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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
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.)
P. O. Box 72787, 4101 Jerome Avenue, Chattanooga, Tennessee 37407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 867-4210
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
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
(Form 10-K Cover Page - Continued)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $148,371,903 based upon the closing sales price
reported by the NASDAQ National Market on March 9, 1998, using beneficial
ownership of stock rules adopted pursuant to Section 13 of the Securities
Exchange Act of 1934 to exclude voting stock owned by all directors and
executive officers of the registrant, some of whom may not be held to be
affiliates upon judicial determination.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
As of March 9, 1998
Common Stock, par value $.20 - 9,360,580 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by
reference into the Parts of this Annual Report on Form 10-K indicated:
Document Form 10-K
Proxy Statement relating to Part III
Annual Meeting of Shareholders
to be held on April 23, 1998
ASTEC INDUSTRIES, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 8
Item 3. Legal Proceedings................................... 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
Executive Officers of the Registrant.......................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters............................ 10
Item 6. Selected Financial Data............................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 11
Item 8. Financial Statements and Supplementary Data......... 11
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure............ 11
PART III
Item 10. Directors and Executive Officers of the Registrant.. 11
Item 11. Executive Compensation.............................. 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................. 12
Item 13. Certain Relationships and Related Transactions...... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................ 12
Appendix A.................................................... A-1
SIGNATURES....................................................
-iii-
PART I
Item 1. BUSINESS
General
Astec Industries, Inc. (the "Company") is a Tennessee corporation
which was incorporated in 1972. The Company designs, engineers,
manufactures, markets, and finances equipment and components used
primarily in road building and related construction activities. The
Company's products are used in each phase of road building, from
quarrying and crushing the aggregate to application of the road surface.
The Company also manufactures certain equipment and components unrelated
to road construction, including trenching and excavating equipment,
environmental remediation equipment, and industrial heat transfer
equipment. The Company holds 101 United States and 57 foreign patents,
has 47 patent applications pending, and has been responsible for many
technological and engineering innovations in the industry. The Company
currently manufactures over 140 different products, which it markets both
domestically and internationally. In addition to plant and equipment
sales, the Company manufactures and sells replacement parts for equipment
in each of its product lines. The distribution and sale of replacement
parts is an integral part of the Company's business.
The Company's eight manufacturing subsidiaries are: (i) Astec, Inc.
which manufactures a line of hot-mix asphalt plants, soil purification
and environmental remediation equipment and related components; (ii)
Heatec, Inc., which manufactures thermal oil heaters, asphalt heaters and
other heat transfer equipment used in the Company's asphalt mixing plants
and in other industries; (iii) CEI Enterprises, Inc., which manufactures
heat transfer equipment and recycled rubber blending systems for the hot-
mix asphalt industry; (iv) Telsmith, Inc., which manufactures aggregate
processing equipment for the production and classification of sand,
gravel, and crushed stone for road and other construction applications;
(v) Kolberg-Pioneer, Inc., which manufactures aggregate processing
equipment for the crushed stone, manufactured sand, recycle, top soil and
remediation markets; (vi) Production Engineered Products, Inc., which
designs, manufactures and markets high-frequency vibrating screens for
sand and gravel and asphalt operations; (vii) Roadtec, Inc., which
manufactures milling machines used to recycle asphalt and concrete,
asphalt paving equipment and material transfer vehicles; and (viii)
Trencor, Inc., which manufactures chain and wheel trenching equipment and
excavating equipment.
Astec Financial Services, Inc. ("AFS") was formed in June 1996 as a
wholly-owned subsidiary of the Company to provide a wide range of
financing products for leasing or acquiring the Company's equipment.
AFS, a captive finance company, is dedicated to working exclusively with
all the Company's subsidiaries and their customers in arranging financing
for the Company's equipment. AFS provides loans, operating leases, floor
plans for dealers, fleet rental plans, and other financing plans to meet
the needs of the industry.
1
In 1996, the Company became a 50% shareholder of Pavement
Technology, Inc. ("PTI"), located in Conyers, Georgia. PTI , which
manufactures asphalt pavement analyzers, vibratory compactors and other
mix-design laboratory products that allow our customers to purchase a
complete design laboratory from one source. The pavement analyzer
technology has captured the interest of state departments of
transportation and universities as a new standard for measuring rutting,
fatigue, and water susceptibility in hot-mix asphalt. The pavement
technology product line added a completely new dimension to the services
and equipment we are able to provide our customers.
The Company's strategy is to become the low-cost producer in each of
its product lines for any given product while continuing to develop
innovative new products and provide first class service for its
customers. Management believes that the Company is the technological
innovator in the markets in which it operates. Management believes that
the Company is well positioned to capitalize on the need to rebuild and
enhance roadway infrastructure, both in the United States and abroad.
Disposition of Foreign Operating Subsidiaries
As previously disclosed, due to the disposition of Wibau-Astec and
the abandonment of Astec-Europa, the Company no longer conducts foreign
manufacturing operations and instead has decided to concentrate all of
its manufacturing activities, whether or not related to international
sales, with its more efficient domestic operations.
Products
The Company operates predominantly in a single-business segment. In
1997 it manufactured and marketed products in five principal categories:
(i) hot-mix asphalt plants, soil purification and environmental
remediation equipment and related components; (ii) hot oil heaters,
asphalt heaters and other heat transfer equipment; (iii) aggregates
processing equipment; (iv) mobile construction equipment, including
asphalt pavers, milling machines and material transfer vehicles and other
auxiliary equipment; and (v) chain and wheel trenching and excavating
equipment. The following table shows the Company's sales for each
product category which accounted for 10% or more of consolidated revenue
for the periods indicated.
Years Ended December 31,
1997 1996 1995
(In thousands)
Asphalt plants and components $117,849 $93,786 $110,321
Aggregate processing equipment 55,362 52,739 46,586
Mobile construction equipment 49,704 37,845 29,706
Trenching and excavating equipment 26,803 23,543 21,110
Financial information in connection with the Company's international
sales is included in Note 13 to "Notes to Consolidated Financial
Statements - Segment Information," appearing at Page A-11 of this report.
Hot-mix Asphalt Plants
Astec, Inc. designs, engineers, manufactures and markets a complete
line of portable, stationary and relocatable hot-mix asphalt plants and
related components under the "ASTEC" trademark. An asphalt mixing plant
typically consists of heating and storage equipment for liquid asphalt
(manufactured by Heatec), cold feed bins for storing aggregates, a drum
mixer for drying, heating and mixing, a baghouse composed of air filters
and other pollution control devices, hot storage bins or silos for
temporary storage of hot-mix asphalt and a control house. The Company
introduced the concept of plant portability in 1979. Its current
generation of portable asphalt plants is marketed as the Six PackTM and
consists of six portable components which can be disassembled and moved
to the construction site to reduce relocation expenses. Plant
portability represents an industry innovation developed and successfully
marketed by the Company. In 1996, an improved version of the Six PackTM
plant was developed, making it considerably more portable and self-
erecting. This design eliminated the use of cranes for disassembly or
erection. The enhanced version of the Six PackTM, known as the Turbo Six
PackTM, is a highly portable plant which is especially useful in less
populated areas where plants must be moved from job to job.
The components in Astec's asphalt mixing plants are fully automated
and use microprocessor-based control systems for efficient operation.
The plants are manufactured to meet or exceed federal and state clean air
standards.
The Company has also developed specialized asphalt recycling
equipment for use with its hot-mix asphalt plants. Many of its existing
products are suited for blending, vaporizing, drying and incinerating
contaminated products. As a result, Astec has developed a line of
thermal purification equipment for the remediation of petroleum
contaminated soil.
Heat Transfer Equipment
Heatec, Inc., designs, engineers, manufactures and markets a variety
of heaters and heat transfer processing equipment under the "HEATEC"
trade name for use in various industries, including the asphalt industry.
CEI Enterprises, Inc. (CEI), designs, engineers, manufactures and
markets heating equipment and storage tanks mainly for the asphalt paving
industry.
Asphalt Heating Equipment. Heatec manufactures a complete line of
heating and liquid storage equipment for the asphalt paving industry.
Heaters are offered in both direct-fired and helical coil models while
CEI's heating equipment is hot oil, direct fired or electric. The
equipment includes portable and stationary tank models with capacities up
to 35,000 gallons each.
Industrial Heating Equipment. Heatec builds a wide variety of
industrial heaters to fit a broad range of applications, including
equipment for emulsion plants, roofing material plants, refineries,
chemical processing, rubber plants and the agribusiness. Heatec has the
technical staff to custom design heating systems and has systems
operating as large as 40,000,000 BTU's per hour.
Aggregate Processing Equipment
Founded in 1906, Telsmith, Inc. designs, manufactures, and markets a
complete line of aggregate and mineral processing equipment and related
machinery under the "TELSMITH" trademark for the mining, quarrying, and
sand and gravel industries worldwide. Telsmith's products include jaw,
cone, and impact crushers; several types of feeders which move virgin,
recycled, or crushed material to primary, secondary, or tertiary crushing
equipment; vibrating screens to separate the aggregate into various
sizes; and washing and conveying equipment. In metallic mining
operations, Telsmith equipment is used in primary crushing stages after
the material has been blasted from the deposit. Secondary and tertiary
crushing equipment, as well as vibrating screens, are employed in systems
to reduce the material down to sizes for grinding mill feed or leech bed
processes.
Equipment furnished by Telsmith can be purchased as individual
components, as portable plants for flexibility, or as completely
engineered systems for both portable and stationary applications.
In 1994, Telsmith received ISO 9001 certification, the international
standard of quality assurance in the design, development, production,
installation and servicing of Telsmith's products. This designation
recognizes the quality of its products and services in the worldwide
marketplace.
Kolberg-Pioneer, Inc. ("K-P") designs, manufactures and supports a
complete line of aggregate processing equipment for the sand and gravel,
mining, quarry and concrete recycle markets. The product range includes
feeders, crushers, classifying tanks, material washers, conveyors,
portable screening plants and pugmills.
Rock Crushers. Kolberg-Pioneer rock crushers are used by mining,
quarry and sand and gravel producers to crush oversized aggregate to
salable size. Types of crushers include compression (jaw, cone and roll)
and impact (vertical shaft and horizontal shaft). Models are available
for primary, secondary, tertiary and quaternary applications.
Feeders. Feeders are used to transfer aggregate into crushing
operations. Crusher efficiency is increased as fines bypass the crusher.
Styles include vibrating grizzly, apron, pan and belt feeders.
Sand Classifying Tanks. These tanks are used to clean, segregate
and re-blend natural or manufactured sand to meet the fineness modulus
(FM) and sand equivalent (SE) specifications for concrete, mason and
other sand products.
Washers and Blademills. These provide aggressive scrubbing action
to remove unwanted clays, silts and foreign materials from contaminated
aggregate deposits.
Conveyors. Kolberg-Pioneer manufactures conveyors designed to move
or store aggregate and other bulk materials, typically in a radial cone-
shaped stockpile. Models offered include road portable, stationary, and
overland styles.
Portable Recycling Plants. Portable recycling plants are used to
reclaim aggregate from concrete, construction and demolition debris and
asphalt, while separating metal contaminants.
Portable Screening Plants. These are used by aggregate and top soil
producers to separate materials by size. They adapt easily to multiple
applications by changing the screen cloth. An optional hammermill
shredder conditions dry material for more efficient screening. The
optional wet deck, when used with a fine material washer, replicates a
low-cost washing plant.
Pugmills. Kolberg-Pioneer pugmills are highly efficient homogenous
mixing chambers consisting of twin shafts with timed, overlapping paddles
used for soil remediation, cement-treated base and cold-mix asphalt.
Pugmills are typically combined with either a bulk storage silo for
introducing dry additives or a pump for liquids.
Production Engineered Products, Inc. ("PEP") designs, manufactures,
and markets high-frequency vibrating screens for sand and gravel
customers, as well as customers engaged in asphalt production. In
addition, PEP incorporates the high-frequency screens into portable
crushing and screening plants serving the aggregate and industrial
markets.
