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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal
year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to
____________________
Commission file number 0-14714
ASTEC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0873631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 72787, 4101 Jerome Avenue, Chattanooga, Tennessee 37407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 867-4210
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
(Form 10-K Cover Page - Continued)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $72,401,400 based upon the closing sales price
reported by the NASDAQ National Market on March 10, 1997, using
beneficial ownership of stock rules adopted pursuant to Section 13 of
the Securities Exchange Act of 1934 to exclude voting stock owned by
all directors and executive officers of the registrant, some of whom
may not be held to be affiliates upon judicial determination.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
As of March 10, 1997
Common Stock, par value $.20 -- 10,044,199 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated
by reference into the Parts of this Annual Report on Form 10-K
indicated:
Document Form 10-K
Proxy Statement relating to Part III
Annual Meeting of Shareholders
to be held on April 24, 1997
ASTEC INDUSTRIES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Appendix A
SIGNATURES
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 and markets equipment and components
used primarily in road building and related construction activities. The
Company's products are used in each phase of road building, from
quarrying and crushing the aggregate to application of the road
surface. The Company also manufactures certain equipment and
components unrelated to road construction, including trenching and
excavating equipment, environmental remediation equipment, log
loading and industrial heat transfer equipment. The Company holds
65 United States and 63 foreign patents, and has been responsible for
many technological and engineering innovations in the industry. The
Company currently manufactures over 140 different products, which it
markets both domestically and internationally. In addition to plant and
equipment sales, the Company manufactures and sells replacement
parts for equipment in each of its product lines. The distribution and
sale of replacement parts is an integral part of the Company's
business.
The Company's seven manufacturing subsidiaries are: (i)
Astec, Inc., which manufactures a line of hot-mix asphalt plants, soil
purification and environmental remediation equipment and related
components; (ii) Telsmith, Inc., which manufactures aggregate
processing equipment for the production and classification of sand,
gravel, and crushed stone for road and other construction
applications; (iii) Heatec, Inc., which manufactures thermal oil heaters,
asphalt heaters and other heat transfer equipment used in the
Company's asphalt mixing plants and in other industries;
(iv) Roadtec, Inc., which manufactures milling machines used to
recycle asphalt and concrete, asphalt paving equipment and material
transfer vehicles; (v) Trencor, Inc., which manufactures chain and
wheel trenching equipment, excavating equipment and log loaders;
(vi) CEI Enterprises, Inc., which manufactures heat transfer
equipment and recycled rubber blending systems for the hot-mix
asphalt industry; and (vii) Production Engineered Products, Inc.
("PEP"), which designs, manufactures and markets high-frequency
vibrating screens for sand and gravel customers, as well as
customers engaged in asphalt production. In addition, PEP
incorporates the high-frequency screens in portable crushing and
screening plants serving the aggregate and industrial markets.
Astec Financial Services, Inc. ("AFS"), was formed in June
1996 as a wholly-owned subsidiary of the Company to provide a wide
range of financing products for leasing or acquiring the Company's
equipment. AFS, a captive finance company, is dedicated to working
exclusively with all the Company subsidiaries and their customers in
arranging financing for equipment. AFS provides loans, operating
leases, floor plans for dealers, fleet rental plans, and other financing
plans to meet the needs of the industry.
In 1996, we also began operations at Pavement Technology,
Inc. ("PTI"), located in Conyers, Georgia. The Company is a 50%
shareholder of PTI, which manufactures an asphalt pavement
analyzer, vibratory compactor and packages mix-design laboratory
products, that allows our customer to purchase a complete design
laboratory from one source. The pavement analyzer technology has
captured the interest of state departments of transportation and
universities as a new standard for measuring rutting, fatigue, and
water susceptibility in hot-mix asphalt. The pavement technology
product line adds a completely new dimension to the services and
equipment we are able to provide our customers.
The Company's strategy is to become the high quality, low
cost producer in each of its product lines while continuing to develop
innovative new products for its customers. Management believes that
the Company is well positioned to capitalize on the need to rebuild
and enhance roadway infrastructure, both in the United States and
abroad.
Disposition of Foreign Operating Subsidiaries
As previously disclosed, due to the disposition of Wibau-Astec
and the abandonment of Astec-Europa, the Company no longer
conducts foreign manufacturing operations and instead has decided to
concentrate all of its manufacturing activities, whether or not related to
international sales, with its more efficient domestic operations.
Products
The Company operates predominantly in a single-business
segment. In 1996 it manufactured and marketed products in five
principal categories: (i) hot-mix asphalt plants, soil purification and
environmental remediation equipment and related components; (ii)
mobile construction equipment, including asphalt pavers, milling
machines and material transfer vehicles and other auxiliary
equipment; (iii) hot oil heaters, asphalt heaters and other heat transfer
equipment; (iv) aggregates processing equipment; and (v) chain and
wheel trenching and excavating equipment. The following table
shows the Company's sales for each product category which
accounted for 10% or more of consolidated revenue for the periods
indicated.
Years Ended December 31
1996 1995 1994
(In thousands)
Asphalt plants and components $93,786 $110,321 $100,514
Aggregate processing equipment 52,739 46,586 38,823
Mobile construction equipment 37,845 29,706 30,291
Trenching and excavating equipment 23,543 21,110 25,867
Financial information in connection with the Company's international
sales is included in Note 14 to "Notes to Consolidated Financial
Statements - Segment Information," appearing at Page A-11 of this
report.
Hot-mix Asphalt Plants
Astec, Inc. designs, engineers, manufactures and markets a
complete line of portable, stationary and relocatable hot-mix asphalt
plants and related components under the "ASTEC" trademark. An
asphalt mixing plant typically consists of heating and storage
equipment for liquid asphalt (manufactured by Heatec), cold feed bins
for storing aggregates, a drum mixer for drying, heating and mixing, a
baghouse composed of air filters and other pollution control devices,
hot storage bins or silos for temporary storage of hot-mix asphalt and
a control house. The Company introduced the concept of plant
portability in 1979. Its current generation of portable asphalt plants is
marketed as the "Six Pack" and consists of six portable components
which can be disassembled and moved to the construction site to
reduce relocation expenses. Plant portability represents an industry
innovation developed and successfully marketed by the Company. In
1996, Astec, Inc. developed an improved version of the "Six Pack"
plant, making the new "Six Pack" considerably more portable and self-
erecting. This design will eliminate the use of cranes for disassembly
or erection. The enhanced version of the "Six Pack," known as the
Turbo 400, is capable of producing 400 tons-per-hour of hot-mix
asphalt. This highly portable plant is especially useful in less
populated areas where plants must be moved from job to job.
The components in the Company's asphalt mixing plants are
fully automated and use microprocessor-based control systems for
efficient operation. The plants are manufactured to meet or exceed
federal and state clean air standards.
The Company has also developed specialized asphalt
recycling equipment for use with its hot-mix asphalt plants. Many of
the existing Astec products are suited for blending, vaporizing, drying
and incinerating contaminated products. As a result, Astec, Inc. has
developed a line of thermal purification equipment for the remediation
of petroleum contaminated soil.
