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, 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 June 30, 1998 Common Stock, par value $0.20 9,404,580 ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 1 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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 5. Other Items 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 JUNE 30, DECEMBER 31, 1998 1997 ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $18,449 $2,926 RECEIVABLES - NET 54,065 38,771 INVENTORIES 63,878 69,395 PREPAID EXPENSES AND OTHER 14,228 7,530 TOTAL CURRENT ASSETS 150,620 118,622 PROPERTY AND EQUIPMENT - NET 67,047 61,605 OTHER ASSETS 15,980 12,016 TOTAL ASSETS $233,647 $192,243 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES CURRENT MATURITIES OF LONG-TERM DEBT $500 $500 ACCOUNTS PAYABLE - TRADE 24,949 21,422 OTHER ACCRUED LIABILITIES 35,385 25,242 TOTAL CURRENT LIABILITIES 60,834 47,164 LONG-TERM DEBT, LESS CURRENT MATURITIES 48,341 35,230 OTHER LONG-TERM LIABILITIES 5,522 4,237 TOTAL SHAREHOLDERS' EQUITY 118,950 105,612 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $233,647 $192,243 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1998 1997 1998 1997 NET SALES $108,124 $73,159 $196,288 $136,139 COST OF SALES 82,298 55,394 148,158 102,499 GROSS PROFIT 25,826 17,765 48,130 33,640 S,G, & A EXPENSES 12,841 9,557 25,514 19,130 INCOME FROM OPERATIONS 12,985 8,208 22,616 14,510 INTEREST EXPENSE 852 625 1,401 1,178 OTHER INCOME, NET OF EXPENSE 127 92 300 196 INCOME BEFORE INCOME TAXES 12,260 7,675 21,515 13,528 INCOME TAXES 4,871 3,050 8,567 5,378 NET INCOME $7,389 $4,625 $12,948 $8,150 EARNINGS PER COMMON SHARE BASIC $0.79 $0.48 $1.38 $0.83 DILUTED $0.76 $0.48 $1.34 $0.82 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 9,392,228 9,557,125 9,363,895 9,797,189 DILUTED 9,699,341 9,690,053 9,638,831 9,916,223 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) JUNE 30, JUNE 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $12,948 $8,150 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 3,855 3,066 PROVISION FOR DOUBTFUL ACCOUNTS 245 160 PROVISION FOR INVENTORY RESERVE 939 841 PROVISION FOR WARRANTY RESERVE 2,682 1,713 (GAIN) LOSS ON SALE OF FIXED ASSETS (59) 462 PROVISION FOR PENSION RESERVE 121 (INCREASE) DECREASE IN: TRADE RECEIVABLES (10,183) (5,227) FINANCE RECEIVABLES (9,258) (10,454) INVENTORIES 3,286 (386) PREPAID EXPENSES AND OTHER (6,699) (2,636) OTHER RECEIVABLES (183) (1,236) OTHER NON-CURRENT ASSETS (91) 242 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 3,527 6,758 ACCRUED PRODUCT WARRANTY (1,755) (811) OTHER ACCRUED LIABILITIES 1,736 804 INCOME TAXES PAYABLE 8,644 8,333 TOTAL ADJUSTMENTS (3,193) 1,629 NET CASH PROVIDED BY OPERATING ACTIVITIES 9,755 9,779 CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 304 285 EXPENDITURES FOR PROPERTY AND EQUIPMENT (8,037) (3,828) NET CASH USED BY INVESTING ACTIVITIES (7,733) (3,543) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS (REPAYMENTS) UNDER REVOLVING CREDIT AGREEMENT 13,111 (1,756) TENDER OFFER STOCK REPURCHASE (7,733) BORROWINGS UNDER LOAN AND NOTE AGREEMENTS 8,564 PROCEEDS FROM ISSUANCE OF COMMON STOCK 390 32 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 13,501 (893) NET INCREASE IN CASH 15,523 5,343 CASH AT BEGINNING OF PERIOD 2,926 3,382 CASH AT END OF PERIOD $18,449 $8,725 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 $1,118,000 and $1,342,000 for June 30, 1998 and December 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) June 30, December 31, 1998 1997 Raw Materials $28,534 $ 27,987 Work-in-Process 16,095 15,920 Finished Goods 19,249 25,488 Total $63,878 $ 69,395 4. Property and equipment is stated at cost. Property and equipment is net of accumulated depreciation of $34,388,000 and $31,747,000 for June 30, 1998 and December 31, 1997, respectively. 5. Earnings per share are computed in accordance with SFAS No. 128. 