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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 1999
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: 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 approximately $422,089,000
based upon the closing sales price reported by the NASDAQ
National Market on March 15, 2000, 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 15, 2000
Common Stock, par value $.20 - 19,134,915 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 27, 2000
ASTEC INDUSTRIES, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS Page
PART I
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security
Holders 18
Executive Officers of the Registrant 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the
Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 22
Appendix A A-1
Signatures 27
PART I
Item 1. BUSINESS
General
Astec Industries, Inc. (the "Company") is a Tennessee
corporation, which was incorporated in 1972. The Company
designs, engineers, manufactures, markets, and finances
equipment and components used primarily in road building and
related construction activities. The Company's products are
used in each phase of road building, from quarrying and
crushing the aggregate to application of the road surface. In
addition, the Company is partner in a joint venture that makes
testing and sampling equipment for the asphalt mix and
aggregate processing industries. The Company also
manufactures certain equipment and components unrelated to
road construction, including trenching, auger boring,
directional drilling, environmental remediation and industrial
heat transfer equipment. The Company holds 99 United States
and 76 foreign patents, has 53 patent applications pending,
and has been responsible for many technological and
engineering innovations in the industry. The Company's
products are marketed 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 twelve manufacturing subsidiaries are: (i)
Astec, Inc., which manufactures a line of hot-mix asphalt
plants, soil purification and environmental remediation
equipment and related components; (ii) Heatec, Inc., which
manufactures thermal fluid heaters, asphalt heaters, polymer
and rubber blending systems 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, polymer and 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) Johnson Crushers International,
Inc., which manufactures portable and stationary aggregate and
ore processing equipment; (vii) Production Engineered
Products, Inc., which designs, manufactures and markets high-
frequency vibrating screens for sand and gravel and asphalt
operations; (viii) Roadtec, Inc., which manufactures milling
machines used to recycle asphalt and concrete, asphalt paving
equipment and material transfer vehicles; (ix) Trencor, Inc.,
which manufactures chain and wheel trenching equipment and
excavating equipment; (x) Superior Industries of Morris, Inc.,
which manufactures conveyors and idlers for aggregate
processing; (xi) Breaker Technology Ltd., which manufactures
rock breaking and processing equipment and utility vehicles
for mining; and (xii) American Augers, Inc., which
manufactures auger boring and directional drilling 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 with the Company's
subsidiaries and their customers in arranging financing for
the Company's equipment. AFS provides loans, operating
leases, floor plans for dealers, fleet rental plans, and other
financing plans to meet the needs of the industry.
The Company is a 50% shareholder of Pavement Technology,
Inc. ("PTI"). PTI manufactures innovative testing and
sampling equipment and packages design laboratory products,
thus allowing customers to purchase a complete design
laboratory from one source. The pavement analyzer technology
has captured the interest of state departments of
transportation, universities and contractors as a new standard
for measuring pavement performance of hot-mix asphalt. The
pavement technology product line enhances the services and
equipment the Company is able to provide to its customers.
The Company's strategy is to be the low-cost producer in
each of its product lines 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
and is well positioned to capitalize on the need to rebuild
and enhance roadway infrastructure, both in the United States
and abroad.
Segment Reporting
In 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which
changed the way the Company reported information about its
operating segments. The information below conforms to current
presentation requirements.
The Company's business units have separate management
teams and offer different products and services. The business
units have been aggregated into three reportable business
segments based upon the nature of the product or services
produced, the type of customer for the products and the nature
of the production process. The reportable business segments
are (i) Hot-mix Asphalt Plants and Related Heat Transfer
Equipment, (ii) Aggregate Processing Equipment and (iii)
Mobile Asphalt Construction Equipment. All remaining business
units are included in the "Other" category for reporting.
Financial information in connection with the Company's
financial reporting for segments of a business under SFAS 131
is included in Note 12 to "Notes to Consolidated Financial
Statements - Operations by Industry Segment and Geographic
Area," appearing at Page A-11 of this report.
Hot-mix Asphalt Plants and Related Heat Transfer Equipment
The Hot-Mix Asphalt Plants and Related Heat Transfer
Equipment segment is made up of three business units--Astec,
Inc., Heatec, Inc. and CEI Enterprises, Inc. These business
units design, manufacture and market a complete line of
asphalt plants and related components, heating and heat
transfer processing equipment and storage tanks for the
asphalt paving and other non-related industries.
Products
Astec, Inc. designs, engineers, manufactures and markets
a complete line of portable, stationary and relocatable hot-
mix asphalt plants and related components under the ASTECr
trademark. An asphalt mixing plant typically consists of
heating and storage equipment for liquid asphalt (manufactured
by Heatec), cold feed bins for storing aggregates, a drum
mixer for drying, heating and mixing, a baghouse composed of
air filters and other pollution control devices, hot storage
bins or silos for temporary storage of hot-mix asphalt and a
control house. The Company introduced the concept of plant
portability in 1979. Its current generation of portable
asphalt plants is marketed as the Six PackTM and consists of
six portable components, which can be disassembled, moved to
the construction site and reassembled, which reduces
relocation expenses. Plant portability represents an industry
innovation developed and successfully marketed by the Company.
In 1996, an improved version of the Six PackTM plant was
developed, making it considerably easier to assemble and
capable of being separated into movable parts for transport
without the use of a crane. This design eliminated the use of
cranes for disassembly or erection. The enhanced version of
the Six PackTM, known as the Turbo Six PackTM, is a highly
portable plant which is especially useful in less populated
areas where plants must be moved from job to job.
The components in Astec's asphalt mixing plants are
fully automated and use microprocessor-based control systems
for efficient operation. The plants are manufactured to meet
or exceed federal and state clean air standards.
The Company has also developed specialized asphalt
recycling equipment for use with its hot-mix asphalt plants.
Many of its existing products are suited for blending,
vaporizing, drying and incinerating contaminated products. As
a result, Astec has developed a line of thermal purification
equipment for the remediation of petroleum-contaminated soil.
Heatec, Inc. designs, engineers, manufactures and
markets a variety of thermal fluid heaters, process heaters,
waste heat recovery equipment, liquid storage systems and
polymer and rubber blending systems under the HEATECr
trademark. For the construction industry, Heatec manufactures
a complete line of asphalt heating and storage equipment to
serve the hot-mix asphalt industry and water heaters for
concrete plants. In addition, 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
50,000,000 BTU's per hour.
CEI Enterprises, Inc. ("CEI"), designs, engineers,
manufactures and markets heating equipment and storage tanks
for the asphalt paving industry and rubber and polymer
blending systems. CEI's heating equipment uses hot oil,
direct fired or electric heating processes. CEI's equipment
includes portable and stationary tank models with capacities
up to 35,000 gallons each.
Marketing
The Company markets its hot-mix asphalt and heat
transfer products both domestically and internationally. The
principal purchasers of asphalt and related equipment include
highway contractors and foreign and domestic governmental
agencies. Asphalt equipment is sold directly to its customers
with domestic, soil remediation and international sales
departments. Outside dealers are not used to market hot-mix
asphalt products, but agents are used to market asphalt plants
and their components internationally.
Heatec equipment is marketed through both direct sales
and dealer sales. Seventeen manufacturers' representatives
sell heating products for applications in industries other
than the asphalt industry. CEI equipment is marketed only
through direct sales. Direct sales employees are paid
salaries and are generally entitled to commissions after
obtaining certain sales quotas.
Raw Materials
Raw materials used in the manufacture of products
include carbon steel and various types of alloy steel, which
are normally purchased from distributors. Raw materials for
manufacturing are readily available. Some steel is delivered
on a "just-in-time" arrangement from the supplier to reduce
inventory requirements at the manufacturing facilities.
Competition
This industry segment faces strong competition in price,
service and product performance and competes with both large
publicly held companies with resources significantly greater
than those of the Company and with various smaller
manufacturers. Hot-mix asphalt plant competitors include CMI
Corporation; Cedarapids, Inc. a subsidiary of Terex
Corporation; and Gencor Industries, Inc. The market for the
Company's heat transfer equipment is diverse because of the
multiple applications for such equipment. Competitors for
heating equipment include Gencor/Hyway Heat Systems, American
Heating, Gentec and GTX Systems.
Employees
At December 31, 1999 the Hot-mix Asphalt Plant and Heat
Transfer Equipment segment employed 1,041 individuals, of
which, 830 were engaged in manufacturing, 81 in engineering
and 130 in selling, general and administrative functions.
Backlog
The backlog for the Hot-mix Asphalt and Heat Transfer
Equipment segment at December 31, 1999 and 1998 was
approximately $59,300,000 and $59,600,000, respectively.
Aggregate Processing Equipment
The Company's Aggregate Group is comprised of six
business units that are focused on the aggregate, metallic
mining and recycle markets. Each subsidiary achieves its
strength by distributing products into niche markets and
drawing on the advantages of brand recognition in the global
market. The business units in this group are Telsmith, Inc.,
Kolberg-Pioneer, Inc., Production Engineered Products, Inc.,
Johnson Crushers International, Inc., Superior Industries of
Morris, Inc. and Breaker Technology Ltd.
Products
Founded in 1906, Telsmith, Inc. is the oldest subsidiary
of the group. The primary markets served under the TELSMITHr
trade name are the aggregate and metallic mining industries.
Telsmith's core products are cone (Gyrasphere?), jaw and
impact crushers, which are recognized for their reliability.
