FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
xX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 19961997
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 $72,401,400$148,371,903 based upon the closing sales price
reported by the NASDAQ National Market on March 10, 1997,9, 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 10, 19979, 1998
Common Stock, par value $.20 -- 10,044,199- 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 24, 199723, 1998
ASTEC INDUSTRIES, INC.
19961997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. BusinessBusiness............................................ 1
Item 2. PropertiesProperties.......................................... 8
Item 3. Legal ProceedingsProceedings................................... 9
Item 4. Submission of Matters to a Vote of Security HoldersHolders. 9
Executive Officers of the RegistrantRegistrant.......................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder MattersMatters............................ 10
Item 6. Selected Financial DataData............................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of OperationsOperations............ 11
Item 8. Financial Statements and Supplementary DataData......... 11
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial DisclosureDisclosure............ 11
PART III
Item 10. Directors and Executive Officers of the RegistrantRegistrant.. 11
Item 11. Executive CompensationCompensation.............................. 11
Item 12. Security Ownership of Certain Beneficial Owners
and ManagementManagement................................. 12
Item 13. Certain Relationships and Related TransactionsTransactions...... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K8-K............................ 12
Appendix A
SIGNATURESA.................................................... 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 marketsfinances 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, log
loading and industrial heat transfer
equipment. The Company holds 65101 United States and 6357 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 seveneight 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) Telsmith, Inc., which manufactures aggregate
processing equipment for the production and classification of sand,
gravel, and crushed stone for road and other construction
applications; (iii)
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; (v)and (viii)
Trencor, Inc., which manufactures chain and wheel trenching equipment and
excavating equipment and log loaders;
(vi) CEI Enterprises, Inc., which manufactures heat transfer
equipment and recycled rubber blending systems for the hot-mix
asphalt industry; and (vii) Production Engineered Products, Inc.
("PEP"), which 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 in portable crushing and
screening plants serving the aggregate and industrial markets.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 CompanyCompany'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, we also began operations atthe Company became a 50% shareholder of Pavement
Technology, Inc. ("PTI"), located in Conyers, Georgia. The Company is a 50%
shareholder of PTI , which
manufactures an asphalt pavement analyzer,analyzers, vibratory compactorcompactors and packagesother
mix-design laboratory products that allowsallow our customercustomers 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 addsadded a completely new dimension to the services
and equipment we are able to provide our customers.
The Company's strategy is to become the high quality, low
costlow-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
19961997 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; (iii) hot oil heaters, asphalt heaters and other heat transfer
equipment; (iv) aggregates processing 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 1994
(In thousands)
Asphalt plants and components $117,849 $93,786 $110,321 $100,514
Aggregate processing equipment 55,362 52,739 46,586 38,823
Mobile construction equipment 49,704 37,845 29,706 30,291
Trenching and excavating equipment 26,803 23,543 21,110 25,867
Financial information in connection with the Company's international
sales is included in Note 1413 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 Pack"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, Astec, Inc. developed an improved version of the "Six Pack"Six PackTM
plant was developed, making the new "Six Pack"it considerably more portable and self-
erecting. This design will eliminateeliminated the use of cranes for disassembly or
erection. The enhanced version of the "Six Pack,"Six PackTM, known as the Turbo 400,Six
PackTM, is capable of producing 400 tons-per-hour of hot-mix
asphalt. Thisa highly portable plant which is especially useful in less
populated areas where plants must be moved from job to job.
The components in the Company'sAstec'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 theits existing Astec
products are suited for blending, vaporizing, drying and incinerating
contaminated products. As a result, Astec Inc. has developed a line of
thermal purification equipment for the remediation of petroleum
contaminated soil.
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 Buggy"TM 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 Buggy" TM 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 Buggy" TM on their jobs.
Milling Machines. Roadtec milling machines are designed to
remove old asphalt from the road surface before new asphalt mix is
applied. They are manufactured with a simplified control system, wide
conveyors, direct drives and a wide range of horsepower and cutting
capabilities to provide versatility in product application. Additional
upgrades and options were added in 1996 to enhance the products
and their capabilities.
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.
AggregatesAggregate 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 and log-loading equipment.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 thirtythirty-
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 Excavator.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 opticsoptic cable, constructing highway
drainage systems and for other applications.
Roadminers. Trencor manufactures four "Road Miner"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
RoadminerRoad MinerTM has applications in the road construction industry and in
mining and aggregatesaggregate processing operations.
Log Loaders.Material Processors. Trencor also manufactures several different
models of log loaders. Its products include mobile/truck mounted
models, as well as track mounted and stationary models, each of
which is used in harvesting and processing wood products. The
equipment is sold under the "Log Hog" name. In 1996, due to the
depressed nature of the timber industry as a whole and the resulting
price competition it created, the Company made a decision to de-
emphasize this product line and reallocate resources to strengthen
Trencor's core product lines.
Material Processor. During 1996, Trencor developed 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 19961997 took place at eightnine 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 twoa leased branch locations in San Francisco, California, and
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 3038 percent of Heatec's sales volume during 1996.1997. 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 1996,1997, approximately 238419 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, businessaggregate processing,
paving, milling, and other industry
segmentsrecycle 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. FiveIn
1997, approximately 331 participants attended seminars with up to eighty participants each are
being held in 1997 inat the newly constructed,Company's
state-of-the-art training center at Astec, Inc.center.
In addition to the seminars, the Company publishes a number of detailed technical
bulletins coveringdetailing 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 65101 United States
patents and 6357 foreign patents. There are eight47 United States and four foreign
patent applications pending.
The Company and its subsidiaries have approximately 4037 trademarks
registered in the United States, including logos for Astec, Telsmith,
Roadtec and Trencor, and the names ASTEC, TELSMITH, HEATEC, LOG HOG, ROADTEC,
TRENCOR and TRENCOR. ManyKOLBERG. Ten of these trademarks are also registered in
foreign countries, including Canada, Great Britain, Mexico, New Zealand
and Australia.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, 1996,1997, the Company and its
subsidiaries had 103171 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, 1996,1997, the Company had a backlog for delivery of
products at certain dates in the future of approximately $44,911,000.$61,387,000. At
December 31, 1995,1996, the total backlog, updated to include Kolberg-Pioneer,
Inc., was approximately $34,751,000.$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 Clark Equipment Co.; 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. Its
principal competitor isCompetitors
include Gencor/Hyway Heat Systems.Systems, Sundance, American Heating, Gentec,
and First Thermal. The Company's milling machine equipment competitors
include Ingersoll-Rand Company; CMI Corporation; Cedarapids, Inc.;
Caterpillar;Caterpillar, Inc.; and Wirtgen America, Inc. AggregatesAggregate processing
equipment competitors include the Pioneer Division of Portec,Nordberg, Inc.; Nordberg,Cedarapids, Inc.;
Powerscreen; Deister; Seco/Hewitt Robins; Eagle Iron Works; Boliden Allis, a member of the Trelleborg Group; Cedarapids, Inc.;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. Astec Financial Services competitors
areCompetitors
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.
RegulationRegulations
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 has 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 has requested that a new
representation election be held. The proceeding currently is pending beforeRecently, in response to Trencor's
appeal, the United States Court of Appeals for the Fifth Circuit.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, 1996,1997 the Company and its subsidiaries employed 1,4571,925
persons, of which 9161,435 were engaged in manufacturing operations, 138171 in
engineering, including support staff, and 403319 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 United States Court of Appeals for
the Fifth Circuit,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 Footage AcreageFootageAcreage Principal Function
Chattanooga, Tennessee 361,000 59.1 Corporate and
sub-
sidiaryTennessee subsidiary offices,
manufacturing - Astec
Chattanooga, Tennessee --- 63.0 Storage yard - Astec
Tennessee
Chattanooga, Tennessee 66,20084,200 5.0 Offices,
manufact-
uringTennessee manufacturing -
Heatec
Chattanooga, Tennessee 135,000 15.1 Offices,
manufact-
uringTennessee manufacturing -
Roadtec
Chattanooga, Tennessee 1,820 --- Offices leased for
Tennessee Astec Financial
Services
Inc.
North Aurora, Illinois 16,700 3.5 Roadtec and Trencor
Illinois (sales and service
office)
San Francisco,
California 550 1.0 Leased sales and
service office -
Telsmith
Mequon, Wisconsin 203,000 30.0 Offices and
manufact-
uringmanufacturing -
Telsmith
Walnut, Illinois 28,00028,770 3.0 Leased offices and
manufacturing - PEP
Rossville, Georgia 40,500 2.6 Manufacturing - Astec
Grapevine, Texas 175,513 51.67 Offices,
manufact-
uringmanufacturing -
Trencor
Walpole,
Massachusetts 1,800 --- Leased sales and
Massachusetts service office -
Telsmith
Odessa, Texas 4,072 0.8.8 Sales office and
parts warehouse -
Trencor
Inman, South Carolina 13,600 8.0 Leased until
Carolina September 30, 2000
with option to buy
(office and warehouse
of former Soil
Purification of
Carolina, Inc.)
Houston, Texas 120 --- Leased sales office -
Heatec
Albuquerque, New Mexico 110,700 14.0 Offices and
manufact-
uringMexico 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 directorDirector 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 58.59.
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 44.45.
F. McKamy Hall, a Certified Public Accountant, hasbecame 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-FinancePresident 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 54.55.
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 57.58.
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.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 5859.
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 47.48.
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 55.56.
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 52.53.
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 57.58.
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 5/10-5/8 9 1/9-1/8
2nd Quarter 11 1/11-1/8 8 1/8-1/4
3rd Quarter 9 1/9-1/8 8 1/8-1/8
4th Quarter 9 3/9-3/4 8-3/8 3/8
Price Per Share
1995 High Low
1st Quarter 14 1/4 11
2nd Quarter 13 1/8 10 7/8
3rd Quarter 11 3/4 9 7/8
4th Quarter 12 1/4 9 3/4
The number of holders of record of the Company's Common Stock as of March
10, 19979, 1998 was 696.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 24, 1997,23, 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 24, 199723, 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 24, 199723, 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. As of December 31, 1996,The loan was repaid to
Dr. Brock on January 6, 1997, along with interest of $73,135 has been
accrued with respect to this loan.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, 19961997 and 1995.1996.
. Consolidated Statements of Income for the Years Ended December
31, 1997, 1996 1995 and 1994.1995.
. Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 1995 and 1994.1995.
. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 1995 and 1994.1995.
. 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:
. ReportConsent of Independent Auditors.
. Schedule VIIIII - 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)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)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).
10.29 Lease Agreement, dated as of
August 28, 1989, between Telsmith,
Inc., and Pine Hill Developers
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1989, File No. 0-14714).
10.57 License Agreement, dated July 2,
1992, between Telsmith, Inc. and
Gerlach Industries (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1992, 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)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-
EuropaAstec-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)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).
10.100 Demand note dated March 18, 1996
between the Company and the
Company's Chief Executive Officer,
Dr. J. Don Brock.
10.101 Loan Agreement dated December 5, 1996 between Astec
Financial Services, Inc. and The CIT Group/Equipment
Financing, Inc. ("CIT")(_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.
11 Statement Regarding ComputationFinance (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 Per Share Earnings.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) No reportsA report on Form 8-K werewas filed in the fourth quarter.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*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 DataData............................. A-1
Management's Discussion and Analysis of Financial Condition and Results
of OperationsOperations.................................................... A-2
Consolidated Balance Sheets at December 31, 19961997 and 19951996........ A-6
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 1995 and 19941995............................................... A-7
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997,
1996 1995 and 19941995............................................... A-8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 1995 and 19941995......................................... A-9
Notes to Consolidated Financial StatementsStatements....................... A-11
Report of Independent Auditors A-24Auditors................................... A-23
Schedule VIIIII - Valuation and Qualifying Accounts A-25
ASTEC INDUSTRIES, INC.
1996 ANNUAL REPORT
Astec Industries, Inc., through its seven manufacturing
subsidiaries, designs, engineers, manufactures and markets
equipment and components used in road building and various
other 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 equipment,
environmental remediation equipment, log handling equipment
and industrial heat transfer equipment.
The Company has been responsible for many technological and
engineering innovations in the road building industry and
presently holds 65 United States and 63 foreign patents and has
eight domestic and four foreign patents pending. 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,
which is an integral part of the Company's business.
The Company's eight subsidiaries are: (i) Astec, Inc., which
manufactures a line of hot mix asphalt plants, soil purification
and environmental remediation equipment and related
components; (ii) Telsmith, Inc., which manufactures aggregate
processing equipment for the production and classification of
sand, gravel and crushed stone for road and other construction
applications; (iii) 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;
(iv) CEI Enterprises, Inc., which manufactures heating
equipment, mixing equipment, agitating tanks and storage tanks
used primarily in the asphalt paving industry; (v) Roadtec, Inc.,
which manufactures reclaiming equipment used to recycle
asphalt and concrete, asphalt paving equipment and material
transfer vehicles; (vi) Trencor, Inc., which manufactures chain
and wheel trenching equipment, excavating equipment, and
logging equipment; (vii) Production Engineered Products, Inc.,
which designs, manufactures, and markets high-frequency
vibrating screens for sand and gravel and asphalt operations;
and (viii) Astec Financial Services, Inc., which provides a wide
range of financial services for financing the purchase of Astec
products for Astec's customers.
The principal purchasers of the Company's products for road
building and related construction activities include highway and
heavy equipment contractors, utility contractors, pipeline
contractors, open mine operators, quarry operators and foreign
and domestic governmental agencies. International sales
represented approximately 17.3% of net sales for 1996 and
included sales in Canada, Mexico, Europe, the Middle East,
Asia, Africa, Australia, South America and the West Indies.
TABLE OF CONTENTS
TO OUR SHAREHOLDERS
FINANCIAL HIGHLIGHTS
CORPORATE OVERVIEW
FINANCIAL STATEMENTS
Selected Consolidated Financial Data
Quarterly Financial Highlights
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Corporate Information
Total sales for 1996 were $221,413,000 compared to
$242,601,000 during 1995. Income before income taxes for the
year ended December 31, 1996 was $7,018,000 compared to
$6,141,000 in 1995. Net income for the year ended December
31, 1996 was $4,345,000, or $0.43 per share, compared to
$4,560,000, or $0.45 per share for 1995.
We are not satisfied with the level of our profits during 1996,
which were adversely affected by unusual events at our Trencor,
Inc. subsidiary and a significant downturn in international sales
of hot-mix asphalt plants and components at our Astec, Inc.
subsidiary.
In an effort to diversify Trencor's product line, we acquired the
Log Hog log loader line in early 1994 and produced a
significant amount of inventory in anticipation of continued
high demand in the timber industry. Unfortunately, a
significant and unexpected downturn in the paper industry,
which produced a similar decline in the timber market,
substantially reduced the demand for the log loaders. This
market downturn increased price competition to the point that in
order to sell units we were experiencing unacceptable losses.
