PART I ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) ACCOUNT DESCRIPTION JUNE 30 DECEMBER JUNE 30 1996 1995 1995 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $4,189 $3,133 $1,751 RECEIVABLES - NET 33,636 27,671 40,674 INVENTORIES 57,299 55,883 62,267 REFUNDABLE INCOME TAX 2,342 PREPAID EXPENSES AND OTHER 9,032 7,567 6,247 TOTAL CURRENT ASSETS 104,156 96,596 110,939 PROPERTY AND EQUIPMENT-NET 52,600 51,709 48,468 OTHER ASSETS 3,501 6,051 12,586 TOTAL ASSETS $160,257 $154,356 $171,993 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES NOTES PAYABLE $1,694 $3 $1,098 CURRENT MATURITIES OF LONG- TERM DEBT 500 771 500 ACCOUNTS PAYABLE - TRADE 15,974 15,878 22,911 OTHER ACCRUED LIABILITIES 16,681 21,929 18,624 TOTAL CURRENT LIABILITIES 34,849 38,581 43,133 LONG-TERM DEBT, LESS CURRENT MATURITIES 24,928 17,150 29,900 OTHER LONG-TERM LIABILITIES 247 2,724 227 TOTAL SHAREHOLDERS' EQUITY 100,233 95,901 98,733 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $160,257 $154,356 $171,993 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 NET SALES $63,212 $70,368 $122,782 $127,912 COST OF SALES 47907 56357 93655 100264 GROSS PROFIT 15305 14011 29127 27648 S,G, & A EXPENSES 11375 10249 20154 19697 PATENT SUIT EXPENSES 39 639 258 699 INCOME FROM OPERATIONS 3891 3123 8715 7252 INTEREST EXPENSE 341 605 623 1072 OTHER INCOME, NET OF EXPENSE -8 4623 223 5166 INCOME BEFORE INCOME TAXES 3542 7141 8315 11346 INCOME TAXES 1297 2411 3244 4100 NET INCOME $2,245 $4,730 $5,071 $7,246 EARNINGS PER COMMON SHARE $0.22 $0.47 $0.50 $0.72 WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 10037199 10091634 10057798 10051326 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) JUNE 30, JUNE 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $5,071 $7,246 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 2,814 2,664 PROVISION FOR DOUBTFUL ACCOUNTS 249 147 PROVISION FOR INVENTORY RESERVE 1,436 964 PROVISION FOR WARRANTY RESERVE 1,415 2,553 FOREIGN CURRENCY TRANSLATION ADJUSTMENT (28) (GAIN) LOSS ON SALE OF FIXED ASSTS (104) 106 GAIN ON SALE OF BUSINESS (2,688) PROVISION FOR PENSSION 50 (INCREASE) DECREASE IN: RECEIVABLES (4,567) (11,816) INVENTORIES (2,852) (9,831) PREPAID EXPENSES AND OTHER 877 (1,171) OTHER RECEIVABLES (1,646) (434) OTHER ASSETS 2,398 (1,292) INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 96 11,287 ACCRUED PRODUCT WARRANTY (1,112) (2,621) OTHER ACCRUED LIABILITIES (9,797) (6,118) TAXES PAYABLE 1,705 (1,023) TOTAL ADJUSTMENTS (9,038) (19,301) NET CASH (USED) BY OPERATIONS (3,967) (12,055) CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 1,190 92 EXPENDITURES FOR PROPERTY AND EQUIPMENT (4,638) (8,788) 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 (3,448) (10,450) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS UNDER REVOLVING CREDIT LOAN 7,507 13,609 BORROWINGS UNDER LOAN AND NOTE AGREEMENTS 1,690 166 CASH PAID FOR TREASURY STOCK (768) PROCEEDS FROM ISSUANCE OF COMMON STOCK 42 10 NET CASH PROVIDED BY FINANCING ACTIVITIES 8,471 13,785 NET INCREASE (DECREASE) IN CASH 1,056 (8,720) CASH AT BEGINNING OF PERIOD 3,133 10,471 CASH AT END OF PERIOD $4,189 $1,751 SECURITIES & EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 1996. [ ] 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 APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of registrant's Common Stock, par value $0.20 per share, as of June 30, 1996 was 10,037,199. ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets as of June 30, 1996, December 31, 1995 and June 30, 1995 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 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 $1,304,000, $1,279,000 and $1,308,000 for June 30, 1996, December 31, 1995 and June 30, 1995, respectively. 3. Inventories are stated at the lower of first-in, first-out, cost or market and consist of the following: (in thousands) June 30, December 31, June 30, 1996 1995 1995 Raw Materials $26,045 $23,710 $21,679 Work-in-Process 10,989 10,385 12,966 Finished Goods 20,264 21,788 27,622 Total $57,299 $55,883 $62,267 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $25,052,000, $22,957,000 and $23,637,000 for June 30, 1996, December 31, 1995 and June 30, 1995, 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 $6,730,000 at June 30, 1996, $7,362,000 at December 31, 1995, and $11,660,000 at June 30, 1995. 7. There has been a material development 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 50-55% of Astec's business volume normally occurs during the first six 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 six months ended June 30, 1995 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 1995 or of results which may occur in the future. (in thousands) Three months Six months ended ended June 30, 1995 June 30, 1995 Net sales $67,901 $123,101 Net income 2,484 5,168 Net income per common and common equivalent shares $.25 $.51 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION When used in this report, press releases and elsewhere by management or the Company from time to time, the words, "believes," "anticipates," and "expects" and similar expressions are intended to identify forward-looking statements that involve certain risks and uncertainties. A variety of factors could cause actual results to differ materially from those anticipated in the Company's forward-looking statements, some of which are included in the risk factors that are discussed from time to time in the Company's SEC reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as the date thereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect the results events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. During the second quarter of 1996, the Board of Directors voted