A wide range of vibrating feeders for primary crushing
operations are complemented with large vibrating screens for
the difficult scalping applications and sizing screens to
handle the most rigorous specifications of finished aggregate
products. Telsmith offers all their products as portables
that are easily relocated to quarry sites to minimize the
costs of transporting crushed stone. 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.
The stringent demands for quality aggregate to meet the
specifications of the "Superpave" asphalt mixes has led to
Telsmith's development of the Silver BulletT narrow band cone
crusher, which provides unparalleled results in producing a
cubical product, as well as enhancing overall machine productivity.
In metallic mining operations, TELSMITHr 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.
In 1994, Telsmith received ISO 9001 certification, the
international standard of quality assurance in the design,
development, production, installation and servicing of their
products. This designation is recognition of the quality of
Telsmith products and services in the worldwide marketplace.
Kolberg-Pioneer, Inc. ("KPI") designs, manufactures
and supports a complete line of aggregate processing equipment
for the sand and gravel, mining, quarrying and concrete
recycling markets. KPI manufactures the well-known Pioneerr
and Kolbergr product lines.
Pioneerr products include a complete line of primary,
secondary, tertiary and quaternary crushers, including jaws,
cones, horizontal shaft impactors, vertical shaft impactors
and roll crushers. Kolberg-Pioneer rock crushers are used by
mining, quarrying and sand and gravel producers to crush
oversized aggregate to salable size. Vibrating feeders are
used to convey aggregate to the primary crusher operations.
The incorporation of vibrating grizzly feeders and vibrating
scalpers allows small material to bypass the primary crusher.
Kolbergr sand classifying and washing equipment is
relied upon to clean, segregate and re-blend deposits to meet
the size specifications for critical applications. The
product line includes fine and coarse material washers, log
washers, blade mills and sand classifying tanks. Screening
plants are available in both stationary and highly portable
models, and are complemented by a full line of radial stacking
and overland belt conveyors.
Kolberg-Pioneer manufactures belt conveyors designed to
move or store aggregate and other bulk materials, typically in
radial cone-shaped stockpiles. Models offered include road
portable, telescoping stationary and overland styles.
In addition, Kolberg-Pioneer manufactures pugmills,
which 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 with 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, they incorporate the high-
frequency screens into portable crushing and screening plants
servicing the aggregate and industrial markets. High-
frequency screens are adept in separating out small mesh
particles where conventional screens are not ideally suited.
PEP's latest product development, the highly successful
"Fold`n Go" plant, incorporates features that allow the
aggregate producers to efficiently manufacture asphalt chips
and manufactured sand. This unit, with its on-plant
stockpiling conveyors and its own power source, is totally
self-contained.
Johnson Crushers International, Inc. ("JCI") designs,
manufactures and distributes portable and stationary aggregate
and ore processing equipment. This equipment is used in the
aggregate, mining and recycle industries. JCI's principal
products are cone crushers, three-shaft horizontal screens,
portable plants, and replacement parts for competitive
equipment. JCI offers completely re-manufactured cone
crushers and screens from its service repair facility.
JCI cone crushers are used primarily in secondary and
tertiary crushing applications, and come in both manual and
remotely adjusted models. Horizontal screens are low-profile
machines for use primarily in portable applications. They are
used to separate aggregate materials by sizes. Portable
plants combine various configurations of cone crushers,
horizontal screens and conveyors mounted on tow-away chassis.
Because today's transportation costs are high, producers use
portable equipment to operate nearer to their job sites.
Portable plants allow the aggregate producers to quickly and
efficiently move their equipment from one location to another.
Superior Industries of Morris, Inc. designs and
manufactures a complete line of portable and stationary
conveyors. Its portable line includes 150-foot telescoping
stacking conveyors, patented FD series axle assemblies and
stationary conveyor systems for all types of bulk material
handling, including stockpiling and overland transfer.
Superior's product line also includes screening plants, wash
plants, fine material washers and custom-built crushing
plants. Superior's component division builds a complete line
of conveyor idlers and maintains ISO 9001 certification for
quality assurance.
Breaker Technology Ltd. ("BTL") designs, manufactures
and markets hydraulic rock breaker systems for the aggregate,
mining and recycling industries. They also design and
manufacture a complete line of four-wheel drive articulated
utility vehicles for underground mines and quarries.
In addition to the quarry and mining industries, BTL
designs, manufactures and markets a complete line of hydraulic
attachments for the North American construction and demolition
markets. These attachments are sold on a variety of equipment
including excavators, backhoe loaders, wheel loaders, and skid
steer loaders. They include hydraulic breakers and compactors
for the construction market and include crushers, pulverizers,
shears and multi-processors for the demolition market.
BTL offers an extensive aftermarket sales and service
program through a highly qualified and trained dealer network.
Marketing
Aggregate processing equipment is marketed by 47 direct
sales employees, approximately 260 independent domestic
distributors and approximately 100 independent international
distributors. The principal purchasers of aggregate
processing equipment include highway and heavy equipment
contractors, open mine operators, quarry operators and foreign
and domestic governmental agencies.
Raw Materials
Raw materials used in the manufacture of products
include carbon steel and various types of alloy steel, which
are normally purchased from distributors. Raw materials for
manufacturing are readily available. Breaker Technology
purchases rock breakers under a long-term purchasing contract
from a Japanese supplier and also purchases crushers from an
Italian supplier. Both the Japanese and Italian suppliers
have sufficient capacity to meet the Company's anticipated
demand; however, alternative suppliers exist for both of these
components should any supply disruptions occur.
Competition
The aggregate processing equipment segment faces strong
competition in price, service and product performance.
Aggregate processing equipment competitors include Svedala and
its subsidiary Universal; Greystone; Cedarapids, Inc.,
Powerscreen, and Finley, subsidiaries of Terex Corporation;
Nordberg, Inc., and its subsidiaries Seco and Hewitt Robins;
Deister; Eagle Iron Works; and other smaller manufacturers,
both domestic and international.
Employees
At December 31, 1999 the Aggregate Processing Equipment
segment employed 1,218 individuals, of which 894 were engaged
in manufacturing, 101 in engineering and support functions,
and 223 in selling, general and administrative functions.
Backlog
At December 31, 1999 and 1998, the backlog for the
Aggregate Processing Equipment segment was approximately
$32,000,000 and $32,700,000, respectively. The 1998 backlog
is restated for the acquisitions of Breaker Technology Ltd.
and Superior Industries of Morris, Inc.
Mobile Construction Equipment
The Mobile Construction Equipment Group comprised of
Roadtec, Inc. which 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.
Products
Roadtec's 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. 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 and gradation, thus eliminating these
problems.
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 also manufactures a
paver model that is designed to be used with the material
transfer vehicle described above.
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 are
available to enhance the products and their capabilities.
Marketing
Mobile Construction Equipment is marketed both
domestically and internationally to highway and heavy
equipment contractors, utility contractors and foreign and
domestic governmental agencies. Mobile construction equipment
is marketed both directly and through dealers. This segment
employs 14 direct sales staff, 29 foreign independent
distributors and 1 domestic independent distributor.
Raw Materials
Raw materials used in the manufacture of products
include carbon steel and various types of alloy steel, which
are normally purchased from steel mills and other sources.
Raw materials for manufacturing are readily available.
Competition
The paving equipment segment faces equally strong
competition in price, service and performance, as do the
Company's other operating segments. Mobile equipment
competitors include Caterpillar Paving Products, Inc., a
subsidiary of Caterpillar, Inc.; Blaw-Knox Construction
Equipment Company, a subsidiary of Ingersoll-Rand Company; and
Cedarapids, Inc., a subsidiary of Terex Corporation. The
segment's milling machine equipment competitors include CMI
Corporation; Caterpillar, Inc.; and Wirtgen America, Inc.
Employees
At December 31, 1999 the Mobile Construction Equipment
segment employed 322 individuals, of which, 240 were engaged
in manufacturing, 20 in engineering and support functions, and
62 in selling, general and administrative functions.
Backlog
The backlog for the Mobile Construction Equipment
segment at December 31, 1999 and 1998 was approximately
$1,200,000 and $4,200,000, respectively.
Others Business Units
This category consists of the Company's five other
business units that do not meet the requirements for separate
disclosure as an operating segment. These other operating
units include Trencor, Inc., American Augers, Inc., Astec
Financial Services, Inc., Astec Transportation, Inc. and the
parent company Astec Industries, Inc. Revenues in this
category are derived predominantly from the sale of trenching,
auger boring, horizontal directional drilling, mud/fluid
systems and associated accessories and spare parts. This
category also includes revenues from operating leases and
other financial products offered by Astec Financial Services,
Inc., the Company's finance subsidiary.
Products
Trencor, Inc. designs, engineers, manufactures and
markets chain and wheel trenching equipment, canal excavators,
rock saws, material processors and road miners.
Trencor's 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 450,000 pounds, are capable of cutting a trench
up to eight feet wide and thirty-five feet deep through rock.
Trencor also makes foundation trenchers used in areas where
drilling and blasting are prohibited. In addition, the 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.
Trencor canal excavators are used to make finished and
trimmed trapezoidal canal excavations within close tolerances
primarily for irrigation systems. The rock saw is used to lay
water and gas lines, fiber optic cable, and for constructing
highway drainage systems, among other applications.
Four Road Minerr models are available with an attachment
that allows them to cut a path up to twelve and a half feet
wide and five feet deep on a single pass. The Road Minerr has
applications in the road construction industry and in mining
and aggregate processing operations.
Trencor manufactures a material processor 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.
American Augers, Inc. designs, manufactures, markets and
sells a wide range of trenchless equipment. Three decades of
dominant market leadership in horizontal auger boring has led
American Augers to a pioneering position in the rapidly
growing market for trenchless utility installation.