Mobile Construction Equipment
Roadtec, Inc., designs, engineers, manufactures and markets
asphalt pavers, material transfer vehicles, and milling machines.
Roadtec engineers emphasize simplicity, productivity, versatility and
accessibility in product design and use.
Asphalt Pavers. Asphalt pavers are used in the application of
hot-mix asphalt to the road surface. Roadtec pavers have been
designed to minimize maintenance costs while exceeding road
surface smoothness requirements. Roadtec manufactures one paver
model which must be used with a material transfer vehicle described
below.
Material Transfer Vehicles. The patented "Shuttle Buggy"TM is
a mobile, self-propelled material transfer vehicle which allows
continuous paving by separating truck unloading from the paving
process while remixing the asphalt surface material. A typical asphalt
paver must stop paving to permit truck unloading of asphalt mix. By
permitting continuous paving, the "Shuttle Buggy" TM allows the asphalt
paver to produce a smoother road surface. As a result of the
pavement smoothness achieved with this machine, certain states are
now requiring the use of the "Shuttle Buggy" TM on their jobs.
Milling Machines. Roadtec milling machines are designed to
remove old asphalt from the road surface before new asphalt mix is
applied. They are manufactured with a simplified control system, wide
conveyors, direct drives and a wide range of horsepower and cutting
capabilities to provide versatility in product application. Additional
upgrades and options were added in 1996 to enhance the products
and their capabilities.
Heat Transfer Equipment
Heatec, Inc., designs, engineers, manufactures and markets
a variety of heaters and heat transfer processing equipment under the
"HEATEC" trade name for use in various industries, including the
asphalt industry.
CEI Enterprises, Inc. (CEI), designs, engineers, manufactures
and markets heating equipment and storage tanks mainly for the
asphalt paving industry.
Asphalt Heating Equipment. Heatec manufactures a
complete line of heating and liquid storage equipment for the asphalt
paving industry. Heaters are offered in both direct-fired and helical coil
models while CEI's heating equipment is hot oil, direct fired or electric.
The equipment includes portable and stationary tank models with
capacities up to 35,000 gallons each.
Industrial Heating Equipment. Heatec builds a wide variety of
industrial heaters to fit a broad range of applications, including
equipment for emulsion plants, roofing material plants, refineries,
chemical processing, rubber plants and the agribusiness. Heatec has
the technical staff to custom design heating systems and has systems
operating as large as 40,000,000 BTU's per hour.
Aggregates Processing Equipment
Founded in 1906, Telsmith, Inc. designs, manufactures, and
markets a complete line of aggregate and mineral processing
equipment and related machinery under the "TELSMITH" trademark
for the mining, quarrying, and sand and gravel industries worldwide.
Telsmith's products include jaw, cone, and impact crushers; several
types of feeders which move virgin, recycled, or crushed material to
primary, secondary, or tertiary crushing equipment; vibrating screens
to separate the aggregate into various sizes; and washing and
conveying equipment. In metallic mining operations, Telsmith
equipment is used in primary crushing stages after the material has
been blasted from the deposit. Secondary and tertiary crushing
equipment, as well as vibrating screens, are employed in systems to
reduce the material down to sizes for grinding mill feed or leech bed
processes.
Equipment furnished by Telsmith can be purchased as
individual components, as portable plants for flexibility, or as
completely engineered systems for both portable and stationary
applications.
In 1994, Telsmith received ISO 9001 certification, the
international standard of quality assurance in the design,
development, production, installation and servicing of Telsmith's
products. This designation recognizes the quality of its products and
services in the worldwide marketplace.
Production Engineered Products, Inc. ("PEP") designs,
manufactures, and markets high-frequency vibrating screens for sand
and gravel customers, as well as customers engaged in asphalt
production. In addition, PEP incorporates the high-frequency screens
into portable crushing and screening plants serving the aggregate and
industrial markets.
Trenching and Excavating Equipment
Trencor, Inc. designs, engineers, manufactures and markets
chain and wheel trenching equipment, canal excavators, rock saws,
road miners and log-loading equipment.
Chain Trenchers. Trencor chain trenching machines utilize a
heavy duty chain (equipped with cutting teeth attached to steel plates)
wrapped around a long moveable boom. These machines, with
weights up to 400,000 pounds, are capable of cutting a trench up to
eight feet wide and thirty feet deep through rock. Trencor also makes
foundation trenchers used in areas where drilling and blasting are
prohibited.
Wheel Trenchers. Trencor wheel trenching machines are
used in pipeline excavation in soil and soft rock. The wheel trenchers
weigh up to 390,000 pounds and have a trench capacity of up to
seven feet in width and ten feet in depth.
Canal Excavator. Trencor canal excavators are used to make
finished and trimmed trapezoidal canal excavations within close
tolerances. The canals are primarily used for irrigation systems.
Rock Saws. Trencor manufactures a rock saw which is
utilized for laying water and gas lines, fiber optics cable, constructing
highway drainage systems and for other applications.
Roadminers. Trencor manufactures four "Road Miner"
models weighing up to 400,000 pounds with an attachment which
allows it to cut a path up to twelve and a half feet wide and five feet
deep on a single pass. The Roadminer has applications in the road
construction industry and in mining and aggregates processing
operations.
Log Loaders. Trencor also manufactures several different
models of log loaders. Its products include mobile/truck mounted
models, as well as track mounted and stationary models, each of
which is used in harvesting and processing wood products. The
equipment is sold under the "Log Hog" name. In 1996, due to the
depressed nature of the timber industry as a whole and the resulting
price competition it created, the Company made a decision to de-
emphasize this product line and reallocate resources to strengthen
Trencor's core product lines.
Material Processor. During 1996, Trencor developed a
machine which includes a crusher that operates independently from
the trencher to process rock and related material (spoil) removed from
the trench to make it suitable for use as a filler around pipes, cables or
other lines being installed. Patents are pending on this product.
Manufacturing
The Company manufactures many of the component parts
and related equipment for its products. In many cases, the Company
designs, engineers and manufactures custom component parts and
equipment to meet the particular needs of individual customers.
Manufacturing operations during 1996 took place at eight separate
locations. The Company's manufacturing operations consist primarily
of fabricating steel components and the assembly and testing of its
products to ensure quality control standards have been achieved.
Marketing
The Company markets its products both domestically and
internationally. The principal purchasers of the Company's products
include highway and heavy equipment contractors, utility contractors,
pipeline contractors, open mine operators, quarry operators and
foreign and domestic governmental agencies. Astec, Inc. sells directly
to its customers with domestic, soil remediation and international
sales departments. Telsmith products are sold through two leased
branch locations in San Francisco, California, and Walpole,
Massachusetts, as well as through a combination of direct sales, both
domestic and international, and dealer sales. Roadtec and Trencor
share a warehouse facility in Aurora, Illinois, that supports both their
product lines. Heatec, CEI, Roadtec, and Trencor products are
marketed through a combination of direct sales and dealer sales.
Approximately 18 manufacturers' representatives sell Heatec products
for applications in industries other than the asphalt industry with such
sales comprising approximately 30 percent of Heatec's sales volume
during 1996. Direct sales employees are paid salaries and are
generally entitled to commissions after obtaining certain sales quotas.