Mobile Construction Equipment
Roadtec, Inc., designs, engineers, manufactures and markets asphalt
pavers, material transfer vehicles, and milling machines. Roadtec
engineers emphasize simplicity, productivity, versatility and
accessibility in product design and use.
Asphalt Pavers. Asphalt pavers are used in the application of hot-
mix asphalt to the road surface. Roadtec pavers have been designed to
minimize maintenance costs while exceeding road surface smoothness
requirements. Roadtec manufactures one paver model which must be used
with a material transfer vehicle described below.
Material Transfer Vehicles. The patented Shuttle BuggyR is a
mobile, self-propelled material transfer vehicle which allows continuous
paving by separating truck unloading from the paving process while
remixing the asphalt surface material. A typical asphalt paver must stop
paving to permit truck unloading of asphalt mix. By permitting
continuous paving, the Shuttle BuggyR allows the asphalt paver to produce
a smoother road surface. As a result of the pavement smoothness achieved
with this machine, certain states are now requiring the use of the
Shuttle BuggyR on their jobs. Recent studies using infrared technology
have revealed problems caused by differential cooling of the hot-mix
during hauling. The Shuttle BuggyR remixes the material to a uniform
temperature, eliminating the problem.
Milling Machines. Roadtec milling machines are designed to rmove
old asphalt from the road surface beforee new asphalt mix is applied.
They are manufactured with a simplified control system, wide conveyors,
direct drives and a wide range o horsepower and cutting capabilities to
provide versatility in product application. Additional upgrades and
options are available to enhance the products and their capabilities.
Trenching and Excavating Equipment
Trencor, Inc. designs, engineers, manufactures and markets chain and
wheel trenching equipment, canal excavators, rock saws and road miners.
Chain Trenchers. Trencor chain trenching machines utilize a heavy
duty chain (equipped with cutting teeth attached to steel plates) wrapped
around a long moveable boom. These machines, with weights up to 400,000
pounds, are capable of cutting a trench up to eight feet wide and thirty-
five feet deep through rock. Trencor also makes foundation trenchers
used in areas where drilling and blasting are prohibited.
Wheel Trenchers. Trencor wheel trenching machines are used in
pipeline excavation in soil and soft rock. The wheel trenchers weigh up
to 390,000 pounds and have a trench capacity of up to seven feet in width
and ten feet in depth.
Canal Excavators. Trencor canal excavators are used to make
finished and trimmed trapezoidal canal excavations within close
tolerances. The canals are primarily used for irrigation systems.
Rock Saws. Trencor manufactures a rock saw which is utilized for
laying water and gas lines and fiber optic cable, constructing highway
drainage systems and for other applications.
Roadminers. Trencor manufactures four Road MinerTM models weighing
up to 400,000 pounds with an attachment which allows it to cut a path up
to twelve and a half feet wide and five feet deep on a single pass. The
Road MinerTM has applications in the road construction industry and in
mining and aggregate processing operations.
Material Processors. Trencor manufactures a machine which includes
a crusher that operates independently from the trencher to process rock
and related material (spoil) removed from the trench to make it suitable
for use as a filler around pipes, cables or other lines being installed.
Patents are pending on this product.
Manufacturing
The Company manufactures many of the component parts and related
equipment for its products. In many cases, the Company designs,
engineers and manufactures custom component parts and equipment to meet
the particular needs of individual customers. Manufacturing operations
during 1997 took place at nine separate locations. The Company's
manufacturing operations consist primarily of fabricating steel
components and the assembly and testing of its products to ensure quality
control standards have been achieved.
Marketing
The Company markets its products both domestically and
internationally. The principal purchasers of the Company's products
include highway and heavy equipment contractors, utility contractors,
pipeline contractors, open mine operators, quarry operators and foreign
and domestic governmental agencies. Astec, Inc. sells directly to its
customers with domestic, soil remediation and international sales
departments. Telsmith products are sold through a leased branch in
Walpole, Massachusetts, as well as through a combination of direct sales,
both domestic and international, and dealer sales. Roadtec and Trencor
share a warehouse facility in Aurora, Illinois, that supports both their
product lines. Heatec, CEI, Roadtec, and Trencor products are marketed
through a combination of direct sales and dealer sales. Approximately 18
manufacturers' representatives sell Heatec products for applications in
industries other than the asphalt industry with such sales comprising
approximately 38 percent of Heatec's sales volume during 1997. Direct
sales employees are paid salaries and are generally entitled to
commissions after obtaining certain sales quotas. See "Business -
Properties."
The Company's international sales efforts are decentralized, with
each subsidiary maintaining responsibility for its own international
marketing efforts.
Seminars and Technical Bulletins
The Company periodically conducts technical and service seminars
which are primarily for contractors, employees and owners of asphalt
mixing plants. In 1997, approximately 419 representatives of contractors
and owners of hot-mix asphalt plants attended seminars held by the
Company in Chattanooga, Tennessee. These seminars, which are taught by
Company management and employees, cover a range of subjects including
technological innovations in the hot-mix asphalt, aggregate processing,
paving, milling, and recycle markets in which the Company manufactures
products.
The Company also sponsors executive seminars for the management of
the customers of Astec, Inc. The seminars are taught primarily by the
management of the Company, but outside speakers are also utilized. In
1997, approximately 331 participants attended seminars at the Company's
state-of-the-art training center.
In addition to seminars, the Company publishes a number of technical
bulletins detailing various technological and business issues relating to
the asphalt industry.
The Company sponsors Paving Professionals workshops at its training
center for customers or potential customers of Roadtec, Inc. In 1997,
240 attended these classroom sessions. Actual equipment application
experience was provided at the Roadtec facility. Service training
seminars were also held at the Roadtec facility for 320 customer service
representatives.
In 1997, Telsmith had technical seminars for 85 English-speaking
customer representatives and another multi-lingual seminar with 40
attendees.
Patents and Trademarks
The Company seeks to obtain patents to protect the novel features of
its products. The Company and its subsidiaries hold 101 United States
patents and 57 foreign patents. There are 47 United States and foreign
patent applications pending.
The Company and its subsidiaries have approximately 37 trademarks
registered in the United States, including logos for Astec, Telsmith,
Roadtec and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC,
TRENCOR and KOLBERG. Ten of these trademarks are also registered in
foreign countries, including Canada, Great Britain, Mexico, New Zealand
and Indonesia. The Company has five trademark applications pending.
The Company and its subsidiaries also license their technology to
manufacturers.
Engineering and Product Development
The Company dedicates substantial resources to its engineering and
product development. At December 31, 1997, the Company and its
subsidiaries had 171 full-time individuals employed domestically in
engineering and design capacities.
Raw Materials
Raw materials used by the Company in the manufacture of its products
include carbon steel and various types of alloy steel, which are normally
purchased from steel mills and other sources.
Seasonality and Backlog
The Company's business is somewhat seasonal. The Company's sales
tend to be stronger from January through June each year, which is
attributable largely to orders placed in the fourth quarter in
anticipation of warmer summer months when most asphalt paving is done.
As of December 31, 1997, the Company had a backlog for delivery of
products at certain dates in the future of approximately $61,387,000. At
December 31, 1996, the total backlog, updated to include Kolberg-Pioneer,
Inc., was approximately $54,298,000. The Company's backlog is subject to
some seasonality, as noted above.
The Company's contracts reflected in the backlog are not, by their
terms, subject to termination. Management believes that the Company is
in substantial compliance with all manufacturing and delivery timetables
relating to its products.
Competition
The Company faces strong competition in price, service and product
performance in each product category. While the Company does not compete
with any one manufacturer in all of its product lines, it competes as to
certain products with both large publicly-held companies with resources
significantly greater than those of the Company and various smaller
manufacturers. Hot-mix asphalt plant competitors include CMI
Corporation; Cedarapids, Inc., a subsidiary of Raytheon Company; and
Gencor Industries, Inc. Paving equipment competitors include Caterpillar
Paving Products Inc., a subsidiary of Caterpillar, Inc.; Blaw-Knox
Construction Equipment Company, a subsidiary of Ingersoll-Rand Company;
and Cedarapids, Inc.
The market for the Company's heat transfer equipment is diverse
because of the multiple applications for such equipment. Competitors
include Gencor/Hyway Heat Systems, Sundance, American Heating, Gentec,
and First Thermal. The Company's milling machine equipment competitors
include Ingersoll-Rand Company; CMI Corporation; Cedarapids, Inc.;
Caterpillar, Inc.; and Wirtgen America, Inc. Aggregate processing
equipment competitors include Nordberg, Inc.; Cedarapids, Inc.;
Powerscreen; Deister; Seco/Hewitt Robins; Eagle Iron Works; Finley;
Universal; Svedala; Greystone and other smaller manufacturers, both
domestic and foreign. Competition for sales of trenching and excavating
equipment includes Ditch Witch; J.I. Case; Tesmec; Vermeer and other
smaller manufacturers in the small utility trencher market. Competitors
of the captive finance company include General Electric Credit
Corporation, The CIT Group, and Safeco Credit Company, Inc., as well as
local financial institutions.
As a whole, imports do not constitute significant competition in the
United States; however, in international sales, the Company generally
competes with foreign manufacturers which may have a local presence in
the market the Company is attempting to penetrate.
Asphalt and concrete are generally considered competitive products
as a surface choice for new roads and highways. A portion of the
interstate highway system is paved in concrete, but a majority of all
surfaced roads in the United States are paved with asphalt. Although
concrete is used for some new road surfaces, asphalt is used for
virtually all resurfacing, even the resurfacing of most concrete roads.
Management does not believe that concrete, as a competitive surface
choice, materially impacts the Company's business prospects.
Regulations
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 federal Environmental Protection Agency
under the Clean Air Act applicable to "new sources" or new plants.
Management believes that the Company's products meet all material
requirements of such regulations and of applicable state pollution
standards and environmental protection laws.
In addition, due to the size and weight of certain equipment, the
Company and its customers sometimes confront conflicting state
regulations on maximum weights transportable on highways and roads. This
problem occurs most frequently in the movement of portable asphalt mixing
plants. Also, some states have regulations governing the operation of
asphalt mixing plants and most states have regulations relating to the
accuracy of weights and measures which affect some of the control systems
manufactured by the Company.
Employees
On August 3, 1995, a union representation election was held at the
Trencor plant and a unit of Trencor production and maintenance employees
voted to be represented by the United States Steelworkers of American,
AFL-CIO, CLC. Trencor filed a Petition for Review with the United States
Court of Appeals for the Fifth Circuit and requested that the National
Labor Relation Board's certification of the election be overturned due to
alleged improper activity by the union. Trencor requested that a new
representation election be held. Recently, in response to Trencor's
appeal, the United States Court of Appeals for the Fifth Circuit returned
the matter to the National Labor Relations Board and ordered that an
evidentiary hearing on Trencor's complaints be held before an
administrative law judge. That hearing was held on January 15, 1998 with
the administrative law judge rejecting Trencor's claims. Consequently,
Trencor has appealed the decision to the National Labor Relations Board
where it is still pending.
At December 31, 1997 the Company and its subsidiaries employed 1,925
persons, of which 1,435 were engaged in manufacturing operations, 171 in
engineering, including support staff, and 319 in selling, administrative
and management functions. Telsmith has a labor agreement expiring on
October 14, 1998. Except as set forth above, none of the Company's other
employees are covered by a collective bargaining agreement.
Notwithstanding the current preceding before the National Labor Relations
Board, the Company considers its employee relations to be good.
Item 2. Properties
The location, approximate square footage, acreage occupied and
principal function of the properties owned or leased by the Company are
set forth below:
Approximate Approximate
Location Square FootageAcreage Principal Function
Chattanooga, 361,000 59.1 Corporate and
Tennessee subsidiary offices,
manufacturing - Astec
Chattanooga, --- 63.0 Storage yard - Astec
Tennessee
Chattanooga, 84,200 5.0 Offices,
Tennessee manufacturing -
Heatec
Chattanooga, 135,000 15.1 Offices,
Tennessee manufacturing -
Roadtec
Chattanooga, 1,820 --- Offices leased for
Tennessee Astec Financial
Services
North Aurora, 16,700 3.5 Roadtec and Trencor
Illinois (sales and service
office)
Mequon, Wisconsin 203,000 30.0 Offices and
manufacturing -
Telsmith
Walnut, Illinois 28,770 3.0 Leased offices and
manufacturing - PEP
Rossville, Georgia 40,500 2.6 Manufacturing - Astec
Grapevine, Texas 175,513 51.67 Offices,
manufacturing -
Trencor
Walpole, 1,800 --- Leased sales and
Massachusetts service office -
Telsmith
Odessa, Texas 4,072 .8 Sales office and
parts warehouse -
Trencor
Inman, South 13,600 8.0 Leased until
Carolina September 30, 2000
with option to buy
(office and warehouse
of former Soil
Purification of
Carolina, Inc.)
