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 March 31, 1998. [ ] 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 March 31, 1998 Common Stock, par value $0.20 9,360,580
ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 1 Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 3 Notes to Unaudited Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II - Other Information Item 1. Legal Proceedings 7 Item 6. Exhibits and Reports on Form 8-K 7
PART I ITEM I FINANCIAL STATEMENTS ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) ACCOUNT DESCRIPTION MARCH 31, DECEMBER 31, 1998 1997 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $1,781 $2,926 RECEIVABLES - NET 53,748 38,771 INVENTORIES 74,262 69,395 PREPAID EXPENSES AND OTHER 10,114 7,530 TOTAL CURRENT ASSETS 139,905 118,622 PROPERTY AND EQUIPMENT - NET 63,028 61,605 OTHER ASSETS 15,318 12,016 TOTAL ASSETS $218,251 $192,243 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES CURRENT MATURITIES OF LONG-TERM DEBT $500 $500 ACCOUNTS PAYABLE - TRADE 27,604 21,422 OTHER ACCRUED LIABILITIES 31,098 25,242 TOTAL CURRENT LIABILITIES 59,202 47,164 LONG-TERM DEBT, LESS CURRENT 42,716 35,230 MATURITIES OTHER LONG-TERM LIABILITIES 5,107 4,237 TOTAL SHAREHOLDERS' EQUITY 111,226 105,612 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $218,251 $192,243
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) (UNAUDITED) THREE MONTHS ENDED MARCH 31 1998 1997 NET SALES $88,164 $62,980 COST OF SALES 65,860 47,105 GROSS PROFIT 22,304 15,875 S,G, & A EXPENSES 12,673 9,612 INCOME FROM OPERATIONS 9,631 6,263 INTEREST EXPENSE 549 553 OTHER INCOME, NET OF EXPENSE 173 104 INCOME BEFORE INCOME TAXES 9,255 5,814 INCOME TAXES 3,696 2,328 NET INCOME $5,559 $3,486 EARNINGS PER COMMON SHARE BASIC $0.60 $0.35 DILUTED $0.58 $0.35 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 9,335,247 10,039,921 DILUTED 9,578,007 10,145,060
MARCH 31, MARCH 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $5,559 $3,525 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,842 1,491 PROVISION FOR DOUBTFUL ACCOUNTS 128 74 PROVISION FOR INVENTORY RESERVE 504 380 PROVISION FOR WARRANTY RESERVE 1,332 491 (GAIN) LOSS ON SALE OF FIXED ASSETS (50) 296 (INCREASE) DECREASE IN: TRADE RECEIVABLES (8,746) (6,017) FINANCE RECEIVABLES (9,386) (4,198) INVENTORIES (5,166) (6,997) PREPAID EXPENSES AND OTHER (2,579) (1,256) OTHER RECEIVABLES (236) 451 OTHER NON-CURRENT ASSETS (169) 29 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 6,182 7,252 ACCRUED PRODUCT WARRANTY (958) (70) OTHER ACCRUED LIABILITIES 2,622 3,821 INCOME TAXES PAYABLE 3,730 5,328 TOTAL ADJUSTMENTS (10,950) 1,075 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (5,391) 4,600 CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 284 271 EXPENDITURES FOR PROPERTY AND EQUIPMENT (3,578) (1,591) NET CASH USED BY INVESTING ACTIVITIES (3,294) (1,320) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS (REPAYMENTS) UNDER REVOLVING CREDIT AGREEMENT 7,485 (3,322) BORROWINGS UNDER LOAN AND NOTE AGREEMENTS 2,008 PROCEEDS FROM ISSUANCE OF COMMON STOCK 55 32 NET CASH PROVIDED BY FINANCING ACTIVITIES 7,540 (1,282) NET INCREASE (DECREASE) IN CASH (1,145) 1,998 CASH AT BEGINNING OF PERIOD 2,926 3,382 CASH AT END OF PERIOD $1,781 $5,380
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 $1,101,000, $1,342,000 and $1,258,000 for March 31, 1998, December 31, 1997 and March 31, 1997, respectively. 3. Inventories are stated at the lower of first-in, first- out, cost or market and consist of the following: (in thousands) March 31, December 31, 1998 1997 Raw Materials $ 30,537 $ 27,987 Work-in-Process 19,726 15,920 Finished Goods 23,999 25,488 Total $ 74,262 $ 69,395 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $32,812,000, $31,747,000 and $28,353,000 for March 31, 1998, December 31, 1997, and March 31, 1997, respectively. 5. Earnings per share are computed in accordance with SFAS No. 128 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 $1,424,000 at March 31, 1998, $1,793,000 at December 31, 1997, and $3,278,000 at March 31, 1997. 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 20-30% of the Company's business volume normally occurs during the first three months of each year.