Consequently, in December we decided it was in the best
interest of the Company to de-emphasize this product line,
reduce the investment in inventory, and reallocate these
resources for further expansion of Trencor's core trencher
business. As a result, the appropriate writedowns on inventory
were taken.
We also decided to terminate Trencor's research and
development of a large mining machine for use in rock quarries
and surface mines. After two years of experimentation with a
prototype, we had doubts about the long-range cost
effectiveness of the machine, so we felt that the project should
be discontinued. This decision allowed us to redirect our
engineering resources to the trencher line to which three new
models of trenchers were added in 1996.
In 1996, Astec, Inc. experienced an 11.3% increase in domestic
sales compared to 1995, but these gains were not sufficient to
offset a decrease of approximately $25 million in the cyclical
and often unpredictable international market. Also during 1996,
Astec continued to be the industry's innovator in plant
technology as it completed the development of a new Turbo 400
ton per hour "Six Pack" plant, which we believe is the most
portable high-production asphalt plant ever built.
While 1996 was a disappointing year in terms of earnings, it
was, nevertheless, a year of successes and great progress. For
example, the Telsmith operation realized many of the
efficiencies we had hoped to achieve with our capital
investments in state-of-the-art machine tools and expanded
facilities. In December, we completed the acquisition of
Production Engineered Products, Inc. ("PEP") in Walnut,
Illinois. PEP manufactures and markets patented high-
frequency screening units for sand and gravel and asphalt
operations. PEP will be operated in conjunction with Telsmith.
We believe the high-production capacity of the PEP screens will
enhance sales of Telsmith's portable crushing plants and that
Telsmith's experienced sales force will significantly increase
sales in the PEP product lines.
Roadtec, Inc. continued to be an innovator in the paver and
milling machine markets and introduced a new model of paver
and a new model of our patented "Shuttle Buggy"TM which is
a market leader in the material transfer vehicle market.
Heatec, Inc. also had a good year. Even though sales of Astec,
Inc., Heatec's largest customer, declined in 1996, Heatec's sales
increased and it is currently adding to its manufacturing facility.
We also acquired a new facility for CEI, Inc. These additions
should position Heatec and CEI for continuing growth,
particularly in the western United States.
In a further effort to enhance the strength of our core businesses,
during 1996 we formed a new subsidiary, Astec Financial
Services, Inc., which will offer our customers access to capital
financing through a lender that better understands the equipment
being purchased and the road construction industry in general.
Albert E. Guth, former Senior Vice President and Chief
Financial Officer of Astec Industries, Inc., is President of this
new subsidiary.
In 1996, we also began operations at Pavement Technology,
Inc. located in Conyers, Georgia. Astec Industries, Inc. is a
50% shareholder of this company, which manufactures an
asphalt pavement analyzer and a vibratory compactor and
packages mix-design laboratory products. These products 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 adds a completely new dimension to the services
and equipment we are able to provide our customers.
We never take our shareholders for granted, and we deeply
appreciate your patience with us over the last two years. Quite
candidly, we are not happy with the profits we have earned over
the past two years, and we have taken a hard look at our
operations in order to make the changes necessary to maximize
our profit potential in the future. We believe we have done that
and that we are strategically positioned to reap the benefits. Our
Company has the largest share of the hot-mix asphalt plant,
asphalt heater, and large custom trencher markets. We are
among the leaders in rock crushers, milling machines, and
asphalt pavers, and we believe that our technology, much of
which is patented, is the most innovative and reliable in the
world today.
Astec Industries, Inc. went public approximately ten years ago
in June 1986. While the amount and consistency of our profits
has not been satisfactory to us, we are proud of the overall
performance of the Company which we intend to enhance. For
example, on September 30, 1986, our net worth was
$17,803,000. By December 31, 1996 our net worth had risen to
$99,393,000. On a per-share basis, the net worth of the
Company was $3.04 on September 30, 1986, and had increased
to $9.84 per share by December 31, 1996, representing a
compounded growth rate of net worth of approximately 12.1%
per year.
Our mission in 1997 is the expansion and enhancement of our
core businesses and improvement of the return on our
shareholders' investments. We believe we will fulfill that
mission and will set a new standard of performance that will
continue into the future. We deeply appreciate the trust,
confidence, and support of our customers, employees, and
especially our stockholders.
Sincerely,
/s/ J. Don Brock
J. Don Brock, Ph.D., P.E.
Chairman of the Board and Chief Executive Officer
FINANCIAL HIGHLIGHTS
(in thousands, except as noted *)
Percent
Increase
1996 1995 (Decrease)
Operating Results
Net sales $221,413 $242,601 (8.7)%
Patent suit damages and
expenses 264 699 (62.2)%
Loss on abandonment
of foreign subsidiary 7,037
Pre-tax income 7,018 6,141 14.3%
Net income 4,345 4,560 (4.7)%
Financial Position
Working capital $69,884 $58,015 20.5%
Shareholders' equity 99,393 95,901 3.6%
Per Common Share
Net income* $0.43 $0.45 (4.4)%
Book value per
common share at
year-end* 9.84 9.50 3.6%
Other Data
Weighted average
number of common
and common equivalent
shares outstanding 10,047 10,072
Common shareholders -
approximate* 700 750
Employees* 1,457 1,402
CORPORATE OVERVIEW
Astec Industries, Inc. and its operating subsidiaries share a
commitment of providing quality equipment for rebuilding
infrastructure, both domestically and internationally. From rock
to road, each company provides a critical function in the road
building process. Using the latest design and manufacturing
technology, these companies provide the most modern and
innovative equipment available today.
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 consists of heating and
storage equipment (manufactured by Heatec or CEI) for liquid
asphalt, cold feed bins for storing aggregates, a drum mixer, 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 Pack" 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, Astec, Inc. developed an improved version of the "Six
Pack" plant, making the new "Six Pack" considerably more
portable and self-erecting. This design will eliminate the use of
cranes for disassembly or re-erection. The enhanced version of
the "Six Pack," known as the Turbo 400, is capable of
producing 400 tons per hour of hot mix asphalt. This highly
portable plant is especially useful in less populated areas where
plants must be moved from job to job.
The components in the company'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.
Many of the existing Astec products are suited for blending,
vaporizing, drying and incinerating contaminated products. As a
result, Astec, Inc. has developed a line of thermal purification
equipment for the remediation of petroleum contaminated soil.
Mobile Construction Equipment
Roadtec 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.
Material Transfer Vehicles. The "Shuttle Buggy" 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 the asphalt
mix. By permitting continuous paving, the "Shuttle Buggy"
allows the asphalt paver to produce a smoother road surface.
Milling Machines. Roadtec milling machines are designed to
remove old asphalt from the road surface before new hot mix
asphalt is applied. They are manufactured with a simplified
control system, wide conveyors, direct drives and a wide range
of horsepower and cutting capabilities to provide versatility in
product application.
Heat Transfer Equipment
Heatec 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 ("CEI") designs,
manufactures and markets heating equipment and storage tanks
primarily for the asphalt paving industry, and markets
equipment under the CEI name.
Asphalt Heating Equipment. Heatec manufactures direct-fired
and helical coil heaters for the asphalt industry, while CEI's
heating equipment is hot oil, direct fired or electric. CEI and
Heatec make a wide range of models that are both portable and
stationary in capacities up to 35,000 gallons. Heatec and CEI
both manufacture rubber blending and mixing systems.
Industrial Heating Equipment. Heatec also 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 BTUs per hour.
Aggregates 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 equipment, are employed in
Telsmith 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 our
products. This designation is a recognition of the quality of our
products and services in the worldwide marketplace.
Production Engineered Products, Inc. ("PEP") designs,
manufactures, and markets high-frequency vibrating screens for
sand and gravel and asphalt operations. In addition, PEP
incorporates the high-frequency screens into portable crushing
and screening plants serving the aggregate and industrial
markets.
Trenching and Excavating Equipment
Trencor designs, manufactures and markets chain and wheel
trenching equipment, canal excavators, rock saws, roadminers
and log handling equipment.
Chain Trenchers. Trencor chain trenching machines utilize a
heavy duty chain (equipped with cutting teeth attached to steel
plates) wrapped around a long movable boom. These machines,
with weights up to 400,000 pounds, are capable of cutting a
trench up to eight feet wide and thirty feet deep. 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.
Material Processors. During 1996, Trencor developed a
machine which includes a crusher that operates independent of
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.
Rock Saws. Trencor manufactures a rock saw which is utilized
for laying water and gas lines, fiber optics cable, constructing
highway drainage systems and for other applications.
Roadminers. The "Roadminer" is a 400,000 pound unit
manufactured by Trencor 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 Roadminer has applications in the road
construction industry and in mining and aggregates processing
operations.
Log Loaders. Trencor also manufactures several different
models of log loaders. Its products include mobile/truck
mounted models, as well as track mounted and stationary
models, each of which is used in harvesting and processing
wood products. The equipment is sold under the Log Hog name.
Asphalt, Mix Design, and Quality Control Testing Equipment
In 1996, Pavement Technology, Inc. was formed and is located
in Conyers, Georgia. Astec Industries, Inc. is a 50%
shareholder of this company, which manufactures an asphalt
pavement analyzer, vibratory compactor and packages 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 adds a
completely new dimension to the services and equipment we are
able to provide our customers.
Captive Finance Business
Astec Financial Services, Inc. was formed in June 1996 as a
wholly-owned subsidiary of Astec Industries, Inc. to provide a
wide range of financing products for the Company's equipment.
AFS, a captive finance company, is dedicated to working
exclusively with all of the Company's subsidiaries and their
customers in arranging financing for the Company's equipment.
AFS has provided loans, operating leases, floor plans for
dealers, fleet rental plans and has developed financing plans to
meet the needs of the industry.Accounts................ A-24
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except as noted *)
1997 1996 1995 1994 1993 1992
Consolidated Income Statement Data
Net sales $221,413$265,365 $ 221,413 $242,601 $213,806 $172,801 $149,133
Selling, general
and administrative
expenses 36,125 35,082 34,326 31,142 28,624
23,969
Research and
development 3,707 5,868 5,128 3,166 2,923 2,580
Patent suit damages and
expenses (net recoveries
and accrual adjustments) 264 699 (14,947) 375
567
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 24,661 8,051 2,566 27,236 9,974
7,058
Interest expense 2,398 1,656 2,125 713 1,788
3,241
Net income 13,809 4,345 4,560 23,436 9,338
6,014
IncomeEarnings per
common share*(1)(2)
Basic 1.45 .43 .45 2.38 1.07
.82Diluted 1.42 .43 .45 2.35 1.06
Consolidated Balance Sheet Data
Working capital $ 69,884 $ 58,015$71,459 $69,884 $58,015 $ 53,000 $40,767 $33,641$ 40,767
Total assets 192,243 167,853 154,356 155,964 102,967
87,885
Total short-term debt 500 2,051 774 8,573 10 3,103
Long-term debt, less
current maturities 35,230 30,497 17,150 16,155
22,660
Shareholders' equity 105,612 99,393 95,901 90,373 64,105 27,631
Book value per common
share at year-end*(1) 11.25 9.84 9.50 9.04 6.54 3.78
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$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 (1,747)
Net income(l,747)
Earnings per common
share*(2)
Basic .28 .22 .10 (.17)
1995
Net sales $ 57,544 $ 70,368 $ 65,015 $ 49,674
Gross profit 13,637 14,011 13,298 8,811
Net income 2,516 4,730 2,768 (5,454)
Net income per
common share* .25 .47 .27 (.54)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
1995 High 14-1/4 13-1/8 11-3/4 12-1/4
1995 Low 11 10-7/8 9-7/8 9-3/4
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 700.600.
(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-EuropaAstec-
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 which will be discontinued in 1997.machine.
Interest expense for 1996 decreased to .8% of-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, Inc., 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 the Company'stheCompany'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 is
reviewinghas reviewed its
international sales efforts and developinghas located a plan to
add agentssalesman in
Singapore
Malaysia, and Indonesia, as well as
increase its participation in international trade shows in 1997.to develop that regional market. The Company will also holdheld a
service school for Spanish-
speakingSpanish-speaking customers in 1997.
Results of Operations
1995 vs. 1994
Net income for 1995 was $4,560,000 or $.45 per share
compared to net income of $23,436,000 or $2.38 per share in
1994. Net income for 1994 included $14,947,000 in non-
recurring gains as a result of final judgments entered in
connection with the CMI litigation. The decline in 1995 also
reflects a $7,037,000 loss resulting from the abandonment of
Astec-Europa, as well as continuing losses from foreign
operations during 1995. Income before income taxes was
$6,141,000 in 1995 compared to $25,737,000 in 1994.
This is shown in the following table:
Year Ended December 31,
1995 1994
Income before income taxes $ 6,141,000 $ 25,737,000
Patent suit recoveries - CMI litigation (14,947,000)
Gain on sale of Wibau-Astec (2,449,000)
Loss on abandonment of Astec-Europa 7,037,000
Loss from foreign subsidiaries 3,598,000 5,366,000
Adjusted pre-tax income from domestic
operations 14,327,000 16,156,000
Income taxes for domestic operations (5,487,000) (916,000)
Net income from domestic operations $ 8,840,000 $ 15,240,000
The decrease in adjusted pre-tax income for domestic operations
of $1,829,000 in 1995 as compared to 1994 was the result of
increased gross profit margin due to increased sales of domestic
subsidiaries which were more than offset by increased interest
and research and development expenses, and a decrease in other
income from domestic subsidiaries.
Net sales for 1995 were $242,601,000, an increase of
$28,795,000 or approximately 13.5% compared to 1994. Of
this increase, $14,615,000 is attributable to the acquisition of
Gibat Ohl and the acquisition of the remaining 50% interest in
Wibau-Astec. CEI, which was acquired in 1995, accounted for
$3,543,000 in sales. Excluding the increase from the German
operations and the CEI acquisition, sales increased $10,637,000
or 5.2%. International sales by domestic subsidiaries were
24.3% of total sales in both 1995 and 1994. The net increase in
sales reflected a strong sales increase in asphalt plants, heaters
and rock crushing equipment, but reduced sales in mobile
equipment and trenchers.
The gross profit margin for 1995 was 20.5% compared to 22.5%
for 1994. This decrease was primarily due to lower gross profit
margins from our foreign operations which had gross profit
margins of 3.4% in 1995 compared to 11.4% in 1994.
Domestic operations gross profit margin for 1995 was 22.5%
compared to 23.0% for 1994.
In 1995, selling, general, and administrative expenses decreased
to 14.1% of net sales from 14.6% in 1994.