6. Certain customers have financed purchases of Astec products through arrangements in which the Company is contingently liable for customer debt aggregating approximately $982,000 at June 30, 1998, $3,174,000 at June 30, 1997 and $1,793,000 at December 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 60% of the Company's business volume normally occurs during the first six 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 June 30, 1998, net sales increased to $108,124,000, from $73,159,000 for the three- months ended June 30, 1997, representing a 47.8% increase. The acquisition of Kolberg-Pioneer, Inc. during December 1997, accounted for approximately $13,435,000 of the increase in sales for the second quarter of 1998 compared to the second quarter of 1997. The remainder of the increase in net sales for the second quarter of 1998 compared to the second quarter of 1997 related to increased sales of aggregate crushing equipment and asphalt mixing plants and related components. International sales for the second quarter of 1998 increased to $16,000,000, from $11,673,000 for the same period of 1997. Net sales for the six months ended June 30, 1998 increased approximately 44.2% to $196,288,000 from $136,139,000 for the same period of 1997. For the six months ended June 30, 1998, approximately 45% of the increase in net sales is attributable to net sales of Kolberg-Pioneer, Inc. The remainder of the increase in net sales for the six months ended June 30, 1998 is attributable increased sales of asphalt mixing plants and related components and of aggregate crushing equipment. Gross profit for the quarter ended June 30, 1998 increased to $25,826,000, from $17,765,000 for the quarter ended June 30, 1997, while the gross profit percentage for the three months ended June 30, 1998 decreased slightly to 23.9% from 24.3% at June 30, 1997. The decrease in the gross profit percentage for the quarter ended June 30, 1998 compared to the same quarter in 1997 relates mainly to lower profit margins on two product lines. Gross profit for the six months ended June 30, 1998 was $48,130,000 compared to gross profit of $33,640,000 for the same period of 1997. The gross profit percentage for the six months ended June 30, 1998 was 24.5% compared to 24.7% for the six months ended June 30, 1997. Selling, general, and administrative expenses for the second quarter of 1998 were $12,841,000 or 11.9% of net sales, compared to $9,557,000 or 13.1% of net sales for the same period of 1997. Approximately 60% of the increase in selling, general and administrative expenses for the quarter ended June 30, 1998 compared to the same quarter in 1997, related to increased sales expense for both domestic and international sales forces and increased legal expenses. The remaining increase in selling, general and administrative expenses for the second quarter ended June 30, 1998 compared to the same period of 1997 related to selling, general and administrative expenses of Kolberg- Pioneer, Inc. which was acquired in December 1997. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. Selling, general and administrative expenses for the six months ended June 30, 1998 increased to $25,514,000, from $19,130,000 for the six months ended June 30, 1997, an increase of $6,384,000, or 33.4%. Approximately half of the increase in selling, general and administrative expenses for the six months ended June 30, 1998 compared to the same period of 1997 related to Kolberg-Pioneer, Inc. The remaining increase in selling, general and administrative expenses related to increased selling expense. Interest expense increased to $852,000 for the quarter ended June 30, 1998 from $625,000 for the quarter ended June 30, 1997. Interest expense as a percentage of net sales decreased to .8% for the quarter ended June 30, 1998 from .9% for the same period of 1997. Interest expense for the six months ended June 30, 1998 compared to the six months ended June 30, 1997 increased to $1,401,000 from $1,178,000, respectively. The increase in interest expense for the three and six months ended June 30, 1998 compared to the three and six months ended June 30, 1997, is due mainly to increased borrowing under of the Company's revolving credit facility. Other income, net of other expense, was $127,000, or .1% of net sales for the quarter ended June 30, 1998, compared