Albuquerque, New 110,700 14.0 Offices and
Mexico manufacturing - CEI
Yankton, South 252,000 50.0 Offices and
Dakota manufacturing -
Kolberg-Pioneer
Management believes that each of the Company's facilities provides
office or manufacturing space suitable for its current needs and
considers the terms under which it leases facilities to be reasonable.
Item 3. Legal Proceedings
Management has reviewed all claims and lawsuits and, upon the advice
of counsel, has made provision for any estimable losses; however, the
Company is unable to predict the ultimate outcome of the outstanding
claims and lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The name, title, ages and business experience of the executive
officers of the Company are listed below.
J. Don Brock, Ph.D., P.E., has been President and a Director of the
Company since its incorporation in 1972 and assumed the additional
position of Chairman of the Board in 1975. He was the Treasurer of the
Company from 1972 until 1994. From 1969 to 1972, Dr. Brock was President
of the Asphalt Division of CMI Corporation. Dr. Brock earned his Ph.D.
degree in mechanical engineering from the Georgia Institute of
Technology. Dr. Brock and Thomas R. Campbell, President of Roadtec, are
first cousins. Dr. Brock is 59.
Richard W. Bethea, Jr., became Vice President, Corporate Counsel and
Secretary on February 1, 1997.
Mr. Bethea has been a practicing lawyer since 1978. He has an
undergraduate degree in accounting from the University of Georgia.
Before joining the Company, Mr. Bethea was a member (stockholder) and
partner with the law firm Stophel & Stophel, P. C., in Chattanooga,
Tennessee. He has served as the Company's litigation counsel since 1983.
He is 45.
F. McKamy Hall, a Certified Public Accountant, became Vice
President, Corporate Controller and Treasurer in April 1997 and served as
Controller of the Company since May 1987. From 1985 to 1987, Mr. Hall
was Vice President of Finance at Quadel Management Corporation, a company
engaged in real estate management. Mr. Hall has an undergraduate degree
in accounting and a Master of Business Administration degree from the
University of Tennessee at Chattanooga. He is 55.
W. Norman Smith has served as the President of Astec, Inc. since
December 1, 1994. He formerly served as President of Heatec, Inc. from
1977 to 1994. From 1972 to 1977, Mr. Smith was a Regional Sales Manager
with the Company. From 1969 to 1972, Mr. Smith was an engineer with the
Asphalt Division of CMI Corporation. Mr. Smith has also served as a
director of the Company since 1972. He is 58.
Robert G. Stafford has served as President of Telsmith, Inc. since
April 1991. Between January 1987 and January 1991, Mr. Stafford served
as President of Telsmith, Inc., a subsidiary of Barber-Greene. From 1984
until the Company's acquisition of Barber-Greene in December 1986, Mr.
Stafford was Vice President - Operations of Barber-Greene and General
Manager of Telsmith. He became a director of the Company in March 1988.
He is 59.
Thomas R. Campbell has served as President of Roadtec, Inc. since
1988. From 1981 to 1988 he served as Operations Manager of Roadtec. Mr.
Campbell and J. Don Brock, President of the Company, are first cousins.
Mr. Campbell is 48.
Roger Sandberg has served as President of Trencor, Inc. since
October 1, 1996. Prior to that he served as Vice President of Sales and
Marketing at Roadtec, Inc. and Director of Marketing with Astec Inc.
Before joining the Company, Mr. Sandberg held various management
positions with Cedarapids, Inc. and Standard Havens, Inc. since 1971. He
is 56.
James G. May has served as President of Heatec, Inc. since December
1, 1994. From 1984 until 1994 he served as Vice President of Engineering
of Astec, Inc. He is 53.
Albert E. Guth has been President of Astec Financial Services, Inc.
since June 1996. He served as Chief Financial Officer of the Company
from 1987 through June 1996, as Senior Vice President since 1984,
Secretary of the Company since 1972, and Treasurer since 1994. Mr. Guth,
who has been a director since 1972, was the Vice President of the Company
from 1972 until 1984. From 1969 to 1972, Mr. Guth was the Controller of
the Asphalt Division of CMI Corporation. He is 58.
Richard A. Patek became President of Kolberg-Pioneer, Inc. on
December 2, 1997. From 1995 to 1997, he served as Director of Materials
of Telsmith, Inc. From 1992 to 1995, Mr. Patek was Director of Materials
and Manufacturing of the former Milwaukee plant location. From 1978 to
1992, he held various manufacturing management positions at Telsmith.
Mr. Patek is a graduate of Milwaukee School of Engineering. He is 41.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
The Company's Common Stock is traded in the National Association of
Securities Dealers Automated Quotation System (NASDAQ) National Market
under the symbol "ASTE." The Company has never paid any dividends on its
Common Stock.
The high and low sales prices of the Company's Common Stock as
reported on the NASDAQ National Market for each quarter during the last
two fiscal years, are as follows:
Price Per Share
1997 High Low
1st Quarter 10-1/8 8-1/4
2nd Quarter 12-7/8 9-5/8
3rd Quarter 17-3/4 12-5/16
4th Quarter 18-3/8 15-3/8
Price Per Share
1996 High Low
1st Quarter 10-5/8 9-1/8
2nd Quarter 11-1/8 8-1/4
3rd Quarter 9-1/8 8-1/8
4th Quarter 9-3/4 8-3/8
The number of holders of record of the Company's Common Stock as of March
9, 1998 was approximately 600.
Item 6. Selected Financial Data
Selected financial data appear on page A-1 of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's discussion and analysis of financial condition and
results of operations appears on pages A-2 to A-5 of this Report.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information appear
on pages A-6 to A-23 of this Report.
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None required to be reported in this item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's directors included under the
caption "Election of Directors - Certain Information Concerning Nominees
and Directors" in the Company's definitive Proxy Statement to be
delivered to the shareholders of the Company in connection with the
Annual Meeting of Shareholders to be held on April 23, 1998, is
incorporated herein by reference. Required information regarding the
Company's executive officers is contained in
Part I of this Report under the heading "Executive Officers of the
Registrant." Information regarding compliance with Section 16(a) of the
Exchange Act is included under "Election of Directors - Section 16(a)
Filing Requirements" in the Company's definitive Proxy Statement, which
is incorporated herein by reference.
Item 11. Executive Compensation
Information included under the caption, "Election of Directors -
Executive Compensation" in the Company's definitive Proxy Statement to be
delivered to the shareholders of the Company in connection with the
Annual Meeting of Shareholders to be held on April 23, 1998 is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information included under the captions "Election of Directors -
Certain Information Concerning Nominees and Directors," "Election of
Directors - Common Stock Ownership of Management" and "Election of
Directors - Common Stock Ownership of Certain Beneficial Owners" in the
Company's definitive Proxy Statement to be delivered to the shareholders
of the Company in connection with the Annual Meeting of Shareholders to
be held on April 23, 1998 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
On March 18, 1996, Dr. J. Don Brock, Chairman of the Board and
President of the Company loaned $1,178,000 to the Company to supplement
its working capital revolving credit facility. The Company executed a
demand note payable to Dr. Brock in connection with this loan bearing
interest at a rate equal to that paid to First Chicago NBD 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 revolving credit facility was $9,605,000. The
Company was able to use the proceeds of the loan from Dr. Brock to reduce
the amount outstanding under the credit facility. The loan was repaid to
Dr. Brock on January 6, 1997, along with interest accrued to that date.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements and other information
appear in Appendix "A" to this Report and are filed as a part hereof:
. Selected Consolidated Financial Data.
. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
. Report of Independent Auditors.
. Consolidated Balance Sheets at December 31, 1997 and 1996.
. Consolidated Statements of Income for the Years Ended December
31, 1997, 1996 and 1995.
. Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995.
. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.
. Notes to Consolidated Financial Statements.
(a)(2) Other than as described below, Financial Statement Schedules
are not filed with this Report because the Schedules are either
inapplicable or the required information is presented in the Financial
Statements or Notes thereto. The following Schedules appear in Appendix
"A" to this Report and are filed as a part hereof:
. Consent of Independent Auditors.
. Schedule II - Valuation and Qualifying Accounts.
(a)(3) The following Exhibits* are incorporated by reference into
or are filed with this Report:
3.1 Restated Charter of the Company (incorporated by
reference to the Company's Registration Statement on
Form S-1, effective June 18, 1986, File No. 33-5348).
3.2 Articles of Amendment to the Restated Charter of the
Company, effective
September 12, 1988 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 0-14714).
3.3 Articles of Amendment to the Restated Charter of the
Company, effective June 8, 1989 (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989, File No. 0-
14714).
3.4 Amended and Restated Bylaws of the Company,
adopted March 14, 1990 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 0-14714).
4.1 Trust Indenture between City of Mequon and Firstar
Trust Company, as Trustee, dated as of February 1,
1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.2 Indenture of Trust, dated April 1, 1994, by and
between Grapevine Industrial Development Corporation
and Bank One, Texas, NA, as Trustee (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 0-
14714).
4.3 Shareholder Protection Rights Agreement, dated
December 22, 1995 (incorporated by reference to the
Company's Current Report on Form 8-K dated December
22, 1995, File No. 0-14714).
10.75 Loan Agreement between City of Mequon, Wisconsin and
Telsmith, Inc. dated as of February 1, 1994
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.76 Credit Agreement by and between Telsmith, Inc. and
M&I Marshall & Ilsley Bank, dated as of February 1,
1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.77 Security Agreement by and between Telsmith, Inc. and
M&I Marshall & Ilsley Bank, dated as of February 1,
1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.78 Mortgage and Security Agreement and Fixture Financing
Statement by and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.79 Guarantee of Astec Industries, Inc. in favor of M&I
Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.83 Loan Agreement dated as of April 1, 1994, between
Grapevine Industrial Development Corporation and
Trencor, Inc. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14714).
10.84 Letter of Credit Agreement, dated April 1, 1994,
between First Chicago NBD and Trencor, Inc.
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994, File No. 0-14714).
10.85 Guaranty Agreement, dated April 1, 1994, between
Astec Industries, Inc. and Bank One, Texas, NA, as
Trustee (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.86 Astec Guaranty, dated April 29, 1994, of debt of
Trencor, Inc. in favor of First Chicago NBD
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994, File No. 0-14714).
10.87 Credit Agreement, dated as of July 20, 1994, between
the Company and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 0-
14714).
10.89 Waiver for December 31, 1994, dated February 24, 1995
with respect to First Chicago NBD Credit Agreement
dated July 20, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14714).
10.90 First Amendment to Guaranty of Payment, dated March
21, 1995 by and between Heatec, Inc.; Roadtec, Inc.;
Trencor, Inc.; Telsmith, Inc.; Astec Transportation,
Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.;
and First Chicago NBD (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.91 First Amendment to Credit Agreement, dated May 22,
1995 between the Company and First Chicago NBD
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, File No. 0-14714).
10.92 Second Amendment to Guaranty of Payment, dated May
22, 1995 by and between Heatec, Inc.; Roadtec, Inc.;
Trencor, Inc.; Telsmith, Inc.; Astec Transportation,
Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.;
and First Chicago NBD (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.93 Guaranty of all obligations of Astec-Europa
Strassenbaumaschinen GmbH executed by the Company in
favor of Bayerische Vereinsbank Aktiengesellschaft,
dated December 6, 1995 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.94 Guaranty of a DM3,000,000 credit facility to Gibat
Ohl Ingenieurgesellschaft fur Anlagentechnik mbH
executed by the Company in favor of Deutsche Bank AG,
dated December 13, 1995 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.95 Waiver for December 31, 1995, dated November 10, 1995
with respect to First Chicago NBD Credit Agreement
dated July 20, 1994, as amended (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 0-
14714).