to form a new financial subsidiary called Astec Financial Services. Al Guth, Senior Vice President of Astec Industries, Inc., is President of this subsidiary. We believe the formation of this subsidiary will enhance the sale of our equipment by offering our customers access to capital through a lender that understands the equipment being purchased and the construction industry in general. Also, during the second quarter we began the operation of Pavement Technology, Inc., located in Conyers, Georgia. Astec Industries, Inc., is a fifty percent shareholder of this company. Pavement Technology will manufacture an asphalt pavement analyzer, vibratory compactor, and package mix design laboratory. This will allow our customers to purchase a complete design laboratory from one source. The pavement analyzer has been accepted by certain states and universities as a new proof tester for measuring rutting, fatigue, and water susceptibility in hot mix asphalt. This group of equipment adds a new product to the services and equipment we provide our customers. Results of Operations Sales for the quarter ended June 30, 1996, were $63,212,000 compared to sales of $70,368,000 for the quarter ended June 30, 1995. Excluding the results of the company's former German subsidiaries, which were disposed of during 1995, sales for the quarter ended June 30, 1995 were $59,915,000. International sales represent 9.6% and 28.2% of total sales for the three months ended June 30, 1996 and 1995, respectively. For the six-month period ended June 30, 1996, net sales were $122,782,000 compared to net sales of $127,912,000 for the same period of 1995, representing a 4.0% decrease. Excluding the former German subsidiaries, sales were $113,138,000 for the six months ended June 30, 1995. For the six months ended June 30, 1996, international sales decreased to $16,131,000 from $27,883,000 for the six months ended June 30, 1995, representing a 42.1% decrease. International sales from domestic subsidiaries represent 13.1% and 21.8% of total net sales, for the six months ended June 30, 1996 and 1995, respectively. The decrease in international sales for the six months ended June 30, 1996 was due mainly to several large shipments to China during the second quarter of 1995. Gross profit for the quarter ended June 30, 1996 increased to $15,305,000, from $14,011,000 for the quarter ended June 30, 1995. The gross profit percentage for the three months ended June 30, 1996 and 1995 was 24.2% and 19.9%, respectively. Gross profit for the six months ended June 30, 1996 increased to $29,127,000 from $27,648,000 at June 30, 1995, a 5.3% increase. The gross profit percentage for the six months increased to 23.7% at June 30, 1996 from 21.6% at June 30, 1995. The gross profit improvement is the result of a combination of several negative and positive factors. A negative impact was generated by reduced volume in one subsidiary, primarily from reduced international sales, and an intentional reduction in production volume while increasing sales to improve inventory turns. The gross margin was affected positively by a very profitable job, realization of benefits of consolidation of facilities and prior year capital expenditures, reduction of sales of units with negative gross margins, and the sale of the German operations which had low gross margins. Selling, general, and administrative expenses for the second quarter of 1996 were $11,414,000 or 18.1% of net sales, compared to $10,888,000 or 15.5% of net sales for the same period of 1995. For the six months ended June 30, 1996 and 1995, selling, general and administrative expenses were $20,412,000 or 16.6% of net sales and $20,396,000 or 15.9% of net sales, respectively. Significant increases in selling, general and administrative expenses in 1996 are primarily due to increased research and development, the loss on repossession of an asphalt plant sold to a German customer, and legal expenses (see "Contingencies") as well as increased selling salaries and Con-Expo exhibition expenses. Interest expense decreased to $341,000 for the quarter ended June 30, 1996 from $605,000 for the quarter ended June 30, 1995. Interest expense as a percentage of net sales decreased to .5% for the quarter ended June 30, 1996 from .9% for the same period of 1995. The decrease in interest expense for the second quarter of 1996 is attributable to decreased usage of the Company's revolving line of credit. Interest expense for the six months ended June 30, 1996 and 1995 was $623,000 and $1,072,000, respectively. Interest for the six months ended June 30, 1995 included $266,000 of expense related to the former German operations, while the remainder of the decrease relates to decreased usage of the Company's revolving line of credit. Other income, net of other expense was a net expense of $8,000, or 0.01% of net sales for the quarter ended June 30, 1996, compared to other income, net of expense of $4,623,000, or 6.6% of net sales for the quarter ended June 30, 1995. Included in other income, net of expense for the quarter ended June 30, 1995 is a pre-tax gain and related other income from the sale of Wibau-Astec of approximately $4,220,000. Other income, net of expense was $223,000 for the six months ended June 30, 1996 compared to other income, net of expense $5,166,000 for the six months ended June 30, 1995. Excluding the former German operations, other income, net of expense was approximately $595,000 for the six months ended June 30, 1995. Net income for the quarter ended June 30, 1996, was $2,245,000 or $.22 per share compared to net income of $4,730,000 or $.47 per share for the quarter ended June 30, 1995. Excluding the results of the Company's former German subsidiaries, net income