Complementary fluid/mud systems and downhole tooling are major
components of company revenues. American Augers has over
2,500 customers throughout the world that operate in the
sewer, power, fiber-optic telecommunication, electric, oil
and gas, and water industries.
Marketing
Trencor and American Augers market their products
domestically through direct sales representatives and
internationally through both direct sales and independent
dealers and sales agents.
Raw Materials
American Augers maintains excellent relationships with
its suppliers and has experienced minimal turnover. The
purchasing group has developed partnership relationships with
many of the company's key vendors to improve just-in-time
delivery and thus lower inventory. The predominant raw
material used to manufacture Trencor's and American Augers'
products is steel. Components used are engines, hydraulic
motors and pumps, gearboxes, power transmissions and
electronics systems.
Competition
Competition for sales of trenching, excavating, auger
boring, directional drilling, and fluid/mud equipment includes
Charles Machine Works (Ditch Witch); J.I. Case; Vermeer and
other smaller custom manufacturers. Competitors of the
captive finance company include General Electric Credit
Corporation, The CIT Group, Associates First Capital
Corporation, Safeco Credit Company, Inc. and local financial
institutions.
Employees
At December 31, 1999 the Other Business Units segment
employed 394 individuals, of which, 256 were engaged in
manufacturing, 37 in engineering and 101 in selling, general
and administrative functions.
Backlog
The backlog for the Other Business Units segment at
December 31, 1999 and 1998 was approximately $2,300,000 and
$3,000,000, respectively.
Common to All Operating Segments
Although the Company has three reportable business
segments, the following information applies to all operating
segments of the Company.
Government Regulations
None of the Company's operating segments operate within
highly regulated industries. However, air pollution control
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 manufactures, 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.
Compliance with these government regulations has no
material effect on capital expenditures, earnings, or the
Company's competitive position within the market.
Employees
At December 31, 1999, the Company and its subsidiaries
employed 2,975 persons, of which 2,220 were engaged in
manufacturing operations, 239 in engineering, including
support staff, and 516 in selling, administrative and
management functions.
Telsmith, Inc. has a labor agreement, which covers
approximately 190 employees, that expires on October 13, 2001.
None of the Company's other employees are covered by a
collective bargaining agreement.
On August 3, 1995, a union representation election was
held at the Trencor plant and a number of Trencor production
and maintenance employees voted to be represented by the
United States Steelworkers of America, AFL-CIO, and CLC.
Trencor filed a Petition for Review with the United States
Court of Appeals for the Fifth Circuit and requested that the
National Labor Relation Board's certification of the election
be overturned due to alleged improper activity by the union.
Trencor requested that a new representation election be held.
Recently, in response to Trencor's appeal, the United States
Court of Appeals for the Fifth Circuit returned the matter to
the National Labor Relations Board and ordered that an
evidentiary hearing on Trencor's complaints be held before an
administrative law judge. That hearing was held on January
15, 1998, with the administrative law judge rejecting
Trencor's claims. Consequently, Trencor appealed the decision
to the National Labor Relations Board which upheld the
administrative law judge's ruling. Management and union are
now negotiating in an effort to reach agreement on a
collective-bargaining agreement.
Notwithstanding the current effort to negotiate an
initial collective-bargaining effort at Trencor, the Company
considers its employee relations to be good.
Manufacturing
The Company manufactures many of the component parts and
related equipment for its products while several large
components of their products are purchased "ready for use";
such items include engines, axles, tires and hydraulics. 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 1999 took place at nineteen 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.
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 1999, approximately 385
representatives of contractors and owners of hot-mix asphalt
plants attended seminars held by the Company in Chattanooga,
Tennessee. These seminars, which are taught by Company
management and employees, cover a range of subjects including
technological innovations in the hot-mix asphalt, aggregate
processing, paving, milling, and recycle markets in which the
Company manufactures products.
The Company also sponsors executive seminars for the
management of the customers of Astec, Inc. Primarily the
management of the Company teaches the seminars, but outside
speakers are also utilized. In 1999, approximately 70
participants attended the executive seminars at the Company's
state-of-the-art training center.
The Company sponsors Paving Professionals workshops at
its training center for customers or potential customers of
Roadtec, Inc. In 1999, approximately 350 participants
attended these classroom sessions. Actual equipment
application experience was provided at the Roadtec facility.
In addition, service training seminars were also held at the
Roadtec facility for approximately 360 customer service
representatives.
During 1999, Telsmith had technical seminars for 78
English-speaking customer representatives and another multi-
lingual seminar with 26 attendees. Also during 1999, American
Augers held directional drilling and auger boring seminars
attended by approximately 40 customers.
In addition to seminars, the Company publishes a number
of technical bulletins detailing various technological and
business issues relating to the asphalt industry.
Patents and Trademarks
The Company seeks to obtain patents to protect the novel
features of its products. The Company and its subsidiaries
hold 99 United States patents and 76 foreign patents. There
are 53 United States and foreign patent applications pending.
The Company and its subsidiaries have approximately 73
trademarks registered in the United States including logos for
Astec, Telsmith, Roadtec and Trencor, and the names ASTEC,
TELSMITH, HEATEC, ROADTEC, TRENCOR, KOLBERG, JCI and PIONEER.
Thirteen trademarks are also registered in foreign countries,
including Canada, Great Britain, Mexico, New Zealand and
Indonesia. The Company has 20 United States and foreign
trademark applications pending.
The Company and its subsidiaries also license their
technology to other manufacturers.
Engineering and Product Development
The Company dedicates substantial resources to
engineering and product development. At December 31, 1999,
the Company and its subsidiaries had 239 full-time individuals
employed domestically in engineering and design capacities.
Seasonality and Backlog
During 1997, 1998 and 1999 the Company's business became less seasonal.
As of December 31, 1999, the Company had a backlog for
delivery of products at certain dates in the future of
approximately $94,830,000. At December 31, 1998, the total
backlog, updated to include Superior Industries of Morris,
Inc., Breaker Technology Ltd., and American Augers, Inc. was
approximately $99,460,000.
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.
Competition
Each business segment operates in a highly competitive
domestic market in price, service and product quality. While
specific competitors are named within each business segment
discussion, imports do not generally constitute significant
competition for the Company in the United States. However, in
international sales, the Company generally competes with
foreign manufacturers that may have a local presence in the
market the Company is attempting to penetrate.
In addition, 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 over 90% 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.
Risk Factors
Investors should carefully consider the risks described
below before investing in Astec Industries, Inc. The risks
and uncertainties described below are not the only ones facing
the Company. Other risks or uncertainties that we have not
predicted or assessed may also adversely affect the Company.
If any of the following risks occur, our earnings, financial
condition or business could be materially harmed, and the
trading price of our common stock could decline.
A decrease in government funding of highway construction and
maintenance may adversely affect our revenues and operating
profits
Many of our customers depend substantially on government
funding of highway construction and maintenance and other
infrastructure projects. Federal government funding of
infrastructure projects is usually accomplished through bills
which establish funding over a multi-year period. The most
recent spending bill was signed into law in June 1998 and
covers federal spending through 2003. We cannot assure you
that this legislation will not be revised in future
congressional sessions, that recent increases in federal
funding of infrastructure will continue or that federal
funding will not decrease in the future, especially in the
event of an economic recession. Increases in fuel prices
could reduce demand for fuel products, reducing the taxes
collected into the Highway Trust Fund to be spent under TEA-
21. In addition, Congress could pass legislation in future
sessions which would allow for the diversion of highway funds
for other national purposes or could restrict funding of
infrastructure projects unless states comply with certain
federal policies. Any decrease or delay in government funding
of highway construction and maintenance and other
infrastructure projects could reduce our revenues and
operating profits.
Downturns in the general economy or the commercial
construction industry may adversely affect our revenues and
operating profits
Demand for many of our products, especially in the
commercial construction industry, is cyclical. Sales of our
products are sensitive to the state of the U.S., foreign and
regional economies in general, and in particular, changes in
commercial construction spending and government infrastructure
spending. We could face a downturn in the commercial
construction industry based upon a number of factors,
including:
-the level of interest rates;
-availability of funds for construction;
-labor disputes in the construction industry causing work stoppages;
-energy or building materials shortages; and
-inclement weather.
General economic downturns, including any downturns in
the commercial construction industry, could result in a
material decrease in our revenues and operating profits.
Acquisitions that we have made in the past and future
acquisitions involve risks that could adversely affect our
future financial results
We have completed eight business and asset acquisitions
since 1994 and plan to acquire additional businesses in the
future. We cannot guarantee that we will achieve the benefits
expected to be realized from our acquisitions. Our future
success may be limited because of unforeseen expenses,
difficulties, complications, delays and other risks inherent
in acquiring businesses, including the following:
-we may have difficulty integrating the financial
administrative and operational functions of
acquired businesses;
-acquisitions may divert management's attention from
our existing operations;
-we may have difficulty in competing successfully
for available acquisition candidates, completing
future acquisitions or accurately estimating the
financial effect of any businesses we acquire;
-acquisitions may not perform in line with our
expectations which may adversely affect our
financial results;
-we may have delays in realizing the benefits of our
strategies for an acquired business;
-we may not be able to retain key employees
necessary to continue the operations of the
acquired business;
-we may choose to acquire a company that has lower
profit margins than we do; and
-future acquired companies may have unknown
liabilities that could require us to spend
significant amounts of additional capital.