10.97 Limited Consent of First Chicago NBD dated as of
March 21, 1995 related to the acquisition of Trace
Industries, Inc. and the assignment of certain assets
to Astec, Inc. (incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December 31, 1995, File No.
0-14714).
10.98 Supplemental Executive Retirement Plan, dated
February 1, 1996 to be effective as of January 1,
1995 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14714).
10.99 Trust under Astec Industries, Inc. Supplemental
Retirement Plan, dated January 1, 1996 (incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, File No.
0-14714).
10.101 Loan Agreement dated December 5, 1996 between Astec
Financial Services, Inc. and The CIT Group/Equipment
Financing, Inc. (_CIT_) (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 0-14714).
10.102 Astec Industries, Inc. Guaranty dated December 5,
1996 of Line of Credit Agreement between Astec
Financial Services, Inc. and The CIT Group/Equipment
Finance (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 0-14714).
10.103 Amended and Restated Credit Agreement dated November
27, 1997 between the Company, Astec Financial
Services, Inc. and First Chicago NBD.
10.104 Asset Purchase Agreement dated October 16, 1997
between Portec, Inc. and Astec Industries, Inc.
10.105 Amendment to Asset Purchase Agreement dated December
2, 1997 by and between Astec Industries, Inc. and
Portec, Inc.
10.106 Revolving Line of Credit Note dated December 2, 1997
between Kolberg-Pioneer, Inc. and Astec Holdings,
Inc.
10.107 Guaranty Joinder Agreement dated December 1997
between Kolberg-Pioneer, Inc. and Astec Holdings,
Inc. in favor of the First National Bank of Chicago.
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors
(b)A report on Form 8-K was filed on December 2, 1997.
(c)The Exhibits to this Report are listed under Item 14(a)(3)
above.
(d)The Financial Statement Schedules to this Report are listed
under Item 14(a)(2) above.
*The Exhibits are numbered in accordance with Item 601 of Regulation S-K.
Inapplicable Exhibits are not included in the list.
APPENDIX "A"
to
ANNUAL REPORT ON FORM 10-K
ITEMS 8 and 14(a)(1) and (2), (c) and (d)
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ASTEC INDUSTRIES, INC.
Contents Page
Selected Consolidated Financial Data............................. A-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................... A-2
Consolidated Balance Sheets at December 31, 1997 and 1996........ A-6
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995............................................... A-7
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997,
1996 and 1995............................................... A-8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995......................................... A-9
Notes to Consolidated Financial Statements....................... A-11
Report of Independent Auditors................................... A-23
Schedule II - Valuation and Qualifying Accounts................ A-24
SELECTED CONSOLIDATED FINANCIAL DATA
1997 1996 1995 1994 1993
Consolidated Income Statement Data
Net sales $265,365 $ 221,413 $242,601 $213,806 $172,801
Selling, general
and administrative
expenses 36,125 35,082 34,326 31,142 28,624
Research and
development 3,707 5,868 5,128 3,166 2,923
Patent suit damages and
expenses (net recoveries
and accrual adjustments) 264 699 (14,947) 375
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 24,661 8,051 2,566 27,236 9,974
Interest expense 2,398 1,656 2,125 713 1,788
Net income 13,809 4,345 4,560 23,436 9,338
Earnings per
common share*(2)
Basic 1.45 .43 .45 2.38 1.07
Diluted 1.42 .43 .45 2.35 1.06
Consolidated Balance Sheet Data
Working capital $71,459 $69,884 $58,015 $ 53,000 $ 40,767
Total assets 192,243 167,853 154,356 155,964 102,967
Total short-term debt 500 2,051 774 8,573 10
Long-term debt, less
current maturities 35,230 30,497 17,150 16,155
Shareholders' equity 105,612 99,393 95,901 90,373 64,105
Book value per common
share at year-end*(1) 11.25 9.84 9.50 9.04 6.54
Quarterly Financial Highlights (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997 Net sales $62,980 $73,159 $65,040 $64,186
Gross profit 15,875 17,765 14,633 16,220
Net income 3,525 4,625 2,821 2,838
Earnings per
common share*(2)
Basic .35 .48 .30 .30
Diluted .35 .48 .30 .30
1996 Net sales $59,570 $63,212 $47,182 $51,449
Gross profit 13,822 15,305 11,284 8,854
Net income 2,826 2,245 1,021 (l,747)
Earnings per common
share*(2)
Basic .28 .22 .10 (.17)
Diluted .28 .22 .10 (.17)
Common Stock Price*
1997 High 10-1/8 12-7/8 17-3/4 18-3/8
1997 Low 8-1/4 9-5/8 12-5/16 15-3/8
1996 High 10-5/8 11-1/8 9-1/8 9-3/4
1996 Low 9-1/8 8-1/4 8-1/8 8-3/8
The Company's common stock is traded on
the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Market under the symbol ASTE.
Prices shown are the high and low bid prices as announced by
NASDAQ. The Company has never paid any dividends on its
common stock. The number of shareholders of record is
approximately 600.
(1) Restated to retroactively reflect
the two-for-one stock split effected in
the form of a dividend on August 12, 1993.
(2) All earnings per share amounts have
been restated to comply with Statement
of Financial Standards No. 128, Earnings
per Share.
(3) Positive physical inventory
adjustments, offset by certain other
fourth quarter charges, increased
earnings per share in the fourth quarter
of 1997 by approximately $.04 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations 1997 vs. 1996
Net income for 1997 was
$13,809,000, or $1.45 per share basic or $l.42 per share
diluted, compared to net income of $4,345,000, or $.43 per
share both basic and diluted in 1996. The
effect of the Company's purchase of its common shares in the
second quarter was to increase basic net income per share by
$.08 and diluted net income per share by $.07. The 1996
results included approximately $3,000,000 of charges related
to the discontinuance and writedown of a newly-developed
mining machine product line, increases in inventory reserves
related to the log loader business and litigation expenses.
In 1996 the Company experienced a decline in international
sales of asphalt plants of $25,447,000; however, the Company
improved international asphalt plant sales in 1997 by
$11,690,000.
Net sales for 1997 were $265,365,000,
an increase of $43,952,000, or approximately 19.9% compared
to 1996. The 1997 international sales increased by
$20,593,000 (53.8%) to approximately $58,902,000 compared to
1996 international sales of $38,309,000. The 1997
international sales represented a return to within $63,000
of the 1995 international sales volume. The 1997 domestic
sales increased from $183,104,000 to $206,463,000, or
$23,359,000, for a 12.8% increase from 1996. The increase
in domestic sales is principally attributed to increased
sales in asphalt plants and mobile equipment.
The increase in international sales was
attributed to all subsidiaries increasing their sales, with
asphalt plants, mobile equipment and rock crushing equipment
being the leaders. International sales by domestic
subsidiaries in 1997 were 22.2% of total sales compared to
17.3% in 1996.
The gross profit margin was 24.3% in
1997 compared to 22.3% in 1996. The improvement was
generated primarily from increased volumes in the asphalt
plant and mobile equipment operations and efficiences being
realized from capital expenditures made over the last few
years.
In 1997, selling, general, and
administrative expenses decreased to 13.6% of net sales from
15.8% of net sales in 1996. The volume increase in net
sales, coupled with significant reductions in legal expenses
from 1996, are the primary factors responsible for the
decreased percentage.
Research and development expenses
decreased to 1.4% of net sales in 1997 from 2.7% in the
prior year. Research and development expenses decreased
from 1996 to 1997 primarily because of the product
development expenses related to the mining machine in 1996,
which were approximately $2,300,000. The reduction in
expenses, coupled with the increase in sales volume,
impacted the percentage of research and development expenses
to net sales.
Interest expense for 1997 increased to
.9% of sales from .8% of sales for 1996. The increase
related primarily to borrowings required for the captive
finance company, which completed its first full year of
operations in 1997 and funds needed for the purchase of
shares under the Company's dutch tender offer completed in
May 1997.
Income tax expense for 1997 was
$9,156,977, or 39.9% of pre-tax income, compared to
$2,673,000 for 1996, or 38.1% of pre-tax income.
The backlog at December 31, 1997 was
$61,387,000 (including $8,022,000 for Kolberg-Pioneer)
compared to $54,298,000. This represents a 13.1% increase
over 1996. The backlog without Kolberg-Pioneer at December
31, 1996 was $44,911,000. The increase is principally
attributed to increased asphalt plant orders. The Company
is unable to determine whether this increase in backlog was
experienced by the industry as a whole or whether it
reflects an increase of market share. While this backlog
reflects a positive development, management does not believe
this increase represents a trend, but is attributed to
periodic fluctuations in sales volume given the nature of
the Company's products and customers.
Results of Operations 1996 vs. 1995
Net income for 1996 was $4,345,000,
or $.43 per share, compared to net income of $4,560,000, or
$.45 per share, in 1995. Net income
for 1995 included losses of approximately $4,279,000
relative to the Company's former German subsidiaries, Astec-
Europa and Wibau-Astec, while pre-tax income for 1996 was
reduced by approximately $3,000,000 due to various fourth
quarter charges. Net income from domestic operations was
$4,345,000 in 1996 compared to $8,840,000 in 1995. This
decrease was principally attributed to the fourth quarter
charges taken in connection with the discontinuance and
writedown of a newly-developed mining machine product line,
increases in inventory reserves related to the Company's log
loader business and additional litigation expenses incurred
by the Company. The Company also experienced a $25,447,000
decline in international asphalt plant sales from domestic
operations from 1995 to 1996. This decline had a
significant adverse impact on net income for 1996. In
addition, the Company experienced an increase in income tax
expense of approximately $870,000 in 1996 due to an increase
in the effective income tax rate applicable to the Company.
This also contributed to the decrease in net income from
domestic operations for 1996.
Net sales for 1996 were $221,413,000, a
decrease of $21,188,000, or approximately 8.7% compared to
1995. Excluding sales of $24,748,000 related to German
operations which were disposed of in 1995, 1996 sales
increased by $3,560,000, or 1.6%, and domestic sales
increased by $24,216,000 in 1996 compared to 1995. This
increase in domestic sales is principally attributed to
strong sales in mobile equipment, rock crushing equipment, a
slight improvement in sales of trencher equipment and
increased domestic sales of asphalt plants. However, this
increase in domestic sales was offset by a $20,656,000
decrease in international sales, primarily as a result of a
$25,447,000 decline in international sales of asphalt
plants. International sales by domestic subsidiaries were
17.3% of total sales in 1996 compared to 24.3% of total
sales in 1995.
The gross profit margin for 1996 was 22.3% compared to
20.5% for 1995. This increase reflects the improvement
attributable to the disposition of German operations
in 1995 where gross profit margin was low. Domestic
operations' gross profit margin for 1996 was 22.3% compared
to 22.5% for 1995.
In 1996, selling, general, and administrative expenses
increased to 15.8% of net sales from 14.1% in 1995.
In 1995, selling, general, and administrative
expenses were 14.0%, excluding the German
operations. ConExpo, an equipment show which occurs once
every three years, accounted for .4% of the increase. As
a percentage, the additional increase is attributed to the
reduction in net sales for 1996, increased sales
accommodations on the log loader product line,
increased selling expenses primarily related to salaries,
travel, and entertainment expenses at all subsidiaries,
and product demonstration expenses at the Roadtec
subsidiary.
Research and development expenses increased from 2.1% of net
sales in 1995 to 2.6% in 1996. Excluding the German
operations, research and development expenses were 1.3%
in 1995. This increase in 1996 was principally
attributed to the product development expenses related to a
prototype mining machine.
Interest expense for 1996 decreased to .8%-of sales from .9%
of sales in 1995. The decrease resulted from reduced
average borrowings and lower average interest rates during
1996.
Other income decreased by $5,076,000 from 1995 to 1996.
