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, 1999. [ ] 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, 1999 Common Stock, par value $0.20 19,022,160 ASTEC INDUSTRIES, INC. INDEX Page Number PART I - Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 1 Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 3 Notes to Unaudited Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 3. Quantitative and Qualitative Disclosure of Market Risk 9 PART II - Other Information Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures PART I ITEM I FINANCIAL STATEMENTS ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) MARCH 31, December 31, ACCOUNT DESCRIPTION 1999 1998 (Unaudited) (Note 1 ) ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $7,191 $5,353 RECEIVABLES - NET 67,654 52,427 INVENTORIES 83,401 76,729 PREPAID EXPENSES AND OTHER 10,415 10,373 TOTAL CURRENT ASSETS 168,661 144,882 PROPERTY AND EQUIPMENT - NET 84,841 81,142 OTHER ASSETS 28,522 23,140 TOTAL ASSETS $282,024 $249,164 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES NOTES PAYABLE $88 $146 CURRENT MATURITIES OF LONG-TERM DEBT 500 500 ACCOUNTS PAYABLE - TRADE 38,917 27,418 OTHER ACCRUED LIABILITIES 38,249 34,953 TOTAL CURRENT LIABILITIES 77,754 63,017 LONG-TERM DEBT, LESS CURRENT MATURITIES 53,004 47,220 OTHER LONG-TERM LIABILITIES 9,286 6,269 TOTAL SHAREHOLDERS' EQUITY 141,980 132,658 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $282,024 $249,164 See notes to consolidated financial statements. ASTEC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) (UNAUDITED) THREE THREE MONTHS MONTHS ENDED ENDED MARCH 31, MARCH 31, 1999 1998 NET SALES $112,478 $88,164 COST OF SALES 84,469 65,860 GROSS PROFIT 28,009 22,304 S,G, A & E EXPENSES 13,940 12,673 INCOME FROM OPERATIONS 14,069 9,631 INTEREST EXPENSE 694 549 OTHER INCOME, NET OF EXPENSE 643 173 INCOME BEFORE INCOME TAXES 14,018 9,255 INCOME TAXES 5,451 3,696 NET INCOME $8,567 $5,559 EARNINGS PER COMMON SHARE (1) BASIC $0.45 $0.30 DILUTED $0.43 $0.29 WEIGHTED AVERAGE COMMON SHARES (1) OUTSTANDING BASIC 18,988,549 18,670,494 DILUTED 19,814,701 19,156,014 (1) All amounts reflect the 2-for-1 stock split that took effect on January 18, 1999. See notes to consolidated financial statements. ASTEC INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED MARCH 31 MARCH 31 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $8,567 $5,559 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 2,727 1,842 PROVISION FOR DOUBTFUL ACCOUNTS 506 128 PROVISION FOR INVENTORY RESERVE 698 504 PROVISION FOR WARRANTY RESERVE 1,880 1,332 (GAIN) LOSS ON SALE OF FIXED ASSETS (103) (50) (GAIN) ON SALE OF LEASE PORTFOLIO (80) (INCREASE) DECREASE IN: TRADE RECEIVABLES (13,193) (8,746) FINANCE RECEIVABLES (11,983) (9,386) INVENTORIES (7,370) (5,166) PREPAID EXPENSES AND OTHER (41) (2,579) OTHER RECEIVABLES (83) (236) OTHER NON-CURRENT ASSETS (14) (169) INCREASE (DECREASE) IN: ACCOUNTS PAYABLE 11,499 6,182 ACCRUED PRODUCT WARRANTY (1,423) (958) OTHER ACCRUED LIABILITIES 2,711 2,622 INCOME TAXES PAYABLE 3,146 3,730 TOTAL ADJUSTMENTS (11,123) (10,950) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,556) (5,391) CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT - NET 3,194 284 EXPENDITURES FOR PROPERTY AND EQUIPMENT (5,282) (3,578) NET CASH USED BY INVESTING ACTIVITIES (2,088) (3,294) CASH FLOWS FROM FINANCING ACTIVITIES: NET BORROWINGS (REPAYMENTS) UNDER REVOLVING CREDIT AGREEMENT 5,727 7,485 PROCEEDS FROM ISSUANCE OF COMMON STOCK 755 55 NET CASH PROVIDED BY FINANCING ACTIVITIES 6,482 7,540 NET INCREASE (DECREASE) IN CASH 1,838 (1,145) CASH AT BEGINNING OF PERIOD 5,353 2,926 CASH AT END OF PERIOD $7,191 $1,781 See notes to consolidated financial statements. Notes To Unaudited Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to From 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have bee included. Operating results for the three-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Astec Industries, Inc. and subsidiaries annual report on Form 10-K for the year ended December 31, 1998. Note 2. Receivables Receivables are net of allowance for doubtful accounts of $1,551,000, and $1,459,000 for March 31, 1999 and December 31, 1998, respectively. Note 3. Inventories Inventories are stated at the lower of first-in, first- out, cost or market and consist of the following: (in thousands) March December 31, 31, 1999 1998 Raw Materials $25,872 $35,275 Work-in-Process 22,156 18,138 Finished Goods 35,373 23,316 Total $83,401 $76,729 Note 4. Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation of $38,607,000 and $36,759,000 for March 31, 1999 and December 31, 1998, respectively. Note 5. Earnings Per Share 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. Note 6. Contingent Matters Certain customers have financed purchases of Astec products through arrangements in which the Company is contingently liable for customer debt aggregating approximately $1,362,000 at March 31, 1999, and $1,271,000 at December 31, 1998. Note 7. Segment Information Three months ended March 31, 1999 Hot-mix Aggregate Mobile Asphalt Asphalt Processing Construction All Plants Equipment Equipment Others Total Revenues from external customers $49,700 $38,207 $17,503 $7,067 $112,477 Intersegment revenues 2,414 2,916 0 1,157 6,487 Segment profit $6,852 $ 5,444 $ 3,180 ($6,729) $ 8,747 Three months ended March 31, 1998 Hot-mix Aggregate Mobile Asphalt Asphalt Processing Construction All Plants Equipment Equipment Others Total Revenues from external customers $47,745 $28,359 $12,955 $7,239 $96,298 Intersegment revenues 2,809 1,436 2 3,888 8,135 Segment profit $6,917 $2,974 $1,887 ($5,619) $ 6,159 Reconciliations of the reportable segment totals for profit or loss to the Company's consolidated totals are as follows: Three months ended March 31, 1999 1998 Profit: Total profit for reportable $15,476 $11,778 segments Other profit (loss) (6,729) (5,619) Equity in income of joint venture 43 22 Elimination of intersegment profit (223) (622) Total consolidated net income $8,567 $5,559 Note 8. Legal Matters 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. Note 9. Seasonality Approximately 20-30% of the Company's business volume normally occurs during the first three months of each year. 