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, 1997. [ ] 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, 1997 was 9,317,580.
PART I ITEM I FINANCIAL STATEMENTS ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) ACCOUNT DESCRIPTION SEPTEMBER 30 DECEMBER 31 1997 1996 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 818 $ 3,382 RECEIVABLES - NET 41,569 34,603 INVENTORIES 54,581 56,764 REFUNDABLE INCOME TAX 2,071 PREPAID EXPENSES AND OTHER 13,294 7,507 TOTAL CURRENT ASSETS 110,262 104,327 PROPERTY AND EQUIPMENT - NET 62,890 54,317 OTHER ASSETS 9,283 9,209 TOTAL ASSETS $182,435 $167,853 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES NOTES PAYABLE $1,551 CURRENT MATURITIES OF LONG-TERM DEBT $ 602 500 ACCOUNTS PAYABLE - TRADE 18,308 14,614 OTHER ACCRUED LIABILITIES 26,721 17,778 TOTAL CURRENT LIABILITIES 45,631 34,443 LONG-TERM DEBT, LESS CURRENT MATURITIES 29,910 30,497 OTHER LONG-TERM LIABILITIES 4,257 3,520 TOTAL SHAREHOLDERS' EQUITY 102,637 99,393 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $182,435 $167,853
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 1997 1996 1997 1996 NET SALES $65,040 $47,182 $201,179 $169,964 COST OF SALES 50,407 35,898 152,906 129,553 GROSS PROFIT 14,633 11,284 48,273 40,411 S,G, & A EXPENSES 9,439 9,167 28,569 29,579 INCOME FROM OPERATIONS 5,194 2,117 19,704 10,832 INTEREST EXPENSE 512 557 1,690 1,180 OTHER INCOME, NET OF EXPENSE (2) 112 194 335 INCOME BEFORE INCOME TAXES 4,680 1,672 18,208 9,987 INCOME TAXES 1,859 651 7,237 3,895 NET INCOME $2,821 $1,021 $10,971 $6,092 EARNINGS PER COMMON SHARE $0.30 $0.10 $1.14 $0.61 WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 9,317,580 10,037,199 9,635,563 10,050,881
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SEPTEMBER 30 SEPTEMBER 30 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $10,971 $6,092 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 4,587 4,074 PROVISION FOR DOUBTFUL ACCOUNTS 280 395 PROVISION FOR INVENTORY RESERVE 1,189 1,303 PROVISION FOR WARRANTY RESERVE 2,371 1,721 (GAIN) LOSS ON SALE OF FIXED ASSETS 462 (74) PROVISION FOR PENSION RESERVE 70 (INCREASE) DECREASE IN: RECEIVABLES (5,362) (1,046) FINANCE RECEIVABLES (1,745) (5,226) INVENTORIES (6,331) (7,397) PREPAID EXPENSES AND OTHER (5,786) 569 OTHER RECEIVABLES (423) (1,496) OTHER ASSETS (99) 1,722 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 3,694 1,093 ACCRUED PRODUCT WARRANTY (1,216) (1,989) OTHER ACCRUED LIABILITIES 623 (8,565) INCOME TAXES PAYABLE 9,973 1,899 TOTAL ADJUSTMENTS 2,217 (12,947) NET CASH (USED) BY OPERATING ACTIVITIES 13,188 (6,855) CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 338 1,228 EXPENDITURES FOR PROPERTY AND EQUIPMENT (6,327) (5,570) NET CASH USED BY INVESTING ACTIVITIES (5,989) (4,342) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS UNDER REVOLVING CREDIT AGREEMENT 2,080 10,460 ISSUER SELF TENDER OFFER STOCK (7,760) BORROWINGS (REPAYMENTS) UNDER LOAN AND NOTE AGREEMENTS (4,116) 1,548 CASH PAID FOR TREASURY STOCK (768) PROCEEDS FROM ISSUANCE OF COMMON STOCK 33 42 NET CASH PROVIDED BY FINANCING ACTIVITIES (9,763) 11,282 NET INCREASE (DECREASE) IN CASH (2,564) 85 CASH AT BEGINNING OF PERIOD 3,382 3,133 CASH AT END OF PERIOD $818 $3,218
ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets as of September 30, 1997and December 31, 1996 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 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 $1,266,000 and $1,267,000 for September 30, 1997 and December 31, 1996, 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, 1997 1996 Raw Materials $ 23,234 $ 23,541 Work-in-Process 10,396 9,038 Finished Goods 20,951 24,185 Total $56,578 $58,760 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $30,977,000 and $27,066,000 for September 30, 1997 and December 31, 1996, 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 the Company is contingently liable for customer debt aggregating approximately $2,327,000 at September 30, 1997 and $4,618,000 at December 31, 1996. 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 - 85% of Astec's business volume normally occurs during the first nine months of each year. 9. In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is immaterial. 