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, 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 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, 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 September 30, 1996, December 31, 1995 and September 30, 1995 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows for the Nine Months Ended September 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. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED (IN THOUSANDS) SEPTEMBER DECEMBER SEPTEMBER 1996 1995 1995 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $3,218 $3,133 $2,008 RECEIVABLES - NET 35,044 27,671 41,906 INVENTORIES 61,977 55,883 56,410 REFUNDABLE INCOME TAXES 2,342 PREPAID EXPENSES AND OTHER 9,221 7,567 4,595 TOTAL CURRENT ASSETS 109,460 96,596 104,919 PROPERTY AND EQUIPMENT - NET 52,171 51,709 48,922 OTHER ASSETS 4,329 6,051 11,016 TOTAL ASSETS $165,960 $154,356 $164,857 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES NOTES PAYABLE $1,551 $3 $1,917 CURRENT MATURITIES OF LONG-TERM 652 771 500 ACCOUNTS PAYABLE - TRADE 16,971 15,878 16,271 OTHER ACCRUED LIABILITIES 16,267 21,929 17,471 TOTAL CURRENT LIABILITIES 35,441 38,581 36,159 LONG-TERM DEBT, LESS CURRENT MATURITIES 27,728 17,150 26,780 OTHER LONG-TERM LIABILITIES 1,537 2,724 654 TOTAL SHAREHOLDERS' EQUITY 101,254 95,901 101,264 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $165,960 $154,356 $164,857 <TABLE> ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (IN THOUSANDS) <CAPTION> THREE MONTHS NINE MONTHS ENDED ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 1996 1995 1996 1995 <CAPTION> <S> <C> <C> <C> <C> NET SALES $47,182 $65,015 $169,964 $192,927 COST OF SALES 35,898 51,717 129,553 151,981 GROSS PROFIT 11,284 13,298 40,411 40,946 S,G, & A EXPENSES 9,166 9,109 29,320 29,282 PATENT SUIT DAMAGES & EXPENSES 1 146 259 369 INCOME FROM OPERATIONS 2,117 4,043 10,832 11,295 INTEREST EXPENSE 557 546 1,180 1,618 OTHER INCOME, NET OF EXPENSE 112 367 335 5,533 INCOME BEFORE INCOME TAXES 1,672 3,864 9,987 15,210 INCOME TAXES 651 1,096 3,895 5,196 NET INCOME $1,021 $2,768 $6,092 $10,014 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $0.10 $0.27 $0.61 $0.99 WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,037,199 10,092,199 10,050,881 10,065,100 </TABLE>
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SEPTEMBER SEPTEMBER 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $6,092 $10,014 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 4,074 3,796 PROVISION FOR DOUBTFUL ACCOUNTS 395 265 PROVISION FOR INVENTORY RESERVE 1,303 1,806 PROVISION FOR WARRANTY RESERVE 1,721 2,670 FOREIGN CURRENCY TRANSLATION ADJUSTMENT (265) (GAIN) LOSS ON SALE OF FIXED ASS (74) 146 GAIN ON SALE OF BUSINESS (2,688) PROVISION FOR PENSION RESERVE 70 PROVISION FOR LEGAL RESERVES 120 (INCREASE) DECREASE IN: RECEIVABLES (6,272) (13,869) INVENTORIES (7,397) (4,815) PREPAID EXPENSES AND OTHER 569 497 OTHER RECEIVABLES (1,496) 269 OTHER NON-CURRENT ASSETS 1,722 376 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 1,093 4,647 ACCRUED PRODUCT WARRANTY (1,989) (2,940) OTHER ACCRUED LIABILITIES (8,685) (7,559) TAXES PAYABLE 1,899 (104) TOTAL ADJUSTMENTS (12,947) (17,768) NET CASH (USED) BY OPERATING ACT (6,855) (7,754) CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 1,228 86 EXPENDITURES FOR PROPERTY AND EQUIPMENT (5,570) (10,525) 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 (4,342) (12,193) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS UNDER REVOLVING CREDIT LOAN 10,460 10,489 BORROWINGS UNDER LOAN AND NOTE AGREEMENTS 1,548 985 CASH PAID FOR TREASURY STOCK (768) PROCEEDS FROM ISSUANCE OF COMMON 42 10 NET CASH PROVIDED BY FINANCING ACTIVITIES 11,282 11,484 NET INCREASE (DECREASE) IN CASH 85 (8,463) CASH AT BEGINNING OF PERIOD 3,133 10,471 CASH AT END OF PERIOD $3,218 $2,008
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 $1,378,000, $1,279,000 and $1,671,000 for September 30, 1996, December 31, 1995 and September 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) September 30, December 31, September 30, 1996 1995 1995 Raw Materials $26,377 $23,710 $25,471 Work-in-Process 11,753 10,385 9,526 Finished Goods 23,847 21,788 21,413 Total $61,977 $55,883 $56,410 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $26,215,000, $22,957,000 and $23,264,000 for September 30, 1996, December 31, 1995 and September 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 the Company's products through arrangements in which the Company was contingently liable for customer debt aggregating approximately $4,987,000 at September 30, 1996, $7,362,000 at December 31, 1995, and $7,639,000 at September 30, 1995. 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 the Company's business volume normally occurs during the first nine months of each year. 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 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 Nine months ended ended September 30, 1995 September 30, 1995 Net sales $65,015 $188,116 Net income 2,768 8,463 Net income per common and common equivalent share $.27 $.84 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 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 of the date of such statements. 