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, including, but not limited to, acquisition strategy, competition, regulation, Year 2000 compliance, product liability, seasonality and cyclicality, international exposure, intellectual property, dependence on key personnel and anti-takeover provisions, and other risk factors that are discussed from time to time in the Company's SEC reports. For a complete discussion of these factors, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations "Risk Factors." 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, 1999, net sales increased to $112,478,000 from $88,164,000 for the three- months ended March 31, 1998, representing a 27.6% increase. Net sales of Johnson Crushers International, Inc. ("JCI"), acquired in October 1998, accounts for approximately 35.8% of the increase. The remainder of the increase in sales for the first quarter of 1999 compared to the first quarter of 1998 related to internal growth, primarily increased sales of road paving equipment and asphalt plants and related components. Domestic sales growth relates to both the strong economy coupled with customer purchases prompted by the initiation of spending under the new six-year federal highway bill (TEA 21). International sales for the first quarter of 1999 decreased only slightly to $10,236,000 from $10,782,000 during the first quarter of 1998. International sales represented 9.1% and 12.2% of total sales for the first quarter of 1999 and 1998, respectively. Gross profit for the quarter ended March 31, 1999 increased to $28,009,000, from $22,304,000 for the quarter ended March 31, 1998, while the gross profit percentage for the three months ended March 31, 1999 decreased slightly to 24.9% from 25.3% for the months ended March 31, 1998. The decrease in gross profit percentage for the quarter ended March 31, 1999 compared to the same quarter in 1998 relates primarily to decreased efficiencies related to training of new manufacturing personnel at the asphalt plant manufacturing locations and training personnel at the newly- acquired manufacturing subsidiary. Selling, general, administrative and engineering expenses for the first quarter of 1999 were $13,940,000 or 12.4% of net sales, compared to $12,673,000 or 14.4% of net sales for the same period of 1998. The increase in selling, general, administrative and engineering expenses for the quarter ended March 31, 1999 compared to the same quarter in 1998, related primarily to the acquisition of JCI, which accounted for approximately 46.3% of the increase in selling, general, administrative and engineering expenses. The remainder of the increase relates primarily to increased selling expenses from additional sales personnel at various locations. Interest expense increased slightly to $694,000 for the quarter ended March 31, 1999 from $549,000 for the quarter ended March 31, 1998. Interest expense as a percentage of net sales remained constant at .6% of net sales for the quarters ended March 31, 1999 and 1998. Other income, net of other expense, was $643,000, or .6% of net sales for the quarter ended March 31, 1999, compared to other income, net of other expense, of $173,000, or .2% of net sales for the quarter ended March 31, 1998. The increase in other income for the current quarter compared to the same period in the prior year related primarily to an increase in interest income, income from servicing equipment leases and from a gain on the sale of equipment leases. Income tax expense for the first quarter of 1999 increased to $5,451,000 from $3,696,000 at March 31, 1998, an increase of $1,755,000, or 47.5%. Tax expense is 4.8% and 4.2% of net sales for the quarters ended March 31, 1999 and 1998, respectively. The effective tax rate for the first quarter of 1999 is 38.9% compared to an effective rate of 39.9% for the first quarter of 1998. Backlog of orders at March 31, 1999 was $100,890,000 compared to $81,601,000 at March 31, 1998. For comparison purposes, the backlog of JCI 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 asphalt plants and related components and for aggregate equipment. Liquidity and Capital Resources As of March 31, 1999, the Company had working capital of $90,908,000 compared to $81,865,000 at December 31, 1998. Total short-term borrowings, including current maturities of long-term debt, were $588,000 at March 31, 1999 compared to $646,000 at December 31, 1998. Long-term debt less current maturities was $53,005,000 at March 31, 1999 and $47,220,000 at December 31, 1998. The increase in outstanding debt at March 31, 1999 compared to the year-end of 1998 is due to the utilization of the Company's revolving credit loan by Astec Financial Services, Inc., the Company's