The Gencor patent litigation accounted for $699,000 of legal
fees which were included in 1995 patent damages and expenses.
Research and development expenses increased from 1.5% of net
sales in 1994 to 2.1% in 1995, primarily due to foreign
operations.
As noted above, income from operations was significantly
impacted by the losses of Astec-Europa in 1995. The total pre-
tax loss, including the cost of abandonment, was approximately
$9,945,000. Astec-Europa incurred pre-tax operating losses in
1995 of approximately $2,908,000. Due to Astec-Europa's
poor operating results and its negative net worth at December
31, 1995, the Company declined to contribute additional capital
to Astec-Europa, and elected instead to abandon the subsidiary
in accordance with German law. Astec-Europa management
filed a request for bankruptcy in Germany on February 9, 1996.
Consequently, the Company was not required to fund Astec-
Europa's liabilities except for certain liabilities previously
guaranteed by the Company. The loss on abandonment of
approximately $7,037,000 included the liabilities of Astec-
Europa that were guaranteed by the Company and the remainder
of the original investment recorded on the books of the
Company.
Interest expense for 1995 increased to .9% of net sales from .3%
in 1994. The increase resulted from increased inventories in
anticipation of sales which did not materialize and investment in
capital expenditures of $15,160,000.
Other income increased by approximately $722,000 or 36.7% in
1995, resulting primarily from Astec-Europa (formerly Gibat
Ohl) receiving $1,430,000 to settle various claims related to
Astec-Europa's business operations. The gain on sale of foreign
subsidiary of $2,449,000 in 1995 was due to the sale of Wibau-
Astec as described in Note 2 to Consolidated Financial
Statements.
Income tax expense for 1995 was $1,580,000, or approximately
25.7% of pre-tax income compared to $2,300,000, or
approximately 8.9% of pre-tax income in 1994. The reason for
the variance from the normal corporate tax rate in 1994 was the
utilization of net operating loss carryforwards and establishment
of a deferred tax benefit relative to net deductible temporary
differences which could be recovered against future taxes or
taxes previously paid. The variance in 1995 was primarily
attributed to foreign operations. See Note 9 to Consolidated
Financial Statements. Due to the utilization of the majority of
its credit carryforwards, the Company's tax rate for 1996 and
subsequent years will approximate the normal corporate rate.
The backlog at December 31, 1995 was $34,751,000 compared
to $50,465,000 at December 31, 1994 which represented a
31.1% decrease. The Company's backlog for 1994 was
unusually large primarily due to the optimism of many of our
major customers about the strength of the economy and
increased demand resulting from the renewed emphasis to
rebuild infrastructure.
Liquidity and Capital Resources
Working capital increased to
$71,459,000 at December 31, 1997 from $69,884,000 at
December 31, 1996 from $58,015,0001996. The Company's debt-
to-equity ratio was .34 to 1.00 at December 31, 1995. The Company's
debt-to-equity ratio was1997 and .33
to 1.00 at December 31, 1996 and .19 to 1.00 at
December 31, 1995.1996. The Company's principal
source of liquidity in 19961997 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 and
$774,000 at December 31, 1995.1996. 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, 19961996.
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 $17,150,000 at December 31, 1995.
The majority of the increase in long-term debt related to
increased usage of the Company's revolving line of credit.
Contributing to the significant increase was payment of
$3,049,000 for liabilities guaranteed by the Company related to
the 1995 abandonment of Astec-Europa operations, capital expenditures
of $8,708,000, and an increase in finance
receivables of $5,226,000 related to the operations of Astec
Financial Services, Inc., which began in June 1996.$9,044,000, offset by funds generated from
operations.
Capital expenditures of $8,708,000$9,044,000, excluding those for
equipment leased to others, were made in 1996 as1997 compared to
capital expenditures in 19951996 of $15,160,000.$8,708,000.
The Company has an unsecured revolving credit loan
agreement
with First Chicago NBD. The line of credit is $22,000,000.$70,000,000.
This credit facility expires June 30, 1999.November 22, 2002. At
December 31, 1996, $13,322,0001997, $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 current,net worth,
leverage and interest expense, and fixed chargecoverage 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, 1996.
In addition to1997. As part of the Company's $22,000,000$70,000,000 revolving
credit facility, Astec Financial Services, Inc. establishedhas
a $15,000,000segregated portion of up to a $30,000,000 line of
credit with The CIT Group/Equipment
Financing.credit. At December 31, 1996,1997, Astec Financial Services Inc. had
utilized $2,508,000$680,000 of this line. Advances under this
line are limited to "Eligible Receivables" of Astec
Financial Services Inc. as defined in the credit agreement.
Principal covenants under the
CIT Group credit agreement are substantially the same as those
of the First Chicago credit facility with the exception of a
minimum net worth requirement for Astec Financial Services,
Inc. The Company and Astec Financial Services Inc. were in
compliance with all financial covenants related to the CIT line
of credit at December 31, 1996.1997.
In 1996,1997, year-end trade receivables rose to $33,946,000 from
$30,040,000 from
$27,075,000at 31, 1996. This increase of $3,906,000
reflects
the business combination which accounted for $4,913,000 of
receivables at December 31, 1995 with slower receivable
turnaround being the primary reason for the increase.1997. Inventory levels
increased
$881,000 during 1996 with$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 in
ending inventory of asphalt plants and aggregate processing
products offset by decreased ending inventory of asphalt paving
equipment.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,
from environmental
consultants,management believes the Company has no material reserve
requirements for potential environmental liabilities.
Forward Looking StatmentsGeneral
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
foward-lookingforward-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 habor"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,activities; and the effects of competition in the
design, engineering and manufacturing of equipment and components used in
road building and various other consturctionconstruction 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 1995
Assets
Current assets:
Cash and cash equivalents Note 1 $2,926,294 $ 3,382,484 $ 3,133,070
Trade receivables less allowance for
doubtful accounts of $1,342,000 in 1997
and $1,267,000 in 1996 and $1,279,000 in 199533,945,574 30,039,813 27,075,401
Finance receivables Note15Note1 44,074,230 3,371,513
Notes and other receivables 751,235 1,191,223 596,134
Inventories Note 1, 4 69,395,351 56,764,085 55,882,679
Prepaid expenses 1,985,197 1,967,999 894,593
Refundable income taxes 2,071,063 2,341,849
Deferred tax asset Note 9 5,536,666 5,534,950 6,667,052
Other current assets 7,550 4,169 5,214
Total current assets 118,622,097 104,327,299 96,595,992
Property and equipment, net Note 5 61,605,153 54,317,352 51,709,033
Other assets:
Goodwill 8,226,831 5,285,051 4,066,152
Finance receivables Note 1514 670,801 1,854,443
Notes receivable 1,261,985 320,000 572,829
Deferred tax asset Note 9 711,987 442,458
Other 1,144,245 1,306,113 1,412,326
Total other assets 12,015,849 9,208,065
6,051,307
Total $ 167,852,716 $ 154,356,332$192,243,099 $167,852,716
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term
debt Note 7 $ 2,051,003500,000 $ 774,2742,051,003
Accounts payable 21,421,882 14,613,782 15,877,964
Customer deposits 6,464,842 2,150,852 4,989,557
Accrued product warranty 3,206,372 2,364,705
2,470,775Accrued 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 2,783,246
Amounts payable in business
combination Note 2 2,405,145
Liabilities related to abandoned
subsidiary Note 3 360,760 593,886 3,643,077
Other accrued liabilities 7,418,242 8,041,7195,832,716 3,915,162
Total current liabilities 47,163,519 34,443,277 38,580,612
Long-term debt, less
current maturities Note 7 35,230,000 30,496,734 17,150,000
Deferred tax liability Note 9 3,216,948 2,838,024 2,351,283
Deferred retirement costs Note 8 320,314 544,911
373,310
Other 700,155 136,842
Total liabilities 86,630,936 68,459,788 58,455,205
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 and
10,092,199 in 19952,022,240 2,020,240
2,018,440
Additional paid-in-capitalpaid-in capital 52,043,830 51,980,855 51,940,580
Retained earnings 60,096,397 46,286,983 41,942,107
Minimum pension liability adjustment (127,150)
114,162,467 100,160,928 95,901,127
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
95,901,127
Total $ 167,852,716 $ 154,356,332$192,243,099 $167,852,716
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
1994
Net sales $ 221,412,796 $ 242,601,351 $ 213,806,411$265,365,312 $221,412,796 $242,601,351
Cost of sales 200,872,181 172,147,913 192,844,160
165,709,245
Gross profit 64,493,131 49,264,883 49,757,191 48,097,166
Selling, general and
administrativeadministative expenses 36,124,728 35,081,800 34,325,974 31,142,335
Research and development
expenses 3,706,909 5,867,909 5,128,495 3,165,795
Patent suit damages and expenses (net recoveries
and accrual adjustments) Note 10 263,978 699,222 (14,947,498)
Restructuring costs Note 12 1,500,469
Loss on abandonment of foreign
subsidiary Note 3 7,037,105
Income from operations 24,661,494 8,051,196 2,566,395 27,236,065
Other income (expense):
Interest expense (2,397,902) (1,656,466) (2,125,261)
(712,853)
Interest income 259,388 386,646 565,724 426,489
Other income - net 347,253 247,434 2,685,161 1,963,633
Gain on sale of foreign
subsidiary Note 2 2,448,551
Equity in lossincome (loss) of joint
venture Note 21 96,158 (10,652) (3,176,834)
Income before income taxes 22,966,391 7,018,158 6,140,570 25,736,500
Income taxes Note 9 9,156,977 2,673,282 1,580,210 2,300,126
Net income $ 13,809,414 $ 4,344,876 $ 4,560,360 $ 23,436,374$4,560,360
Earnings per Common and
Common Equivalent Share:Share
Net incomeincome:
Basic $ 1.45 $ .43 $ .45
$ 2.38Diluted 1.42 .43 .45
Weighted average number of
common and common
equivalent shares outstanding Note 11:
Basic 9,555,940 10,047,442 10,071,930 9,843,98010,071,931
Diluted 9,726,096 10,158,658 10,195,917
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995, and 1994
Foreign
Common Stock
Additional Currency Pension Common
Note 1Common Stock Paid-in Translation Retained Liability Stock in
Shares Note 1 Amount Capital Adjustment Earnings Adjustment in Treasury
Balance
December 31, 1993 9,795,402 $1,959,080 $48,200,446 $13,945,373
Issuance of common
stock 206,429 41,286 2,700,462
Change during year $ 89,975
Net income 23,436,374
Balance
December 31, 1994 10,001,831 2,000,366 50,900,908 89,975 37,381,747$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 $(768,000)$ (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 $0 $46,286,983 $(127,150) $(768,000)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)
[FN]
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
Cash Flows From
Operating Activities
Net income $ 4,344,876 $ 4,560,360 $ 23,436,374
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 5,812,723 5,697,862 3,941,871
Provision for doubtful accounts 157,183 533,136 362,089
Provision for inventory reserves 1,231,828 1,196,876 3,621,218
Provision for warranty 3,018,990 3,194,240 2,616,565
Provision for patent damages
(net recoveries and
accrual adjustments) (13,250,048)
Foreign currency translation
adjustment (74,519) 89,975
(Gain) loss on sale of fixed assets 59,118 (263,195) 322,587
(Gain) on sale of finance
receivables (67,492)
Equity in loss of joint venture 10,652 3,176,834
Gain on sale of foreign subsidiary (2,448,551)
Loss on abandonment of foreign
subsidiary 7,037,105
(Increase) decrease in:
Receivables (3,855,177) (2,551,526) (7,660,990)
Inventories (1,353,245) (5,921,052) (3,537,955)
Prepaid expenses (991,145) (2,071,266) (803,177)
Patent damage escrow funds 12,309,420
Deferred tax asset 1,349,773 413,524 (4,156,695)
Other assets 196,607 (993,322) (1,916,921)
Increase (decrease) in:
Accounts payable (1,383,256) 6,062,733 2,138,449
Customer deposits (2,838,705) (1,211,925) (1,738,643)
Accrued product warranty (3,127,860) (3,433,374) (2,256,128)
Income taxes payable 270,786 (1,117,518) 400,355
Other accrued liabilities (3,723,984) (2,373,657) (947,201)
Total adjustments (5,233,204) 1,675,571 (7,288,395)
Net cash (used) provided by
operating activities (888,328) 6,235,931 16,147,979
Cash Flows From Investing Activities
Proceeds from sale of property
and equipment - net 1,202,335 953,766 307,099
Expenditures for property
and equipment (8,707,987) (15,159,921) (21,886,011)
Additions to finance receivables (8,333,293)
Collections of finance receivables 536,089
Proceeds from sale of finance
receivables 2,638,739
Cash received in connection
with sale of subsidiary (36,687)
Cash balance abandoned
with subsidiary (203,643)
Additions to notes receivable (60,000)
Repayments on notes receivable 901,233 95,256 600,499
Investment in joint venture (100,000) (635,700)
Cash payments in connection
with business combination, net
of cash acquired 164,794 (834,591) 1,447,965
Net cash (used by) investing
activities (11,758,090) (15,185,820) (20,166,148)
Cash Flows From Financing Activities
Proceeds from industrial bonds $ 14,000,000
Purchase of treasury shares $ (768,000)
Proceeds from issuance of
common stock 42,075 $ 9,750 34,750
Net borrowings under
revolving credit loan 11,680,000 1,495,000 2,655,000
Principal repayments of industrial
bonds, loans and notes payable (1,027,023) (1,523,213) (5,658,355)
Proceeds from debt and notes payable 2,968,780 1,629,978
Net cash provided by
financing activities 12,895,832 1,611,515 11,031,395
Increase (decrease) in cash and
cash equivalents 249,414 (7,338,374) 7,013,226
Cash and cash equivalents,
beginning of period 3,133,070 10,471,444 3,458,218
Cash and cash equivalents
end of period $ 3,382,484 $ 3,133,070 $ 10,471,444
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 1,572,642 $ 1,800,598 $ 595,767
Income taxes $ 3,466,100 $ 5,088,465 $ 282,709
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 $ 2,706,996
Capital stock (17,467) (39,871)
Additional paid-in-capitalCash 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) (2,667,125)
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 1995, and 19941995
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, 1996,1997 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, in 1995 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 considers allconsidersall 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(40 years) and equipment - 3(3 to 10
years.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 twenty20 years. Additions to
goodwill reflect the purchase of assets and liabilities by
Kolberg-Pioneer, Inc. in 1996 reflect1997 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 - IncomeThe Company accounts for income taxes have been provided using the
liability method in accordance with SFASStatement of
Financial Accounting Standards ("SFAS") No. 109, "AccountingAccounting for
Income Taxes".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 recognizedrecognizes
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 $2,199,000, and
$1,504,000$2,199,000 in advertising costs during 1997, 1996 1995, and 1994,1995,
respectively.