Competition could reduce revenue from our products and services
We currently face strong competition in product
performance, price and service. Some of our national
competitors have greater financial, product development and
marketing resources than we have. If competition in our
industry intensifies or our current competitors lower their
prices for competing products, we may be required to lower the
prices we charge for our products. We may also lose sales and
be required to lower our prices as our competitors further
develop and enhance their product lines. This may reduce
revenues from our products and services.
We may face product liability claims or other liabilities
due to the nature of our business
We manufacture heavy machinery that is used by our
customers at excavation and construction sites and on high-
traffic roads. Any defect in, or improper operation of, our
equipment can result in personal injury and death, and damage
to or destruction of property, any of which could cause
product liability claims to be filed against us. The amount
and scope of our insurance coverage may not be adequate to
cover all losses or liabilities we may incur in the event of a
product liability claim. We may not be able to maintain
insurance of the types or at the levels we deem necessary or
adequate or at rates we consider reasonable. Any liabilities
not covered by insurance could reduce our profitability or
have an adverse effect on our financial condition.
We may be adversely affected by governmental regulations
Our hot-mix asphalt plants contain air pollution control
equipment that must comply with performance standards
promulgated by the Environmental Protection Agency. We cannot
assure you that these performance standards will not be
increased in the future. Changes in these requirements or the
adoption of new requirements applicable to our other products
could cause us to undertake costly measures to redesign or
modify our equipment or otherwise adversely affect the
manufacturing processes of our products. Such changes could
have a material adverse effect on our operating results.
Also, due to the size and weight of some of the
equipment that we manufacture, we often are required to comply
with conflicting state regulations on the maximum weight
transportable on highways and roads. In addition, some states
regulate the operation of our component equipment, including
asphalt mixing plants and soil remediation equipment, and most
states regulate the accuracy of weights and measures, which
affect some of the control systems that we manufacture. We
cannot assure you that we will not incur material costs or
liabilities in connection with the regulatory requirements
applicable to our business.
An increase in the price of oil or decrease in the
availability of oil could reduce demand for our products
A significant portion of our revenues relate to the sale
of equipment that produces asphalt mix. A major component of
asphalt is oil, and asphalt prices correlate with the price
and availability of oil. A material rise in the price of oil
or a material decrease in the availability of oil would
increase the cost of producing asphalt, which would likely
decrease demand for asphalt, resulting in decreased demand for
our products. This could have a material adverse effect on
our revenues and results of operations.
We rely on proprietary technologies that we may be unable to
protect from infringement or which may infringe upon
technology owned by others
We hold numerous patents covering technology and
applications related to many of our products and systems, and
numerous trademarks and trade names registered with the U.S.
Patent and Trademark Office and in foreign countries. We
cannot assure you that the breadth or degree of protection of
our existing or future patents or trademarks will adequately
protect us against infringements, or that any pending patent
or trademark applications will result in issued patents or
trademarks. We also cannot assure you that our patents,
registered trademarks or patent applications, if any, will be
upheld if challenged, or that competitors will not develop
similar or superior methods or products outside the protection
of our patents. This could reduce demand for our products and
materially decrease our revenues. It is possible that our
existing patents, trademarks or other rights may not be valid
or that we may infringe upon existing or future patents,
trademarks or proprietary rights of our competitors. In the
event that our products are deemed to infringe upon the
patents or proprietary rights of others, we could be required
to modify the design of our products, change the name of our
products or obtain a license for the use of some of the
technologies used in our products. We also cannot assure you
that we would be able to do any of the foregoing in a timely
manner, upon acceptable terms and conditions, or at all, and
the failure to do so could have an adverse effect on our
business and results of operations.
Our success depends on key members of our management and
other employees
Dr. J. Don Brock, our Chairman and President, is
important to our business and operations. The loss of his
services may adversely affect our business. In addition, our
ability to attract and retain qualified engineers, skilled
manufacturing personnel and other professionals, either
through direct hiring, or acquisition of other businesses
employing such professionals, will also be an important factor
in determining our future success.
We face risks of managing and expanding in international markets
In 1999, international sales represented approximately
10% of our total sales. We plan to continue to increase our
presence in international markets. In connection with any
increase in international sales efforts, we will need to hire,
train and retain qualified personnel in countries where
language, cultural or regulatory barriers may exist. In
addition, international revenues are subject to the following
risks:
-fluctuating currency exchange rates which can
reduce the profitability of foreign sales;
-the burden of complying with a wide variety of
foreign laws and regulations;
-dependence on foreign sales agents;
-political and economic instability of
governments; and
-the imposition of protective legislation such as
import or export barriers.
Our quarterly operating results are likely to fluctuate,
which may decrease our stock price
Our quarterly revenues, expenses and operating results
have varied significantly in the past and are likely to vary
significantly from quarter to quarter in the future. As a
result, our operating results may fall below the expectations
of securities analysts and investors in some quarters, which
could result in a decrease in the market price of our common
stock. The reasons our quarterly results may fluctuate
include:
-general competitive and economic conditions;
-delays in, or uneven timing in the delivery of,
customer orders;
-the introduction of new products by us or our
competitors;
-product supply shortages; and
-reduced demand due to adverse weather conditions.
Period to period comparisons of such items are not
necessarily meaningful and, as a result, should not be relied
on as indications of future performance.
Our Articles of Incorporation, Bylaws, Rights Agreement and
Tennessee law may inhibit a takeover
Our charter, bylaws and Tennessee law contain provisions
that may delay, deter or inhibit a future acquisition, or an
attempt to obtain control, of Astec. This could occur even if
our shareholders are offered an attractive value for their
shares or if a substantial number or even a majority of our
shareholders believe the takeover is in their best interest.
These provisions are intended to encourage any person
interested in acquiring us or obtaining control of us to
negotiate with and obtain the approval of our Board of
Directors in connection with the transaction. Provisions that
could delay, deter or inhibit a future acquisition, or an
attempt to obtain control, of us include the following:
-a staggered Board of Directors;
-requiring a two-thirds vote of the total number
of shares issued and outstanding to remove
directors other than for cause;
-requiring advanced notice of actions proposed by
shareholders for consideration at shareholder
meetings;
-limiting the right of shareholders to call a
special meeting of shareholders;
-requiring that all shareholders entitled to vote
on an action provide written consent in order for
shareholders to act without holding a
shareholders meeting; and
-the Tennessee Control Share Acquisition Act,
which restricts transactions with significant
stockholders.
In addition, the rights of holders of our common stock
will be subject to, and may be adversely affected by, the
rights of the holders of our preferred stock that may be
issued in the future and that may be senior to the rights of
holders of our common stock. On December 22, 1995, our Board
of Directors approved a Shareholder Protection Rights
Agreement which provides for one preferred stock purchase
right in respect of each share of our common stock. These
rights become exercisable upon a person or group of affiliated
persons acquiring 15% or more of our then-outstanding common
stock by all persons other than an existing 15% shareholder.
This Rights Agreement also could discourage bids for your
shares of common stock at a premium and could have a material
adverse effect on the market price of your shares.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Annual Report
on Form 10-K are forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities Exchange Act
of 1934. They include statements concerning:
-our growth and operating strategy;
-liquidity and capital expenditures;
-pending acquisitions;
-our financing plans; and
-industry trends.
You can identify these statements by forward-looking
words such as "expect," "believe," "goal," "plan," "intend,"
"estimate," "may," "will" and similar words. These forward-
looking statements involve known and unknown risks,
uncertainties and other factors, including those described in
the "Risk Factors" section and elsewhere in this prospectus,
that could cause our actual results to differ materially from
those suggested by these forward-looking statements.
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 Acreage Principal Function
Chattanooga,
Tennessee 424,000 59 Corporate and subsidiary
offices, manufacturing -
Astec
Chattanooga,
Tennessee --- 63 Storage yard - Astec
Cleveland,
Tennessee 28,400 3 Offices and manufacturing -
Astec
Rossville,
Georgia 40,500 3 Manufacturing - Astec
Chattanooga,
Tennessee 84,200 5 Offices, manufacturing -
Heatec
Chattanooga,
Tennessee 135,000 15 Offices, manufacturing -
Roadtec
Chattanooga,
Tennessee 51,200 7 Manufacturing and parts
warehouse - Roadtec
Chattanooga,
Tennessee 5,000 2 Offices - Astec Financial
Services
Mequon,
Wisconsin 203,000 30 Offices and manufacturing -
Telsmith
Sterling,
Illinois 32,000 8 Offices and manufacturing -
PEP
Grapevine,
Texas 176,000 52 Offices, manufacturing -
Trencor
Lakeville,
Massachusetts 800 --- Leased sales and service
office - Telsmith
Libertyhill,
Texas 700 --- Leased sales and service
office - Telsmith
Eugene,
Oregon 23,800 --- Leased offices,
manufacturing - Johnson
Crushers International
(expires April 30, 2000)
Eugene,
Oregon 130,000 8 Offices and manufacturing -
Johnson Crushers
International
Eugene,
Oregon 25,600 --- Leased offices,
manufacturing - Johnson
Crushers International
Odessa,
Texas 4,100 1 Leased to a third party
Inman,
South Carolina 13,600 8 Leased to a third party
until September 30, 2000
with option to buy
Albuquerque,
New Mexico 110,700 14 Offices and manufacturing -
CEI (partially leased to
a third party)
Yankton,
South Dakota 252,000 50 Offices and manufacturing -
Kolberg-Pioneer
West Salem,
Ohio 60,000 29 Offices and manufacturing -
American Augers
Thornbury,
Ontario, Canada 55,000 12 Offices and manufacturing -
Breaker Technology Ltd.