Excluding German operations, the decrease was only
$525,000. The 1995 other income, excluding Germany,
included gains on the sale of fixed assets, primarily
related to the sale of the former manufacturing facility
operated by Telsmith, but no such comparable gains
occurred in 1996. Income tax expense for 1996 was
$2,673,000, or approximately 38.1% of pre-tax income,
compared to $1,580,000, or approximately 25.7% of pre-tax
income in 1995. The variance
from the normal corporate tax rate in 1995 was primarily
attributed to a lower effective tax rate related to the
Company's foreign operations. The Company has
previously utilized the majority of its tax credit
carryforwards, therefore,the Company's tax rate for 1996 and
subsequent years will approximate the normal corporate
rate.
The backlog at December 31, 1996 was $44,911,000 compared
to $34,751,000 at December 31, 1995, representing a 29.2%
increase which was principally attributed to increased
domestic
asphalt plant orders. The Company is unable to determine
whether this increase in backlog was experienced by the
industry as a whole or whether it reflects an increase of
market share. While this backlog reflects a positive
development, management does not believe this increase
represents
a trend, but is attributed to periodic fluctuations in
sales volume given the nature of theCompany's products and
customers. In contrast to the strong domestic market,
international asphalt plant orders continue to be slow
and unpredictable. In an effort to improve international
asphalt plant sales, the Company has reviewed its
international sales efforts and has located a salesman in
Singapore
to develop that regional market. The Company held a
service school for Spanish-speaking customers in 1997.
Liquidity and Capital Resources
Working capital increased to
$71,459,000 at December 31, 1997 from $69,884,000 at
December 31, 1996. The Company's debt-
to-equity ratio was .34 to 1.00 at December 31, 1997 and .33
to 1.00 at December 31, 1996. The Company's principal
source of liquidity in 1997 was its borrowings under current
and newly-obtained credit facilities.
Total short-term borrowings, including current maturities
of long-term debt, were $500,000 at December 31, 1997 and
$2,051,000 at December 31, 1996. Included in short-term
borrowings at December 31, 1996 was a loan from the
Company's Chief Executive Officer, Dr. J. Don Brock, dated
March 18, 1996, in the amount of $1,078,000. The
principal and all accrued interest on the loan,
calculated at the Company's current borrowing rate under
its revolving credit facility with First Chicago NBD, was
repaid to Dr. Brock on January 6, 1997. Long-term debt,
less current maturities, was $35,230,000 at December 31,
1997 and $30,497,000 at December 31, 1996.
Major items impacting the borrowing include business
combinations of $22,383,000, the purchase of shares in
the 1997 dutch tender for $7,782,000 and capital expenditures
of $9,044,000, offset by funds generated from
operations.
Capital expenditures of $9,044,000, excluding those for
equipment leased to others, were made in 1997 compared to
capital expenditures in 1996 of $8,708,000.
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
December 31, 1997, $23,230,000 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.
The Company was in compliance with all financial
covenants related to the above loan agreement at December
31, 1997. 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 December 31, 1997, Astec Financial Services had
utilized $680,000 of this line. 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 December 31, 1997.
In 1997, year-end trade receivables rose to $33,946,000 from
$30,040,000 at 31, 1996. This increase of $3,906,000
reflects
the business combination which accounted for $4,913,000 of
receivables at December 31, 1997. Inventory levels
increased
$12,631,000 to $69,395,000 at December 31, 1997 from
$56,764,000
at December 31, 1996. The increase in inventory
primarily reflects the business combination which
accounted for $12,198,000 of the increase at
December 31, 1997.
For additional information on current and long-term debt,
see Note 7 to the Consolidated Financial Statements.
Contingencies
See Note 10 to Consolidated Financial
Statements for information on certain pending litigation and
contingent liabilities arising from recourse financing
arrangements.
Environmental Matters
Based on information available,
management believes the Company has no material reserve
requirements for potential environmental liabilities.
General
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. These problems generally
arise from the fact that most of the world's computer
hardware and software have historically used only two digits
to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000s" from
dates in the "1900s." Software failures due to processing
errors potentially arising from calculations using the Year
2000 date are a known risk.
During the first quarter of 1998,the
Company commenced a Year 2000 project to address all
necessary code changes, testing and implementation. The
Company is utilizing both internal and external resources to
identify, correct or reprogram, and test its systems for
Year 2000 compliance. Although the total cost of compliance
and its effect on the Company's future results of operations
is impossible to project at this time, the Company is
attempting to determine the total costs and effect on
results of operations as part of the project. Total costs
associated with the Year 2000 issue have been immaterial to
date but may be material in the future. The ultimate cost
is subject to a number of uncertainties beyond the Company's
control, including the availability of consultants and
sufficient personnel to deal with the issue and the ability
to locate and correct all relevant computer codes.
FORWARD-LOOKING STATEMENTS
The Company may, from time to time, make forward-looking statements,
including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
shareholders. Statements made in this annual report on Form 10-K, other
than those concerning historical information, should be considered
forward-looking and subject to various risks and uncertainties. Such
forward-looking statements are made based on management's belief as of
the date thereof, as well as assumptions made by, and information
currently available to management, pursuant to "safe harbor_ provisions
of the Private Securities Litigation Reform Act of 1995. The Company's
actual results may differ materially from the results anticipated in
these forward-looking statements due to a variety of factors, including,
without limitation: the effects of future economic conditions; the amount
of federal, state and local governmental revenues to support road
building and related activities; and the effects of competition in the
design, engineering and manufacturing of equipment and components used in
road building and various other construction activities. The Company
does not undertake to update any forward-looking statement that may be
made from time to time by, or on behalf of, the Company.
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
Assets
Current assets:
Cash and cash equivalents Note 1 $2,926,294 $ 3,382,484
Trade receivables less allowance for
doubtful accounts of $1,342,000 in 1997
and $1,267,000 in 1996 33,945,574 30,039,813
Finance receivables Note1 44,074,230 3,371,513
Notes and other receivables 751,235 1,191,223
Inventories Note 1, 4 69,395,351 56,764,085
Prepaid expenses 1,985,197 1,967,999
Refundable income taxes 2,071,063
Deferred tax asset Note 9 5,536,666 5,534,950
Other current assets 7,550 4,169
Total current assets 118,622,097 104,327,299
Property and equipment, net Note 5 61,605,153 54,317,352
Other assets:
Goodwill 8,226,831 5,285,051
Finance receivables Note 14 670,801 1,854,443
Notes receivable 1,261,985 320,000
Deferred tax asset Note 9 711,987 442,458
Other 1,144,245 1,306,113
Total other assets 12,015,849 9,208,065
Total $192,243,099 $167,852,716
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term
debt Note 7 $ 500,000 $ 2,051,003
Accounts payable 21,421,882 14,613,782
Customer deposits 6,464,842 2,150,852
Accrued product warranty 3,206,372 2,364,705
Accrued payroll and related
liabilities 6,049,429 3,503,080
Income taxes payable 809,384
Deferred tax liability Note 9 275,687 173,388
Accrued insurance 2,242,447 2,672,274
Amounts payable in business
combination Note 2 2,405,145
Liabilities related to abandoned
subsidiary Note 3 360,760 593,886
Other accrued liabilities 5,832,716 3,915,162
Total current liabilities 47,163,519 34,443,277
Long-term debt, less
current maturities Note 7 35,230,000 30,496,734
Deferred tax liability Note 9 3,216,948 2,838,024
Deferred retirement costs Note 8 320,314 544,911
Other 700,155 136,842
Total liabilities 86,630,936 68,459,788
Shareholders' equity: Note 1,11
Preferred stock - authorized 2,000,000
shares of $1.00 par value; none issued
Common stock - authorized 20,000,000
shares of $.20 par value; issued
and outstanding - 10,111,199 in 1997
and 10,101,199 in 1996 2,022,240 2,020,240
Additional paid-in capital 52,043,830 51,980,855
Retained earnings 60,096,397 46,286,983
Minimum pension liability adjustment (127,150)
114,162,467 100,160,928
Less common stock in treasury at cost -
790,619 shares in 1997 and 64,000
shares in 1996 (8,550,304) (768,000)
Total shareholders' equity 105,612,163 99,392,928
Total $192,243,099 $167,852,716
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
Net sales $265,365,312 $221,412,796 $242,601,351
Cost of sales 200,872,181 172,147,913 192,844,160
Gross profit 64,493,131 49,264,883 49,757,191
Selling, general and
administative expenses 36,124,728 35,081,800 34,325,974
Research and development
expenses 3,706,909 5,867,909 5,128,495
Patent suit damages and expenses 263,978 699,222
Loss on abandonment of foreign
subsidiary Note 3 7,037,105
Income from operations 24,661,494 8,051,196 2,566,395
Other income (expense):
Interest expense (2,397,902) (1,656,466) (2,125,261)
Interest income 259,388 386,646 565,724
Other income - net 347,253 247,434 2,685,161
Gain on sale of foreign
subsidiary Note 2 2,448,551
Equity in income (loss) of joint
venture Note 1 96,158 (10,652)
Income before income taxes 22,966,391 7,018,158 6,140,570
Income taxes Note 9 9,156,977 2,673,282 1,580,210
Net income $ 13,809,414 $ 4,344,876 $4,560,360
Earnings per Common Share
Net income:
Basic $ 1.45 $ .43 $ .45
Diluted 1.42 .43 .45
Weighted average number of
common shares outstanding Note 1:
Basic 9,555,940 10,047,442 10,071,931
Diluted 9,726,096 10,158,658 10,195,917
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Additional Currency Pension Common
Common Stock Paid-in Translation Retained Liability Stock in
Shares Note 1 Amount Capital Adjustment Earnings Adjustment in Treasury
Balance
December 31, 1994 10,001,831 $2,000,366 $50,900,908 $89,975 $37,381,747
Issuance of
common stock 90,368 18,074 1,039,672
Change during year (89,975)
Net income 4,560,360
Balance
December 31, 1995 10,092,199 2,018,440 51,940,580 41,942,107
Issuance of
common stock 9,000 1,800 40,275
Common stock
acquired for treasury
- 64,000 shares $ (768,000)
Minimum pension liability
adjustment $(127,150)
Net income 4,344,876
Balance
December 31, 1996 10,101,199 2,020,240 51,980,855 46,286,983 (127,150) (768,000)
Issuance of
common stock 10,000 2,000 62,975
Common stock
acquired for treasury
- 726,619 shares (7,782,304)
Minimum pension liability
adjustment 127,150
Net income 13,809,414
Balance
December 31, 1997 10,111,199 $2,022,240 $52,043,830 $ 0 $60,096,397 $ 0 $(8,550,304)
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Year Ended December 31,
1997 1996 1995
Net income $ 13,809,414 $ 4,344,876 $4,560,360
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 6,944,918 5,812,723 5,697,862
Provision for doubtful accounts 272,578 157,183 533,136
Provision for inventory reserves 418,906 1,231,828 1,196,876
Provision for warranty 2,811,009 3,018,990 3,194,240
Foreign currency translation
adjustment (74,519)
(Gain) loss on sale of
fixed assets 747,112 59,118 (263,195)
(Gain) on sale of finance
receivables (663,516) (67,492)
Equity in (income) loss of joint
venture (96,158) 10,652
Gain on sale of foreign subsidiary (2,448,551)
Loss on abandonment of foreign
subsidiary 7,037,105
(Increase) decrease in:
Receivables 1,005,946 (3,855,177) (2,551,526)
Inventories (1,833,029) (1,353,245) (5,921,052)
Prepaid expenses (2,010) (991,145) (2,071,266)
Deferred tax asset 209,978 1,349,773 413,524
Other assets 261,094 196,607 (993,322)
Increase (decrease) in:
Accounts payable 3,867,396 (1,383,256) 6,062,733
Customer deposits 4,285,052 (2,838,705) (1,211,925)
Accrued product warranty (2,143,242) (3,127,860) (3,433,374)
Income taxes payable 2,880,447 270,786 (1,117,518)
Other accrued liabilities 1,885,445 (3,723,984) (2,373,657)
Total adjustments 20,851,926 (5,233,204) 1,675,571
Net cash (used) provided by
operating activities 34,661,340 (888,328) 6,235,931
Cash Flows from Investing Activities
Proceeds from sale of property
and equipment - net 459,024 1,202,335 953,766
Expenditures for property
and equipment, including those
for equipment
leased to others (25,339,464) (8,707,987) (15,159,921)
Additions to finance
receivables (13,480,827) (8,333,293)
Collections of finance
receivables 1,349,934 536,089
Proceeds from sale of finance
receivables 28,170,400 2,638,739
Cash received in connection
with sale of subsidiary (36,687)
Cash balance abandoned
w/subsidiary (203,643)
Additions to notes
receivable (116,536) (60,000)
Repayments on notes receivable 758,076 901,233 95,256
Investment in joint venture (100,000)
Cash payments in connection
with business combination, net
of cash acquired (22,383,071) 164,794 (834,591)
Net cash (used) by investing
activities (30,582,464) (11,758,090) (15,185,820)
See Notes to Consolidated Financial Statements.