Foreign Currency Translation - The financial statements of foreign
subsidiaries have been translated into U.S. Dollars in
accordance with SFAS No. 52, "ForeignForeign 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. TheTranslation 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 granted in accordance with APB Opinion No. 25,
"AccountingAccounting for Stock Issued to Employees"Employees and, accordingly,
recognizes no compensation expense for the stock option grants.
The Company adopted SFAS No. 123, "AccountingAccounting for Stock-based
Compensation," in 1996 and is utilizing the disclosure only option
permitted by the statement. See Note 11.
Earnings Per Share - PrimaryIn 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 are based on the weighted average number of commonwith
basic and common equivalent shares outstanding and include the
potentiallydiluted 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 exercisepreviously 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 $4,560,360
Denominator:
Denominator for basic
earnings per share 9,555,940 10,047,442 10,071,931
Effect of dilutive securities:
Employee stock options in
years where there are earnings. Fully170,156 111,216 123,986
Denominator for diluted
earnings per share are not presented for 1996, 1995, or 1994 since the dilution is
not material.$ 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,
"AccountingAccounting for the Impairment of Long-LivedLong-lived Assets and for Long-LivedLong-lived
Assets to Bebe 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 1995 and 19941996 have been reclassified
to conform with the 19961997 presentation.
2. BusinessAccounting 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 areCEI-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.
Effective July 1, 1993,A summary of the Company entered into
a joint venture with Putzmeister-Werk Maschinenfabrik GmbH
(""Putzmeister") to form a new German limited-liability
company, Wibau-Astec Maschinenfabrik GmbH ("Wibau-
Astec"). Wibau-Astec designed, engineered, manufacturednet assets acquired is as follows:
K-P PEP CEI
Current assets $16,530,866 $1,292,161 $1,035,148
Property, plant and
marketed asphalt plants, stabilization plants, asphalt and thermal
heaters, hot storage systems and soil remediation equipment.
Putzmeister andequipment 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 Company each owned
50% of Wibau-Astec. On November 7, 1994, the Company
acquired the remaining shares of Wibau-Astec from Putzmeister
for $67,400. The acquisition was accounted for as a purchase
effective November 7, 1994 and accordingly, theconsolidated
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 accountsdo not purport to
be indicative of Wibau-Astec subsequent to November 7, 1994 are includedthe 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 Company's consolidated financial statements. The purchase
price was allocated to the net tangible assets of Wibau-Astec
based on the estimated fair market value of the assets acquired.
As required by the purchase method of accounting, the excess
amount of the purchase price over the fair value of Wibau-
Astec's net tangible assets was recorded as goodwill and was
being amortized using the straight-line method over 20 years.
Subsequent to the acquisition of Wibau-Astec, the Company
undertook a plan to restructure Wibau-Astec'sfuture.
Year Ended December 31,
1997 1996 1995
Net sales $300,336,000 $257,913,000 $247,256,000
Income from operations (see
Note 12 - Restructuring Costs).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.
Effective October 17, 1994, the Company acquired the
operating assets and liabilities of Gibat Ohl
Ingenieurgesellschaft fur Anlagentechnik ("Gibat Ohl") in
exchange for 193,357 shares of the Company's common stock
and approximately $2,760,000 in cash. The acquisition was
accounted for as a purchase effective October 17, 1994, and
accordingly, the results of operations and accounts of Gibat Ohl
subsequent to October 17, 1994 are included in the Company's
consolidated financial statements. The purchase price of
approximately $5,460,000 was allocated to the net tangible
assets of Gibat Ohl based on the estimated fair market value of
the assets acquired. The excess of the purchase price over the
fair market value of Gibat Ohl's net tangible assets was
recorded as goodwill and was being amortized using the
straight-line method over 20 years. During 1995, Gibat Ohl's
name was changed to Astec-Europa and in February 1996, the
Company abandoned Astec-Europa. See Note 3.
A summary of the net assets acquired is as follows:
PEP CEI Wibau-Astec Gibat Ohl
Current assets $1,292,161 $1,035,148 $4,938,766 $ 11,007,164
Property, plant and
equipment 551,289 243,877 412,193 300,657
Current liabilities (243,511) (768,647) (8,678,984) (10,029,223)
Other liabilities (1,094,453) (39,683) (2,038,165)
Goodwill 1,734,865 1,411,892 1,193,259 4,153,364
Net assets acquired
excluding cash 2,240,351 1,882,587 (4,172,931) 5,431,962
Cash 164,794 17,413 4,240,331 32,984
Net assets acquired $ 2,405,145 $1,900,000 $ 67,400 $ 5,464,946
The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisitions
discussed above had occurred at the beginning of each of the
periods presented. Pro forma adjustments have been made to
1994 to reflect the restructuring of Wibau-Astec as described in
Note 12. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative
of the results that would have incurred had the acquisitions
occurred at the beginning of the periods presented or of results
which may occur in the future.
Year Ended December 31,
1996 1995 1994
Net sales $ 224,927,000 $ 247,256,000 $ 227,891,000
Income from operations 8,219,000 6,303,000 28,814,000
Net income 4,400,000 4,630,000 24,863,000
Per common and common
equivalent share:
Net income $ .44 $ .46 $ 2.53
Prior to its acquisition of the remaining 50% interest in Wibau-
Astec, the Company's investment in Wibau-Astec was
accounted for by the equity method. Accordingly, net income
as presented in the Consolidated Statement of Income for 1994
includes the Company's share of Wibau-Astec's losses for the
period prior to the acquisition of $3,177,000.
3. Abandonment3.Abandonment of Foreign Subsidiary
During 1995, the Company's subsidiary, Astec-Europa, incurred a net
loss of approximately Subsidiary $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,Astec-Europa, the
Company willhas not recoverrecovered any amounts related to Astec-Europa'sAstec-
Europa's assets nor willhas it bebeen 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 1995
Raw materials and parts $ 23,541,508 $23,709,839$27,986,696 $23,541,508
Work-in-process 15,920,137 9,038,158 10,384,847
Finished goods 19,911,602 16,994,736 14,583,127
Used equipment 5,576,916 7,189,683
7,204,866
Total $ 56,764,085 $55,882,679$69,395,351 $56,764,085
5. Property and Equipment
Property and equipment consisted of the following:
December 31,
1997 1996 1995
Land, land improvements and buildings $ 38,161,554 $ 35,220,996$42,659,308 $38,161,554
Equipment 48,175,111 41,217,853 39,322,961
Less accumulated depreciation (31,339,876) (26,829,232) (22,864,623)
Land, buildings and equipment - net 59,494,543 52,550,175 51,679,334
Rental property:
Equipment 2,517,574 2,004,118 122,347
Less accumulated depreciation (406,964) (236,941) (92,648)
Rental property - net 2,110,610 1,767,177
29,699
Total $ 54,317,352 $ 51,709,033$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 $1,213,000, and $615,000$1,213,000 for the years ended December 31, 1997,
1996 1995 and 19941995, respectively.
Minimum rental commitments for all noncancelable operating
leases at December 31, 19961997 are as follows:
19971998 $ 766,000
1998 542,0001,742,000
1999 359,0001,456,000
2000 238,0001,202,000
2001 208,000
2002 and beyond 80,00021,000
The Company also leases equipment to customers under short-
termshort-term
contracts generally ranging from two months to twenty-
fourforty-eight months.
Rental income under such leases was $1,181,000, $2,073,000
$1,630,000, and $1,394,000$1,630,000 for the years ended December 31, 1997, 1996
and 1995, and 1994, respectively.
Scheduled minimumMinimum rental payments to be received for equipment leased to
others during
the yearsat December 31, 1997 throughare as follows:
1998 and in total thereafter are
$263,000, $114,000 and $0, respectively.
7. Long-term$ 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 1995
Revolving credit loan of
$22,000,000$70,000,000 available through
November 22, 2002 at interest
rates from 6.6% to 8.25%
at December 31, 1996
and 1995, available through June 30, 19991997 $23,230,000
Revolving credit loan of $22,000,000
at interest rates from 6.69% to 8.0%
at December 31, 1996 and 8.25% at December 31,
1995 $ 13,322,000 $ 4,150,000$13,322,000
Revolving credit loan of $15,000,000 at
December 31, 1996 available through
June 30, 1999 at an interest
rate of prime, which was 8.25% at
December 31, 199631,1996 2,508,000
Loans payable maturing at various dates
through 2000 at interest rates
from 8.0% to 9.25% 2,639,307
274,274
Industrial Development Revenue Bonds
payable in annual installments through
2006 at weekly negotiated interest
rates 4,500,000 5,000,000 5,500,000
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 17,924,274
Less current maturities 500,000 2,051,003 774,274
Long-term debt less current maturities $ 30,496,734 $ 17,150,000$35,230,000 $30,496,734
The Company has a $22,000,000$70,000,000 revolving line of credit agreement 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 offrom .25% below prime less one quarterto prime plus .50%, or
from .75% to 2.00% above the London Interbank Offering Rate
plus one.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 also restrictsal the
payment of dividends. The Company also
has a $15,000,000This agreement replaced two separate revolving
credit agreementfacilities with an aggregate availability of $37,000,000.
The CIT
Group/Equipment Financing, Inc., which is available to Astec
Financial Services, Inc. Amounts outstanding under the
agreement bearformer agreements also bore interest at a rate ofrates based on prime or
LIBOR and are limited to
"Eligible Receivables" as defined in the agreement. The credit
agreement containscontained certain restrictive covenants relativesimilar to operating ratios and maintenance of net worth and also restrictsthose in the
payment of dividends.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 $73,000.$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:
1997 $ 2,051,000
1998 1,974,000$500,000
1999 16,803,000500,000
2000 720,000500,000
2001 500,000
2002 and beyond 11,000,00033,730,000
For 1996,1997, the weighted average interest rate on short termshort-term
borrowings,
which includes current maturities of Industrial Revenue Bonds, was
7.12%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.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 $777,000 and
$696,000$777,000 for the years ended December 31, 1997, 1996 and
1995, and 1994, respectively.
A former subsidiary of the Company, the Barber-Greene
Company, had defined benefit pension plans ("Barber-Greene
Plans") covering substantially all of its employees. Non-union
benefits were frozen as of September 1, 1986, and certain union
benefits were frozen as of October 31, 1986. The Company retained
responsibility for the Barber-Greene Plans when it sold the Barber-Greene
Company in 1991.
Telsmith, Inc. also 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.
During 1994, the Company made the decision to terminate the
Barber-Greene Plans and purchased annuities to fund the
benefits provided for in the plans. In 1995, the Company
received approval from the Internal Revenue Service to
terminate the plans. As a result, the settlement loss of
approximately $46,000 is included in Other income-net in 1995.
A reconciliation of the funded status of
the Plans,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 1995
Actuarial present value of
benefit obligations:
Vested $ 3,039,628 $ 2,991,159$3,179,694 $3,039,628
Nonvested 94,386 88,965 90,781
Accumulated benefit obligation $$3,274,080 3,128,593 $ 3,081,940
Projected benefit obligation $$3,274,080 3,128,593 $ 3,081,940
Plan assets at fair value 2,982,882 2,583,682 2,539,151
Projected benefit obligation in excess
of plan assets 291,198 544,911 542,789
Unrecognized net gain (loss) 138,707 (127,150) 6,046
Prior service cost not yet recognized
in net periodic pension cost (109,591) (129,205) (148,819)
Additional liability 256,355
Pension liability in the consolidated
balance sheets $ 544,911320,314 $ 400,016544,911
Net periodic pension cost for 1997, 1996 1995 and 19941995 included the
following components:
Year Ended December 31,
1997 1996 1995 1994
Service cost - benefits earned
during the period $ 15,382 $ 20,986 $ 24,585 $ 31,503
Interest cost on projected
benefit obligation 222,812 227,815 219,465 2,565,355
Actual return on plan assets (623,731) (122,607) (238,493) 2,148,873
Net amortization and deferral 417,295 (84,816) (6,682) (5,405,871)
Net expense (income) $ 31,758 $ 41,378 $(1,125) $ (660,140)(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, 19961997 and 1995.1996. The expected long-term
rate of return on assets was 9.0% for the years ending September 30,
19961997 and 1995.1996. 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, "EmployeesEmployers' Accounting for Post-retirementPost-
retirement Benefits Other Than Pensions." The accumulated post-retirementpost-
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 1995
Accumulated post-retirement
benefit obligation:
Retirees $ 241,700 $ 246,300$271,235 $241,700
Active employees 499,068 471,000
393,500770,303 712,700 639,800
Unamortized transition obligation (504,500) (538,200) (571,900)
Unrecognized net gain 2,875 64,100 118,800
Accrued post-retirement benefit cost $ 238,600 $ 186,700$268,678 $238,600
Net periodic post-retirement benefit cost included the following
components:
December 31,
1997 1996 1995
Service cost $ 64,70056,468 $ 53,30064,700
Interest cost 55,241 48,300 50,200
Amortization of transition obligation 33,700 33,700
Amortization of net gain (1,900)(1,473)
Net expense $ 146,700 $ 135,300$143,936 $146,700
A discount rate of 7.5%7.0% was used in calculating the APBO. The
APBO assumes a 13.0%7.5% increase in per capita health care costs decreasing
gradually to 5.8%5.5% for years 20122001 and later. A 1% increase in the
medical inflation rate would increase the APBO by
approximately $36,000$42,000 and the expense by approximately $8,900.$7,700.