captive finance company, to finance leases. Capital expenditures in 1999 for plant expansion and for further modernization of the Company's manufacturing processes are expected to approach approximately $22,500,000. The Company expects to finance these expenditures using internally generated funds and the Company's revolving credit loan with First Chicago NBD. Capital expenditures at March 31, 1999 were $5,282,000. The Company has an unsecured revolving credit loan agreement with First Chicago NBD. The current line of credit totals $70,000,000. This credit facility expires November 22, 2002. At March 31, 1999, $32,805,000 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, 1999, Astec Financial Services had utilized $22,805,000 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, 1999. Year 2000 The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. The term _Year 2000_ is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. Many computer systems process dates using two digits rather than four to define a specific year. Absent corrective actions, a program may recognize a date using _00_ as the year 1900 rather than the year 2000. Such an occurrence could result in system failures or miscalculations causing disruptions to various activities. Software failures due to processing errors potentially arising from calculations using the Year 2000 date are a known risk. Management presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue will be mitigated. However, in the unlikely event such modifications and replacements are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 issue involves four phases: assessment, remediation, testing and implementation. As previously reported, with the exception of the newly-acquired aggregate processing manufacturer and the third party inquiries of Year 2000 compliance, the Company has completed its assessment of all systems that could be significantly affected by the Year 2000. The newly-acquired manufacturer is approximately 80% complete in the assessment phase of its Year 2000 compliance plan. A limited amount of operating equipment, mainly used in manufacturing, is date sensitive. Manufacturers of the affected equipment were contacted and the Company has either already installed update modifications or has the appropriate modification on order to install and test prior to September 30, 1999. The remediation phase of updating the operating equipment is more than 95% complete, and the testing and implementation phases of modifying the operating equipment is approximately 80% complete. The Company manufactures products that use either internally or externally developed software that is susceptible to Year 2000. Various measures were taken to notify and assist customers to become Year 2000 compliant. The Company is more than 95% complete in the remediation, testing and implementation phases of modifying product systems. The Company is in the process of querying its significant suppliers and any other external agents (no external agents share information systems with the Company). The assessment phase of querying significant third party associations is approximately 80% complete. As related to information technology exposure, the Company is approximately 85% complete in remediation and approximately 70% complete in testing and implementation. The total cost of the Year 2000 project is estimated to be approximately $3,000,000 and is being funded through operating cash flows. During 1998, the Company incurred approximately $2,200,000, related to all phases of the Year 2000 project. The originally budgeted capitalized expenditures for 1999 were estimated at $620,000. Currently, with additional information, and considering additional software and hardware requirements, the Company expects 1999 capital expenditures related to the Year 2000 project to reach $1,000,000. The related project costs expected to be expensed have decreased from approximately $180,000 to $140,000. Management of the Company believes it has an effective program in place to timely resolve the Year 2000 issue. In the event that the company does not complete any additional phases, the Company could lose revenues due to inability to manufacture its product to specified quality or deliver equipment as scheduled. Year 2000 issues could also hinder the Company's ability to provide customer technical support or to provide customer parts orders as quickly as necessary, among other potential risks. In addition, the Company could be subject to litigation for computer systems product failure or for failure to properly date business records. Also, for applications using software and systems dependent on outside technical support, depending upon demand, technical support may not be available with sufficient time to prevent adverse effects on operations. The amount of potential liability and lost revenues cannot be reasonably estimated at this time. The Company does not have a fully documented contingency plan in place in the event it does not complete all phases of the Year 2000 project, but it has begun to investigate and document prudent preventive measures that can be undertaken to secure operational capabilities in case of their failure. These measures include identifying secondary sources for raw materials, goods and services; identifying alternate manufacturing routing methods; stocking additional critical raw materials; printing of paper documents and reports as reference tools; and performing disaster recovery testing for potential power interruptions or machine failures. The Company plans to evaluate the status of completion of the Year 2000 project after June 1999 and determine whether a full contingency plan is necessary. The Company designates each of the statements made by it in this section entitled Year 2000 as a Year 2000 Readiness Disclosure. Such statements are made pursuant to the Year 2000 Information and Readiness Disclosure Act. 