Year Ended December 31,
1997 1996 1995
Cash Flows From Financing Activities
Purchase of treasury shares $(7,782,304) $ (768,000)
Proceeds from issuance of
common stock 64,975 42,075 $ 9,750
Net borrowings under
revolving credit loan 9,908,000 11,680,000 1,495,000
Principal repayments of
industrial bonds, loans
and notes payable (6,725,737) (1,027,023) (1,523,213)
Proceeds from debt and
notes payable 2,968,780 1,629,978
Net cash provided (used) by
financing activities (4,535,066) 12,895,832 1,611,515
Increase (decrease) in cash and
cash equivalents (456,190) 249,414 (7,338,374)
Cash and cash equivalents,
beginning of period 3,382,484 3,133,070 10,471,444
Cash and cash equivalents
end of period $ 2,926,294 $ 3,382,484 $ 3,133,070
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 2,369,389 $ 1,572,642 $1,800,598
Income taxes $ 8,142,405 $ 3,466,100 $5,088,465
Excluded from the Consolidated
Statements of Cash Flows were
the following effects of non-cash
investing and financing activities:
Non-cash business combination:
Investment in subsidiary $ 2,405,145
Accrued liability (2,405,145)
Non-cash transfer of assets:
Trade receivables $ 1,200,000
Notes receivables (1,200,000)
Capital stock issued for purchase
of subsidiary:
Investment in subsidiary $1,047,996
Capital stock (17,467)
Additional paid-in capital (1,030,529)
Non-cash purchase of assets:
Property, plant and equipment $ 547,587
Accrued liability (547,587)
Non-cash assets assumed in
connection with recourse
customer financing:
Notes receivables $ 369,229
Inventory (369,229)
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include
the accounts of Astec Industries, Inc. and its subsidiaries. The
Company's wholly-owned subsidiaries at December 31, 1997 are as
follows:
Astec, Inc. Production Engineered Products, Inc.
Astec Financial Services, Inc. Roadtec, Inc.
CEI Enterprises, Inc. Telsmith, Inc.
Heatec, Inc. Trencor, Inc.
Kolberg-Pioneer, Inc.
All significant intercompany transactions have been eliminated in
consolidation.
The Company's investment in a 50% owned joint venture, Pavement
Technology, Inc., is accounted for on an equity
basis. As discussed in Notes 2 and 3, the Company sold Wibau-Astec
Maschinenfabrik GmbH ("Wibau-Astec") and abandoned Gibat Ohl
Ingenieurgesellschaft fur Anlagentechnik ("Gibat Ohl") in 1995.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents - The Company considersall highly liquid instruments
purchased with a maturity of less than three months to be cash
equivalents.
Inventories - Inventories (excluding used equipment) are stated at
the lower of first-in, first-out cost or market. Used equipment
inventories are stated on the specific unit cost method, which in
the aggregate is less than market.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is calculated for financial reporting purposes using the
straight-line method based on the estimated useful lives of the
assets as follows: buildings (40 years) and equipment (3 to 10
years). Both accelerated and straight-line methods are used for tax
reporting purposes.
Goodwill - Goodwill represents the excess of cost over the
fair value of net assets acquired. Goodwill amounts are being
amortized using the straight-line method over 20 years. Additions to
goodwill reflect the purchase of assets and liabilities by
Kolberg-Pioneer, Inc. in 1997 and the purchase of Production
Engineered Products, Inc. in 1996. Accumulated amortization
balances netted against goodwill were $1,320,000 and
$1,040,000 at December 31, 1997 and 1996, respectively.
Product Warranty - The Company provides product warranties against
defects in materials and workmanship for periods ranging from
ninety days to one year following the date of sale. Estimated
costs of product warranties are charged to cost of sales in the
period of the sale.
Income Taxes - The Company accounts for income taxes using the
liability method in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes.
Revenue Recognition - A portion of the Company's equipment sales
represents equipment produced in the Company's
plants under short-term contracts for a specific customer project or
equipment designed to meet a customer's specific
requirements. Equipment revenues are recognized in compliance
with the terms and conditions of each contract, which is ordinarily
at the time the equipment is shipped. Certain contracts include
terms and conditions through which the Company recognizes
revenues upon completion of equipment production which is subsequently
stored at the Company's plant at the customer's request.
Revenue is recorded on such contracts upon the customer's
assumption of title and all risks of ownership.
Advertising Expense - The cost of advertising is expensed as
incurred. The Company incurred $2,054,000, $2,661,000 and
$2,199,000 in advertising costs during 1997, 1996 and 1995,
respectively.
Foreign Currency Translation - The financial statements of foreign
subsidiaries have been translated into U.S. Dollars in
accordance with SFAS No. 52, Foreign Currency
Translation. All balance sheet
accounts have been translated using the exchange rate in
effect at the balance sheet date. Income statement amounts
have been translated using the average exchange rate for the
year. Translation gains and losses resulting from the
changes in exchange rates from year to year have been
reported separately as a component of shareholders' equity.
Stock Based Compensation - The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the
fair value of the shares at the date of grant. The Company
accounts for stock options in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees and, accordingly,
recognizes no compensation expense for the stock option grants.
The Company adopted SFAS No. 123, Accounting for Stock-based
Compensation, in 1996 and is utilizing the disclosure only option
permitted by the statement. See Note 11.
Earnings Per Share - In 1997, the Financial Accounting Standards
Board issued SFAS No. 128, Earnings per Share. SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to
conform to the requirements of SFAS No. 128.
The following table sets forth the computation of basic and
diluted earnings per share:
Year Ended December 31,
1997 1996 1995
Numerator:
Net income $13,809,414 $4,344,876 $4,560,360
Denominator:
Denominator for basic
earnings per share 9,555,940 10,047,442 10,071,931
Effect of dilutive securities:
Employee stock options 170,156 111,216 123,986
Denominator for diluted
earnings per share $ 9,726,096 $10,158,658 $10,195,917
Earnings per common share:
Basic $1.45 $.43 $.45
Diluted $1.42 $.43 $.45
Impairment of Assets - In 1995, the Company adopted SFAS No. 121,
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of. SFAS No. 121 requires impairment losses
to be recorded on long-lived assets used in operations,
including goodwill and other intangible assets, when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. During 1995, events and
circumstances indicated that approximately $4,400,000 of assets
of the Company's subsidiary, Astec-Europa might be impaired. As
further discussed in Note 3, these assets were written off in
connection with the abandonment of Astec-Europa.
Reclassifications - Certain amounts for 1996 have been reclassified
to conform with the 1997 presentation.
Accounting Policies Not Yet Adopted - In June 1997, the FASB issued
Statement No. 130, Reporting Comprehensive Income and Statement No.
131, Disclosures about Segments of an Enterprise and Related
Information. Statement No. 130 establishes standards for the
reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Statement No. 131 generally requires that companies report
segment information for operating segments which are revenue
producing components and for which separate financial
information is produced internally.
The Company plans to adopt Statement No. 130 and Statement No. 131 in
1998, but has not yet Accounting Policies completed its
analysis of the impact, if any, that Statement No. 131 may
have on its financial statements. Statement No. 130 is not
anticipated to have a material impact when adopted by the
Company.
2.Business Combinations
On December 2, 1997, the Company acquired certain assets and
liabilities of the Construction Equipment Division of Portec, Inc.
for $19,978,176 in cash. The transaction was accounted for as a
purchase and, accordingly, the operating results of the new
company, Kolberg-Pioneer, Inc. ("K-P"), have been included
in the Company's consolidated statements of income from the
effective date of acquisition. That portion of the
purchase price in excess of the fair market value of the
assets acquired was recorded as goodwill and is being
amortized using the straight-line method over 20 years. The
purchase was initially financed under the Company's
revolving credit agreement but was structured in such a way
to allow the utilization of industrial revenue bonds in the
future.
In connection with the acquisition, the
Company and K-P entered into an equipment lease with First
Chicago NBD under which the Company and K-P lease machinery
and equipment. The terms of the equipment leases range from
36 to 84 months, with total monthly lease payments of
approximately $69,000. These are included in the lease
commitments in Note 6.
Effective December 1, 1996, the Company
acquired the operating assets and liabilities of Production
Engineered Products, Inc. ("PEP") in exchange for $2,405,145
in cash. The operations of PEP are included in the
consolidated statements of income from the effective date of
acquisition. The transaction was accounted for as a
purchase and the purchase price of $2,405,145 was allocated
to the net tangible assets acquired based on the estimated
fair market value of the assets acquired. The excess of the
purchase price over the fair market value of PEP's net
tangible assets was recorded as goodwill and is being
amortized using the straight-line method over 20 years.
On February 28, 1995, the Company
acquired the operating assets and liabilities of Trace
Industries, Inc., a New Mexico corporation doing business as
CEI Enterprises ("CEI"), in exchange for 87,333 shares of
the Company's common stock and approximately $852,000 in
cash. The operations of CEI-are included in the
consolidated statements of income from the effective date of
acquisition. The transaction was accounted for as a
purchase and the purchase price of approximately $1,900,000
was allocated to the net tangible assets acquired based on
the estimated fair market value of the assets acquired.
That portion of the purchase price in excess of the fair
market value of CEI's net tangible assets was recorded as
goodwill and is being amortized using the straight-line
method over 20 years.
A summary of the net assets acquired is as follows:
K-P PEP CEI
Current assets $16,530,866 $1,292,161 $1,035,148
Property, plant and
equipment 4,714,500 551,289 243,877
Other assets 1,035,735
Current liabilities (5,032,911) (243,511) (768,647)
Other liabilities (492,000) (1,094,453) (39,683)
Goodwill 3,221,736 1,734,865 1,411,892
Net assets acquired
excluding cash 19,977,926 2,240,351 1,882,587
Cash 250 164,794 17,413
Net assets acquired $19,978,176 $2,405,145 $1,900,000
The following
unaudited pro forma summary presents the consolidated
results of operations as if the acquisitions discussed above
had occurred at the beginning of the period preceding the
acquisition. The unaudited 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 acquisitions taken place at the beginning of the periods
presented or of results which may occur in the future.
Year Ended December 31,
1997 1996 1995
Net sales $300,336,000 $257,913,000 $247,256,000
Income from operations 26,363,000 10,372,000 6,303,000
Net income 14,917,000 5,459,000 4,630,000
Per common share outstanding:
Basic $ 1.56 $ .54 $ .46
Diluted $ 1.53 $ .54 $ .46
Effective June 30, 1995, the Company sold Wibau-Astec to Wirtgen
Gesellschaft mit beschrankter Haftung for approximately $1,109,000.
For the six months ended June 30, 1995, Wibau-Astec had a net loss of
approximately $688,000. The Company realized a gain of approximately
$2,449,000 on the sale of Wibau-Astec.
3.Abandonment of Foreign Subsidiary
During 1995, the Company's subsidiary, Astec-Europa, incurred a net
loss of approximately $2,354,000 and had a negative net worth
at December 31, 1995. The Company determined that it would
no longer support Astec-Europa and on February 9, 1996,
Astec-Europa management filed a request for bankruptcy in
Germany. Due to its decision to abandon Astec-Europa, the
Company has not recovered any amounts related to Astec-
Europa's assets nor has it been required to liquidate Astec-
Europa's liabilities except to the extent such liabilities
were guaranteed by the Company. Accordingly, Astec-Europa's
assets and liabilities at December 31, 1995 were adjusted to
liquidation basis values. This, along with the write-off of
the Company's investment in Astec-Europa and the remaining
goodwill associated with Astec-Europa of approximately
$3,911,000 resulted in a total write-off related to the
abandonment of approximately $7,037,000 before tax and
$3,683,000 after tax. Total losses recognized in 1995,
including net loss from operations and the loss on
abandonment, related to Astec-Europa were approximately
$9,945,000 before tax or $6,037,000 after tax.