See "Business - Properties."
The Company's international sales efforts are decentralized,
with each subsidiary maintaining responsibility for its own international
marketing efforts.
Seminars and Technical Bulletins
The Company periodically conducts technical and service
seminars which are primarily for contractors, employees and owners
of asphalt mixing plants. In 1996, approximately 238 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 business and other industry
segments in which the Company manufactures products.
The Company also sponsors executive seminars for the
management of the customers of Astec, Inc. The seminars are taught
primarily by the management of the Company, but outside speakers
are also utilized. Five seminars with up to eighty participants each are
being held in 1997 in the newly constructed, state-of-the-art training
center at Astec, Inc.
In addition to the seminars, the Company publishes a number
of detailed technical bulletins covering 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 65
United States patents and 63 foreign patents. There are eight United
States and four foreign patent applications pending.
The Company and its subsidiaries have approximately 40
trademarks registered in the United States, including logos for Astec,
Telsmith, Roadtec and Trencor, and the names ASTEC, TELSMITH,
HEATEC, LOG HOG, ROADTEC and TRENCOR. Many of these
trademarks are also registered in foreign countries, including Canada,
Great Britain, Mexico, and Australia.
The Company and its subsidiaries also license their
technology to manufacturers.
Engineering and Product Development
The Company dedicates substantial resources to its
engineering and product development. At December 31, 1996, the
Company and its subsidiaries had 103 full-time individuals employed
domestically in engineering and design capacities.
Raw Materials
Raw materials used by the Company in the manufacture of its
products include carbon steel and various types of alloy steel, which
are normally purchased from steel mills and other sources.
Seasonality and Backlog
The Company's business is somewhat seasonal. The
Company's sales tend to be stronger from January through June each
year which is attributable largely to orders placed in the fourth quarter
in anticipation of warmer summer months when most asphalt paving is
done.
As of December 31, 1996, the Company had a backlog for
delivery of products at certain dates in the future of approximately
$44,911,000. At December 31, 1995, the total backlog was
approximately $34,751,000. The Company's backlog is subject to
some seasonality, as noted above.
The Company's contracts reflected in the backlog are not, by
their terms, subject to termination. Management believes that the
Company is in substantial compliance with all manufacturing and
delivery timetables relating to its products.
Competition
The Company faces strong competition in price, service and
product performance in each product category. While the Company
does not compete with any one manufacturer in all of its product lines,
it competes as to certain products with both large publicly-held
companies with resources significantly greater than those of the
Company and various smaller manufacturers. Hot-mix asphalt plant
competitors include CMI Corporation; Cedarapids, Inc., a subsidiary of
Raytheon Company; and Gencor Industries, Inc. Paving equipment
competitors include Caterpillar Paving Products Inc., a subsidiary of
Caterpillar, Inc.; Blaw-Knox Construction Equipment Company, a
subsidiary of Clark Equipment Co.; Ingersoll-Rand Company; and
Cedarapids, Inc.
The market for the Company's heat transfer equipment is
diverse because of the multiple applications for such equipment. Its
principal competitor is Gencor/Hyway Heat Systems. The Company's
milling machine equipment competitors include Ingersoll-Rand
Company; CMI Corporation; Cedarapids, Inc.; Caterpillar; and Wirtgen
America, Inc. Aggregates processing equipment competitors include
the Pioneer Division of Portec, Inc.; Nordberg, Inc.; Eagle Iron Works;
Boliden Allis, a member of the Trelleborg Group; Cedarapids, Inc.;
and other smaller manufacturers, both domestic and foreign.
Competition for sales of trenching and excavating equipment includes
Ditch Witch; J.I. Case; Vermeer and other smaller manufacturers in
the small utility trencher market. Astec Financial Services competitors
are General Electric Credit Corporation, The CIT Group, and Safeco
Credit Company, Inc., as well as local financial institutions.
As a whole, imports do not constitute significant competition in
the United States; however, in international sales, the Company
generally competes with foreign manufacturers which may have a
local presence in the market the Company is attempting to penetrate.
Asphalt and concrete are generally considered competitive
products as a surface choice for new roads and highways. A portion
of the interstate highway system is paved in concrete, but a majority
of all surfaced roads in the United States are paved with asphalt.
Although concrete is used for some new road surfaces, asphalt is
used for virtually all resurfacing, even the resurfacing of most concrete
roads. Management does not believe that concrete, as a competitive
surface choice, materially impacts the Company's business prospects.
Regulation
The Company does not operate within a highly regulated
industry. However, air pollution equipment manufactured by the
Company principally for hot-mix asphalt plants must comply with
certain performance standards promulgated by the federal
Environmental Protection Agency under the Clean Air Act
applicable to "new sources" or new plants. Management believes
that the Company's products meet all material requirements of such
regulations and of applicable state pollution standards and
environmental protection laws.
In addition, due to the size and weight of certain equipment,
the Company and its customers sometimes confront conflicting state
regulations on maximum weights transportable on highways and
roads. This problem occurs most frequently in the movement of
portable asphalt mixing plants. Also, some states have regulations
governing the operation of asphalt mixing plants and most states have
regulations relating to the accuracy of weights and measures which
affect some of the control systems manufactured by the Company.
Employees
On August 3, 1995, a union representation election was held
at the Trencor plant and a unit of Trencor production and maintenance
employees voted to be represented by the United States Steelworkers
of American, AFL-CIO, CLC. Trencor has filed a Petition for Review
with the United States Court of Appeals for the Fifth Circuit and
requested that the National Labor Relation Board's certification of the
election be overturned due to alleged improper activity by the union.
Trencor has requested that a new representation election be held.
The proceeding currently is pending before the United States Court of
Appeals for the Fifth Circuit.
At December 31, 1996, the Company and its subsidiaries
employed 1,457 persons, of which 916 were engaged in
manufacturing operations, 138 in engineering, including support staff,
and 403 in selling, administrative and management functions.
Telsmith has a labor agreement expiring on October 14, 1998.
Except as set forth above, none of the Company's other employees
are covered by a collective bargaining agreement. Notwithstanding
the current preceding before the United States Court of Appeals for
the Fifth Circuit, the Company considers its employee relations to be
good.
Item 2. Properties
The location, approximate square footage, acreage occupied
and principal function of the properties owned or leased by the
Company are set forth below:
Approximate Approximate
Location Square Footage Acreage Principal Function
Chattanooga, Tennessee 361,000 59.1 Corporate and sub-
sidiary offices,
manufacturing - Astec
Chattanooga, Tennessee --- 63.0 Storage yard - Astec
Chattanooga, Tennessee 66,200 5.0 Offices, manufact-
uring - Heatec
Chattanooga, Tennessee 135,000 15.1 Offices, manufact-
uring - Roadtec
Chattanooga, Tennessee 1,820 --- Offices leased for
Astec Financial
Services, Inc.