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 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 March 31, 1998, net sales increased to $88,164,000 from $62,980,000 for the three- months ended March 31, 1997, representing a 40.0% increase. The acquisition of Kolberg-Pioneer, Inc. during December, 1997, accounts for approximately $13,000,000 of the increase in sales for the first quarter of 1998 compared to the first quarter of 1997. The remainder of the large increase in sales for the first quarter of 1998 compared to the first quarter of 1997 related to increased sales of asphalt plants and related components. International sales for the first quarter of 1998 remained relatively level at $10,782,000 compared to $10,921,000 during the first quarter of 1997. International sales represented 12.2% and 17.3% of total sales for the first quarter of 1998 and 1997, respectively. The decrease in the percentage of international sales to total sales for the current quarter compared to the same period for the prior year is due mainly to the significant increase in domestic sales. Gross profit for the quarter ended March 31, 1998 increased to $22,304,000, from $15,875,000 for the quarter ended March 31, 1997, while the gross profit percentage for the three months ended March 31, 1998 increased slightly to 25.3% from 25.2% at March 31, 1997. The increase in the gross profit for the quarter ended March 31, 1998 compared to the same quarter in 1997 relates mainly to the increase in total sales volume. Selling, general, and administrative expenses for the first quarter of 1998 were $12,673,000 or 14.4% of net sales, compared to $9,573,000 or 15.2% of net sales for the same period of 1997. The increase in selling, general and administrative expenses for the quarter ended March 31, 1998 compared to the same quarter in 1997, related primarily to the acquisition of Kolberg-Pioneer and to increased asphalt plant sales volume . Interest expense decreased slightly to $549,000 for the quarter ended March 31, 1998 from $553,000 for the quarter ended March 31, 1997. Interest expense as a percentage of net sales decreased to .6% for the quarter ended March 31, 1998 from .9% for the same period of 1997. Other income, net of other expense, was $173,000, or .2% of net sales for the quarter ended March 31, 1998, compared to other income, net of other expense, of $104,000, or .2% of net sales for the quarter ended March 31, 1997. Income tax expense for the first quarter of 1998 increased to $3,696,000 from $2,328,000 at March 31, 1997, an increase of $1,368,000 or 58.8%. Tax expense is 4.2% and 3.7% of net sales for the quarters ended March 31, 1998 and 1997, respectively. The effective tax rate for the first quarter of 1998 is 39.9% compared to an effective rate of 39.8% for the first quarter of 1997. Backlog of orders at March 31, 1998 was $76,607,000 compared to $68,399,000 at March 31, 1997. For comparison, the backlog of Kolberg-Pioneer is included in the prior year backlog amount. The majority of the increase in the backlog for the current quarter compared to the prior year quarter relates to a significant increase in domestic orders for the asphalt plants and related components. Liquidity and Capital Resources As of March 31, 1998, the Company had working capital of $80,703,000 compared to $68,230,000 at March 31, 1997. Total short-term borrowings, including current maturities of long-term debt, were $500,000 at March 31, 1998 compared to $1,925,000 at March 31, 1997. During the second and third quarters of 1997, the Company paid off short-term equipment financing notes totaling $1,425,000, the remaining debt at March 31, 1998 consists of current maturities for outstanding Industrial Revenue Bonds. Long- term debt less current maturities was $42,716,000 at March 31, 1998 and $29,309,000 at March 31, 1997. The increase in outstanding debt at March 31, 1998 compared to the same period of 1997 is due to the utilization of revolving lines of credit for the purchase of Kolberg-Pioneer, Inc. in December, 1997 and for working capital needs. The Company plans to utilize $9,000,000 of industrial revenue bonds to help finance this acquisition. Capital expenditures in 1998, for plant expansion and for further modernization of the Company's manufacturing processes, are expected to approach $9,800,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures at March 31, 1998 were $3,578,000. The Company has an unsecured revolving credit loan agreement with First Chicago NBD. The line of credit is $70,000,000. This credit facility expires November 22, 2002. At March 31, 1998, $31,216,000 of the line of credit was utilized. Principal covenants under the First Chicago credit agreement include ( i ) the maintenance of certain levels of net worth and compliance with certain net worth, leverage and interest coverage ratios, (ii) a limitation on capital expenditures and rental expense, (iii) a prohibition against dividends, and (iv) a prohibition on large acquisitions except upon the consent of the lenders. As part of the Company's $70,000,000 revolving credit facility, Astec Financial Services, Inc. has a segregated portion of up to a $30,000,000 line of credit. At March 31, 1998, Astec Financial Services had utilized $5,566,000 of this line which in included in the above stated utilization. Advances under this line are limited to _Eligible Receivables_ of Astec Financial Services as defined in the credit agreement. The Company and Astec Financial Services were in compliance with all financial covenants related to the line of credit at March 31, 1998. 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. 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, 1997. 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) Exhibits Index to Exhibits: (27) Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter ended March 31, 1998.
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) 5/8/98 /s/ J. Don Brock Date J. Don Brock Chairman of the Board and President 5/8/98 /s/ Richard W. Bethea, Jr. Date Richard W. Bethea Vice President, Corporate Counsel and Secretary