4. Inventories
Inventories consisted of the following:
December 31,
1997 1996
Raw materials and parts $27,986,696 $23,541,508
Work-in-process 15,920,137 9,038,158
Finished goods 19,911,602 16,994,736
Used equipment 5,576,916 7,189,683
Total $69,395,351 $56,764,085
5. Property and Equipment
Property and equipment consisted of the following:
December 31,
1997 1996
Land, land improvements and buildings $42,659,308 $38,161,554
Equipment 48,175,111 41,217,853
Less accumulated depreciation (31,339,876) (26,829,232)
Land, buildings and equipment - net 59,494,543 52,550,175
Rental property:
Equipment 2,517,574 2,004,118
Less accumulated depreciation (406,964) (236,941)
Rental property - net 2,110,610 1,767,177
Total $61,605,153 $54,317,352
6. Leases
The Company leases certain land, buildings and equipment which are
used in its operations. Total rental expense charged to
operations under operating leases was approximately $1,569,000,
$1,272,000 and $1,213,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Minimum rental commitments for all noncancelable operating
leases at December 31, 1997 are as follows:
1998 $ 1,742,000
1999 1,456,000
2000 1,202,000
2001 208,000
2002 and beyond 21,000
The Company also leases equipment to customers under short-term
contracts generally ranging from two months to forty-eight months.
Rental income under such leases was $1,181,000, $2,073,000
and $1,630,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
Minimum rental payments to be received for equipment leased to
others at December 31, 1997 are as follows:
1998 $ 322,000
1999 208,000
2000 178,000
2001 33,000
7.Long-term Debt
Long-term debt consisted of the following:
December 31,
1997 1996
Revolving credit loan of
$70,000,000 available through
November 22, 2002 at interest
rates from 6.6% to 8.25%
at December 31, 1997 $23,230,000
Revolving credit loan of $22,000,000
at interest rates from 6.69% to 8.0%
at December 31, 1996 $13,322,000
Revolving credit loan at an interest
rate of prime, which was 8.25% at
December 31,1996 2,508,000
Loans payable maturing at various dates
through 2000 at interest rates
from 8.0% to 9.25% 2,639,307
Industrial Development Revenue Bonds
payable in annual installments through
2006 at weekly negotiated interest
rates 4,500,000 5,000,000
Industrial Development Revenue Bonds due
in 2019 at weekly negotiated interest
rates 8,000,000 8,000,000
Loan payable to related party at an
interest rate of prime less a quarter,
which was 8.0% at December 31, 1996 1,078,430
Total long-term debt 35,730,000 32,547,737
Less current maturities 500,000 2,051,003
Long-term debt less current maturities $35,230,000 $30,496,734
The Company has a $70,000,000 revolving line of credit with First
Chicago NBD. The agreement contains borrowing sub-limits which
allow the Company and its subsidiary, Astec Financial Services,
Inc., to borrow up to $50,000,000 and $30,000,000 respectively, not to
exceed the total commitment amount. Advances under Astec Financial's
sub-limit are limited to eligible receivables as defined in the
agreement.
Amounts outstanding under the agreement bear interest, at the
Company's option, at a rate from .25% below prime to prime plus .50%, or
from .75% to 2.00% above the London Interbank Offering Rate. The
interest rate applied to borrowings is based upon a leverage ratio,
calculated quarterly, as defined by the credit agreement. The credit
agreement contains certain restrictive covenants relative to
operating ratios and capital expenditures and al the
payment of dividends. This agreement replaced two separate revolving
credit facilities with an aggregate availability of $37,000,000.
The former agreements also bore interest at rates based on prime or
LIBOR and contained certain restrictive covenants similar to those in the
new agreement.
Loan payable to related party at December 31, 1996 was a note
payable to the Company's Chief Executive Officer. Interest expense
related to this note for 1996 was calculated at the Company's
current bank borrowing rate and was approximately $1,580 in 1997
and $73,000 in 1996. This loan was paid off in January 1997.
The aggregate of all maturities of long-term debt in each of the next
five years is as follows:
1998 $500,000
1999 500,000
2000 500,000
2001 500,000
2002 and beyond 33,730,000
For 1997, the weighted average interest rate on short-term
borrowings,
which includes current maturities of Industrial Revenue Bonds, was
3.90%.
8. Retirement Benefits
The Company
provides a deferred savings plan ("Savings Plan") under
Section 401(k) of the Internal Revenue Code, under which
substantially all employees of the Company and its
subsidiaries are eligible to participate. The Savings Plan
provides that the Company match is an amount equal to 50% of
employee savings subject to certain limitations or 30% of
employee savings, subject to certain limitations, for
employees of Kolberg-Pioneer, Inc. The total expense for
such matching was approximately $856,000, $799,000 and
$777,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Telsmith, Inc. sponsors a defined
benefit pension plan covering certain employees hired prior
to October 14, 1987 who have chosen not to participate in
the Company's 401(k) savings plan. The benefit is based on
years of benefit service multiplied by a monthly benefit as
specified in the plan. The Company's funding policy for its
pension plans is to make the minimum annual contributions
required by applicable regulations.
A reconciliation of the funded status of
the Plan, which is based on a valuation date of September
30, with amounts reported in the Company's
consolidated balance sheets, is as follows:
Year Ended December 31,
1997 1996
Actuarial present value of
benefit obligations:
Vested $3,179,694 $3,039,628
Nonvested 94,386 88,965
Accumulated benefit obligation $3,274,080 3,128,593
Projected benefit obligation $3,274,080 3,128,593
Plan assets at fair value 2,982,882 2,583,682
Projected benefit obligation in excess
of plan assets 291,198 544,911
Unrecognized net gain (loss) 138,707 (127,150)
Prior service cost not yet recognized
in net periodic pension cost (109,591) (129,205)
Additional liability 256,355
Pension liability in the consolidated
balance sheets $ 320,314 $ 544,911
Net periodic pension cost for 1997, 1996 and 1995 included the
following components:
Year Ended December 31,
1997 1996 1995
Service cost - benefits earned
during the period $ 15,382 $ 20,986 $ 24,585
Interest cost on projected
benefit obligation 222,812 227,815 219,465
Actual return on plan assets (623,731) (122,607) (238,493)
Net amortization and deferral 417,295 (84,816) (6,682)
Net expense (income) $ 31,758 $ 41,378 $ (1,125)
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5%
at September 30, 1997 and 1996. The expected long-term
rate of return on assets was 9.0% for the years ending September 30,
1997 and 1996. Plan assets are primarily comprised of corporate
equity and corporate and U.S. Treasury debt securities.
In addition to the retirement plans discussed above, the Company
has an unfunded post-retirement medical and life insurance plan
covering employees of its Telsmith, Inc. subsidiary and retirees of
its former Barber-Greene subsidiary. The plan is accounted for
under the provision of SFAS No. 106, Employers' Accounting for Post-
retirement Benefits Other Than Pensions. The accumulated post-
retirement benefit obligation ("APBO") at adoption was approximately
$674,000 and is being amortized over 20 years.
The accumulated post-retirement benefit obligation and the amount
recognized in the Company's consolidated balance sheets is as
follows:
December 31,
1997 1996
Accumulated post-retirement
benefit obligation:
Retirees $271,235 $241,700
Active employees 499,068 471,000
770,303 712,700
Unamortized transition obligation (504,500) (538,200)
Unrecognized net gain 2,875 64,100
Accrued post-retirement benefit cost $268,678 $238,600
Net periodic post-retirement benefit cost included the following
components:
December 31,
1997 1996
Service cost $ 56,468 $ 64,700
Interest cost 55,241 48,300
Amortization of transition obligation 33,700 33,700
Amortization of net gain (1,473)
Net expense $143,936 $146,700
A discount rate of 7.0% was used in calculating the APBO. The
APBO assumes a 7.5% increase in per capita health care costs decreasing
gradually to 5.5% for years 2001 and later. A 1% increase in the
medical inflation rate would increase the APBO by
approximately $42,000 and the expense by approximately $7,700.
9. Income Taxes
For financial reporting purposes, income before income taxes includes
the following components:
Year Ended December 31,
1997 1996 1995
United States $22,738,605 $ 6,655,652 $16,497,616
Foreign:
License income 227,786 362,506 277,855
Loss from foreign subsidiaries (3,597,796)
Loss on abandonment (7,037,105)
Income before income
taxes $22,966,391 $7,018,158 $ 6,140,570
The provision for income taxes consisted of the following:
Year Ended December 31,
1997 1996 1995
Current $9,264,743 $1,416,242 $1,166,956
Deferred provision (benefit) (107,766) 1,257,040 413,254
Total provision for income taxes $9,156,977 $2,673,282 $1,580,210
A reconciliation of the provision for income taxes at the statutory
rate to those provided is as follows:
Year Ended December 31,
1997 1996 1995
Tax at statutory rates $8,038,237 $2,386,174 $2,087,794
Effect of utilization of net
operating loss carryforwards
net of alternative minimum
tax (1,344,000)
Benefit from foreign
sales corporation (360,000) (125,000) (327,000)
State taxes, net of federal
income tax benefit 912,000 424,000 522,000
Income taxes of
other countries 38,000 20,000 (553,000)
Loss from foreign
operations (413,000)
Recognition of deferred
tax asset 1,827,000
Other items 528,740 (31,892) (219,584)
Income taxes $9,156,977 $2,673,282 $1,580,210
At December 31, 1997, the Company had long-term capital loss
carryforwards of approximately $80,000 expiring in 2000. As a result
of utilizing the net operating loss carryforwards, net income from
continuing operations increased by approximately $.13 for the year
ended December 31, 1995.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax
purposes.
At December 31, 1997, the Company had deferred tax assets of
approximately $6,248,700, and deferred tax liabilities of approximately
$3,492,000, related to temporary differences and tax loss
carryforwards. At December 31, 1996, a valuation allowance of
approximately $241,000 was recorded. This valuation allowance offsets
the deferred tax asset relative to
capital loss carryforwards. Due to the uncertainty of the utilization
and expected utilization of these carryforwards, the Company
determined that a valuation allowance was necessary for this item.
The change in valuation allowance in 1997 is due to the utilization of
the capital loss carryfowards.
Significant components of the Company's deferred tax liabilities and
assets are as follows:
Year Ended December 31,
1997 1996
Deferred tax assets:
Inventory reserves $1,878,300 $1,556,000
Warranty reserves 1,098,400 898,000
Accrued insurance 820,800 864,000
Bad debt reserves 507,000 479,000
Other accrued expenses 1,695,700 1,428,000
Alternative minimum tax credit 98,500 560,000
Other credit carryforwards 150,000 433,000
Total deferred tax assets 6,248,700 6,218,000
Deferred tax liabilities:
Property and equipment 3,176,300 2,793,000
Other 316,300 218,000
Total deferred tax liabilities 3,492,600 3,011,000
Net deferred tax assets 2,756,100 3,207,000
Valuation allowance (241,000)
Deferred tax asset $2,756,100 $2,966,000
10. Contingencies
Management has reviewed all claims and lawsuits and, upon the
advice of counsel, has made provision for any estimable losses;
however, the Company is unable to predict the ultimate
outcome of the outstanding claims and lawsuits.
Recourse Customer Financing - Certain customers have financed
purchases of the Company's products through arrangements in
which the Company is contingently liable for customer debt
aggregating approximately $1,793,000 and $4,618,000 at December 31,
1997 and 1996, respectively. These obligations average five years
in duration and have minimal risk.
Other - The Company is contingently liable for letters of credit of
approximately $12,993,000 issued for bid bonds and performance bonds.
Astec Financial Services, Inc. has sold
both finance and operating leases with limited recourse,
subject to elimination of recourse responsibilities through
remarketing of equipment. The limited recourse would not
exceed 15% of the purchase price.