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. For the three-month period ended September 30, 1996, net sales were $47,182,000, a decrease of $17,833,000, or 27.4% from the three month period ended September 30, 1995. Excluding sales of the Company's former German operations, net sales decreased by $8,838,000 or 15.8% from the comparable period last year. International sales by domestic subsidiaries decreased to $12,250,000 for the quarter ended September 30, 1996 from $15,203,000 for the quarter ended September 30, 1995, representing a $2,953,000 or 19.4% decrease. The Company attributes this decline to softness in international sales of its asphalt plants offset by improved performance in other product lines. International sales by domestic subsidiaries represent 26.0% and 23.4% of total sales for the three months ended September 30, 1996 and 1995, respectively. The decrease in net sales for the three months ended September 30, 1996 is attributed to the decline in international sales and weakness in domestic sales for the Company's trenching and aggregate crushing product lines. For the nine-month period ended September 30, 1996, net sales were $169,964,000 compared to net sales of $192,927,000 for the same period of 1995, representing an 11.9% decrease. Excluding the sales of the former German operations, net sales increased $806,000 for the nine months ended September 30, 1996 from the comparable period in 1995. Including the sales from the former German operations, international sales decreased 35.2% to $28,381,000 for the nine- month period ended September 30, 1996 from $43,806,000 for the comparable period in 1995. The decrease in international sales for the nine months ended September 30, 1996 compared to the same period of 1995 is due, in significant part, to import duties and other artificial barriers to certain markets recently imposed by a foreign government in a country in which the Company's prior year sales totaled approximately $7,900,000 and to a general weakness in the Company's asphalt plant product line in other foreign markets. International sales from domestic subsidiaries represent 16.7% and 22.7% of total net sales for the nine months ended September 30, 1996 and 1995, respectively. Gross profit for the quarter ended September 30, 1996 decreased to $11,284,000 from $13,298,000 for the quarter ended September 30, 1995. The gross profit percentage for the three months ended September 30, 1996 and 1995 was 23.9% and 20.5%, respectively. Gross profit for the nine months ended September 30, 1996 decreased to $40,411,000 from $40,946,000 at September 30, 1995, a 1.3% decrease, however, the gross profit percentage increased to 23.8% for the nine months ended September 30, 1996 from 21.2% for the same period of 1995. While the decrease in gross profit for the three and nine months ended September 30, 1996 relates mainly to reduced sales volume, the gross profit percentage was positively impacted by increased margins on one product line and improved manufacturing efficiencies from prior year capital expenditures. The gross profit percentage was impacted negatively by the decrease in international sales which tend to have a higher gross profit margin. Selling, general, and administrative expenses for the third quarter of 1996 were $9,167,000 or 19.4% of net sales, compared to $9,255,000 or 14.2% of net sales for the same period of 1995. Excluding the former German operations, selling, general and administrative expenses increased $780,000 for the third quarter of 1996 compared to the third quarter of 1995. The increase in selling, general and administrative expenses for the three months ended September 30, 1996 is principally due to an increase in research and development costs. For the nine months ended September 30, 1996 and 1995, selling, general and administrative expenses were $29,579,000 or 17.4% of net sales, and $29,651,000 or 15.4% of net sales, respectively. Excluding the former German operations, selling, general and administrative expenses increased $4,494,000 for the nine months ended September 30, 1996 compared to the same period of 1995. Significant increases in selling, general and administrative expenses in 1996 are primarily due to increased research and development costs, the loss on repossession of an asphalt plant sold to a German customer; increased selling salaries, benefits and related travel expenses, and Con-Expo exhibition expenses. Legal expenses for the three and nine month periods ended September 30, 1996 were reduced by $312,000 due to the recovery in the third quarter from the Company's insurance carrier of legal expenses related to a product liability case tried earlier this year. Interest expense increased $11,000 to $557,000 for the quarter ended September 30, 1996 from $546,000 for the quarter ended September 30, 1995. Interest expense as a percentage of net sales increased to 1.2% for the quarter ended September 30, 1996 from 0.8% for the same period of 1995. Excluding the former German operations, interest expense increased $55,000 for the three months ended September 30, 1996 compared to the same period in 1995. Interest expense for the nine months ended September 30, 1996 and 1995 was $1,180,000 or .7% of net sales and $1,618,000 or .8% of net sales, respectively. Excluding the former German operations, interest expense decreased $128,000 for the nine months ended September 1996 compared to the same periods in 1995. The fluctuations in interest expense for the three and nine months ended September 30, 1996 compared to the same periods in 1995 relate to borrowings under of the Company's revolving line of credit. Other income, net of other expense, was $112,000 or 0.2% of net sales for the quarter ended September 30, 1996, compared to other income, net of expense, of $367,000 or 0.6% of net sales for the quarter ended September 30, 1995. Other income for the third quarter of 1995, excluding the former German operations, was $384,000. 