Riverside,
California 18,000 --- Leased offices and
manufacturing - Breaker
Technology, Inc.
Solon,
Ohio 5,700 --- Leased offices and
manufacturing - Breaker
Technology, Inc.
Morris,
Minnesota 125,000 30 Offices and manufacturing -
Superior Industries of
Morris
Covington,
Georgia 11,000 6 Offices and manufacturing -
Pavement Technology
Management believes that each of the Company's
facilities provides office or manufacturing space suitable for
its current needs and considers the terms under which it
leases facilities to be reasonable.
Item 3. Legal Proceedings
Management has reviewed all claims and lawsuits and,
upon the advice of counsel, has made provision for any
estimable losses; however, the Company is unable to predict
the ultimate outcome of the outstanding claims and lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The name, title, ages and business experience of the
executive officers of the Company are listed below.
J. Don Brock, Ph.D., P.E., has been President and a
Director of the Company since its incorporation in 1972 and
assumed the additional position of Chairman of the Board in
1975. He was the Treasurer of the Company from 1972 until
1994. From 1969 to 1972, Dr. Brock was President of the
Asphalt Division of CMI Corporation. He 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. He is 61.
Richard W. Bethea, Jr., became Vice President, Corporate
Counsel and Secretary during 1997. Mr. Bethea has been a
practicing lawyer since 1978. He has an undergraduate degree
in accounting and a law degree 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 47.
F. McKamy Hall, a Certified Public Accountant, became
Chief Financial Officer during 1998 and has served as Vice
President and Treasurer since 1997. He has served as
Corporate Controller of the Company since 1987. From 1985 to
1987, Mr. Hall was Vice President of Finance at Quadel
Management Corporation, a company engaged in real estate
management. Mr. Hall has an undergraduate degree in
accounting and a Master of Business Administration degree from
the University of Tennessee at Chattanooga. He is 57.
W. Norman Smith was appointed Group Vice President-
Asphalt in 1998 and has served as the President of Astec, Inc.
since 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 60.
Robert G. Stafford was appointed Group Vice President-
Aggregate in 1998. Prior to that time he served as President
of Telsmith, Inc. since 1991. Between 1987 and 1991, Mr.
Stafford served as President of Telsmith, Inc., a subsidiary
of Barber-Greene. From 1984 until the Company's acquisition
of Barber-Greene in December 1986, Mr. Stafford was Vice
President - Operations of Barber-Greene and General Manager of
Telsmith. He became a director of the Company in March 1988.
He is 61.
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. He is 50.
James G. May has served as President of Heatec, Inc.
since 1994. From 1984 until 1994 he served as Vice President
of Engineering of Astec, Inc. He is 55.
Albert E. Guth has been President of Astec Financial
Services, Inc. since 1996. He served as Chief Financial
Officer of the Company from 1987 through 1996, as Senior Vice
President from 1984 to 1997, Secretary of the Company from
1972 to 1997, and Treasurer from 1994 to 1997. 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 60.
Richard A. Patek became President of Kolberg-Pioneer,
Inc. in 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 43.
Ronald B. DeDiemar, P.E., became President of Telsmith,
Inc. on January 4, 1999. From 1996 to 1998 he served as
President of a consulting company, Cal-Mar Technology, Inc.
From 1978 to 1996 Mr. DeDiemar held various executive
positions with Process Technology Holdings, Inc., most
recently as President of the We-Kers and Tyler Divisions.
From 1960 to 1978 he held various engineering and marketing
positions at Telsmith, a division of Barber-Greene. He is 61.
Robert R. Hoitt has been the President of Johnson
Crushers International, Inc., which was acquired by the
Company on November 1, 1998, since July 1995. From April 1966
through June 1995 he served in various management positions,
including General Manager and Vice President of Cedarapids,
Inc. in its Eljay division. He is 56.
Frank D. Cargould became President of Breaker Technology
Ltd. and Breaker Technology, Inc. on October 18, 1999. The
Breaker Technology companies were formed on August 13, 1999
when the Company purchased substantially all of the assets of
Teledyne Specialty Equipment's Construction and Mining
business unit from Allegheny Teledyne Inc. From 1994 to 1995,
he was Director of Sales - East for Teledyne CM Products, Inc.
He is 57.
Roger K. Eve has been President of American Augers,
Inc., which was acquired by the Company on October 29, 1999,
since 1991. He was also appointed President of Trencor, Inc.,
on October 29, 1999. From 1981 to 1991, Mr. Eve served as
President of J.C.B., Inc. and J.C.B. Excavators Ltd. He is
54.
Neil E. Schmidgall has been President of Superior
Industries of Morris, Inc., which was acquired by the Company
on November 1, 1999, since 1972. Since 1992, Mr. Schmidgall
has been a director and partner of First Federal Savings Bank
of Morris. He is 54.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is traded in the NASDAQ Stock
Market under the symbol "ASTE." The Company has never paid
any cash dividends on its Common Stock.
The high and low sales prices of the Company's Common
Stock as reported on the NASDAQ Stock Market for each quarter
during the last two fiscal years (adjusted to give effect to a
two-for-one stock split which took effect on January 18,
1999), are as follows:
Price Per Share
1999 High Low
1st Quarter 35-5/16 20-7/8
2nd Quarter 43-3/4 29-3/4
3rd Quarter 41-5/8 20-1/4
4th Quarter 29-3/8 14-3/4
Price Per Share
1998 High Low
1st Quarter 13-1/8 7-9/16
2nd Quarter 18-1/8 12-5/8
3rd Quarter 21-3/8 15-11/16
4th Quarter 28-3/4 17-3/4
As of March 15, 2000 there were approximately 4,200 holders of
the Company's Common Stock.
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.
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 27, 2000, is incorporated herein by
reference. Information regarding compliance with Section
16(a) of the Exchange Act is also included under 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, "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
27, 2000, 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," "Common Stock Ownership of Management" and "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 27, 2000, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
On December 14, 1998, Edna F. Brock, the mother of Dr.
J. Don Brock, Chairman of the Board and President of the
Company, loaned $85,000 to the Company to supplement its
working capital revolving credit facility. The Company
executed a demand note payable to Mrs. Brock in connection
with this loan bearing interest at a rate equal to that paid
to Bank One N.A. under the Company's unsecured revolving line
of credit. At the time Mrs. Brock loaned these funds to the
Company, the Company's outstanding balance under its
$22,000,000 revolving credit facility was $10,000,000. The
Company is making monthly interest payments to Mrs. Brock.
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, 1999
and 1998.
. Consolidated Statements of Income for the Years
Ended December 31, 1999, 1998 and 1997.
. Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and
1997.
. Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997.
. Notes to Consolidated Financial Statements.
(a)(2) Other than as described below, Financial
Statement Schedules are not filed with this Report because the
Schedules are either inapplicable or the required information
is presented in the Financial Statements or Notes thereto.
The following Schedules appear in Appendix "A" to this Report
and are filed as a part hereof:
. Consent of Independent Auditors.
. Schedule II - Valuation and Qualifying Accounts.
(a)(3) The following Exhibits* are incorporated by
reference into or are filed with this Report:
3.1 Restated Charter of the Company
(incorporated by reference from 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 from 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 from the Company's
Annual Report on Form 10-K for the year ended December 31, 1989, File
No. 0-14714).
3.4 Articles of Amendment to the Restated Charter of the Company, effective
January 15, 1999 (incorporated by reference from the Company Quarterly
Report on Form 10-Q for the period ended June 30, 1999, File No. 0-14714).
3.5 Amended and Restated Bylaws of the Company, adopted March 14, 1990
(incorporated by reference from 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 from
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 from the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 0-14714).
4.3 Shareholder Protection Rights Agreement, dated December 22, 1995
(incorporated by reference from the Company's Current Report on Form 8-K
dated December 22, 1995, File No. 0-14714).
10.1 Loan Agreement between City of Mequon, Wisconsin and Telsmith, Inc.
dated as of February 1, 1994 (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.2 Credit Agreement by and between Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1, 1994 (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.3 Security Agreement by and between Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1, 1994 (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December 31,
1993, File No. 0-14714).
10.4 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 from the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714).
10.5 Guarantee of Astec Industries, Inc. in favor of M&I Ilsley Bank, dated
as of February 1, 1994 (incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, File
No. 0-14714).
10.6 Loan Agreement dated as of April 1, 1994, between Grapevine Industrial
Development Corporation and Trencor, Inc. (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-14714).
10.7 Letter of Credit Agreement, dated April 1, 1994, between First Chicago
NBD and Trencor, Inc. (incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, File
No. 0-14714).
10.8 Guaranty Agreement, dated April 1, 1994, between Astec Industries, Inc.
and Bank One, Texas, NA, as Trustee (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-14714).
10.9 Astec Guaranty, dated April 29, 1994, of debt of Trencor, Inc. in
favor of First Chicago NBD (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-14714).
10.10 Supplemental Executive Retirement Plan, dated February 1, 1996 to be
effective as of January 1, 1995 (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, File No. 0-14714). *
10.11 Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated
January 1, 1996 (incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). *
10.12 Astec Industries, Inc. 1998 Long-Term Incentive Plan (incorporated by
reference from Appendix A of the Company's Proxy Statement for the
Annual Meeting of Shareholders held on April 23, 1998). *
10.13 Astec Industries, Inc. Executive Officer Annual Bonus Equity Election
Plan (incorporated by reference from Appendix B of the Company's Proxy
Statement for the Annual Meeting of Shareholders held on April 23, 1998). *
10.14 Astec Industries, Inc. Non-Employee Directors' Stock Incentive Plan. *
10.15 Second Amended and Restated Credit Agreement dated November 27, 1997
between the Company, Astec Financial Services, Inc. and First Chicago NBD
(incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, File No. 0-14714).