North Aurora, Illinois 16,700 3.5 Roadtec and Trencor
(sales and service
office)
San Francisco,
California 550 1.0 Leased sales and
service office -
Telsmith
Mequon, Wisconsin 203,000 30.0 Offices and manufact-
uring - Telsmith
Walnut, Illinois 28,000 3.0 Leased offices and
manufacturing - PEP
Rossville, Georgia 40,500 2.6 Manufacturing - Astec
Grapevine, Texas 175,513 51.67 Offices, manufact-
uring - Trencor
Walpole,
Massachusetts 1,800 --- Leased sales and
service office -
Telsmith
Odessa, Texas 4,072 0.8 Sales office and parts
warehouse - Trencor
Inman, South
Carolina 13,600 8.0 Leased with option
to buy (office
and warehouse of
former Soil
Purification of
Carolina, Inc.)
Houston, Texas 120 --- Leased sales office -
Heatec
Albuquerque,
New Mexico 110,700 14.0 Offices and manufact-
uring - CEI
Management believes that each of the Company's facilities
provides office or manufacturing space suitable for its current needs
and considers the terms under which it leases facilities to be
reasonable.
Item 3. Legal Proceedings
Management has reviewed all claims and lawsuits and, upon
the advice of counsel, has made provision for any estimable losses;
however, the Company is unable to predict the ultimate outcome of
the outstanding claims and lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The name, title, ages and business experience of the
executive officers of the Company are listed below.
J. Don Brock, Ph.D., P.E., has been President and a director
of the Company since its incorporation in 1972 and assumed the
additional position of Chairman of the Board in 1975. He was the
Treasurer of the Company from 1972 until 1994. From 1969 to 1972,
Dr. Brock was President of the Asphalt Division of CMI Corporation.
Dr. Brock earned his Ph.D. degree in mechanical engineering from the
Georgia Institute of Technology. Dr. Brock and Thomas R. Campbell,
President of Roadtec, are first cousins. Dr. Brock is 58.
Richard W. Bethea, Jr., became Vice President, Corporate
Counsel, and Secretary on February 1, 1997.
Mr. Bethea has been a practicing lawyer since 1978. He has an
undergraduate degree in accounting from the University of Georgia.
Before joining the Company, Mr. Bethea was a member (stockholder)
and partner with the law firm Stophel & Stophel, P. C., in
Chattanooga, Tennessee. He has served as the Company's litigation
counsel since 1983. He is 44.
F. McKamy Hall, a Certified Public Accountant, has served as
Controller of the Company since May 1987. From 1985 to 1987, Mr.
Hall was Vice President-Finance of Quadel Management Corporation,
a company engaged in real estate management. Mr. Hall has an
undergraduate degree in accounting and a Master of Business
Administration degree from the University of Tennessee at
Chattanooga. He is 54.
W. Norman Smith has served as the President of Astec, Inc.
since December 1, 1994. He formerly served as President of Heatec,
Inc., from 1977 to 1994. From 1972 to 1977, Mr. Smith was a
Regional Sales Manager with the Company. From 1969 to 1972, Mr.
Smith was an engineer with the Asphalt Division of CMI Corporation.
Mr. Smith has also served as a director of the Company since 1972.
He is 57.
Robert G. Stafford has served as President of Telsmith, Inc.
since April 1991. Between January 1987 and January 1991, Mr.
Stafford served as President of Telsmith, Inc., a subsidiary of Barber-
Greene. From 1984 until the Company's acquisition of Barber-Greene
in December 1986, Mr. Stafford was Vice President - Operations of
Barber-Greene and General Manager of Telsmith. He became a
director of the Company in March 1988. He is 58
Thomas R. Campbell has served as President of Roadtec,
Inc. since 1988. From 1981 to 1988 he served as Operations
Manager of Roadtec. Mr. Campbell and J. Don Brock, President of
the Company, are first cousins. Mr. Campbell is 47.
Roger Sandberg has served as President of Trencor, Inc.,
since October 1, 1996. Prior to that he served as Vice President of
Sales and Marketing at Roadtec, Inc. and Director of Marketing with
Astec Inc. Before joining the Company, Mr. Sandberg held various
management positions with Cedarapids, Inc., and Standard Havens,
Inc., since 1971. He is 55.
James G. May has served as President of Heatec, Inc. since
December 1, 1994. From 1984 until 1994 he served as Vice
President of Engineering of Astec, Inc. He is 52.
Albert E. Guth has been President of Astec Financial
Services, Inc. since June 1996. He served as Chief Financial Officer
of the Company from 1987 through June 1996, as Senior Vice
President since 1984, Secretary of the Company since 1972, and
Treasurer since 1994. Mr. Guth, who has been a director since 1972,
was the Vice President of the Company from 1972 until 1984. From
1969 to 1972, Mr. Guth was the Controller of the Asphalt Division of
CMI Corporation. He is 57.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
The Company's Common Stock is traded in the National
Association of Securities Dealers Automated Quotation System
(NASDAQ) National Market under the symbol "ASTE." The Company
has never paid any dividends on its Common Stock.
The high and low sales prices of the Company's Common
Stock as reported on the NASDAQ National Market for each quarter
during the last two fiscal years, are as follows:
Price Per Share
1996 High Low
1st Quarter 10 5/8 9 1/8
2nd Quarter 11 1/8 8 1/4
3rd Quarter 9 1/8 8 1/8
4th Quarter 9 3/4 8 3/8
Price Per Share
1995 High Low
1st Quarter 14 1/4 11
2nd Quarter 13 1/8 10 7/8
3rd Quarter 11 3/4 9 7/8
4th Quarter 12 1/4 9 3/4
The number of holders of record of the Company's Common Stock as
of March 10, 1997 was 696.
Item 6. Selected Financial Data
Selected financial data appear on page A-1 of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's discussion and analysis of financial condition
and results of operations appears on pages A-2 to A-5 of this Report.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information
appear on pages A-6 to A-23 of this Report.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None required to be reported in this item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's directors included under
the caption "Election of Directors - Certain Information Concerning
Nominees and Directors" in the Company's definitive Proxy Statement
to be delivered to the shareholders of the Company in connection with
the Annual Meeting of Shareholders to be held on April 24, 1997, is
incorporated herein by reference. Required information regarding the
Company's executive officers is contained in Part I of this Report
under the heading "Executive Officers of the Registrant." Information
regarding compliance with Section 16(a) of the Exchange Act is
included under "Election of Directors - Section 16(a) Filing
Requirements" in the Company's definitive Proxy Statement, which is
incorporated herein by reference.
Item 11. Executive Compensation
Information included under the caption, "Election of Directors -
Executive Compensation" in the Company's definitive Proxy
Statement to be delivered to the shareholders of the Company in
connection with the Annual Meeting of Shareholders to be held on
April 24, 1997 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information included under the captions "Election of Directors
- - Certain Information Concerning Nominees and Directors," "Election
of Directors - Common Stock Ownership of Management" and
"Election of Directors - Common Stock Ownership of Certain
Beneficial Owners" in the Company's definitive Proxy Statement to be
delivered to the shareholders of the Company in connection with the
Annual Meeting of Shareholders to be held on April 24, 1997 is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
On March 18, 1996, Dr. J. Don Brock, Chairman of the Board
and President of the Company loaned $1,178,000 to the Company to
supplement its working capital revolving credit facility. The Company
executed a demand note payable to Dr. Brock in connection with this
loan bearing interest at a rate equal to that paid to First Chicago NBD
under the Company's unsecured revolving line of credit. At the time
Dr. Brock loaned these funds to the Company, the Company's
outstanding balance under its $22,000,000 revolving credit facility was
$9,605,000. The Company was able to use the proceeds of the loan
from Dr. Brock to reduce the amount outstanding under the credit
facility. As of December 31, 1996, interest of $73,135 has been
accrued with respect to this loan.