for the quarter ended June 30, 1995 was $2,193,000 or $.22 per share. Net income for the six months ended June 30, 1996 was $5,071,000 or $.50 per share compared to net income of $7,246,000 or $.72 per share for the six months ended June 30, 1995. Excluding the former German subsidiaries, net income for the six months ended June 30, 1995 was $5,203,000 or $.52 per share. Backlog at June 30, 1996 was $28,623,000 compared to $39,555,000 at June 30, 1995. The backlog at June 30, 1995 excludes amounts from the former German operations. The decrease in the backlog from 1995 to 1996 relates primarily to the decrease in international and soil remediation orders. Liquidity and Capital Resources As of June 30, 1996, the Company had working capital of $69,307,000 compared to $67,806,000 at June 30, 1995. Total short-term borrowings, including current maturities of long-term debt, were $2,194,000 at June 30, 1996. Long-term debt less current maturities was $24,928,000 at June 30, 1996. Debt outstanding at June 30, 1996 consists of industrial revenue bonds issued in prior years to finance capital expenditures, short term notes payable and the outstanding balance on the revolving line of credit. Capital expenditures in 1996, for plant expansion and for further modernization of the Company's manufacturing processes, are expected to approach $5,600,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures at June 30, 1996 were $4,638,000. In June, 1996, an unsecured revolving line of credit for $22,000,000, which originally expired on June 30, 1997, was renewed, and the expiration date extended to June 30, 1999, with The First National Bank of Chicago . The outstanding balance on the revolving line of credit at June 30, 1996 was $11,011,000. The Company was in compliance with all financial covenants at June 30, 1996. 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 $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. On October 28, 1993, the Company was 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 infringement of a patent on certain components used in the production of the Company's asphalt plant product line. The case was filed in the U.S. District Court for the Middle District of Florida, Orlando Division, and went to trial on January 22, 1996. On February 3, 1996, the jury returned a verdict in the Company's favor holding that Astec's Double Barrel drum mixer does not infringe the Gencor patent in question. Judgment on that jury verdict was entered by the Court on February 5, 1996. Subsequently, Gencor appealed to the United States Court of Appeals for the Federal Circuit. In early July, 1996, the Company and Gencor entered into a settlement of the case on appeal and two other lawsuits pending between the parties, one in the United States District Court for the Eastern District of Tennessee at Chattanooga in which the Company was suing Gencor for infringement of certain patents held by the Company which claims were originally the subject of a counterclaim by the Company against Gencor in the Florida litigation which was settled in July; and the other involving a suit filed by Gencor against the Company in the United States District Court for the Middle District of Florida, Orlando Division, in January, 1996, seeking to recover certain expenses incurred by Gencor in connection with the earlier patent infringement case which was tried in January 1996. Under the terms of the settlement, each of the pending cases was dismissed, with prejudice, with each party bearing its own costs. No payments were made by either party to the other in connection with the settlement as a result of which all litigation between the Company and Gencor is now ended. In a personal injury and product liability case styled Juana Irma Suarez and Susana Median Guars v. Astec Industries, Inc., Barber-Greene Company, et al., in the District Court of Tarrant County Texas, 153rd Judicial District, Civil Action No. 153- 123018-89, after the first case ended in a mistrial, the jury in a second trial during the week of September 19, 1994, returned a verdict against the Company for compensatory damages in the amount of $485,300, plus statutory prejudgment interest commonly allowed in such cases under Texas law. The Company appealed to the Texas Court of Appeals which on April 11, 1996 affirmed the judgment. The final resolution was reached in May 1996, at which time the Company paid $830,000 to the plaintiffs. 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 the outstanding claims and lawsuits. PART II - OTHER INFORMATION Item 1. Legal Proceedings There has been a material development in the legal proceedings previously reported by the registrant since the filing of its Quarterly Report on Form 10Q for the quarter ended March 31, 1996, 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 June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASTEC INDUSTRIES, INC. (Registrant) 8/15/96 /s/ J. Don Brock Date J. Don Brock Chairman of the Board and President 8/15/96 /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 6/30/96 (in thousands) Shares for Earnings Per Share Computations: Primary: Weighted average outstanding during year 10,058 Common Stock equivalents for stock options 113 TOTAL 10,171 Fully Diluted: Weighted average outstanding during year 10,058 Common Stock equivalents for stock options 113 TOTAL 10,171 Earnings Applicable to Common Stock: Net Income $ 5,071 Earnings Per Share (Based on Weighted Average Number of Common and Common Equivalent Shares Outstanding): Net Income $.50 Additional Computations of EPS: Fully Diluted: Net Income $ .50 The Exhibits are numbered in accordance with Item 601 of Regulation S-K. [FN] 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.