10.16 First Amendment, dated October 30, 1998, to the Second Amended and
Restated Credit Agreement dated November 24, 1997, by and between
the Company and Astec Financial Services, Inc. and The First National Bank
of Chicago.
10.17 Second Amendment, dated June 3, 1999, to the Second Amended and
Restated Credit Agreement dated November 24, 1997, by and between
the Company and Astec Financial Services, Inc. and The First
National Bank of Chicago (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1999, File No. 0-14714).
10.18 Third Amendment, dated August 11, 1999, to the Second Amended and
Restated Credit Agreement dated November 24, 1997, by and between
the Company and Astec Financial Services, Inc. and The First
National Bank of Chicago (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September
30, 1999, File No. 0-14714).
10.19 Revolving Line of Credit Note dated December 2, 1997 between Kolberg-
Pioneer, Inc. and Astec Holdings, Inc. (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December 31,
1997, File No. 0-14714).
10.20 Guaranty Joinder Agreement dated December 1997 between Kolberg-
Pioneer, Inc. and Astec Holdings, Inc. in favor of the First National
Bank of Chicago. (incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, File No. 0-14714).
10.21 Loan Agreement between the City of Yankton, South Dakota and Kolberg
Pioneer, Inc. dated August 11, 1998 for variable/fixed rate demand
Industrial Development Revenue Bonds, Series 1998 (incorporated by
reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 0-14714).
10.22 Letter of Credit Agreement dated August 12, 1998 between the First
National Bank of Chicago and Astec Industries, Inc., Astec Financial
Services, Inc. and Kolberg-Pioneer, Inc. (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended December 31,
1998, File No. 0-14714).
10.23 Promissory Note dated December 14, 1998 between Astec Industries, Inc.
and Edna F. Brock (incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, File No. 0-14714).
10.24 Waiver for December 31, 1998, dated March 9, 1999, with respect to the
Second Amended and Restated Credit Agreement, dated November 24, 1997
by and between the Company and The First National Bank of Chicago
(incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, File No. 0-14714).
10.25 Guaranty of Astec Industries, Inc., dated February 23, 1998, of debt of
Pavement Technology, Inc. in favor of Tucker Federal Bank (incorporated
by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, File No. 0-14714).
10.26 Purchase Agreement dated October 30, 1998, effective October 31, 1998,
between Astec Industries, Inc. and Johnson Crushers International, Inc.
(incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, File No. 0-14714).
10.27 Term Loan in the amount of $15,000,000 dated August 13, 1999 by
and between Astec Industries, Inc. and Bank One, NA (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1999, File No. 0-14714).
10.28 Asset Purchase and Sale Agreement, dated August 13, 1999, by and among
Teledyne Industries Canada Limited, Teledyne CM Products Inc. and Astec
Industries, Inc. (incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1999,
File No. 0-14714).
10.29 Stock Purchase Agreement, dated October 31, 1999, by and among
American Augers, Inc. and Its Shareholders and Astec Industries, Inc.
10.30 Stock Purchase Agreement, dated November 1, 1999, by and among
SIMCO, LLC and the Superior Industries of Morris, Inc. Employee
Stock Ownership Plan and Astec Industries, Inc.
10.31 Amended and Restated Master Note in the amount of $15,000,000 dated
December 29, 1999 by and between Astec Industries, Inc. and Bank One, NA.
10.32 Amended and Restated Master Note in the amount of $20,000,000 dated
December 29, 1999 by and between Astec Industries, Inc. and Bank One, NA.
22 Subsidiaries of the Registrant
23 Consent of Independent Auditors
* Management contract or compensatory plan or arrangement.
(b) No reports on Form 8-K were filed in the fourth
quarter.
(c) The Exhibits to this Report are listed under Item
14(a)(3) above.
(d) The Financial Statement Schedules to this
Report are listed under Item 14(a)(2) above.
*The Exhibits are numbered in accordance with Item 601 of
Regulation S-K. Inapplicable Exhibits are not included in the list.
APPENDIX "A" to ANNUAL REPORT ON FORM 10-K
ITEMS 8 and 14(a)(1) and (2), (c) and (d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ASTEC INDUSTRIES, INC.
Contents Page
Selected Consolidated Financial Data A-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations A-2
Consolidated Balance Sheets at December 31, 1999 and 1998 A-6
Consolidated Statements of Income for the Years Ended December
31, 1999, 1998 and 1997 A-7
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997 A-8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 A-9
Notes to Consolidated Financial Statements A-11
Report of Independent Auditors A-24
Schedule II - Valuation and Qualifying Accounts A-25
APPENDIX "A"
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except as noted *)
Consolidated Income Statement Data
1999 1998 1997 1996 1995
Net sales $449,627 $363,945 $265,365 $221,413 $242,601
Selling, general and
administrative expenses 56,280 46,796 36,125 35,346 35,025
Research and development 5,356 4,681 3,707 5,868 5,128
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 52,521 40,427 24,661 8,051 2,566
Interest expense 4,253 2,709 2,398 1,656 2,125
Net income 31,712 24,436 13,809 4,345 4,560
Earnings per common share*(1)
Basic 1.66 1.30 .72 .22 .23
Diluted 1.59 1.26 .71 .21 .23
Consolidated Balance Sheet Data
Working capital $127,569 $81,865 $71,459 $69,884 $58,015
Total assets 355,437 248,320 192,243 167,853 154,356
Total short-term debt 596 646 500 2,051 774
Long-term debt,
less current maturities 102,685 47,220 35,230 30,497 17,150
Shareholders' equity 167,258 132,658 105,612 99,393 95,901
Book value per common
share at year-end*(1) 8.75 7.44 6.12 5.37 4.75
Quarterly Financial Highlights (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $112,478 $119,958 $106,886 $110,305
Gross profit 28,009 33,839 27,779 24,549
Net income 8,567 11,155 7,915 4,075
Earnings per common share*(1)
Basic .45 .59 .41 .21
Diluted .43 .55 .40 .21
Net sales $88,164 $108,124 $88,798 $78,860
Gross profit 22,304 25,826 22,175 21,599
Net income 5,559 7,389 5,779 5,709
Earnings per common share*(1)
Basic .30 .39 .31 .30
Diluted .29 .38 .30 .29
Common Stock Price*(1)
1999
High 35-5/16 43-3/4 41-5/8 29-3/8
Low 20-7/8 29-3/4 20-1/4 14-3/4
1998
High 13-1/8 18-1/8 21-3/8 28-3/4
Low 7-9/16 12-5/8 15-11/16 17-3/4
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 common
shareholders is approximately 4,200. (1) Restated to
retroactively reflect the two-for-one stock split effected in
the form of a dividend on January 18, 1999.
Page A-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations; 1999 vs. 1998
Net income for 1999 was $31,712,000, or $1.59 per share
diluted compared to net income of $24,436,000, or $1.26 per
share diluted, in 1998, restated to reflect the two-for-one
stock split that took effect on January 18, 1999.
Net sales for 1999 were $449,627,000, an increase of
$85,682,000, or 23.5%, compared to 1998. The 1999 domestic
sales increased from $294,430,000 to $403,832,000, or
$109,402,000, for a 37.2% increase from 1998. The increase in
domestic sales is attributed to increased sales in all product
lines. A strong domestic economy and spending under the new
six-year highway bill, TEA-21, which authorizes $217 billion
in federal investment through 2003 for road repair,
improvement and other federal highway and transit projects are
the primary reasons for the increase in domestic sales.
Approximately 46% of the sales growth was generated
internally, while 54% was from acquisitions.
International sales for 1999 decreased $23,720,000, or 34.1%,
to approximately $45,795,000 compared to 1998 international
sales of $69,515,000. Sales in South America decreased 85% in
1999 from 1998 levels, with approximately 53% of the decrease
attributable to trenching equipment and the remaining decrease
split between asphalt equipment and aggregate processing
equipment. International sales represented 10.2% and 19.1% of
net sales in 1999 and 1998, respectively.
Gross profit margin was 25.4% in 1999 compared to 25.3% in
1998. Through September 30, 1999, the gross profit had
improved to 26.4%; however, in the fourth quarter the margin
was impacted by costs relating to the move of one aggregate
company to a new facility, by the costs of interruptions and
delays associated with a computer installation in another
company and the loss of international sales.
In 1999, selling, general, and administrative expenses
decreased to 12.5% of net sales from 12.9% of net sales in
1998. The volume increase in net sales is the primary factor
responsible for the decreased percentage. Approximately 58% of
the increase in dollars related to expenses of acquired
operations.
Although research and development expenses increased $675,000,
the percentage of net sales decreased to 1.2% in 1999 from
1.3% in the prior year. The increase in sales volume is the
primary reason for the reduction in the percentage.
Interest expense for 1999 increased to 0.9% of sales from 0.7%
of sales for 1998. The increase in dollars related primarily
to borrowings required for acquisitions.
Income tax expense for 1999 was $19,819,000, or 38.5% of pre-
tax income, compared to $15,126,000 for 1998, or 38.2% of pre-
tax income. The increase is the result of the Company's
decreased international sales and the mix of revenue by state.
The backlog at December 31, 1999 was $94,827,000 compared to
$99,461,000 at December 31, 1998 (restated for acquisitions).