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, 1996
and 1995.
. Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994.
. Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.
. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.
. 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:
. Report of Independent Auditors.
. Schedule VIII - Valuation and Qualifying Accounts.
(a)(3) The following Exhibits* are incorporated by reference
into or are filed with this Report:
3.1 Restated Charter of the Company
(incorporated by reference to the
Company's Registration Statement
on Form S-1, effective June 18,
1986, File No. 33-5348).
3.2 Articles of Amendment to the
Restated Charter of the Company,
effective September 12, 1988
(incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1988, File No.
0-14714).
3.3 Articles of Amendment to the
Restated Charter of the Company,
effective June 8, 1989 (incorporated
by reference to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1989, File
No. 0-14714).
3.4 Amended and Restated Bylaws of
the Company, adopted March 14,
1990 (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1989, File No. 0-14714).
4.1 Trust Indenture between City of
Mequon and Firstar Trust Company,
as Trustee, dated as of February 1,
1994 (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.2 Indenture of Trust, dated April 1,
1994, by and between Grapevine
Industrial Development Corporation
and Bank One, Texas, NA, as
Trustee (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.3 Shareholder Protection Rights
Agreement, dated December 22,
1995 (incorporated by reference to
the Company's Current Report on
Form 8-K dated December 22, 1995,
File No. 0-14714).
10.29 Lease Agreement, dated as of
August 28, 1989, between Telsmith,
Inc., and Pine Hill Developers
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1989, File No. 0-14714).
10.57 License Agreement, dated July 2,
1992, between Telsmith, Inc. and
Gerlach Industries (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1992, File No.
0-14714).
10.75 Loan Agreement between City of
Mequon, Wisconsin and Telsmith,
Inc. dated as of February 1, 1994
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1993, File No. 0-14714).
10.76 Credit Agreement by and between
Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1,
1994 (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.77 Security Agreement by and between
Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1,
1994 (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.78 Mortgage and Security Agreement
and Fixture Financing Statement by
and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of
February 1, 1994 (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1993, File No.
0-14714).
10.79 Guarantee of Astec Industries, Inc. in
favor of M&I Ilsley Bank, dated as of
February 1, 1994 (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1993, File No. 0-14714).
10.83 Loan Agreement dated as of April 1,
1994, between Grapevine Industrial
Development Corporation and
Trencor, Inc. (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1994, File No.
0-14714).
10.84 Letter of Credit Agreement, dated
April 1, 1994, between First Chicago
NBD and Trencor, Inc. (incorporated
by reference to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1994, File
No. 0-14714).
10.85 Guaranty Agreement, dated April 1,
1994, between Astec Industries, Inc.
and Bank One, Texas, NA, as
Trustee (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.86 Astec Guaranty, dated April 29,
1994, of debt of Trencor, Inc. in favor
of First Chicago NBD (incorporated
by reference to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1994, File
No. 0-14714).
10.87 Credit Agreement, dated as of July
20, 1994, between the Company and
First Chicago NBD (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1994, File No.
0-14714).
10.89 Waiver for December 31, 1994,
dated February 24, 1995 with respect
to First Chicago NBD Credit
Agreement dated July 20, 1994
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1994, File No. 0-14714).
10.90 First Amendment to Guaranty of
Payment, dated March 21, 1995 by
and between Heatec, Inc.; Roadtec,
Inc.; Trencor, Inc.; Telsmith, Inc.;
Astec Transportation, Inc.; ACI, Inc.;
Astec, Inc.; CEI Enterprises, Inc.; and
First Chicago NBD (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.91 First Amendment to Credit
Agreement, dated May 22, 1995
between the Company and First
Chicago NBD (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.92 Second Amendment to Guaranty of
Payment, dated May 22, 1995 by and
between Heatec, Inc.; Roadtec, Inc.;
Trencor, Inc.; Telsmith, Inc.; Astec
Transportation, Inc.; ACI, Inc.; Astec,
Inc.; CEI Enterprises, Inc.; and First
Chicago NBD (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.93 Guaranty of all obligations of Astec-
Europa Strassenbaumaschinen
GmbH executed by the Company in
favor of Bayerische Vereinsbank
Aktiengesellschaft, dated December
6, 1995 (incorporated by reference to
the Company's Annual Report on
Form 10-K for the year ended
December 31, 1995, File No. 0-14714).
10.94 Guaranty of a DM3,000,000 credit
facility to Gibat Ohl
Ingenieurgesellschaft fur
Anlagentechnik mbH executed by the
Company in favor of Deutsche Bank
AG, dated December 13, 1995
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1995, File No. 0-14714).
10.95 Waiver for December 31, 1995,
dated November 10, 1995 with
respect to First Chicago NBD Credit
Agreement dated July 20, 1994, as
amended (incorporated by reference
to the Company's Annual Report on
Form 10-K for the year ended
December 31, 1995, File No. 0-14714).
10.97 Limited Consent of First Chicago
NBD dated as of March 21, 1995
related to the acquisition of Trace
Industries, Inc. and the assignment of
certain assets to Astec, Inc.
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1995, File No. 0-14714).
10.98 Supplemental Executive Retirement
Plan, dated February 1, 1996 to be
effective as of January 1, 1995
(incorporated by reference to the
Company's Annual Report on Form
10-K for the year ended December
31, 1995, File No. 0-14714).
10.99 Trust under Astec Industries, Inc.
Supplemental Retirement Plan, dated
January 1, 1996 (incorporated by
reference to the Company's Annual
Report on Form 10-K for the year
ended December 31, 1995, File No. 0-14714).
10.100 Demand note dated March 18, 1996
between the Company and the
Company's Chief Executive Officer,
Dr. J. Don Brock.
10.101 Loan Agreement dated December 5,
1996 between Astec Financial
Services, Inc. and The CIT
Group/Equipment Financing, Inc. ("CIT").
10.102 Astec Industries, Inc. Guaranty dated
December 5, 1996 of Line of Credit
Agreement between Astec Financial
Services, Inc. and The CIT
Group/Equipment Finance.
11 Statement Regarding Computation of
Per Share Earnings.
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors
(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, 1996 and 1995 A-6
Consolidated Statements of Income for the Years Ended December
31, 1996, 1995 and 1994 A-7
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 A-8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 A-9
Notes to Consolidated Financial Statements A-11
Report of Independent Auditors A-24
Schedule VIII - Valuation and Qualifying Accounts A-25
ASTEC INDUSTRIES, INC.