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 include market conditions in the road building and related construction equipment industry, competition in the Company's markets from existing and new competitors and the products or services they provide, the ability to expand in existing markets and penetrate new markets, federal and state legislation affecting infrastructure, and other 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 such statements are made. The Company undertakes no obligation to publicly release any change to these forward-looking statements that may result from events or circumstances occurring after the date such statements are made or to reflect the occurrence of unanticipated events. On October 16, 1997, the Company announced that it entered into an agreement to purchase the Construction Equipment Division of Portec, Inc., located in Yankton, South Dakota. The business designs, manufactures and markets well-known lines of aggregate processing equipment, including the Pioneer line of jaw crushers, the Kolberg line of sand classification equipment and portable conveyers, and Portec Environmental products such as portable screening plants utilized in the recycle and aggregate markets. The transaction is scheduled to close during the fourth quarter of 1997, and is still subject to regulatory approval. Results of Operations For the three-months ended September 30, 1997, net sales increased to $ 65,040,000 from $47,182,000 for the three-months ended September 30, 1996, representing a 37.9% increase. International sales for the third quarter of 1997 were $16,022,000 compared to $12,713,000 for the third quarter of 1996, an increase of $3,309,000 or 26.0%. International sales represented 24.6% and 26.9% of total sales for the third quarter of 1997 and 1996, respectively. The increase in both domestic and international sales reflects the continued strength of the U.S. economy and improving economic conditions in several international markets in which the Company sells its products. For the nine-month period ended September 30, 1997, net sales were $201,179,000 compared to $169,964,000 for the same period of 1996, representing a 18.4% increase. International sales represented 19.2% and 16.7% of total net sales for the nine months ended September 30, 1997 and 1996, respectively. The increase in international sales during the third quarter of 1997 is due mainly to increased sales of asphalt plants, paving equipment and related components. Gross profit for the quarter ended September 30, 1997 increased to $14,633,000 from $11,284,000 for the quarter ended September 30, 1996, while the gross profit percentage for the three months ended September 30, 1997 decreased to 22.5% from 23.9% for the same period of 1996. The decrease in the gross profit percentage for the three months ended September 30, 1997 relates mainly to product mix sold during the period. Gross profit for the nine months ended September 30, 1997 increased to $48,273,000, for a gross profit percentage of 24.0%, compared to $40,411,000 for a gross profit percentage of 23.8% for the same period of 1996. Selling, general, and administrative expenses for the third quarter of 1997 were $9,439,000 or 14.5% of net sales, compared to $9,167,000 or 19.4% of net sales for the same period of 1996. Selling, general and administrative expenses for the nine months ended September 30, 1997 were $28,569,000 or 14.2% of net sales and $29,579,000 or 17.4% of net sales for the nine months ended September 30, 1996. The decrease in selling, general and administrative expenses for the nine months ended September 30, 1997 compared to the same period of 1996 related mainly to decreased legal fees and repossession expenses related to a foreign sale. Interest expense decreased to $512,000 for the quarter ended September 30, 1997 from $557,000 for the quarter ended September 30, 1996. Interest expense as a percentage of net sales decreased to .8% for the quarter ended September 30, 1997 compared to 1.2% for the same period of 1996. Interest expense for the nine months ended September 30, 1997 increased to $1,690,000 compared to $1,180,000 for the same period of 1996. The decrease in interest expense for the three months ended September 30, 1997 is attributable to decreased usage of the Company's revolving line of credit. The increase in interest expense for the nine months ended September 30, 1997 relates to increased usage of the Company's revolving line of credit for increased trade receivables, additional debt at the subsidiary level related to the captive finance company, and proceeds used for the purchase of the Company's stock in an issuer self-tender offer completed during the second quarter of 1997. Net other expense was $2,000 for the quarter ended September 30, 1997, compared to Other income, net of expense, of $112,000 for the quarter ended September 30, 1996. Other income, net of other expense, decreased to $194,000 for the nine months ended September 30, 1997 from $335,000 for the same period of 1996. The decrease in other income, net of other expense, relates to decreased license fee income, the write-off of fixed assets