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. Item 3. Quantitative and Qulaitative Disclosure of Market Risk Risk Factors Acquisition Strategy; Integration of Acquired Businesses As part of its growth strategy, the Company intends to evaluate the acquisitions of other companies, assets or product lines that would complement or expand its existing businesses or broaden its customer relationships. Although the Company conducts due diligence reviews of potential acquisition candidates, the Company may not be able to identify all material liabilities or risks related to potential acquisition candidates. There can be no assurance that the Company will be able to locate and acquire any business, retain key personnel and customers of an acquired business or integrate any acquired business successfully, including its recent acquisitions. Competition The Company faces strong competition in price, service and product performance in each of its product lines. While the Company does not compete with any one manufacturer in all of its product lines, it does compete as to certain products with both large publicly held companies with resources significantly greater than the Company and various smaller manufacturers. Furthermore, demand for the Company's products is generally affected by economic conditions in the United States. A weak domestic economy could result in increased competition and reduced margins on sales of the Company's products. Imports do not constitute significant competition for most of the Company's products marketed in the United States. In connection with its international sales, however, the Company generally competes with foreign manufacturers, which may have a local presence in the market, that the Company is attempting to penetrate. The competition of foreign manufacturers and weak foreign economies could have a material impact on the Company's international sales and results of operations. Regulation The Company does not operate within a highly regulated industry. However, air pollution equipment manufactured by the Company principally for hot mix asphalt plants must comply with certain performance standards promulgated by the Environmental Protection Agency under the Clean Air Act applicable to "new sources" or new plants. While the Company's products are designed to meet or exceed current regulatory requirements and applicable state pollution standards and environmental protection laws, there can be no assurance that any future changes to such requirements will not adversely affect the Company. In addition, due to the size and weight of certain component equipment, which the Company manufacturers, the Company and its customers sometimes confront, conflicting state regulations on maximum weights transportable on highways and roads. Also, some states have regulations governing the operation of the Company's component equipment, including asphalt mixing plants and soil remediation equipment, and most states have regulations relating to the accuracy of weights and measures which affect some of the control systems manufactured by the Company. Year 2000 Compliance Many existing computer systems and applications, and other control devices use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its computer systems, applications and devices in operating and monitoring all major aspects of its business. The Company has for some time been pursuing a Year 2000 compliance program. The Company believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue will be mitigated. However, if the Company is unable to make the required modifications and replacements, or are if they are not made on a timely basis, the Year 2000 issue could have a material impact on the operations of the Company. Product Liability The Company is engaged in a business that could expose it to possible liability claims for personal injury or property damage due to alleged design or manufacturing defects in the Company's products. The Company believes that it meets existing professional specification standards recognized or required in the industries in which it operates. Although the Company currently maintains product liability coverage which it believes is adequate for the continued operation of its business, such insurance may prove inadequate or become difficult to obtain or unobtainable in the future on terms acceptable to the Company. Seasonality and Cyclicality in Operating Results The Company's business can generally be characterized as seasonal with sales tending to be stronger in the first and second quarters to fill orders placed in the fourth quarter of the preceding year in anticipation of warmer summer months when most asphalt paving and heavy construction work is performed. The Company's business is also somewhat cyclical with operating results typically affected by general economic conditions and other factors affecting the construction industry as a whole. Historically, during periods of a weak domestic economy, economic pressures have adversely affected the construction industry and have resulted in