The backlog contains a significant increase for asphalt plant
orders and a reduction for aggregate orders. The impact of
TEA-21 has been felt incrementally in 1998 and 1999, but the
full impact of the initial funds may not be felt until 2000 or
2001. The Company is unable to determine whether this backlog
mixture was experienced by the industry as a whole. While the
expectation of future business growth by our domestic
customers has had a positive impact on our backlog, we are
unable to assess the amount of the increase attributable to
the TEA-21 legislation which became effective in October 1998.
While the domestic backlog reflects a positive development
(increased from $88,335,000 to $90,936,000 at December 31,
1999 and 1998, respectively), management cannot confirm that
this increase represents a trend. International sales tend to
be stronger in the third and fourth quarters, offsetting
normal slowing of domestic sales in those quarters.
Page A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Hot-mix Asphalt Plant and Related Heat Transfer Equipment
Segment: This segment had increases in sales of $29,291,000,
or 17.9%, and segment profit of $3,884,000, or 18.0%, over
1998. The primary reason for the increase in sales was a
strong economy accompanied by the impact of TEA-21.
International sales in this segment decreased $9,490,000, or
35.3%, versus 1998.
Aggregate Processing Segment: The 1999 sales in this segment
increased $42,494,000, or 37.7%, over 1998, primarily due to
the acquisition of Johnson Crushers International, Inc.,
Superior Industries of Morris, Inc. and Breaker Technology
Ltd. Segment profit increased $5,237,000, or 40.4% over 1998.
International sales in this segment decreased $1,508,000, or
8.2% versus 1998.
Mobile Construction Equipment Segment: The 1999 sales in this
segment increased $7,050,000, or 11.7% over 1998. Segment
profit also increased $1,310,000, or 13.2%. The primary
increase in sales resulted from an increase in sales of our
patented material transfer vehicle, the Shuttle Buggy.
International sales in this segment decreased $2,850,000, or
36.5% versus 1998.
Results of Operations; 1998 vs. 1997
Net income for 1998 was $24,436,000, or $1.26 per share
diluted compared to net income of $13,809,000, or $0.71 per
share diluted in 1997, restated to reflect the two-for-one
stock split that took effect on January 18, 1999.
Net sales for 1998 were $363,945,000, an increase of
$98,580,000, or 37.1%, compared to 1997. The 1998 domestic
sales increased from $206,463,000 to $294,430,000, or
$87,967,000, for a 42.6% increase from 1997. The increase in
domestic sales is principally attributed to a strong domestic
economy and expectation of the initiation of spending under
TEA-21. Approximately 59% of the sales growth was generated
internally, while 41% was from acquisitions.
International sales for 1998 increased $10,613,000, or 18.0%,
to approximately $69,515,000 compared to 1997 international
sales of $58,902,000. Due to the economic instability of some
regions where the Company had done business in the past, the
Company redirected sales efforts in 1998 toward countries that
were financially capable of purchasing its equipment. As a
result, the $9,183,000 decrease in sales in Southeast Asia was
more than offset by increased sales of asphalt plants and
trenching equipment, primarily in Central and South America
and Canada. International sales represented 19.1% and 22.2% of
total sales in 1998 and 1997, respectively.
The gross profit margin was 25.3% in 1998 compared to 24.3% in
1997. The improvement primarily related to increased sales
volume. It can also be attributed to improved manufacturing
processes, better product design and the Company's continuing
efforts to minimize sales discounts and control costs.
In 1998, selling, general, and administrative expenses
decreased to 12.9% of net sales from 13.6% of net sales in
1997. The volume increase in net sales was the primary factor
responsible for the decreased percentage. Approximately 42% of
the increase in dollars related to expenses of acquired
operations. The single largest increase in expenses not
related to acquisitions was selling expenses.
Research and development expenses decreased to 1.3% of net
sales in 1998 from 1.4% in the prior year. The increase in
sales volume was the primary reason for the reduction in the
percentage. Acquisitions accounted for 81% of the increase in
dollars of research and development.
Page A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Interest expense for 1998 decreased to 0.7% of sales from 0.9%
of sales for 1997. The increase in dollars related primarily
to borrowings required for the growing captive finance company
and for acquisitions.
Income tax expense for 1998 was $15,126,381, or 38.2% of pre-
tax income, compared to $9,156,977 for 1997, or 39.9% of pre-
tax income. The reduction in the income tax rate was primarily
attributable to the addition of Kolberg-Pioneer, located in
South Dakota (which has no corporate income tax) and the
Company's increased utilization of a foreign sales
corporation.
The backlog at December 31, 1998 was $95,665,000 compared to
$67,435,000 at December 31, 1997, restated for acquisitions.
This represents a 41.9% increase over 1997. The increase was
principally attributed to increased asphalt plant and
aggregate processing 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.
Hot-mix Asphalt Plant and Related Heat Transfer Equipment
Segment: This segment had increased sales of $30,271,000 in
1998, a 22.8% increase over 1997. Segment profit also
increased $7,455,000, or 52.8%, over 1997. The primary reason
for the increases was a strong economy accompanied by the
expected impact of TEA-21 legislation effective October, 1998.
International sales in this segment increased by 26.0% in 1998
over 1997.
Aggregate Processing Segment: The 1998 sales in this segment
increased $57,343,000, or 103.6%, over 1997, primarily due to
the acquisition of Kolberg-Pioneer, Inc. and Johnson Crushers
International, Inc. Segment profit increased $6,073,000, or
88.2%, over 1997. The growth due to acquisitions for 1998 over
1997 was approximately 35%. International sales in this
segment decreased approximately 12.1%
Mobile Construction Equipment Segment: The 1998 sales in this
segment increased $11,830,000, or 24.4% over 1997. Segment
profit also increased $3,369,000, a 51.7% increase over 1997.
The primary increase in sales results from an increase in
sales of our patented material transfer vehicle, the Shuttle
Buggy. International sales increased 6.7%. The increase in
profit was primarily a result of increased volume coupled with
gross margin improvement.
Liquidity and Capital
During 1999, the Company continued to maintain a strong
financial position, funding capital projects and working
capital needs principally with cash provided by operations,
while utilizing low interest rate industrial revenue bonds and
bank borrowings to fund business combinations. At December 31,
1999, working capital totaled $127,569,000 compared to
$81,865,000 at December 31, 1998. The working capital increase
was primarily the result of increased fourth quarter sales
that led to a $19,341,000 increase in trade receivables net of
customer deposits and a $28,113,000 increase in inventories.
$30,000,000 of the increase in working capital was the result
of the three acquisitions completed in August through
November.
The Company has an unsecured $90,000,000 revolving credit loan
agreement with Bank One, NA which expires on November 22,
2002. At December 31, 1999, the Company was utilizing
$47,370,000 of the amount available under the credit facility
for borrowing and an additional $20,026,000 to support
outstanding letters of credit (primarily for industrial
revenue bond issues). Principal covenants under the loan
agreement include (i) the maintenance of minimum levels of net
worth and compliance with minimum net worth, leverage and
interest coverage ratios, (ii) a limitation on capital
expenditures and rental expense, (iii) a
prohibition against the payment of 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 credit facility at December 31, 1999.
The Company initiated two term loans in connection with the
1999 acquisitions. On August 13, 1999 and October 29, 1999,
the Company borrowed $15,000,000 and $20,000,000,
respectively, from Bank One, NA. The Company is in the process
of merging these term loans into the revolving credit loan
agreement.
Page A-4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The revolving credit facility with Bank One, NA provides for
a segregated portion of up to $40,000,000 for use by the
Company's captive finance subsidiary, Astec Financial
Services ("AFS"). Advances under this portion of the loan
agreement are limited to the "Eligible Receivables" of AFS
as defined in the loan agreement. At December 31, 1999, AFS
borrowings represented $16,870,000 of the total $47,370,000
outstanding under the loan agreement.
The Company considers the unused portion of its revolving
credit facility with Bank One, NA, coupled with cash expected
to be generated by operations, adequate to meet its
foreseeable funding needs, including planned 2000 capital
expenditures (excluding those for equipment leased to others)
of approximately $19,100,000. Capital expenditures (excluding
those for equipment leased to others) were $28,385,000 in
1999 and $18,465,000 in 1998.
For additional information on current and long-term debt, see
Note 6 to the Consolidated Financial Statements.
Contingencies
See Note 9 to Consolidated Financial Statements for
information on certain pending litigation and contingent
liabilities arising from recourse financing arrangements.
Environmental Matters
Based on information available, management believes the
Company has adequately reserved for potential environmental
liabilities and does not believe the potential liability will
materially impact the future position of the Company.
Goodwill
At December 31, 1999, goodwill totals $36,300,000, which is
21.7% of shareholders' equity and 10.3% of total assets.
Impact of Year 2000
In prior years, the Company discussed the potential impact of
Year 2000 issues and the nature and progress of its plans to
become Year 2000 compliant. In late 1999, the Company
completed remediation and testing of its systems, including
systems of recently acquired companies. In addition,
various measures were taken to notify and assist customers to
become Year 2000 compliant and the Company queried its
significant suppliers and other external agents (no external
agents share information systems with the Company) as to
their readiness for the Year 2000. As a result of those
planning and implementation efforts, the Company experienced
no significant disruptions in mission-critical information
technology and non-information technology systems and
believes those systems responded successfully to the Year
2000 issues, either with its products, its internal systems
or the products and services of third parties.