being replaced, and decreased interest income during 1997 compared to 1996. Income tax expense for the third quarter of 1997 increased to $1,859,000 compared to $651,000 at September 30, 1996, for an increase of $1,208,000. Tax expense is 2.9% and 1.4% of net sales for the quarters ended September 30, 1997 and 1996, respectively. The effective tax rate for the second quarter of 1997 is 39.7% compared to an effective rate of 38.9% for the third quarter of 1996. Income tax expense for the nine months ended September 30, 1997 increased to $7,237,000 compared to $3,895,000 for the nine months ended September 30, 1996. Tax expense is 3.6% and 2.3% of net sales for the nine months ended September 30, 1997 and 1996, respectively. The effective tax rate for the six months ended September 30, 1997 is 36% compared to the effective tax rate for the nine months ended September 30, 1996 of 39%. The decrease in the effective tax rate for the nine months ended September 30, 1997 compared to the same period last year relates minority interest income using the equity method of accounting, included in other income, which is already net of income taxes which are recorded on the books of the minority interest. Backlog of orders at September 30, 1997 was $41,400,000 compared to $30,176,000 at September 30, 1996. The majority of this improvement relates to a significant increase in domestic and international orders of two subsidiaries. Liquidity and Capital Resources As of September 30, 1997, the Company had working capital of $64,631,000 compared to $74,019,000 at September 30, 1996. Total short-term borrowings, including current maturities of long-term debt, were $602,000 at September 30, 1997 compared to $2,203,000 at September 30, 1996. Long-term debt less current maturities was $27,728,000 at September 30, 1997 and $29,910,000 at September 30, 1996. Debt did not decrease further during 1997 since cash generated during 1997 was used to purchase 726,619 shares of its common stock at $10.50 per share in an issuer self-tender offer. Capital expenditures in 1997, for plant expansion and for further m odernization of the Company's manufacturing processes, are expected to approach $9,640,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures at September 30, 1997 were $6,327,000. Capital expenditures for the last quarter of 1997 will include new and upgraded plant equipment and the first installment of a new mainframe computer system at one location. At September 30, 1997, the outstanding balance on the Company's revolving line of credit was $6,395,000 while the outstanding balance on the line of credit of the Company's finance subsidiary was $11,515,000. Both lines of credit contain certain restrictive covenants which require the Company to maintain certain levels of net worth, leverage, fixed charge and interest expense ratios, and capital expenditure limits. The Company was in compliance with all financial covenants at September 30, 1997. 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 $12,000,000 subject to a substantial self- insured retention for the larger subsidiaries, and a $50,000 deductible for the smaller subsidiaries, 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. 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 10K for the year ended December 31, 1996. 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. No reports on Form 8-K have been filed during the quarter ended September 30, 1997. 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) 11/13 /97 /s/ J. Don Brock Date J. Don Brock Chairman of the Board and President 11/13 /97 /s/ Richard W. Bethea, Jr. Date Richard W. Bethea Vice President, Corporate Counsel and Secretary
EXHIBIT 11 Statement Regarding Computation of Per Share Earnings ASTEC INDUSTRIES, INC. EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE September 30, 1997 and 1996 (in thousands) Three months ended Nine months ended Shares for Earnings Per Share Computations: 9/30/97 9/30/96 9/30/97 9/30/96 Primary: Weighted average outstanding during the year 9,318 10,037 9,636 10,051 Common Stock equivalents for stock options 209 108 148 112 Total 9,527 10,145 9,784 10,163 Fully Diluted: Weighted average outstanding during the year 9,318 10,037 9,636 10,051 Common Stock equivalents for stock options 238 109 239 112 Total 9,556 10,146 9,875 10,163 Earnings applicable to Common Stock: Net Income $2,821 $1,021 $10,971 $6,092 Earnings Per Share (Based on Weighted Average Number of Common Equivalent Shares Outstanding): Net Income $.30 $.10 $1.14 $.61 Additional Computations of EPS: Fully Diluted: Net Income $.30 $.10 $1.14 $.61 Dilutive effect of common stock 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.