9. Income Taxes
For financial reporting purposes, income before income taxes includes
the following components:
Year Ended December 31,
1997 1996 1995
1994
United States $22,738,605 $ 6,655,652 $ 16,497,616 $ 30,726,395$16,497,616
Foreign:
License income 227,786 362,506 277,855 404,000
Equity in loss of
joint venture (3,176,834)
Loss from foreign subsidiaries (3,597,796) (2,217,061)
Loss on abandonment (7,037,105)
Income before income
taxes $ 7,018,158$22,966,391 $7,018,158 $ 6,140,570 $ 25,736,500
The provision for income taxes consisted of the following:
Year Ended December 31,
1997 1996 1995
1994
Current $ 1,416,242 $ 1,166,956 $ 7,029,419$9,264,743 $1,416,242 $1,166,956
Deferred provision (benefit) (107,766) 1,257,040 413,254 (4,729,293)
Total provision for income taxes $ 2,673,282 $ 1,580,210 $ 2,300,126$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 1994
Tax at statutory rates $ 2,386,174 $ 2,087,794 $ 9,007,775$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)
(3,008,000)
Effect of utilization
of alternative minimum
tax credits
(382,000)
Benefit from foreign
sales corporation (360,000) (125,000) (327,000) (265,000)
State taxes, net of federal
income tax benefit 912,000 424,000 522,000 212,000
Income taxes of
other countries 38,000 20,000 (553,000) 27,000
Loss from foreign
operations (413,000) 2,636,000
Recognition of deferred
tax asset 1,827,000
(4,729,000)
Reversal of prior temporary
differences (1,937,000)
Other items 528,740 (31,892) (219,584)
738,351
Income taxes $ 2,673,282 $ 1,580,210 $ 2,300,126$9,156,977 $2,673,282 $1,580,210
At December 31, 1996,1997, the Company had long-term capital loss
carryforwards of approximately $709,000$80,000 expiring in 2000. As a result
of utilizing the net operating loss carryforwards, net income from
continuing operations increased by approximately $.13 and $.31 for the yearsyear
ended December 31, 1995 and 1994,
respectively.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, 1996,1997, the Company had deferred tax assets of
approximately $6,218,000,$6,248,700, and deferred tax liabilities of approximately
$3,011,000,$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 19961997 is due to the expirationutilization of ITC
credit carryforwards ($98,000) and the establishment of a
valuation allowance relative to
the capital loss carryforwards ($241,000).carryfowards.
Significant components of the Company's deferred tax liabilities and
assets are as follows:
Year Ended December 31,
1997 1996 1995
Deferred tax assets:
Inventory reserves $ 1,556,000 $ 1,812,000$1,878,300 $1,556,000
Warranty reserves 1,098,400 898,000 939,939,000
Accrued insurance 820,800 864,000 725,000
Bad debt reserves 507,000 479,000 505,000
Other accrued expenses 1,695,700 1,428,000 1,455,000
Alternative minimum tax credit 98,500 560,000
Foreign net operating
loss carryforwards 1,384,000
Other credit carryforwards 150,000 433,000 98,000
Total deferred tax assets 6,248,700 6,218,000 6,918,000
Deferred tax liabilities:
Property and equipment 3,176,300 2,793,000
2,475,000
Other 316,300 218,000 29,000
Total deferred tax liabilities 3,492,600 3,011,000 2,504,000
Net deferred tax assets 2,756,100 3,207,000 4,414,000
Valuation allowance (241,000)
(98,000)
Deferred tax asset $ 2,966,000 $ 4,316,000$2,756,100 $2,966,000
10. Contingencies
The Company's subsidiary, Telsmith, was a defendant in a
patent infringement action brought by Nordberg, Inc., a
manufacturer of a competing line of rock crushing equipment,
seeking monetary damages and an injunction to cease an alleged
infringement of a patent on certain components used in the
production of its rock crushing equipment. On March 30, 1995,
the United States District Court for the Eastern District of
Wisconsin issued a ruling in favor of the Company and entered
a declaratory judgment in favor of Telsmith, and against
Plaintiff Nordberg, Inc. The Court also entered judgment in
favor of Telsmith, Inc. and against Nordberg, Inc., dismissing
Nordberg's claim of infringement against Telsmith.
During 1993, the Company was also named as a
defendant in a patent infringement action brought by Gencor,
Inc., a manufacturer of a competing line of asphalt plants. On
February 3, 1996, the jury returned a verdict in the Company's
favor. In early July 1996, the Company and Gencor entered
into a settlement of the case on appeal and two other lawsuits
pending between the parties. Under the terms of the settlement,
each of the pending cases was dismissed, with prejudice, with
each party bearing its own costs. No payments were made by
either party to the other in connection with the settlement as a
result of which all litigation between the Company and Gencor
is now ended.
During 1994, the United States Supreme Court refused
to hear CMI Corporation's petition to overturn the United States
Court of Appeals for the Federal Circuit's reversal of patent
damages awarded to CMI Corporation and Robert L.
Mendenhall by a lower court. As a result of the Supreme
Court's refusal to grant certiorari, the Company received
$12,917,000 which was being held in escrow pending the
Company's appeal of the two judgments. In addition, on
December 31, 1994, the Company received $1,309,000 from
CMI in satisfaction of the judgment entered in favor of the
Company on its counterclaim against CMI. The receipt of these
funds effectively concluded the litigation between the Company
and CMI and Robert L. Mendenhall which had been pending for
a number of years. As a result, in 1994 the Company reversed
its accrued liability for patent damages. The reversal of
$13,870,000 in accrued patent damages and the receipt of
$1,309,000 in patent damages from CMI total $15,179,000 and
are included in the Consolidated Statements of Income as Patent
suit damages and expenses (net recoveries and accrual
adjustments).
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 $4,618,000$1,793,000 and $7,362,000$4,618,000 at December 31,
19961997 and 1995,1996, respectively. These obligations average five years
in duration and have minimal risk.
Other - The Company is contingently liable for letters of credit of
approximately $2,491,000$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, "AccountingAccounting for Stock Issued to Employees"Employees (APB 25)
and related Interpretationsinterpretations in accounting for its employee
stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123,
"AccountingAccounting for Stock-based Compensation," requires use of
option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, becausewhen 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, incentivenon-
qualified options and stock appreciation rightsincentive 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 1994, 1995, 1996 and 1996,1997, respectively; risk-free interest rates of
5.93%, 6.06%, 6.04% and 6.04%5.78%; volatility factors of the expected
market price of the Company's common stock of .275;.275, .275 and .281;
and a weighted-average expected life of the option of fiveseven 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 1994
Pro forma net income $ 3,734,000 $ 4,362,000 $ 23,177,000$13,782,000 $3,734,000 $4,362,000
Pro forma earnings per share:
PrimaryBasic $ 1.44 $ .37 $ .43
Diluted $ 2.351.42 $ .37 $ .43
A summary of the Company's stock option activity and related
information for the years ended December 31, 1997, 1996 1995, and 19941995
follows:
Year Ended December 31,
1997 1996 1995 1994
Weighted Avg. Weighted Avg. Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
Options
outstanding,
beginning
beginning of year 549,000 $9.23 308,000 $ 8.33 244,000 $ 6.92
170,000 $ 2.35
Options
granted 10,000 $9.13 250,000 $ 10.17 67,000 $ 13.26
87,000 $ 15.22Options
forfeited 23,000 $9.39
Options
exercised 10,000 $6.50 9,000 $ 4.68 3,000 $ 3.25 13,000 $ 2.67
Options outstanding and
exercisable,
end of
year 526,000 $ 9.28 549,000 $ 9.23 308,000 $ 8.33 244,000 $ 6.92
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 $4.65, and $4.66$4.65 for the years ended December 31, 1997,
1996 1995, and 1994.1995. 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 $4.13,
and $4.05$4.13 for the years ended December 31,
1996 1995, and 1994.1995. Exercise prices for options outstanding and
exercisable as of December 31, 1996,1997 range from $1.38 to $16.36.$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. Restructuring Costs
In the fourth quarter of 1994, the Company developed and
implemented a plan to restructure the operations of Wibau-
Astec. In connection with the restructuring, the Company
accrued costs of $1,500,000 ($1,250,000, net of tax, or $0.12
per share). The plan included, among other things, the cessation
of manufacturing operations at Wibau-Astec along with related
personnel reductions as well as personnel reductions in
engineering and administration. Total personnel reductions
were approximately 150. The plan was communicated to
employees and severance notices given during the fourth quarter
of 1994.
As of the end of 1994, the restructuring was
substantially complete. Total costs incurred were for the write-
down of certain assets to estimated fair market value, severance
payments and lease termination expenses. Severance costs and
exit costs incurred were approximately $1,137,000 and
$363,000, respectively. Costs incurred during 1995 were
substantially the same as the amounts accrued as of December
31, 1994.
Wibau-Astec sold Astec asphalt plants either manufactured in
the United States or subcontracted in Europe. Wibau-Astec also
sold Wibau-Astec parts and serviced a large customer base and
utilized subcontractors as needed for parts and/or manufacturing
components in Europe. As described in Note 2, Wibau-Astec
was sold in 1995.
13. 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, 1996,1997,
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'sCompany's short- and long-term debt is floating
rate debt and, accordingly, book value approximates its
fair value.
14.13. 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 and
$10,133,000 and $5,394,000 for the year ended December 31,
1994.1995. See Notes 2 and 3. International sales by
domestic subsidiaries by major geographic region were as follows:
Year Ended December 31,
1997 1996 1995
1994
Asia $14,217,777 $12,340,130 $22,294,203
$14,680,301
Europe 3,076,510 8,792,885 11,257,809
3,651,822
South America 10,000,648 6,889,869 3,811,091
4,662,530
Canada 8,618,053 3,852,792 8,105,164
4,007,019
Australia 4,298,554 1,760,828 1,613,920
413,368
Africa 444,313 1,131,318 3,220,047
9,594,267
Central America 7,461,261 1,381,030 5,955,227
13,285,042Middle East 5,224,857 467,146 293,006
West Indies 2,998,406 1,692,600 2,414,219
Other 2,159,746 2,707,225 1,736,6982,561,868
TOTAL $58,902,247 $38,308,598 $58,964,686
$52,031,047
15.14. Finance Receivables
Finance receivables
are receivables of Astec Financial Services, Inc.
Contractual maturities of outstanding receivables at
December 31, 19961997 were:
Financing
Amounts Due In Leases Notes Total
19971998 $ 1,330,422933,951 $ 1,829,8191,789,896 $ 3,160,241
1998 524,585 980,668 1,505,2532,723,847
1999 481,585 301,514 783,09975,600 392,132 467,732
2000 229,745 153,000 382,74537,800 408,629 446,429
2001 422,805 422,805
Thereafter 115,117 115,117
2,681,454 3,265,001 5,946,455906,494 906,494
1,047,351 3,919,956 4,967,307
Less Unearned Income 356,685 363,814 720,499unearned
income (50,553) (171,723) (222,276)
Total $ 2,324,769996,798 $ 2,901,1873,748,233 $ 5,225,9564,745,031
Receivables may be paid prior to contractual maturity
generally by payment of a prepayment penalty. At December 31, 1996,1997,
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 removed--previouslyare removed -- previously suspended income is recognized at that
time.
Astec Financial Services, Inc.'s net investment in
financing leases at December 31, 1996 consisted of the
following components:
Total minimum lease payment receivables $ 2,681,454
Less: unearned income 356,685
Net investment in financing leases $ 2,324,769
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 as of December 31,
1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements 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
the 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young, LLP
Chattanooga, Tennessee
February 21, 1997
CORPORATE INFORMATION
Corporate and Subsidiary
Executive Officers
J. Don Brock Chairman of the Board and President
Richard W. Bethea, Jr. Vice President, Corporate Counsel, and Secretary
F. McKamy Hall Vice President, Corporate Controller, and Treasurer
W. Norman Smith President, Astec, Inc.
Robert G. Stafford President, Telsmith, Inc.
Thomas R. Campbell President, Roadtec, Inc.
Roger Sandberg President, Trencor, Inc.
James G. May President, Heatec, Inc.
Albert E. Guth President, Astec Financial Services, Inc.
Board of Directors
J. Don Brock +#Chairman of the Board and President
George C. Dillon *Former Chairman, Manville Corporation
Ronald W. Dunmire *+#Former President of Cedarapids, Inc.
Daniel K. Frierson *Chairman and CEO, Dixie Yarns Inc.
Albert E. Guth President, Astec Financial Services, Inc.
G. W. Jones *Former President of APAC, Inc.
William B. Sansom *Chairman and CEO , The H.T. Hackney Co.
E.D. Sloan, Jr. *Chairman of the Board, Nolas Trading Co, Inc.
W. Norman Smith +#President, Astec, Inc.
Robert G. Stafford #President, Telsmith, Inc.
*Member of the Audit and Compensation Committees
+Member of the Executive Committee
#Member of the Technical Committee
Subsidiaries
Astec Financial Services, Inc. Chattanooga, Tennessee
Astec, Inc. Chattanooga, Tennessee
CEI Enterprises, Inc. Albuquerque, New Mexico
Heatec, Inc. Chattanooga, Tennessee
Production Engineered Products, Inc. Walnut, Illinois
Roadtec, Inc. Chattanooga, Tennessee
Telsmith, Inc. Mequon, Wisconsin
Trencor, Inc. Grapevine, Texas
Transfer Agent Registrar
Chase Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Stock Exchange
NASDAQ National Market - ASTE
Auditors
Ernst & Young LLP Chattanooga, Tennessee
General Counsel and Litigation
Chambliss, Bahner & Stophel, P.C. Chattanooga, Tennessee
Securities Counsel
Alston & Bird Atlanta, Georgia
Corporate Office
Astec Industries, Inc.
4101 Jerome Avenue
P.O. Box 72787
Chattanooga, Tennessee 37407
Telephone 423-867-4210
The Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained at no cost by any shareholder
upon written request to Astec Industries, Inc., attention
Shareholder Relations.
The Annual Meeting will be held at 10:00 a.m. on Thursday,
April 24, 1997, in the Training Center at the Corporate office
located at 4101 Jerome Avenue, Chattanooga, Tennessee.
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, 1996.1997. 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, 19961997
and 1995,1996, and the consolidated results of itstheir operations and itstheir cash
flows for each of the three years in the period ended
December 31, 1996,1997, 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
ERNST & YOUNG LLP
Chattanooga, Tennessee
February 21, 1997
A-24
20, 1998
A-23
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE (VIII)(II)
VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND 1994
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
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
Schedule (VIII) - Page 1
A-25
December 31, 1994:
Reserves deducted from assets to which they apply:
Allowance for
doubtful
accounts $ 1,191,083 $ 362,089 $ 467,607(3) $ 336,537 (1) $ 1,684,242
Reserve for
inventory $ 6,494,533 $ 3,621,218 $ 0 $ 5,121,716 $ 4,994,035
Other Reserves:
Product
warranty $ 1,781,733 $ 2,616,565 $ 0 $ 927,595 (2) $3,470,703
Reserve for
patent
damages $ 13,250,048 $ 620,290 $ 0 $ 13,870,338ADDITIONS
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 (VIII)(II) - Page 2
A-26A-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
BY:
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 14, 199712, 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 14, 199712, 1998
J. Don Brock and President
/s/ Albert E. Guth President, Astec Financial March 14, 199712, 1998
Albert E. Guth Services, Inc. and Director
/s/ W. Norman Smith President - Astec, Inc. March 14, 199712, 1998
W. Norman Smith and Director
/s/ Robert G. Stafford President - Telsmith, Inc. March 14, 199712, 1998
Robert G. Stafford and Director
/s/ E. D.E.D. Sloan Jr. Director March 14, 1997
E. D.12, 1998
E.D. Sloan, Jr.