11. Shareholders' Equity
The Company
has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25)
and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123,
Accounting for Stock-based Compensation, requires use of
option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date
of grant, no compensation expense is generally recognized.
The Company has reserved 300,000 shares of common stock under
the 1986 Stock Option Plan and 500,000 shares of common stock under
the 1992 Stock Option Plan for issuance upon exercise of non-
qualified options and incentive options to officers and employees of
the Company and its subsidiaries at prices determined by the Board
of Directors. All options granted have ten-year terms and vest and
become fully exercisable immediately or within one year of the
grant date.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions
for 1995, 1996 and 1997, respectively; risk-free interest rates of
6.06%, 6.04% and 5.78%; volatility factors of the expected
market price of the Company's common stock of .275, .275 and .281;
and a weighted-average expected life of the option of seven and one half
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition,
option valuation models require the input of highly
subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options
have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options'
vesting period. The Company's pro forma information follows.
1997 1996 1995
Pro forma net income $13,782,000 $3,734,000 $4,362,000
Pro forma earnings per share:
Basic $ 1.44 $ .37 $ .43
Diluted $ 1.42 $ .37 $ .43
A summary of the Company's stock option activity and related
information for the years ended December 31, 1997, 1996 and 1995
follows:
Year Ended December 31,
1997 1996 1995
Weighted Avg. Weighted Avg. Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
Options
outstanding,
beginning
of year 549,000 $9.23 308,000 $ 8.33 244,000 $ 6.92
Options
granted 10,000 $9.13 250,000 $ 10.17 67,000 $ 13.26
Options
forfeited 23,000 $9.39
Options
exercised 10,000 $6.50 9,000 $ 4.68 3,000 $ 3.25
Options outstanding and
exercisable,
end of
year 526,000 $ 9.28 549,000 $ 9.23 308,000 $ 8.33
The weighted average fair value of options granted whose exercise
price was equal to the market price of the stock on the grant date
was $4.14, $3.97 and $4.65 for the years ended December 31, 1997,
1996 and 1995. The weighted average fair value of options granted
whose exercise price exceeded the market price of the stock on the
grant date was $3.14 and $4.13 for the years ended December 31,
1996 and 1995. Exercise prices for options outstanding and
exercisable as of December 31, 1997 range from $1.38 to $3.25
(128,000 options) and from $9.13 to $16.36 (398,000 options).
The Company has adopted a Shareholder Protection Rights Agreement
and declared a distribution of one right (the "Right") for each
outstanding share of Company common stock, par value $0.20 per
share (the "Common Stock"). Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share (a
"Unit") of Series A Participating Preferred Stock, par value $1.00
per share (the "Preferred Stock"), at a purchase price of $36.00 per
Unit, subject to adjustment. The rights currently attach to
the certificates representing shares of outstanding Company
Common Stock, and no separate Rights certificates will be
distributed. The Rights will separate from the Common Stock
upon the earlier of ten business days (unless otherwise
delayed by the Board) following the (i) public announcement
that a person or group of affiliated or associated persons
(the "Acquiring Person") has acquired, obtained the right to
acquire, or otherwise obtained beneficial ownership of 15%
or more of the then outstanding shares of Common Stock, or
(ii) commencement of a tender offer or exchange offer that
would result in an Acquiring Person beneficially owning 15%
or more of the then outstanding shares of Common Stock. The
Board of Directors may terminate the Rights without any
payment to the holders thereof at any time prior to the
close of business ten business days following announcement
by the Company that a person has become an Acquiring Person.
The Rights, which do not have voting power and are not
entitled to dividends, expire on December 21, 2005. In the
event of a merger, consolidation, statutory share exchange
or other transaction in which shares of Common Stock are
exchanged, each Unit of Preferred Stock will be entitled to
receive the per share amount paid in respect of each share
of Common Stock.
12. Financial Instruments
Credit Risk - The Company sells products to a wide variety of
customers. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. The Company maintains an allowance for doubtful accounts
at a level which management believes is sufficient to cover
potential credit losses. As of December 31, 1997,
concentrations of credit risk with respect to receivables
are limited due to the wide variety of customers.
Fair Value of Financial Instruments - The book value of
the Company's financial instruments approximates their
fair values. Financial instruments include cash,
accounts receivable, finance receivables, accounts payable
and long- and short-term debt. Substantially all of
the Company's short- and long-term debt is floating
rate debt and, accordingly, book value approximates its
fair value.
13. Operations by Industry Segment and Geographic Area
The Company operates predominately in one industry
segment. Its products are used for road construction and for the
manufacture and processing of construction aggregates. Net sales
and net losses of foreign operations
were $24,748,000 and $3,044,000 for the year ended December
31, 1995. See Notes 2 and 3. International sales by
domestic subsidiaries by major geographic region were as follows:
Year Ended December 31,
1997 1996 1995
Asia $14,217,777 $12,340,130 $22,294,203
Europe 3,076,510 8,792,885 11,257,809
South America 10,000,648 6,889,869 3,811,091
Canada 8,618,053 3,852,792 8,105,164
Australia 4,298,554 1,760,828 1,613,920
Africa 444,313 1,131,318 3,220,047
Central America 7,461,261 1,381,030 5,955,227
Middle East 5,224,857 467,146 293,006
West Indies 2,998,406 1,692,600 2,414,219
Other 2,561,868
TOTAL $58,902,247 $38,308,598 $58,964,686
14. Finance Receivables
Finance receivables
are receivables of Astec Financial Services, Inc.
Contractual maturities of outstanding receivables at
December 31, 1997 were:
Financing
Amounts Due In Leases Notes Total
1998 $ 933,951 $ 1,789,896 $ 2,723,847
1999 75,600 392,132 467,732
2000 37,800 408,629 446,429
2001 422,805 422,805
Thereafter 906,494 906,494
1,047,351 3,919,956 4,967,307
Less unearned
income (50,553) (171,723) (222,276)
Total $ 996,798 $ 3,748,233 $ 4,745,031
Receivables may be paid prior to contractual maturity
generally by payment of a prepayment penalty. At December 31, 1997,
there were no impaired loans or leases. Recognition of income on
finance receivables
is suspended when management determines that collection of
future income is not probable. Accrual is resumed if the
receivable becomes contractually current and collection doubts
are are removed -- previously suspended income is recognized at that
time.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Astec Industries, Inc.
We have audited the accompanying consolidated balance sheets of Astec
Industries, Inc. and subsidiaries and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Astec Industries, Inc. and subsidiaries at December 31, 1997
and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Chattanooga, Tennessee
February 20, 1998
A-23
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE (II)
VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONS
CHARGES TO
BEGINNING COSTS & OTHER ENDING
DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE
December 31, 1997:
Reserves deducted from assets to which they apply:
Allowance
for
doubtful
accounts $1,266,939 $ 272,578 $ 523,507(3) $ 509,787(1) $1,553,237
accounts
Reserve for
inventory $4,873,922 $ 418,906 $ 0 $ 964,658 $4,328,170
Other
Reserves:
Product
warranty $2,364,705 $2,811,009 $ 173,900(3) $2,143,242(2) $3,206,372
ADDITIONS
CHARGES TO
BEGINNING COSTS & OTHER ENDING
DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE
December 31, 1996:
Reserves deducted from assets to which they apply:
Allowance
for doubtful
accounts $1,278,638 $ 157,183 $ 0 $ 168,882(1) $1,266,939
Reserve for
inventory $5,438,510 $1,231,828 $ 0 $1,796,416 $4,873,922
Other
Reserves:
Product
warranty $2,470,775 $3,018,990 $ 0 $3,125,060(2) $2,364,705
Schedule (II) - Page 1
A-24
ADDITIONS
CHARGES TO
BEGINNING COSTS & OTHER ENDING
DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE
December 31, 1995:
Reserves deducted from assets to which they apply:
Allowance for
doubtful
accounts $1,684,242 $ 533,136 $ 20,000(3)$ 958,740(1) $1,278,638
Reserve for
inventory $4,994,035 $1,196,876 $ 0 $ 752,401 $5,438,510
Other
Reserves:
Product
warranty $3,470,703 $3,194,240 $ 0 $4,194,168(2) $2,470,775
(1)Uncollectible accounts written off, net of recoveries.
(2)Warranty costs charged to the reserve.
(3)Represents reserve balances of subsidiaries acquired in the year.
Schedule (II) - Page 2
A-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Astec Industries, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ASTEC INDUSTRIES, INC.
BY: /s/ J. Don Brock
J. Don Brock, Chairman of the
Board and President (Principal Executive Officer)
BY: /s/ F. McKamy Hall
F. McKamy Hall, Vice President,
Corporate Controller, and Treasurer
(Principal Financial and Accounting Officer)
Date: March 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by a majority of the Board of Directors
of the Registrant on the dates indicated:
SIGNATURE TITLE DATE
/s/ J. Don Brock Chairman of the Board March 12, 1998
J. Don Brock and President
/s/ Albert E. Guth President, Astec Financial March 12, 1998
Albert E. Guth Services, Inc. and Director
/s/ W. Norman Smith President - Astec, Inc. March 12, 1998
W. Norman Smith and Director
/s/ Robert G. Stafford President - Telsmith, Inc. March 12, 1998
Robert G. Stafford and Director
/s/ E.D. Sloan Jr. Director March 12, 1998
E.D. Sloan, Jr.
/s/ William B. Sansom Director March 12, 1998
William B. Sansom
/s/ Ronald W. Dunmire Director March 12, 1998
Ronald W. Dunmire
/s/ George C. Dillon Director March 12, 1998
George C. Dillon
/s/ G.W. Jones Director March 12, 1998
G.W. Jones
/s/ Daniel K. Frierson Director March 12, 1998
Daniel K. Frierson
/s/ Robert Dressler Director March 12, 1998
Robert Dressler
Commission File No. 0-14714
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS FILED WITH ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
ASTEC INDUSTRIES, INC.
4101 Jerome Avenue
Chattanooga, Tennessee 37407
ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX TO EXHIBITS
Sequentially
Exhibit Number Description Numbered Page
Exhibit 10.103 Amended and Restated Credit Agreement dated
November 27, 1997 between the Company, Astec
Financial Services, Inc. and First Chicago
NBD.
Exhibit 10.104 Asset Purchase Agreement dated October 16,
1997 between Portec, Inc. and Astec
Industries, Inc.
Exhibit 10.105 Amendment to Asset Purchase Agreement dated
December 2, 1997 by and between Astec
Industries, Inc. and Portec, Inc.
Exhibit 10.106 Revolving Line of Credit Note dated December
2, 1997 between Kolberg-Pioneer, Inc. and
Astec Holdings, Inc.
Exhibit 10.107 Guaranty Joinder Agreement dated December,
1997 between Kolberg-Pioneer and Astec
Holdings, Inc. in favor of the First National
Bank of Chicago.
Exhibit 22 Subsidiaries of the registrant.
Exhibit 23 Consent of independent auditors.
For a list of certain Exhibits not filed with this Report that are
incorporated by reference into this Report, see Item 14(a)(3).
EXHIBIT 22
Subsidiaries of the Registrant
LIST OF SUBSIDIARIES
Jurisdiction of
Name Owned Incorporation
Astec, Inc. 100 Tennessee
Astec Financial Services, Inc. 100 Tennessee
Astec Holdings, Inc. 100 Tennessee
Astec Transportation, Inc. 100 Tennessee
CEI Enterprises, Inc. 100 Tennessee
Heatec, Inc. 100 Tennessee
Kolberg-Pioneer, Inc. 100 Tennessee
Roadtec, Inc. 100 Tennessee
Telsmith, Inc. 100 Delaware
Trencor, Inc. 100 Texas
Production Engineered
Products, Inc. 100 Nevada
Pavement Technology, Inc. 50 Georgia
EXHIBIT 23
Consent of Independent Auditors
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in
the Registration Statements (Form S-8 No. 33-14738
and 0-14714) pertaining to the Astec Industries, Inc.
1986 and 1992 Stock Option Plans of our report dated
February 20, 1998, with respect to the consolidated
financial statements and schedule of Astec
Industries, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 19, 1998