to other income, net of other expense, of $92,000, or .1% of net sales for the quarter ended June 30, 1997. Other income, net of other expense for the six months ended June 30, 1998 was $300,000 compared to other income, net of other expense for the six months ended June 30, 1997 of $196,000, an increase of $104,000. Income tax expense for the second quarter of 1998 increased to $4,871,000 from $3,050,000 at June 30, 1997, an increase of $1,821,000 or 59.7%. Tax expense is 4.5% and 4.2% of net sales for the quarters ended June 30, 1998 and 1997, respectively. The effective tax rate for the second quarter of 1998 and 1997 was 39.7%. Backlog of orders at June 30, 1998 was $66,674,000 compared to $54,663,000 at June 30, 1997. For comparison, the June 30, 1997 backlog of Kolberg-Pioneer was included in the June 30, 1997 backlog amount. The majority of the increase in the backlog at June 30, 1998 compared to that of June 30, 1997 related to a significant increase in domestic and international orders for asphalt mixing plants and related components and for increased domestic orders for aggregate crushing equipment. Liquidity and Capital Resources As of June 30, 1998, the Company had working capital of $89,786,000 compared to $71,621,000 at June 30, 1997. Total short-term borrowings, including current maturities of long-term debt, were $500,000 at June 30, 1998 compared to $602,000 at June 30, 1997. The total current maturities of long-term debt at June 30, 1998 represents current maturities of outstanding Industrial Revenue Bonds. Long-term debt less current maturities was $48,341,000 at June 30, 1998 and $38,754,000 at June 30, 1997. The increase in outstanding debt at June 30, 1998 compared to the same period of 1997 is due to the utilization of the revolving line of credit by the Company's captive finance subsidiary and due to the purchase of Kolberg-Pioneer, Inc. in December 1997 and for working capital needs. During the third quarter of 1998, the Company plans to convert $9,000,000 of the outstanding credit line related to the acquisition of Kolberg-Pioneer, Inc. to industrial revenue bonds. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - CONT. On June 30, 1998, approximately $11,000,000 cash was received for the sale of finance leases. Due to timing of the receipt of these funds, the outstanding line of credit could not be reduced until July 1998. In addition, on June 30, 1998, approximately $7,000,000 of cash was received in the normal course of business that could not be applied to the outstanding line of credit until July 1998. Capital expenditures in 1998 for plant expansion and for further modernization of the Company's manufacturing processes, are expected to approach $10,000,000. The Company expects to finance these expenditures using internally generated funds. Capital expenditures for the six months ended June 30, 1998 were $8,037,000. 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 June 30, 1998, $36,841,000 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 June 30, 1998, Astec Financial Services, Inc. had utilized $21,841,000 of this line, which is included in the above stated utilization. Advances under this line of credit are limited to _Eligible Receivables_ of Astec Financial Services, Inc. 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 June 30, 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 5. Other Items Shareholder Proposals The proxy statement solicited by the Board of Directors of the Company with respect to the 1999 Annual Meeting of Shareholders will confer discretionary authority on the Company to vote on any shareholder proposals intended to be presented for consideration at such Annual Meeting that are submitted to the Company after February 8, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Index to Exhibits: (27) Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter ended June 30, 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) 8/10/98 Date /s/ J. Don Brock J. Don Brock Chairman of the Board and President 8/10/98 /s/ Richard W. Bethea, Jr. Date Richard W. Bethea, Jr. Vice President, Corporate Counsel and Secretary