/s/ William B. Sansom Director March 14, 199712, 1998
William B. Sansom
/s/ Ronald W. Dunmire Director March 14, 199712, 1998
Ronald W. Dunmire
/s/ George C. Dillon Director March 14, 199712, 1998
George C. Dillon
/s/ G.W. Jones Director March 14, 199712, 1998
G.W. Jones
/s/ Daniel K. FrierosnFrierson Director March 14, 199712, 1998
Daniel K. Frierson
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./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, 19961997
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 10.100 Demand Note10.103 Amended and Restated Credit Agreement dated
March 18, 1996November 27, 1997 between the Company, and the Company's
Chief Executive Officer,
Dr. J. Don Brock.
Exhibit 10.101 Loan Agreement dated
December 5, 1996
between Astec
Financial Services, Inc. and The
CIT Group/Equipment
Financing,First Chicago
NBD.
Exhibit 10.104 Asset Purchase Agreement dated October 16,
1997 between Portec, Inc. ("CIT").
Exhibit 10.102and Astec
Industries, Inc.
GuarantyExhibit 10.105 Amendment to Asset Purchase Agreement dated
December 5, 1996 of2, 1997 by and between Astec
Industries, Inc. and Portec, Inc.
Exhibit 10.106 Revolving Line of Credit AgreementNote dated December
2, 1997 between Astec Financial
Services,Kolberg-Pioneer, Inc. and
The
CIT Group/Equipment
Financing,Astec Holdings, Inc.
("CIT").
Exhibit 11 Statement regarding
computation10.107 Guaranty Joinder Agreement dated December,
1997 between Kolberg-Pioneer and Astec
Holdings, Inc. in favor of per
share earnings.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 10.100
Demand note dated March 18, 1996 between the Company
and the Company's Chief Executive Officer, Dr. J. Don Brock.
Exhibit 10.100
DEMAND NOTE
Chattanooga, Tennessee
$1,175,000
March 18, 1996
On demand the undersigned promises to pay to the order of J.
DON BROCK the sum of ONE MILLION ONE HUNDRED
SEVENTY-FIVE THOUSAND DOLLARS ($1,175,000.00),
value received, with interest at a rate equal to 0.25% less than
"prime rate" as charged from time to time by The First National
Bank of Chicago.
Accrued interest on the unpaid balance shall be paid on the first
day of each month until this note is paid in full.
If this note is placed in the hands of an attorney for collection,
by suit or otherwise, the undersigned will pay all costs of
collection and litigation, together with a reasonable attorney's fee.
The drawer and endorser hereof severally waive demand,
protest and notice of nonpayment. It is further agreed that the
right of recourse of the holder hereof against the endorser of this
note shall not be impaired by any renewal, extension,
modification or other indulgence which the holder may grant
with respect to the indebtedness above mentioned, or any part
thereof, although the same may be done without notice to or
consent of such endorser.
ASTEC INDUSTRIES, INC.
By: /s/ Albert E. Guth
Albert E. Guth
Senior Vice President
EXHIBIT 10.101
Loan Agreement dated December 5, 1996 between
Astec Financial Services, Inc. and
The CIT Group/Equipment Financing, Inc. ("CIT")
EXHIBIT 10.101
LOAN AGREEMENT
LOAN AGREEMENT (the "Agreement") dated December 5, 1996 between
Astec Financial Services, Inc. a corporation organized under the
laws of the state of Tennessee
(the "Company"), and The CIT Group/Equipment Financing, Inc. ("CIT").
1. LOAN ADVANCES
CIT agrees subject to the terms and conditions of this
Agreement, from time to time to make
loans to the Company on a revolving basis in such amounts as
may be mutually agreed upon, the
maximum amount of such loans outstanding at any one time not
to exceed one hundred percent
(100%) of the amounts validly owing on "Eligible Receivables"
(as hereinafter defined).
2. LOAN AMOUNT
The aggregate loans made under this Agreement shall, in no
event, exceed either the limitations
set forth under Paragraph 1 hereof or the sum of $15,000,000.00
at any one time outstanding,
unless CIT in its sole discretion shall agree to requests of the
Company for loans in excess of said amounts.
3. INTEREST
Interest shall be payable from the date hereof at the "Governing Rate",
payable monthly on the
average daily balance. The per annum rate is based on a year of 12
months of 30 days each computed on the basis of the average daily
unpaid balance of principal outstanding during the
preceding monthly period. As used herein, "monthly period" shall mean
the period commencing on the first day of a calendar month and ending
on the first day of the following calendar month,
except that the first monthly period shall be payable within five
days after your receipt of our statement therefore. As used herein
the "Prime Rate" shall mean the rate publicly announced by
The Chase Manhattan Bank from time to time as its Prime Rate.
The Prime Rate of The Chase Manhattan Bank is not intended to be the
lowest rate of interest charged by The Chase Manhattan
Bank to its borrowers. The "commercial paper rate" means the
average rate quoted by the Wall
Street Journal, or such other sources as CIT may determine for
30-day dealer commercial paper. The "Wall Street Journal Prime Rate"
shall mean the Prime Rate listed by The Wall Street Journal.
If more than one Prime Rate is listed in The Wall Street
Journal, then the highest rate shall apply.
The "Governing Rate" shall mean a rate equal to the highest of:
(i) the Prime Rate of The Chase
Manhattan Bank or (ii) The Wall Street Journal Prime Rate or
(iii) the commercial paper rate. In the event that the Governing
Rate on the first day of any monthly period shall be more or less than
the Governing Rate in effect on the date of this Agreement, the
rate of interest on the loan during
such monthly period shall be increased or decreased by a
percentage per annum corresponding to
the percentage per annum increase or decrease in the Governing
Rate, but in no event, however, shall the rate of interest be more
than that permitted by law.
4. LOAN ACCOUNTS; MONTHLY STATEMENTS
All loans made hereunder shall be disbursed by CIT to
Astec Financial Services, Inc., Chattanooga, Tn., and will be repayable
at CIT's account at the CIT-Industrial
Finance, File # 54224, Los Angeles, CA. 90074-4224, or such
other bank of which we may hereafter advise you in writing and the
Company promises to repay all such loans and
all other "Obligations" (as hereinafter defined) to CIT in the
manner set forth in this Agreement, without the necessity on CIT's
part of resorting to or having recourse to any
collateral. In addition to the monthly payment of interest by the
Company to CIT pursuant to the terms of Paragraph 3 hereof, the outstanding
principal amount of each
loan shall be repaid to CIT upon the earlier of (i) thirteen
months after the disbursement of its proceeds or (ii) the
Anniversary Date of this Agreement. Loans measured by Eligible
Receivables will be charged to one or more open accounts
maintained in the Company's name on CIT's books (the "Loan Accounts").
In the event CIT should for any reason
honor requests for advances in excess of the limitations set forth in
Paragraphs 1 and 2, such "overadvances" shall be made solely at CIT's
option upon such additional terms as
CIT shall determine, and shall be payable on demand. Each
month CIT will render to the
Company statements of the Loan Accounts, which the Company
hereby agrees shall be deemed to be accounts stated and correct and
acceptable to and binding on the Company
unless CIT shall receive a written statement of exceptions from the
Company within thirty (30) days after the monthly statements have been
rendered to the Company. The Company will provide to CIT a borrowing
base certificate for each loan request stating the
amount of the request, current levels of funded accounts and the
delinquencies thereunder.
In the event CIT should so request, the Company agrees to also
execute and deliver to CIT copies of such promissory notes of the
Company as CIT shall request in order to
evidence the loans, but unless and until CIT should so request,
the borrowing base certificate and the Loan Accounts (and the monthly
statements thereof rendered by CIT to the Company)
shall constitute the primary evidence of the loans made hereunder.
5. DEFINITIONS
(a) "Receivables" shall mean accounts, contract rights, chattel
paper, notes, drafts, rental receivables, conditional sale contracts,
security agreements, installment paper, installment sales,
revolving charge accounts, and other obligations for the
payment of money, including inter-
company accounts and notes receivable, and all documents,
contracts, invoices and instruments evidencing or constituting the same
and all security instruments and security agreements relating
thereto, which are created or acquired by the Company, all
property the sale or lease of which
gives rise or purports to give rise to Receivables, and all cash
and non-cash proceeds thereof, including any merchandise returned or
rejected by, or repossessed from, customers.
(b) "Eligible Receivables" shall mean Receivables created or
acquired by the Company in the
regular course of its business as presently conducted. In
general, no Receivable shall be deemed
eligible unless: such Receivable represents an existing, valid
and legally enforceable indebtedness
based upon an actual and bona fide sale and delivery or lease of
property or rendition of services
to the named obligor, which has been finally accepted by the
obligor and for which the obligor is
unconditionally liable to make payment in the amount stated in
each invoice, document or instrument evidencing, constituting or accompanying
the Receivable in accordance with the terms
thereof, without rights of rejection or return or offset, defense,
counterclaim or claim of discount or dedication; all statements made and
all unpaid balances appearing in the invoices, documents
and instruments representing or constituting the Receivables,
are true and correct and are in all respects what they purport to be, and all
signatures and endorsements that appear thereon are
genuine and all signatories and endorsers, if any, have full
capacity to contract, and the obligor
owing such Receivable is not affiliated with or employed by the
Company; absolute title to each Receivable, free and clear of any liens
and encumbrances or claims of others, including liens or
encumbrances or claims of ownership on the property the sale
or lease of which purports to give rise to such Receivable, is
vested absolutely in the Company and no other assignment of or
security interest or other interest in the Receivable in favor of
others is then in effect; the
transactions underlying or giving rise to any Receivable do not
violate any applicable state or
federal law or regulation and all documents relating to the
Receivables are legally sufficient under
such laws and regulations and are legally enforceable in
accordance with their terms; and any
contract under which any Receivable arises does not contain a
prohibition against assignment or
require the consent of or notice to the obligor with respect to
any assignment of monies arising thereunder.
(c) "Obligations" shall mean all loans and advances from
time to time made by CIT to the Company hereunder and to others at
the request of or for the account of or for the benefit of the
Company, all other indebtedness and obligations which may be
now or hereafter owing by the
Company to CIT under this Agreement or any other agreement
which may now or hereafter be
entered into by CIT with the Company, howsoever arising,
whether absolute or contingent, joint
or several, matured or unmatured, direct or indirect, primary or
secondary, including, but not limited to, CIT's interest or other charges
hereunder or under any other agreement between the
Company and CIT. The Company hereby agrees to pay on
demand all costs and fees CIT may
incur in the event of default by the Company hereunder, all
costs and expenses (including, all out-of-pocket expenses and attorneys'
fees actually paid by CIT) incurred by CIT, its employees or
agents in protecting, maintaining, preserving, enforcing or
foreclosing CIT's security interest in
any collateral, including all efforts made to enforce collection of
any Receivable, whether through
judicial proceedings or otherwise, or in defending or
prosecuting any action or proceeding arising
out of or relating to CIT's transactions with the Company, all of
which are hereby also included in
the definition of "Obligations" and which may be charged at
CIT's option to the Loan Accounts in
the event the same are not promptly paid after demand.
(d) "Anniversary Date" shall mean the date occurring two
years from the date hereof and the same date in every year thereafter.
6. GRANT OF SECURITY INTEREST; COLLATERAL
As security for the prompt payment in full of all present and
future Obligations, the Company
hereby grants to CIT a security interest in and hereby assigns
and pledges to CIT, its successors
and assigns, (which grant, assignment and pledge shall continue
until payment in full of all
Obligations, whether or not this Agreement shall have sooner
terminated) all right, title and
interest of the Company in and to the following (which, together
with any other security at any
time pledged, assigned or delivered by the Company to CIT or
received by CIT in connection
with any Obligations are herein sometimes collectively called
"Collateral"):
(a) All Receivables of the Company, whether or not
the same be Eligible Receivables
and whether or not specifically listed on any schedules,
assignments or exports furnished to CIT
from time to time, whether now existing or arising or created or
acquired at any time hereafter,
together with all rights to any and all sums due and to become
due on Receivables, all proceeds of
Receivables in whatever form, including cash, checks, notes,
drafts and other instruments for the
payment of money, and all right, title and interest in and to any
merchandise the sale or lease of which gives rise to, or purports to create any
Receivable or which secures any Receivable, all
property allocable to unshipped orders and all merchandise
returned by or reclaimed or
repossessed from customers, all rights of stoppage in transit,
replevin, repossession and
reclamation and all other rights of any unpaid vendor or lienor.
The continuing general assignment and pledge of and security interest in
Receivables contained herein shall include all
accounts, all documents, instruments, contracts, liens and
security instruments, all credit insurance
polices and other insurance and all guaranties relating to
Receivables, all books and records
evidencing, securing or relating to Receivables, all collateral,
deposits, dealer reserves, or other
security securing the obligations of any person under or relating
to Receivables, all credit balances
in favor of the Company on CIT's books, and all rights and
remedies of whatever kind or nature
the Company may hold or acquire for the purpose of securing or
enforcing Receivables, and all
general intangibles relating to or arising out of Receivables;
(b) All general intangibles of the Company, now existing or
hereafter arising or acquired, as such term is defined under the Uniform
Commercial Code.
7. COLLECTION OF RECEIVABLES
Until the Company's authority to do so is terminated by written
notice from CIT, which notice
CIT may give at any time after there has been a material adverse
change in the Company's business or manner of operation or at any time after
the occurrence of any "Event of Default" as specified below, the Company may
continue to adjust all claims and disputes with obligors on
Receivables and promptly collect and otherwise enforce all
amounts owing on Receivables. Notwithstanding anything in the previous
sentence to the contrary, all cash and non-cash proceeds
of such sales or leases and all collections, including
prepayments on Receivables, whether cash,
other Receivables, checks, notes or other evidence of payment,
and all documents and instruments
relating thereto, are to be held in trust as CIT's property, and
remitted to CIT in such manner and
with such frequency as CIT shall determine. The Company
shall notify CIT if any Receivable
includes any tax due to any governmental taxing authority. If a
Receivable includes a charge for
any tax payable to any governmental taxing authority, CIT is
authorized,in its discretion, to pay the amount thereof for the account of the
Company and to charge the appropriate Loan Account therefor.