1996 ANNUAL REPORT
Astec Industries, Inc., through its seven manufacturing
subsidiaries, designs, engineers, manufactures and markets
equipment and components used in road building and various
other construction activities. The Company's products are used
in each phase of road building, from quarrying and crushing the
aggregate to application of the road surface. The Company also
manufactures certain equipment and components unrelated to
road construction, including trenching equipment,
environmental remediation equipment, log handling equipment
and industrial heat transfer equipment.
The Company has been responsible for many technological and
engineering innovations in the road building industry and
presently holds 65 United States and 63 foreign patents and has
eight domestic and four foreign patents pending. The Company
currently manufactures over 140 different products which it
markets both domestically and internationally. In addition to
plant and equipment sales, the Company manufactures and sells
replacement parts for equipment in each of its product lines,
which is an integral part of the Company's business.
The Company's eight subsidiaries are: (i) Astec, Inc., which
manufactures a line of hot mix asphalt plants, soil purification
and environmental remediation equipment and related
components; (ii) Telsmith, Inc., which manufactures aggregate
processing equipment for the production and classification of
sand, gravel and crushed stone for road and other construction
applications; (iii) Heatec, Inc., which manufactures thermal oil
heaters, asphalt heaters and other heat transfer equipment used
in the Company's asphalt mixing plants and in other industries;
(iv) CEI Enterprises, Inc., which manufactures heating
equipment, mixing equipment, agitating tanks and storage tanks
used primarily in the asphalt paving industry; (v) Roadtec, Inc.,
which manufactures reclaiming equipment used to recycle
asphalt and concrete, asphalt paving equipment and material
transfer vehicles; (vi) Trencor, Inc., which manufactures chain
and wheel trenching equipment, excavating equipment, and
logging equipment; (vii) Production Engineered Products, Inc.,
which designs, manufactures, and markets high-frequency
vibrating screens for sand and gravel and asphalt operations;
and (viii) Astec Financial Services, Inc., which provides a wide
range of financial services for financing the purchase of Astec
products for Astec's customers.
The principal purchasers of the Company's products for road
building and related construction activities include highway and
heavy equipment contractors, utility contractors, pipeline
contractors, open mine operators, quarry operators and foreign
and domestic governmental agencies. International sales
represented approximately 17.3% of net sales for 1996 and
included sales in Canada, Mexico, Europe, the Middle East,
Asia, Africa, Australia, South America and the West Indies.
TABLE OF CONTENTS
TO OUR SHAREHOLDERS
FINANCIAL HIGHLIGHTS
CORPORATE OVERVIEW
FINANCIAL STATEMENTS
Selected Consolidated Financial Data
Quarterly Financial Highlights
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Corporate Information
Total sales for 1996 were $221,413,000 compared to
$242,601,000 during 1995. Income before income taxes for the
year ended December 31, 1996 was $7,018,000 compared to
$6,141,000 in 1995. Net income for the year ended December
31, 1996 was $4,345,000, or $0.43 per share, compared to
$4,560,000, or $0.45 per share for 1995.
We are not satisfied with the level of our profits during 1996,
which were adversely affected by unusual events at our Trencor,
Inc. subsidiary and a significant downturn in international sales
of hot-mix asphalt plants and components at our Astec, Inc.
subsidiary.
In an effort to diversify Trencor's product line, we acquired the
Log Hog log loader line in early 1994 and produced a
significant amount of inventory in anticipation of continued
high demand in the timber industry. Unfortunately, a
significant and unexpected downturn in the paper industry,
which produced a similar decline in the timber market,
substantially reduced the demand for the log loaders. This
market downturn increased price competition to the point that in
order to sell units we were experiencing unacceptable losses.
Consequently, in December we decided it was in the best
interest of the Company to de-emphasize this product line,
reduce the investment in inventory, and reallocate these
resources for further expansion of Trencor's core trencher
business. As a result, the appropriate writedowns on inventory
were taken.
We also decided to terminate Trencor's research and
development of a large mining machine for use in rock quarries
and surface mines. After two years of experimentation with a
prototype, we had doubts about the long-range cost
effectiveness of the machine, so we felt that the project should
be discontinued. This decision allowed us to redirect our
engineering resources to the trencher line to which three new
models of trenchers were added in 1996.
In 1996, Astec, Inc. experienced an 11.3% increase in domestic
sales compared to 1995, but these gains were not sufficient to
offset a decrease of approximately $25 million in the cyclical
and often unpredictable international market. Also during 1996,
Astec continued to be the industry's innovator in plant
technology as it completed the development of a new Turbo 400
ton per hour "Six Pack" plant, which we believe is the most
portable high-production asphalt plant ever built.
While 1996 was a disappointing year in terms of earnings, it
was, nevertheless, a year of successes and great progress. For
example, the Telsmith operation realized many of the
efficiencies we had hoped to achieve with our capital
investments in state-of-the-art machine tools and expanded
facilities. In December, we completed the acquisition of
Production Engineered Products, Inc. ("PEP") in Walnut,
Illinois. PEP manufactures and markets patented high-
frequency screening units for sand and gravel and asphalt
operations. PEP will be operated in conjunction with Telsmith.
We believe the high-production capacity of the PEP screens will
enhance sales of Telsmith's portable crushing plants and that
Telsmith's experienced sales force will significantly increase
sales in the PEP product lines.
Roadtec, Inc. continued to be an innovator in the paver and
milling machine markets and introduced a new model of paver
and a new model of our patented "Shuttle Buggy"TM which is
a market leader in the material transfer vehicle market.
Heatec, Inc. also had a good year. Even though sales of Astec,
Inc., Heatec's largest customer, declined in 1996, Heatec's sales
increased and it is currently adding to its manufacturing facility.
We also acquired a new facility for CEI, Inc. These additions
should position Heatec and CEI for continuing growth,
particularly in the western United States.
In a further effort to enhance the strength of our core businesses,
during 1996 we formed a new subsidiary, Astec Financial
Services, Inc., which will offer our customers access to capital
financing through a lender that better understands the equipment
being purchased and the road construction industry in general.
Albert E. Guth, former Senior Vice President and Chief
Financial Officer of Astec Industries, Inc., is President of this
new subsidiary.
In 1996, we also began operations at Pavement Technology,
Inc. located in Conyers, Georgia. Astec Industries, Inc. is a
50% shareholder of this company, which manufactures an
asphalt pavement analyzer and a vibratory compactor and
packages mix-design laboratory products. These products allow
our customers to purchase a complete design laboratory from
one source. The pavement analyzer technology has captured the
interest of state departments of transportation and universities as
a new standard for measuring rutting, fatigue, and water
susceptibility in hot-mix asphalt. The pavement technology
product line adds a completely new dimension to the services
and equipment we are able to provide our customers.
We never take our shareholders for granted, and we deeply
appreciate your patience with us over the last two years. Quite
candidly, we are not happy with the profits we have earned over
the past two years, and we have taken a hard look at our
operations in order to make the changes necessary to maximize
our profit potential in the future. We believe we have done that
and that we are strategically positioned to reap the benefits. Our
Company has the largest share of the hot-mix asphalt plant,
asphalt heater, and large custom trencher markets. We are
among the leaders in rock crushers, milling machines, and
asphalt pavers, and we believe that our technology, much of
which is patented, is the most innovative and reliable in the
world today.
