor patent under the doctrine of equivalents, thus significantly limiting the grounds on which Gencor can pursue the infringement claim against the Company. Trial is presently set to commence on January 22, 1996 in Orlando. Management believes this case to be without merit and intends to vigorously defend this suit; however, due to the uncertainties inherent in the litigation process, the Company is unable to predict the ultimate outcome of this litigation. Management has reviewed all claims and lawsuits and, upon the advice of its litigation counsel, has made provision for any estimable losses; however, the Company is unable to predict the ultimate outcome of the 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 Quarterly Report on Form 10Q for the quarter ended June 30, 1995, described on Part I - Item 2, "Contingencies" of this report. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I - Item 2 Contingencies" of this Report. Item 6. Exhibits and Reports on Form 8-K (a) The following Exhibits are filed with this Report: 11 Statement Regarding Computation of Per Share Earnings. (b) Reports on Form 8-K. There were no reports on Form 8-K filed for the three months ended September 30, 1995.
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) 11/15/95 /s/ J. Don Brock Date J. Don Brock Chairman of the Board and President 11/14/95 /s/ Albert E. Guth Date Albert E. Guth Senior Vice President Treasurer , Secretary and Principal Financial Officer
EXHIBIT 11 Statement Regarding Computation of Per Share Earnings
ASTEC INDUSTRIES, INC. EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE 9/30/95 (in thousands) Shares for Earnings Per Share Computations: Primary: Weighted average outstanding during year 10,065 Common Stock equivalents for stock options 124 TOTAL 10,189 Fully Diluted: Weighted average outstanding during year 10,065 Common Stock equivalents for stock options 125 TOTAL 10,190 Earnings Applicable to Common Stock: Net Income 7,794 Earnings Per Share (Based on Weighted Average Number of Common and Common Equivalent Shares Outstanding): Net Income .77 Additional Computations of EPS: Fully Diluted: Net Income .77 Dilutive effect of common stock equivalents on both primary and fully diluted Earnings Per Share is less than 3% and, in accordance with APB Opinion No. 15, Earnings Per Share on the face of the Statements of Income is based on only the weighted average number of common shares outstanding. The above calculations have been provided for reporting purposes only.
PART I ITEM I FINANCIAl STATEMENTS ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ACCOUNT DESCRIPTION SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 1995 1994 1994 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $2,008 $10,471 $1,677 RECEIVABLES - NET 41,906 30,068 27,270 INVENTORIES 56,410 56,310 46,155 PREPAID EXPENSES AND OTHER 4,595 5,288 5,833 PATENT DAMAGE ESCROW FUNDS 0 0 12,795 TOTAL CURRENT ASSETS 104,919 102,137 93,730 PROPERTY AND EQUIPMENT - NET 48,922 42,349 37,751 OTHER ASSETS 11,016 11,478 3,385 TOTAL ASSETS $164,857 $155,964 $134,866 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES NOTES PAYABLE $1,917 $8,073 CURRENT MATURITIES OF LONG-TERM DEBT 500 500 $500 ACCOUNTS PAYABLE - TRADE 16,271 14,262 13,183 RESERVE FOR PATENT DAMAGES 0 0 13,736 OTHER ACCRUED LIABILITIES 17,471 26,302 12,601 TOTAL CURRENT LIABILITIES 36,159 49,137 40,020 LONG-TERM DEBT, LESS CURRENT MATURITIES 26,780 16,155 18,700 OTHER LONG-TERM LIABILITIES 654 299 793 TOTAL SHAREHOLDERS' EQUITY 101,264 90,373 75,353 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $164,857 $155,964 $134,866
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) UNAUDITED THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1995 1994 1995 1994 SALES $65,015 $49,021 $192,927 $157,941 COST OF SALES 51,717 37,805 151,981 121,683 GROSS PROFIT 13,298 11,216 40,946 36,258 S,G, & A EXPENSES 9,255 7,998 29,651 23,832 PATENT SUIT DAMAGES & EXPENSES 0 43 0 205 INCOME FROM OPERATIONS 4,043 3,175 11,295 12,221 INTEREST EXPENSE 546 119 1,618 331 OTHER INCOME, NET OF EXPENSE 367 321 3,313 (2) INCOME BEFORE INCOME TAXES 3,864 3,377 12,990 11,888 INCOME TAXES 1,096 246 5,196 669 NET INCOME $2,768 $3,131 $7,794 $11,219 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $0.27 $0.32 $0.77 $1.14 WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,092,199 9,805,185 10,065,101 9,801,032
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) UNAUDITED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $7,794 $11,219 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 3,796 2,898 PROVISION FOR DOUBTFUL ACCOUNTS 265 141 PROVISION FOR INVENTORY RESERVE 1,806 1,422 PROVISION FOR WARRANTY RESERVE 2,670 2,313 FOREIGN CURRENCY TRANSLATION ADJUSTMENT (265) (GAIN) LOSS ON SALE OF FIXED ASSETS 146 (144) (GAIN) ON SALE BUSINESS (468) (INCREASE) DECREASE IN: RECEIVABLES (13,869) (9,149) INVENTORIES (4,815) (7,572) PREPAID EXPENSES AND OTHER 497 (4,211) PATENT DAMAGE ESCROW FUNDS (486) OTHER RECEIVABLES 269 828 OTHER ASSETS 376 (710) INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 4,647 3,014 ACCRUED PRODUCT WARRANTY (2,940) (1,590) OTHER ACCRUED LIABILITIES (7,559) (2,521) TAXES PAYABLE (104) (241) RESERVE FOR PATENT DAMAGES 486 TOTAL ADJUSTMENTS (15,548) (15,522) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (7,754) (4,303) CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 86 278 EXPENDITURES FOR PROPERTY AND EQUIPMENT (10,525) (16,977) NET CASH OUTFLOW WITH SALE OF BUSINESS (919) CASH PAYMENTS IN CONNECTION WITH BUSINESS COMBINATION, NET OF CASH ACQUIRED (835) NET CASH USED BY INVESTING ACTIVITIES (12,193) (16,699) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS UNDER REVOLVING CREDIT LOAN 10,489 5,200 BORROWINGS (REPAYMENTS) UNDER LOAN AND NOTE AGREEMENTS 985 13,990 PROCEEDS FROM ISSUANCE OF COMMON STOCK 10 31 NET CASH PROVIDED BY FINANCING ACTIVITIES 11,484 19,221 NET INCREASE (DECREASE) IN CASH (8,463) (1,781) CASH AT BEGINNING OF PERIOD 10,471 3,458 CASH AT END OF PERIOD $2,008 $1,677