8. LOAN ACCOUNTS; CASH PROCEEDS, CHECKS AND OTHER INSTRUMENTS
Any remittance received by the Company from customers shall be
presumed to relate to the
Collateral and shall be held in trust for and immediately
delivered to CIT as set forth herein. Cash
received with respect to the Collateral shall be credited to the
appropriate Loan Account as of the
same day such proceeds are received by CIT. Checks, drafts
and other instruments for the
payment of money shall be credited to the appropriate Loan
Account the day following the day
CIT's bank has made the proceeds of such instruments available
as of right based on the bank's
determination that the instrument has been finally paid. The
excess of collections over the amount
of Obligations owing to CIT hereunder may, at CIT's option, be
paid by CIT from time to time to
the Company, provided, however, that CIT may at any time in
its discretion retain and apply such
excess to any Obligations until all such Obligations have been
paid in full. CIT shall have the right
at all times to receive, receipt for, endorse, assign, deposit and
deliver, in CIT's name or in the
name of the Company, any and all checks, notes, drafts and
other instruments for the payment of
money constituting proceeds of or otherwise relating to the
Collateral. The Company hereby
authorizes CIT to affix, by facsimile signature or otherwise, the
general or special endorsement of
the Company, in such manner as CIT shall deem advisable, to
any such instrument in the event the
same has been delivered to CIT without appropriate
endorsement, and CIT and any bank in which
CIT may deposit any such instrument is hereby authorized to
consider such endorsement to be a
sufficient, valid and effective endorsement by the Company to
the same extent as though it were
manually executed by the duly authorized officer of the
Company, regardless of by whom or
under what circumstances or by what authority such facsimile
signature or other endorsement is
actually affixed, without duty of inquiry or responsibility as to such
matters, and the Company and each guarantor and endorser of the Company's
Obligations hereby waives demand, presentment,
protest and notice of protest or dishonor and all other notices of
every kind and nature with respect to any such instruments.
9. COMPANY BOOKS AND RECORDS
CIT shall have the right at any time and from time to time to request
from obligors indebted on
Receivables, in the name of the Company or in the name of
CIT's accountants, information
concerning the Receivables and the amounts owing thereon.
The Company agrees to maintain
books and records pertaining to the Collateral in such detail,
form and scope as CIT shall require,
and to promptly notify CIT of any changes of name or address
of the Company or of the legal
entity of the Company or of the corporate structure of the
Company and its subsidiaries or of the
location of the Collateral. All records, computer tapes, discs
and other data storage devices,
ledger sheets, correspondence, invoices, delivery receipts,
documents and instruments relating to
the Collateral shall, unless and until delivered to CIT, be kept
by the Company, without cost to
CIT, in appropriate containers and in safe places, and if CIT
should so request, shall bear suitable
legends identifying them as being under CIT's dominion and
control. CIT shall at all reasonable
times have full access to and the right to audit any and all of the
Company's books, computer tapes, discs and other data storage devices and
records, including, but not limited to, books and
records pertaining to the Collateral and including all files and
correspondence with creditors and customers, and to confirm and verify the
amounts owing on Receivables and the value and
collectibility of other Collateral and to do whatever else CIT
reasonably may deem necessary to protect its interest.
10. REPORTS; ASSIGNMENTS OF RECEIVABLES
In furtherance of the continuing assignment and security interest
herein contained, the Company
will execute and make available to CIT from time to time in
such form and manner and with such
frequency as may be required by CIT, solely for CIT's
convenience in maintaining a record of the
Collateral, such confirmatory assignments of Receivables,
designating, identifying or describing
the Collateral and copies of invoices to customers, agreements
of any kind with its customers,
copies of suppliers' invoices, evidence of shipment and delivery
and such further documentation
and information relating to the Collateral as CIT may require,
provided,however, that if the
Company should fail to execute and deliver such reports or
assignments, such failure shall not
affect, diminish, modify or otherwise limit CIT's security
interest in all present and future
Inventory and Receivables of the Company and the proceeds
thereof. The Company agrees to advise CIT promptly of any substantial change
relating to the type, quantity or quality of
Collateral or of any event which would have a material effect on
the value of the Collateral or on the security interested granted to CIT
therein.
1l. INSURANCE AND RISK OF LOSS
All risk of loss, damage to or destruction of the Collateral shall
at all times be on the Company.
The Company agrees to maintain in full force and effect at the
Company's expense, policies of
insurance covering all the Collateral with such insurance
companies, in such amounts and
covering such risks as are at all times satisfactory to CIT.
Copies of certificates are to be made
available to CIT on or prior to the date of disbursement of loans.
12. FINANCIAL STATEMENTS
The Company agrees to furnish to CIT such information
regarding the business affairs and
financial condition of the Company, its parent, and its
subsidiaries, if any, as CIT shall from time
to time reasonably request, including, but not limited to,
financial statements of the Company, its
parent and such subsidiaries in such scope and detail and
furnished with such frequency as CIT
shall determine and certified by such independent certified
public accountants as shall be
satisfactory to CIT, including, but not by way of limitation, the
financial statements referred to in
Paragraph 25 hereof.
13. TAXES; USE
The Company agrees that it will, and will cause each of the
Company's subsidiaries, if any, to pay
and discharge all taxes, assessments, licensing obligations and
governmental charges or levies
imposed on the income, profits, sale, business or properties of
the Company or its subsidiaries
prior to the date upon which penalties attach for non-payment
thereof, and promptly discharge
any liens, encumbrances or other claims which may be levied or
claimed against any of the
Collateral, provided that any such tax, assessment, charge or
levy need not be paid if the payment
thereof is being contested in good faith and by appropriate
proceedings and for which adequate
book reserves, determined in accordance with generally
accepted accounting practices, shall be
set aside, and if any such tax, assessment, charge or levy
lawfully imposed shall remain unpaid
after the date upon which a lien on any collateral arises or may
be imposed as a result of such non-
payment, or if any lien is claimed for any other reason against
any of the Collateral, which if
foreclosed would in CIT's opinion adversely affect the value of
CIT's security interest in any of
the Collateral, CIT may pay and discharge such taxes,
assessments, charges, levies and liens, and
the amount so paid by CIT shall be payable on demand and if
not paid promptly, will be charged
to the appropriate Loan Account and shall be secured by the
Collateral. The Company agrees to
comply and to cause its subsidiaries to comply with all laws and
all acts, rules, regulations and
orders of any legislative, administrative or judicial body or
official, applicable to the Collateral or
to the operation of the business of the Company or its
subsidiaries.
14. TITLE TO COLLATERAL; INSPECTION
The Company represents, warrants and agrees to take all steps and
observe such formalities as
CIT may request from time to time in order to create, perfect
and maintain in CIT's favor a valid
first lien upon and security interest in the Collateral, including
the filing or recording of any
financing statements or similar instruments which CIT deems
necessary or appropriate, and to
defend at its expense, Receivables and other Collateral from all
liens, security interests,
encumbrances, claims and demands of all other persons. The
Company hereby further agrees that
CIT may enter upon the Company's premises at any time and
from time to time to inspect the Collateral.
15. DEFAULT
The following shall constitute an "Event of Default" under this
Agreement: (a) the Company or
any of its subsidiaries fails to pay any Obligation as defined
herein within fifteen (15) days of the
due date thereof, by acceleration or otherwise; (b) there is a
breach in the performance of any of
the terms or provisions of this Agreement, as at any time
amended, or of any of the terms or
provisions of any other agreement between CIT and the
Company or any of its subsidiaries,
including, but not limited to, and any guaranty agreement under
which any Obligation is
guaranteed to CIT, or under any agreement between CIT and
any other party with respect to
CIT's transactions with the Company or with respect to any
Obligations or the Collateral therefor,
whether such agreements are now existing or are hereafter
entered into, provided that such breach
by the Company of any of the terms, provisions, warranties,
representations or covenants referred
to in this paragraph shall not be deemed an Event of Default
unless and until such breach shall
remain unremedied to CIT's satisfaction for a period of fifteen
(15) days from the date at such
breach, (c) any representation, covenant or warranty made by
the Company in connection with
this Agreement is breached; (d) any statement or data furnished
by or for the Company relating to
the Collateral or to the operations, financial condition or
business affairs of the Company, or its
subsidiaries, and any guarantor proves to be false in any
material respect; (e) the Company fails to
maintain any of the loans-to-collateral ratios specified in this
Agreement or in any amendment or
modification hereof; (f) the Company, any of its subsidiaries, or
any guarantor becomes insolvent
or unable to meet its debts as they mature, suspends operations
as presently conducted,
discontinues business as a going concern, or makes an
assignment for the benefit of creditors; (g)
a meeting of creditors is called by or for the Company, any of
its subsidiaries, or any guarantor;
(h) there is filed by or against the Company, any of its
subsidiaries or any guarantor a petition
under any of the provisions of the Bankruptcy Code, as at any
time amended, or any proceedings
are commenced by or against the Company, any of its
subsidiaries, or any guarantor under any
insolvency law, or a receiver or trustee is appointed to
administer the assets or affairs of the
Company, or any guarantor of its subsidiaries; (i) a judgment is
entered or an attachment is levied
against the assets of the Company, any of its subsidiaries or any
guarantor which, in the judgment
of CIT, will adversely affect the Company's ability to perform
this Agreement or impair the enforceability of CIT's security interest in the
Collateral; (j) CIT, in the good faith belief that the
prospect for payment or performance by the Company is
impaired, or deems itself or any of the
Collateral to be insecure; or (k) any indebtedness to others
owing by the Company, any of its
subsidiaries or any guarantor is accelerated because of a default
under any note or agreement relating thereto.
16. REMEDIES
Upon the occurrence of any Event of Default, all Obligations
shall, at CIT's option, immediately
become due and payable, anything in any note evidencing any
such Obligation or in this
Agreement or in any other agreement to the contrary
notwithstanding, without notice to the
Company, and CIT shall have in any jurisdiction where
enforcement hereof is sought, in addition
to all other rights and remedies which CIT may have under law
and at equity, the following rights
and remedies, all of which may be exercised with or without
further notice to the Company: (a)
to notify any and all obligors on Receivables that the same have
been assigned to CIT and that all
payments thereon are to be made directly to CIT; (b) to settle,
compromise, or release, on terms
acceptable to CIT, in whole or in part, any amounts owing on
Receivables; (c) to enforce payment
and prosecute any action or proceeding with respect to any and
all Receivables, to extend the time
of payment, make allowances and adjustments and to issue
credits in CIT's name or in the name of
the Company; (d) to foreclose the liens and security interests
created under this Agreement or
under any other agreement relating to the Collateral by any
available judicial procedure or without
judicial process, to enter any premises where any of the
Collateral may be located for the purpose
of taking possession or removing the same; and (e) to sell,
assign, lease or otherwise dispose of
the Collateral or any part thereof, either at public or private sale
or at any broker's board, in lots
or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such terms as shall be acceptable to
CIT, all at CIT's sole option
and as CIT in its sole discretion may deem advisable, and CIT may bid or become
a purchaser at any such sale if public,
free from any right of redemption which is hereby expressly
waived by the Company, and CIT
shall have the right at its option to apply or be credited with the
amount of all or any part of the
Obligations owing to CIT against the purchase price bid by CIT
at any such sale. The net cash
proceeds resulting from the collection, liquidation, sale, lease or
other disposition of the Collateral
shall be applied first, to the expenses (including all attorneys' fees) of
retaking, holding, storing, processing and preparing for sale, selling,
collecting, liquidating and the like, and then to the
satisfaction of all Obligations, application as to particular
Obligations or against principal or
interest to be in CIT's absolute discretion. The Company shall
be liable to CIT and shall pay to
CIT on demand any deficiency which may remain after such
sale, disposition, collection or
liquidation of the Collateral, and CIT in turn agrees to remit to
the Company any surplus
remaining after all Obligations have been paid in full. If any of
the Collateral shall require
repairing, maintenance, preparation, or the like, or is in process
or other unfinished state, CIT shall have the right, but shall not be
obligated, to do such repairing,
maintenance, preparation,
processing or completion of manufacturing for the purpose of
putting the same in such saleable form as CIT shall deem appropriate, but CIT
shall have the right to sell or dispose of such
Collateral without such processing. The Company will, at CIT's
request, assemble the Collateral
and make it available to CIT at places which CIT may select,
whether at the premises of the
Company or elsewhere, and will make available to CIT all
premises and facilities of the Company
for the purpose of CIT's taking possession of the Collateral or of
removing or putting the Collateral in saleable form. In the event any goods
called for in any sales order, contract, invoice
or other instrument or agreement evidencing or purporting to
give rise to any Receivable included
in any assignment submitted to CIT for collateral purposes shall
not have been delivered or shall
be claimed to be defective by any customer, CIT shall have the
right in its discretion to use and
deliver to such customer any goods of the Company to fulfill
such order, contract or the like so as
to make good any such Receivable. The enumeration of CIT's
rights and remedies set forth in this
Agreement is not intended to be exhaustive and the exercise by
CIT of any right or remedy shall
not preclude the exercise of any other rights or remedies, all of
which shall be cumulative and
shall be in addition to any other rights or remedy given
hereunder or under any other agreement
between the parties or which may now or hereafter exist in law
or at equity or by suit or
otherwise. To facilitate the exercise by CIT of the rights and
remedies set forth in this Paragraph,
the Company hereby constitutes CIT or its agents, or any other
person whom CIT may designate,
as attorney-in-fact for the Company, at the Company's own cost
and expense, to exercise all or
any of the following powers, which being coupled with an
interest, shall be irrevocable, shall
continue until all Obligations have been paid in full and shall be in
addition to any other rights and remedies that CIT may have: (i) to
remove from any premises where the same may be located,
any and all documents, instruments, files and records, and any
receptacles and cabinets containing the same, relating to the Collateral,
and CIT may at the Company's cost and expense, use such of
the personnel, supplies and space of the Company at its places
of business as may be necessary to properly administer and control the
Collateral or the handling of collections and realizations
thereon; (ii) to receive, open and dispose of all mail addressed
to the Company and to notify
postal authorities to change the address for delivery thereof to such
address as CIT may designate; and (iii) to take or bring, in CIT's name or in
the name of the Company, all steps,
actions, suits or proceedings deemed by CIT necessary or
desirable to effect the collection of or
to realize upon the Collateral. CIT shall not, under any
circumstances or in any event whatsoever,
have any liability for any error or omission or delay of any kind
occurring in the liquidation of the Collateral including the settlement,
collection or payment of any Receivable or any instrument
received in payment thereof, or for any damage resulting therefrom.
17. CROSS SECURITY
It is understood and agreed that all of the collateral which CIT may at
any time acquire from the Company or from any other source in connection with
the Obligations of the Company to CIT,
shall constitute collateral for each and every Obligation, without
apportionment or designation as
to particular Obligations, and that all Obligations, howsoever
and whensoever incurred, shall be
secured by all collateral howsoever and whensoever acquired,
and that CIT shall have the right, in
its sole discretion, to determine the order in which CIT's rights
in or remedies against any
collateral are to be exercised and which type of collateral or
which portions of collateral are to be
proceeded against and the order of application of proceeds of
collateral as against particular
Obligations. Notwithstanding anything which may be
contained in any of the Receivables
assigned to CIT hereunder, upon execution of this Agreement the
Company agrees not to make
any claims, or take any action against the property covered by
the Receivables or to attempt to accelerate any of the Obligations due
thereunder.