Astec Industries, Inc. went public approximately ten years ago
in June 1986. While the amount and consistency of our profits
has not been satisfactory to us, we are proud of the overall
performance of the Company which we intend to enhance. For
example, on September 30, 1986, our net worth was
$17,803,000. By December 31, 1996 our net worth had risen to
$99,393,000. On a per-share basis, the net worth of the
Company was $3.04 on September 30, 1986, and had increased
to $9.84 per share by December 31, 1996, representing a
compounded growth rate of net worth of approximately 12.1%
per year.
Our mission in 1997 is the expansion and enhancement of our
core businesses and improvement of the return on our
shareholders' investments. We believe we will fulfill that
mission and will set a new standard of performance that will
continue into the future. We deeply appreciate the trust,
confidence, and support of our customers, employees, and
especially our stockholders.
Sincerely,
/s/ J. Don Brock
J. Don Brock, Ph.D., P.E.
Chairman of the Board and Chief Executive Officer
FINANCIAL HIGHLIGHTS
(in thousands, except as noted *)
Percent
Increase
1996 1995 (Decrease)
Operating Results
Net sales $221,413 $242,601 (8.7)%
Patent suit damages and
expenses 264 699 (62.2)%
Loss on abandonment
of foreign subsidiary 7,037
Pre-tax income 7,018 6,141 14.3%
Net income 4,345 4,560 (4.7)%
Financial Position
Working capital $69,884 $58,015 20.5%
Shareholders' equity 99,393 95,901 3.6%
Per Common Share
Net income* $0.43 $0.45 (4.4)%
Book value per
common share at
year-end* 9.84 9.50 3.6%
Other Data
Weighted average
number of common
and common equivalent
shares outstanding 10,047 10,072
Common shareholders -
approximate* 700 750
Employees* 1,457 1,402
CORPORATE OVERVIEW
Astec Industries, Inc. and its operating subsidiaries share a
commitment of providing quality equipment for rebuilding
infrastructure, both domestically and internationally. From rock
to road, each company provides a critical function in the road
building process. Using the latest design and manufacturing
technology, these companies provide the most modern and
innovative equipment available today.
Hot Mix Asphalt Plants
Astec, Inc. designs, engineers, manufactures and markets a
complete line of portable, stationary, and relocatable hot mix
asphalt plants and related components under the "ASTEC"
trademark. An asphalt mixing plant consists of heating and
storage equipment (manufactured by Heatec or CEI) for liquid
asphalt, cold feed bins for storing aggregates, a drum mixer, a
baghouse composed of air filters and other pollution control
devices, hot storage bins or silos for temporary storage of hot
mix asphalt and a control house. The Company introduced the
concept of plant portability in 1979. Its current generation of
portable asphalt plants is marketed as the "Six Pack" and
consists of six portable components which can be disassembled
and moved to the construction site to reduce relocation
expenses. Plant portability represents an industry innovation
developed and successfully marketed by the Company.
In 1996, Astec, Inc. developed an improved version of the "Six
Pack" plant, making the new "Six Pack" considerably more
portable and self-erecting. This design will eliminate the use of
cranes for disassembly or re-erection. The enhanced version of
the "Six Pack," known as the Turbo 400, is capable of
producing 400 tons per hour of hot mix asphalt. This highly
portable plant is especially useful in less populated areas where
plants must be moved from job to job.
The components in the company's asphalt mixing plants are
fully automated and use microprocessor-based control systems
for efficient operation. The plants are manufactured to meet or
exceed federal and state clean air standards.
Many of the existing Astec products are suited for blending,
vaporizing, drying and incinerating contaminated products. As a
result, Astec, Inc. has developed a line of thermal purification
equipment for the remediation of petroleum contaminated soil.
Mobile Construction Equipment
Roadtec designs, engineers, manufactures and markets asphalt
pavers, material transfer vehicles and milling machines.
Roadtec engineers emphasize simplicity, productivity,
versatility and accessibility in product design and use.
Asphalt Pavers. Asphalt pavers are used in the application of
hot mix asphalt to the road surface. Roadtec pavers have been
designed to minimize maintenance costs while exceeding road
surface smoothness requirements.
Material Transfer Vehicles. The "Shuttle Buggy" is a mobile,
self-propelled material transfer vehicle which allows continuous
paving by separating truck unloading from the paving process
while remixing the asphalt surface material. A typical asphalt
paver must stop paving to permit truck unloading of the asphalt
mix. By permitting continuous paving, the "Shuttle Buggy"
allows the asphalt paver to produce a smoother road surface.
Milling Machines. Roadtec milling machines are designed to
remove old asphalt from the road surface before new hot mix
asphalt is applied. They are manufactured with a simplified
control system, wide conveyors, direct drives and a wide range
of horsepower and cutting capabilities to provide versatility in
product application.
Heat Transfer Equipment
Heatec designs, engineers, manufactures and markets a variety
of heaters and heat transfer processing equipment under the
"HEATEC" trade name for use in various industries including
the asphalt industry. CEI Enterprises ("CEI") designs,
manufactures and markets heating equipment and storage tanks
primarily for the asphalt paving industry, and markets
equipment under the CEI name.
Asphalt Heating Equipment. Heatec manufactures direct-fired
and helical coil heaters for the asphalt industry, while CEI's
heating equipment is hot oil, direct fired or electric. CEI and
Heatec make a wide range of models that are both portable and
stationary in capacities up to 35,000 gallons. Heatec and CEI
both manufacture rubber blending and mixing systems.
Industrial Heating Equipment. Heatec also builds a wide variety
of industrial heaters to fit a broad range of applications,
including equipment for emulsion plants, roofing material
plants, refineries, chemical processing, rubber plants and the
agribusiness. Heatec has the technical staff to custom design
heating systems and has systems operating as large as
40,000,000 BTUs per hour.
Aggregates Processing Equipment
Founded in 1906, Telsmith, Inc. designs, manufactures, and
markets a complete line of aggregate and mineral processing
equipment and related machinery under the "TELSMITH"
trademark for the mining, quarrying, and sand and gravel
industries worldwide. Telsmith's products include jaw, cone,
and impact crushers; several types of feeders which move
virgin, recycled, or crushed material to primary, secondary, or
tertiary crushing equipment; vibrating screens to separate the
aggregate into various sizes; and washing and conveying
equipment. In metallic mining operations, Telsmith equipment
is used in primary crushing stages after the material has been
blasted from the deposit. Secondary and tertiary crushing
equipment, as well as vibrating equipment, are employed in
Telsmith systems to reduce the material down to sizes for
grinding mill feed or leech bed processes.
Equipment furnished by Telsmith can be purchased as
individual components, as portable plants for flexibility, or as
completely engineered systems for both portable and stationary
applications.
In 1994, Telsmith received ISO 9001 certification, the
international standard of quality assurance in the design,
development, production, installation, and servicing of our
products. This designation is a recognition of the quality of our
products and services in the worldwide marketplace.