The total expensed by the Company's Year 2000 project during
1999 was approximately $200,000 and was funded by the
revolving credit line and through operating cash flows. The
Company did not develop a fully documented contingency plan
in the event it did not complete all phases of the Year 2000
project, but it did develop documented prudent preventive
measures that could have been undertaken to secure
operational capabilities in case of system failure. Those
measures included identifying secondary sources for raw
materials, goods and services; identifying alternate
manufacturing routing methods; stocking additional critical
raw materials; printing of paper documents and reports as
reference tools; and performing disaster recovery testing for
potential power interruptions or machine failures. For the
near-term, the Company intends to keep in place these
preventive measures mainly for external factors beyond the
Company's immediate control which could impact operations.
The Company designates each of the statements made by it in
this section entitled Impact of Year 2000 as a Year 2000
Readiness Disclosure. Such statements are made pursuant to
the Year 2000 Information and Readiness Disclosure Act.
Page A-5
CONSOLIDATED BALANCE SHEETS
December 31,
Assets 1999 1998
Current assets:
Cash and cash equivalents Note 1 $ 3,725,070 $ 5,352,739
Trade receivables less allowance for
doubtful accounts of $1,966,000 in
1999 and $1,460,000 in 1998 60,093,938 44,922,366
Finance receivables Note 13 9,631,998 6,189,285
Notes and other receivables 11,639,809 1,315,650
Inventories Notes 1, 3 104,841,923 76,728,969
Prepaid expenses 4,308,596 2,717,896
Refundable income taxes 1,858,886 1,168,056
Deferred tax asset Note 8 6,931,749 6,424,860
Other current assets 319,358 7,303
Total current assets 203,351,327 144,827,124
Property and equipment, net Note 4 109,388,156 81,142,117
Other assets:
Goodwill 36,299,808 12,511,530
Finance receivables Note 13 4,273,936 7,120,082
Notes receivable 493,352 1,054,987
Other 1,630,452 1,664,436
Total other assets 42,697,548 22,351,035
Total assets $355,437,031 $248,320,276
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of
long-term debt Note 6 $ 595,635 $ 646,060
Accounts payable 36,430,028 27,418,287
Customer deposits 7,040,785 11,210,413
Accrued product warranty 4,075,358 3,624,252
Accrued payroll and related liabilities 14,579,479 11,516,286
Liabilities related to
abandoned subsidiary 125,000
Other accrued liabilities 13,061,524 8,421,594
Total current liabilities 75,782,809 62,961,892
Long-term debt, less current
maturities Note 6 102,685,470 47,220,000
Deferred tax liability Note 8 5,495,869 3,091,469
Deferred retirement costs Note 7 1,332,746 970,866
Other 2,882,561 1,415,095
Total liabilities 188,179,455 115,659,322
Shareholders' equity: Notes 1, 10
Preferred stock - authorized
4,000,000 shares of $1.00 par
value; none issued
Common stock - authorized
40,000,000 shares of $.20 par
value; issued and outstanding -
19,121,062 in 1999 and
18,967,232 in 1998 3,824,227 3,793,446
Additional paid-in capital 46,918,852 44,332,177
Accumulated other comprehensive
income Note 1 266,888
Retained earnings 116,247,609 84,535,331
Total shareholders' equity 167,257,576 132,660,954
Total liabilities and shareholders'
equity $355,437,031 $248,320,276
See Notes to Consolidated Financial Statements.
Page A-6
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1999 1998 1997
Net sales $449,627,457 $363,945,191 $265,365,312
Cost of sales 335,471,243 272,040,941 200,872,181
Gross profit 114,156,214 91,904,250 64,493,131
Selling, general and
administrative expenses 56,279,937 46,796,409 36,124,728
Research and development
expenses 5,355,736 4,681,019 3,706,909
Income from operations 52,520,541 40,426,822 24,661,494
Other income (expense):
Interest expense (4,253,219) (2,708,981) (2,397,902)
Interest income 1,136,777 101,208 259,388
Other income - net 2,121,228 1,668,869 347,253
Equity in income of
joint venture 6,096 74,578 96,158
Income before income taxes 51,531,423 39,562,496 22,966,391
Income taxes Note 8 19,819,145 15,126,381 9,156,977
Net income $31,712,278 $24,436,115 $13,809,414
Earnings per Common Share
Net income:
Basic $1.66 $1.30 $.72
Diluted 1.59 1.26 .71
Weighted average number of
common shares outstanding: Note 1
Basic 19,064,516 18,799,063 19,111,880
Diluted 19,930,376 19,441,184 19,452,192
See Notes to Consolidated Financial Statements.
Page A-7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997.
Accumulated
Additional Other Total
Common Stock Pain-in Retained Comprehensive Sharholders'
Shares Amount Capital Earnings Income Equity
Balance
December 31, 1996 20,074,398 $4,014,880 $49,218,215 $46,289,802 ($ 127,150) $ 99,395,747
Net income 13,809,414 13,809,414
Other comprehensive income
Minimum pension
liability adjustment 127,150 127,150
Comprehensive income 13,936,564
Exercise of stock
options, including
tax benefit 20,000 4,000 60,975 64,975
Repurchase and
retirement of
common stock (1,453,238) (290,648) (7,491,656) (7,782,304)
Balance
December 31, 1997 18,641,160 3,728,232 41,787,534 60,099,216 105,614,982
Net and
comprehensive
income 24,436,115 24,436,115
Exercise of stock
options,
including tax
benefit 326,072 65,214 2,544,643 2,609,857
Balance
December 31, 1998 18,967,232 3,793,446 44,332,177 84,535,331 132,660,954
Net income 31,712,278 31,712,278
Other comprehensive income
Foreign currency
translation
adjustment 266,888 266,888
Comprehensive income 31,979,166
Exercise of
stock options,
including tax
benefit 139,609 27,922 2,189,534 2,217,456
Stock issued in
business
combination 14,296 2,859 397,141 400,000
Balance
December 31, 1999 19,121,137 $3,824,227 $46,918,852 $116,247,609 $266,888 $167,257,576
See Notes to Consolidated Financial Statements.
PAGE A-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1999 1998 1997
Cash Flows from Operating Activities
Net income $31,712,278 $24,436,115 $13,809,414
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 11,695,862 8,129,585 6,944,918
Provision for doubtful accounts 425,557 1,092,185 272,578
Provision for inventory reserves 1,265,120 1,289,740 418,906
Provision for warranty 1,466,176 4,048,899 2,811,009
(Gain) loss on sale of fixed
assets (146,268) (341,575) 747,112
(Gain) loss on sale of equipment
on operating lease (969,845) (956,271) (505,473)
(Gain) on sale of finance
receivables (215,730) (278,824) (158,043)
Equity in (income) loss of
joint venture (6,096) (74,578) (96,158)
(Increase) decrease in:
Receivables (6,011,492) (11,352,173) 1,005,946
Inventories (11,136,071) (3,717,271) (1,833,029)
Prepaid expenses (1,683,262) (703,735) (2,010)
Deferred tax asset 1,229,527 (723,156) 209,978
Other assets 135,646 (444,725) 261,094
Increase (decrease) in:
Accounts payable 2,025,578 2,664,949 3,867,396
Customer deposits (4,171,065) 4,094,466 4,285,052
Accrued product warranty (2,090,771) (3,828,493) (2,143,242)
Income taxes payable (329,480) (817,515) 2,880,447
Other accrued liabilities 4,380,802 5,977,639 1,885,445
Net cash provided by
operating activities 27,576,466 28,495,262 34,661,340
Cash Flows from Investing Activities
Proceeds from sale of property
and equipment - net 266,601 992,841 459,025
Expenditures for property
and equipment (28,384,787) (18,465,257) (9,043,675)
Proceeds from sale of equipment
on operating lease 29,748,064 22,609,684 15,400,539
Expenditures for equipment
on operating lease (25,216,820) (28,015,599) (16,295,790)
Additions to finance receivables
(37,820,908) (18,398,321) (13,480,827)
Collections of finance
receivables 390,450 365,514 1,349,934
Proceeds from sale of
finance receivables 28,093,482 9,820,384 12,769,861
Additions to notes receivable (1,421,804) (12,386) (116,536)
Repayments on notes receivable 898,811 229,454 758,076
Cash payments in connection
with business combinations,
net of cash acquired (52,448,406) (8,506,458) (22,383,071)
Net cash (used) by
investing activities (85,895,317) (39,380,144) (30,582,464)
See Notes to Consolidated Financial Statements.
Page A-9
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year Ended December 31,
1999 1998 1997
Cash Flows from Financing Activities
Repurchase and retirement
of common stock $(7,782,304)
Proceeds from issuance
of common stock $ 1,364,275 $1,350,510 64,975
Net borrowings under
revolving credit loan 55,788,775 3,290,000 9,908,000
Principal repayments of
industrial bonds, loans
and notes payable (503,057) (614,183) (6,725,737)
Proceeds from debt
and notes payable 41,189 9,285,000
Net cash provided (used) by
financing activities 56,691,182 13,311,327 (4,535,066)
Increase (decrease) in cash
and cash equivalents (1,627,669) 2,426,445 (456,190)
Cash and cash equivalents,
beginning of period 5,352,739 2,926,294 3,382,484
Cash and cash equivalents
end of period $3,725,070 $5,352,739 $2,926,294
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 4,425,526 $ 2,778,422 $2,369,389
Income taxes $20,472,411 $16,545,127 $8,142,405
Tax benefits related to
stock options:
Refundable income taxes $ 856,000 $ 1,159,925
Deferred tax asset 99,422
Additional paid-in capital (856,000) (1,259,347)
See Notes to Consolidated Financial Statements.
Page A-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998, and 1997.
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-