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, net of expense, decreased to $335,000 for the nine months ended September 30, 1996 from $5,533,000 for the nine months ended September 30, 1995. 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 $4,220,000, vendor rebates and royalties of approximately $194,000, interest income of approximately $250,000, and rental income unrelated to equipment of approximately $123,000. Other income for the nine-month period ended September 30, 1996 was further reduced by additional losses incurred in connection with the disposition of assets in 1996 compared to such period in 1995. Backlog at September 30, 1996 was $30,176,000 compared to $27,100,000 at September 30, 1995, excluding the former German operations. The Company attributes this increase to normal fluctuations in sales volume. Including the Company's former German operations, the backlog at September 30, 1995 was $29,721,000. Earnings per share were $.10 for the third quarter of 1996 compared to $.27 for the same period of 1995. Earnings per share for the nine months ended September 30, 1996 were $.61 compared to $.99 for the same period in 1995. Excluding the former German operations, earnings per share were $.84 for the nine months ended September 30, 1995. Liquidity and Capital Resources As of September 30, 1996, the Company had working capital of $74,019,000 compared to $68,760,000 at September 30, 1995. Total short-term borrowings, including current maturities of long-term debt, were $2,203,000 and $2,417,000 at September 30, 1996 and 1995, respectively. Excluding the former German operations, the short-term borrowings, including current maturities of long-term debt, at September 30, 1995 were $506,000. The increase in short-term borrowings for the three month period ended September 30, 1996 is attributed to short-term notes payable to finance rental trenching equipment and a loan from the Company's President and Chief Executive Officer to supplement its working capital revolving credit facility. The Company executed a demand note payable to Dr. Brock on March 18, 1996 bearing interest at a rate equal to that paid to The First National Bank of Chicago under the Company's unsecured revolving line of credit. At the time Dr. Brock loaned these funds to the Company, the Company's outstanding balance under its $22,000,000 credit facility was $9,605,000. To date, interest of approximately $54,000 has been accrued with respect to this loan. Long-term debt, less current maturities was $27,728,000 at September 30,1996 and $27,242,000 at September 30, 1995. The former German operations had no outstanding long-term debt at September 30, 1995. Debt outstanding at September 30, 1996 consists of industrial revenue bonds issued 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 $6,000,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures for the nine month period ended September 30, 1996 were $5,570,000 compared to $10,525,000 for the same period in 1995. The decrease in the level of capital expenditures is attributed to the completion of several plant modernization projects by the Company. In July, 1994, the Company obtained an unsecured revolving line of credit for $15,000,000 from The First National Bank of Chicago that was to expire on September 30, 1997. On May 22, 1995, the Company amended the agreement to increase the revolving credit available to $22,000,000. On June 28, 1996 the revolving line of credit termination date was extended to June 30, 1999. The outstanding balance under this credit facility at September 30, 1996 was $14,442,000. The Company was in compliance with all financial covenants at September 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 pursuant to 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. 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 10-Q for the quarter ended June 30, 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. PART II - OTHER INFORMATION - CONT. 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, 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) 11/14/96 /s/ J. Don Brock Date J.Don Brock Chairman of the Board and President 11/14/96 /s/ Albert E. Guth Date Albert E. Guth Senior Vice President Secretary EXHIBIT 11 Statement Regarding Computation of Per Share Earnings ASTEC INDUSTRIES, INC. EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE Three months ended Nine months ended 9/30/96 9/30/95 9/30/96 9/30/95 Shares for Earnings Per Share Computations: (in thousands) Primary: Weighted average outstanding during year 10,037 10,092 10,051 10,065 Common stock equivalents for stock options 108 121 112 124 Total 10,145 10,213 10,163 10,189 Fully Diluted: Weighted average outstanding during year 10,037 10,092 10,051 10,065 Common stock equivalents for stock options 109 122 112 125 Total 10,146 10,214 10,163 10,190 Earnings Applicable to Common Stock: Net income $1,021 $2,768 $6,092 $10,014 Earnings Per Share (Based on Weighted Average Number of Common and Common Equivalent Shares Outstanding): Net income $.10 $.27 $.61 $.99 Additional Computations of EPS: Fully Diluted: Net income $.10 $.27 $.61 $.99 The Exhibits are numbered in accordance with Item 601 of Regulation S-K. 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.