increased competition and reduced margins on sales of the Company's products. International Exposure For the first quarter of 1999, international sales represented approximately 9.1% of the Company's total revenues. The Company anticipates that international operations will continue to account for a portion of its business for the foreseeable future. As a result, the Company may be subject to certain risks, including difficulty in managing distributors and dealers, adverse tax consequences, political and economic instability of governments, and difficulty in accounts receivable collection. The Company is subject to the risks associated with the imposition of protective legislation and regulations, including those relating to import or export or otherwise resulting from trade or foreign policy, in the nations in which it now or in the future will conduct business. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be implemented by the U.S. or any other country upon the import or export of the Company's products. There can be no assurance that any of these factors, or the adoption of restrictive policies, will not have a material adverse effect on the Company's business, financial condition and results of operations. Intellectual Property Matters The Company holds numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. There can be no assurance as to the breadth or degree of protection that existing or future patents or trademarks may afford the Company, or that any pending patent or trademark applications will result in issued patents or trademarks, or that the Company's patents, registered trademarks or patent applications, if any, will be upheld if challenged, or that competitors will not develop similar or superior methods or products outside the protection of any patents issued, licensed or sublicensed to the Company. Although the Company believes that none of its patents, technologies, products or trademarks infringe upon the patents, technologies, products or trademarks of others, it is possible that its existing patent, trademark or other rights may not be valid or that infringement of existing or future patents, trademarks or proprietary rights may occur. In the event that the Company's products are deemed to infringe upon the patent or proprietary rights of others, the Company could be required to modify the design of its products, change the name of its products or obtain a license for the use of certain technologies incorporated into its products. There can be no assurance that the Company would be able to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could have a material adverse effect on the Company. Dependence on Key Personnel The success of the Company's business will continue to depend substantially upon the efforts, abilities and services of its executive officers and certain other key employees. The loss of one or more key employees could adversely affect the Company's operations. The Company's ability to attract and retain qualified engineers and other professionals, either through direct hiring, or acquisition of other businesses employing such professionals, will also be an important factor in determining the Company's future success. Anti-takeover Provisions The Company's charter and its bylaws contain various provisions that may have the affect, either alone or in combination with each other, of making more difficult or discouraging a business combination or an attempt to obtain control of the Company that is deemed undesirable by the Board of Directors. These provisions include (i) the right of the Board of Directors to issue shares of Preferred Stock and one or more series and designate the number of shares of each such series and the relative rights and preferences of such series, including voting rights, terms of redemption, redemption prices and conversion rights without further shareholder approval; (ii) a classified Board of Directors elected in three year staggered terms; (iii) prohibitions on the right of shareholders to remove directors other than for cause, and any such removal requiring at least two-thirds of the total number of shares issued and outstanding; (iv) requirements for advanced notice of actions proposed by shareholders for consideration at meetings of the shareholders; (v) limitations on the right of shareholders to call a special meeting of the shareholders or from acting by written consent in lieu of a meeting unless all shareholders entitled to vote on such action consent to taking such action without a meeting; and (vi) an election to be governed by the Tennessee Control Share Acquisition Act. The Company's charter and bylaws also limit the liability of directors in certain cases and provide for the Company to indemnify its directors and officers to the fullest extent permitted by applicable law. In addition, as a Tennessee Corporation, the Company is subject to the Tennessee Business Combination Act, which may have the affect of discouraging a non-negotiated bid or proposal to acquire the Company. 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, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contingencies" in Part I - Item 2 "Contingencies" of this Report. 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 March 31, 1999. 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) 5/14 /99 /s/ J. Don Brock Date J. Don Brock Chairman of the Board and President 5/14 /99 /s/ F. McKamy Hall Date F. McKamy Hall Vice President and Chief Financial Officer