18. EFFECT OF WAIVER
No delay on the part of CIT in exercising any right, power or
privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other
or further exercise thereof or the exercise of any other right,
power or privilege or shall be
construed to be a waiver of any event of default. No course of
dealing between the Company and
CIT or its agents or employees shall be effective to change,
modify or discharge any provision of
this Agreement or to constitute a waiver of any default.
19. SEVERABILITY
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
20. CONDITIONS PRECEDENT
CIT's obligation to make any loan hereunder at any time is
subject to compliance in full by the
Company with all of the terms and provisions of this
Agreement, as at any time amended, and to
the further condition that at the time of the proposed making of
any such loan there shall have
been no material adverse change in the financial condition or
business of the Company, its
subsidiaries, and any guarantor and that no event of default, as
defined herein and no event which
with the lapse of time or the notice and lapse of time specified
for the purpose of constituting such
an event of default has occurred and is continuing at the time of
such proposed loan.
21. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, covenants and warrants to CIT that
the Company is duly organized,
validly existing and in good standing under the laws of the state
of incorporation mentioned in the introductory Paragraph of this Agreement, and
that the Company and its subsidiaries are duly
qualified as foreign corporations to do business in every other
state where the nature of the business of the Company or its subsidiaries
requires such qualification, and that the Company and
its subsidiaries are duly licensed to transact business under all
applicable laws; that the Company
and its subsidiaries have good and marketable title to all
properties and assets, whether real or
personal, shown on the latest balance sheets of the Company
and its subsidiaries furnished to CIT
before the execution of this Agreement, subject to no mortgage,
pledge, lien or encumbrance
except as are shown on said balance sheets and except for
current taxes not now in default, and
since the date of the latest of such balance sheets there has been
no material adverse change in the
condition, financial or otherwise, of the Company or its
subsidiaries from that shown on said
balance sheets; that the Company and its subsidiaries have no
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, due or to become due, except for
taxes not now in default and except for operating expenses in
the ordinary course of business,
other than as reflected or reserved against in said balance sheets,
and the Company and its subsidiaries have no liability for federal income or
excess profits taxes or other than as shown on
said balance sheets and except for taxes relating to operations
since the date of said balance sheets
and no federal tax deficiency assessment has been made or
threatened against the Company or any
of its subsidiaries and there is no pending claim of deficiency or
recommendation of the assessment of any deficiency against the Company or any
of its subsidiaries; that the execution
and delivery of this Agreement and the full performance thereof
by the Company and the granting
of security to CIT as contemplated hereunder do not and will
not violate any provisions of any of
the Company's Certificate of Incorporation, Charter or By-Laws
or any indenture or mortgage or
other agreement to which the Company is a party or is bound;
and that all collateral subject to the
security interest in favor of CIT pursuant to this Agreement at
the time of execution hereof is
owned by the Company free and clear of all liens, encumbrances and
claims in favor of others.
22. EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective only upon the written
acceptance hereof by CIT.
23. ENTIRE AGREEMENT; SUCCESSORS
When so accepted, this Agreement shall supersede all previous
verbal or written agreements,
commitments or understandings relating to CIT's loans to the
Company and shall be binding on
and inure to the benefit of the respective successors and assigns
of the Company and of CIT.
24. RECORDING FEES
CIT shall issue a statement to the Company indicating the cost of
recording taxes and the Company shall pay the statement within 20 days therein.
25. ASSIGNMENT
The Company may not assign this Agreement or its rights
hereunder without the prior written consent of CIT.
26. ADDITIONAL AFFIRMATIVE COVENANTS OF THE COMPANY
As long as any Obligations remain outstanding hereunder, the
Company, in addition to the
covenants made elsewhere in this Agreement, hereby covenants
that, unless CIT shall otherwise
consent in writing, (i) it shall maintain at each fiscal year end a
tangible net worth of at least
$3,500,000.00 for the first year of this Agreement, and (ii)
Astec Industries, Inc. (the "Guarantor") shall:
(a) Net Worth: Maintain at each fiscal year end a
tangible net worth of at least $50,000,000.00
(b) Current Ratio: Maintain at each fiscal year end a
ratio of current assets to current liabilities of at least 1.5 to 1.
(c) Additional Reporting Requirements: Furnish CIT:
(i) Within one hundred twenty (120) days after the end
of each fiscal year of the Guarantor a balance sheet and statements of income
and surplus, together with
supporting schedules, all certified by independent certified
public accountants of recognized standing selected by the Guarantor and
acceptable to CIT showing the
financial condition of the Guarantor at the close of such year
and the results of operations of the Guarantor during such year, and prepared
in accordance with generally accepted accounting principles and practices
consistently applied;
(ii) Within forty-five (45) days after the end of
each quarter, similar financial
statements similar to those referred to in subparagraph (i) above, each set
of respective statements, all unaudited, but certified by the
principal financial officer
of the Company, such balance sheets to be as of the end of such
month and such statements of income and surplus to be for the period from the
beginning of the fiscal year to the end of such month, in each case subject to
audit and year-end
adjustments, and prepared in accordance with generally
accepted accounting principles and practices consistently applied;
(iii) Promptly, from time to time, such other
information regarding the operations, business affairs and financial condition
of the Company as CIT may reasonably request including, but not limited to, all
business plans prepared by, or at the request of, the Company, annually during
the term of this Agreement.
(d) Dividends: The Company will not declare or pay any
dividend (other than a
dividend payable in stock of the Company) or authorize or make
any other distribution on any stock of the Company, whether now or
hereafter outstanding or make any payment on account of the purchase,
acquisition, redemption or other
retirement of any shares of such stock which would exceed in
any fiscal year fifty
percent (50%) of the after tax net profit of the Company for
such fiscal year.
(e) Debt to Worth Ratio: The ratio of the Company's total
liabilities to tangible net worth at each fiscal year end shall not
exceed .9 to 1.
(f) Changes in Company: The Company will not, without
CIT's prior written
substantial portion of its assets; or (c) change its name or the
form of organization of its business; or (d) sell, cause to have sold or
permit or suffer the sale of any shares of consent, (a) liquidate or dissolve;
or (b) sell or otherwise dispose of all or any voting stock of the Company
to any person or entity than the Guarantor.
(g) Minimum Fixed Charge Coverage Ratio: The Company's
fiscal year end ratio of pre-tax income excluding non-recurring gains and
losses divided by the sum of: (i) interest expense, plus, (ii) amortization of
debt discount and related
expenses, plus (iii) payments of principal and indebtedness shall
be at least 2.5 to 1.
27. NOTICES
Any notice or request required or permitted to be given under this
Agreement shall be sufficient if
in writing and sent by hand or by Certified Mail, in either case
return receipt requested, to the parties at the following addresses:
The CIT Group/Equipment Financing, Inc. Astec Financial Services, Inc.
1620 West Fountainhead Parkway 6400 Lee Highway Suite 620
Suite 107
Tempe, AZ 85282 Chattanooga, TN. 37421
28. TERMINATION
Except as otherwise permitted herein, the Company or CIT may
terminate this Agreement only as
of the date two years from the date hereof or any subsequent
Anniversary Date and then only by
giving the other at least sixty (60) days prior written notice of
termination. Notwithstanding the
foregoing CIT may terminate this Agreement immediately upon
the occurrence of an Event of
Default. This Agreement, unless terminated as herein provided,
shall automatically continue from
Anniversary Date to Anniversary Date. All Obligations shall
become due and payable as of any termination hereunder and, pending a final
accounting, may withhold any balances in the
Company's account (unless supplied with an indemnity
satisfactory to CIT) to cover all of the
Company's Obligations, whether absolute or contingent. All of
CIT's rights, liens and security
interests shall continue after any termination until all
Obligations have been paid and satisfied in full.
29. GOVERNING LAW
This Agreement shall be governed by, and construed in
accordance with, the laws applicable to
contracts made or performed in the State of Tennessee, without
giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company and CIT have caused this
Agreement to be executed by their respective officers duly authorized thereto.
THE CIT GROUP/EQUIPMENT SERVICES, INC.
FINANCING, INC.
By: CIT Group
Name: CIT Group
ASTEC FINANCIAL
By: /S/ Albert E. Guth
Name: Albert E. Guth
Title: President, Astec Financial Services, Inc.
EXHIBIT 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 Financing, Inc.
Exhibit 10.102
Guaranty
To: The CIT Group/Equipment Financing, Inc.
P.O. Box 27248
Tempe, AZ 85285-7248
Each of us severally requests you to extend credit to or purchase
security agreements, leases, notes, accounts and/or other obligations
(herein generally termed "paper") of or from or otherwise to do
business with Astec Financial Services, Inc., Chattanooga, TN
hereinafter called the "Company", and to induce you so to do and in
considerations thereof and of benefits to accrue to each of us
therefrom, each of us, as a primary obligor, jointly and severally and
unconditionally guarantees to you that the Company will fully and
promptly pay and perform all its present and future obligations to you,
whether direct or indirect, joint or several, absolute or contingent,
secured or unsecured, matured or unmatured and whether originally
contracted with you or otherwise acquired by you, irrespective of any
invalidity or unenforceability of any such obligation or the insufficiency,
invalidity or unenforceability of any security therefor; and agrees
without your first having to proceed against the Company or to
liquidate paper or any security therefor, to pay on demand all sums
due and to become due to you from the Company and all losses,
costs, attorneys' fees or expenses which may be suffered by you by
reason of the Company's default or default of any of the undersigned
hereunder; and agrees to be bound by and on demand to pay any
deficiency established by a sale of paper and/or security held, with or
without notice to us. This guaranty is an unconditional guarantee of
payment and performance. No guarantor shall be released or
discharged, either in whole or in part, by your failure or delay to
perfect or continue the perfection of any security interest in any
property which secures the obligations of the Company or any of us to
you, or to protect the property covered by such security interest.
No termination hereof shall be effected by the death of any or all of us.
No termination shall be effective except b notice sent to you by
certified mail return receipt requested naming a termination date
effective not less and 90 days after the receipt of such notice by you;
or effective as to any of us who has not given such notice; or affect
any transaction effected prior to the effective date of termination.
Each of us waives: notice of acceptance hereof; presentment,
demand, protest and notice of nonpayment of protest as to any note
or obligation signed, accepted, endorsed or assigned to you by the
Company; any and all rights of sub rogation, reimbursement,
indemnity, exoneration, contribution or any other claim which any of
us may now or hereafter have against the Company or any other
person directly or contingently liable for the obligations guaranteed
hereunder, or against or with respect to the Company's property
(including, without limitation, property collateralizing its obligations to
you), arising from the existence or performance of these guaranty; all
exemptions and homestead laws and any other demands and notices
required by law; all rights and defenses arising out of ( i ) an election
of remedies by you even though that election of remedies may have
destroyed rights of subrogation and reimbursement against the
Company by operation of law or otherwise, ( ii ) protections afforded to
the Company pursuant to antideficiency or similar laws limiting or
discharging the Company's obligations to you, ( iii ) the invalidity or
unenforceability of this guaranty, (iv) the failure to notify any of us of
the disposition of any property securing the obligations of the
Company, (v) the commercial reasonableness of such disposition or
the impairment, however caused, of the value of such property, and
(vi) any duty on your part (should such duty exist) of the Company or
its affiliates or property, whether now or hereafter known by you.
You may at any time and from time to time, without our consent,
without notice to us and without affecting or impairing the obligation of
any of us hereunder, do any of the following:
(a) renew, extend (including extensions beyond the original term of
the respective item of paper), modify (including changes in
interest rates), release or discharge any obligations of the
Company, of its customers, of co-guarantors (whether hereunder
or under a separate instrument) or of any other party at any time
directly or contingently liable for the payment of any of said
obligations;
(b) accept partial payments of said obligations;
(c) accept new or additional documents, instruments or agreements
relating to or in substitution of said obligations;
(d) settle, release ( by operation of law or otherwise), compound,
compromise, collect or liquidate any of said obligations and the
security therefor in any manner;
(e) consent to the transfer or return of the security, take and hold
additional security or guaranties for said obligations;
(f) amend, exchange, release or waive any security or guaranty ; or
(g) bid and purchase at any sale of paper or security and apply any
proceeds or security, and direct the order and manner or sale.
If a claim is made upon you at any time for repayment or recovery of
any amount(s) or other value received by you, form any source, in
payment of or on account of any of the obligations of the Company
guaranteed hereunder and you repay or otherwise become liable for
all or any part of such claim by reason of;
(a) any judgment, decree or order of any court or administrative body
having competent jurisdiction; or
(b) any settlement or compromise of any such claim,
we shall remain jointly and severally liable to you hereunder for the
amount so repaid r for which you are otherwise liable to the same
extent as if such amount(s) had never been received by you,
notwithstanding any termination hereof or the cancellation of any note
or other agreement evidencing any of the obligations of the Company.
This guaranty shall bind our respective heirs, administrators,
representatives, successors, and assigns, and shall incur to your
successors and assigns, including, but no limited to, any party to
whom you may assign any item or items of paper, we hereby waiving
notice of any such assignment. All of your rights are cumulative and
not alternative.
By execution of this guaranty each guarantor hereunder agrees to
waive all rights to trial by jury in any action, proceeding, or
counterclaim or any matter whatsoever arising out of, in connection
with, or related to this guaranty.
Executed December 5, 1996.
Guarantors
Astec Industries, Inc.
Chattanooga TN 37407
By: J. Don Brock, President
Corporate Seal
Attest: Sam M. Sprouse
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
ASTEC INDUSTRIES, INC.
EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE
(In Thousands)
12-31-96 12-31-95 12-31-94
Shares for Earnings Per
Share Computations
Primary:
Weighted average outstanding
during year 10,047 10,072 9,844
Common Stock equivalent for
stock options & warrants 111 124 141
TOTAL 10,158 10,196 9,985
Fully Diluted:
Weighted average outstanding
during year 10,047 10,072 9,844
Common Stock equivalent for
stock options & warrants 112 125 146
TOTAL 10,159 10,197 9,990
Earnings Applicable to Common Stock:
Income from continuing
operations $ 4,345 $4,560 $23,426
Net Income $ 4,345 $4,560 $23,436
Earnings Per Common Share (Based on Weighted Average Number
of Common and Uncommon Equivalent Shares Outstanding):
Income from continuing operations $ .43 $ .45 $ 2.38
Net Income $ .43 $ .45 $ 2.38
Additional Computations of EPS:
Fully Diluted:
Income from continuing
operations $ .43 $ .45 $ 2.38
Net Income $ .43 $ .45 $ 2.38
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 21, 1997,20, 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, 1996.
/s/ Ernst & Young, LLP1997.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 14, 199719, 1998