Production Engineered Products, Inc. ("PEP") designs,
manufactures, and markets high-frequency vibrating screens for
sand and gravel and asphalt operations. In addition, PEP
incorporates the high-frequency screens into portable crushing
and screening plants serving the aggregate and industrial
markets.
Trenching and Excavating Equipment
Trencor designs, manufactures and markets chain and wheel
trenching equipment, canal excavators, rock saws, roadminers
and log handling equipment.
Chain Trenchers. Trencor chain trenching machines utilize a
heavy duty chain (equipped with cutting teeth attached to steel
plates) wrapped around a long movable boom. These machines,
with weights up to 400,000 pounds, are capable of cutting a
trench up to eight feet wide and thirty feet deep. Trencor also
makes foundation trenchers used in areas where drilling and
blasting are prohibited.
Wheel Trenchers. Trencor wheel trenching machines are used in
pipeline excavation in soil and soft rock. The wheel trenchers
weigh up to 390,000 pounds and have a trench capacity of up to
seven feet in width and ten feet in depth.
Canal Excavators. Trencor canal excavators are used to make
finished and trimmed trapezoidal canal excavations within close
tolerances. The canals are primarily used for irrigation systems.
Material Processors. During 1996, Trencor developed a
machine which includes a crusher that operates independent of
the trencher to process rock and related material (spoil) removed
from the trench to make it suitable for use as a filler around
pipes, cables or other lines being installed. Patents are pending
on this product.
Rock Saws. Trencor manufactures a rock saw which is utilized
for laying water and gas lines, fiber optics cable, constructing
highway drainage systems and for other applications.
Roadminers. The "Roadminer" is a 400,000 pound unit
manufactured by Trencor with an attachment which allows it to
cut a path up to twelve and a half feet wide and five feet deep on
a single pass. The Roadminer has applications in the road
construction industry and in mining and aggregates processing
operations.
Log Loaders. Trencor also manufactures several different
models of log loaders. Its products include mobile/truck
mounted models, as well as track mounted and stationary
models, each of which is used in harvesting and processing
wood products. The equipment is sold under the Log Hog name.
Asphalt, Mix Design, and Quality Control Testing Equipment
In 1996, Pavement Technology, Inc. was formed and is located
in Conyers, Georgia. Astec Industries, Inc. is a 50%
shareholder of this company, which manufactures an asphalt
pavement analyzer, vibratory compactor and packages mix-
design laboratory products, that allow our customers to
purchase a complete design laboratory from one source. The
pavement analyzer technology has captured the interest of state
departments of transportation and universities as a new standard
for measuring rutting, fatigue, and water susceptibility in hot-
mix asphalt. The pavement technology product line adds a
completely new dimension to the services and equipment we are
able to provide our customers.
Captive Finance Business
Astec Financial Services, Inc. was formed in June 1996 as a
wholly-owned subsidiary of Astec Industries, Inc. to provide a
wide range of financing products for the Company's equipment.
AFS, a captive finance company, is dedicated to working
exclusively with all of the Company's subsidiaries and their
customers in arranging financing for the Company's equipment.
AFS has provided loans, operating leases, floor plans for
dealers, fleet rental plans and has developed financing plans to
meet the needs of the industry.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except as noted *)
1996 1995 1994 1993 1992
Consolidated Income
Statement Data
Net sales $221,413 $242,601 $213,806 $172,801 $149,133
Selling, general and
administrative expenses 35,082 34,326 31,142 28,624 23,969
Research and development 5,868 5,128 3,166 2,923 2,580
Patent suit damages
and expenses (net
recoveries and accrual
adjustments) 264 699 (14,947) 375 567
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 8,051 2,566 27,236 9,974 7,058
Interest expense 1,656 2,125 713 1,788 3,241
Net income 4,345 4,560 23,436 9,338 6,014
Income per common share*(1) .43 .45 2.38 1.07 .82
Consolidated Balance
Sheet Data
Working capital $ 69,884 $ 58,015 $ 53,000 $40,767 $33,641
Total assets 167,853 154,356 155,964 102,967 87,885
Total short-term debt 2,051 774 8,573 10 3,103
Long-term debt, less
current maturities 30,497 17,150 16,155 22,660
Shareholders' equity 99,393 95,901 90,373 64,105 27,631
Book value per common
share at year-end*(1) 9.84 9.50 9.04 6.54 3.78
Quarterly Financial Highlights (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996
Net sales $ 59,570 $ 63,212 $ 47,182 $ 51,449
Gross profit 13,822 15,305 11,284 8,854
Net income 2,826 2,245 1,021 (1,747)
Net income per
common share* .28 .22 .10 (.17)
1995
Net sales $ 57,544 $ 70,368 $ 65,015 $ 49,674
Gross profit 13,637 14,011 13,298 8,811
Net income 2,516 4,730 2,768 (5,454)
Net income per
common share* .25 .47 .27 (.54)
Common Stock Price*
1996 High 10-5/8 11-1/8 9-1/8 9-3/4
1996 Low 9-1/8 8-1/4 8-1/8 8-3/8
1995 High 14-1/4 13-1/8 11-3/4 12-1/4
1995 Low 11 10-7/8 9-7/8 9-3/4
The Company's common stock is traded on the National
Association of Securities Dealers Automated Quotation
(NASDAQ) National Market under the symbol ASTE. Prices
shown are the high and low bid prices as announced by
NASDAQ. The Company has never paid any dividends on its
common stock.
The number of shareholders of record is approximately 700.
(1) Restated to retroactively reflect the two-for-one stock split
effected in the form of a dividend on August 12, 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
1996 vs. 1995
Net income for 1996 was $4,345,000, or $.43 per share,
compared to net income of $4,560,000, or $.45 per share, in
1995. Net income for 1995 included losses of approximately
$4,279,000 relative to the Company's former German
subsidiaries, Astec-Europa and Wibau-Astec, while pre-tax
income for 1996 was reduced by approximately $3,000,000 due
to various fourth quarter charges. Net income from domestic
operations was $4,345,000 in 1996 compared to $8,840,000 in
1995. This decrease was principally attributed to the fourth
quarter charges taken in connection with the discontinuance and
writedown of a newly-developed mining machine product line,
increases in inventory reserves related to the Company's log
loader business, and additional litigation expenses incurred by
the Company. The Company also experienced a $25,447,000
decline in international asphalt plant sales from domestic
operations from 1995 to 1996. This decline had a significant
adverse impact on net income for 1996. In addition, the
Company experienced an increase in income tax expense of
approximately $870,000 in 1996 due to an increase in the
effective income tax rate applicable to the Company. This also
contributed to the decrease in net income from domestic
operations for 1996.
Net sales for 1996 were $221,413,000, a decrease of
$21,188,000, or approximately 8.7% compared to 1995.
Excluding sales of $24,748,000 related to German operations
which were disposed of in 1995, 1996 sales increased by
$3,560,000, or 1.6% and domestic sales increased by
$24,216,000 in 1996 compared to 1995. This increase in
domestic sales is principally attributed to strong sales in mobile
equipment, rock crushing equipment, a slight improvement in
sales of trencher equipment, and increased domestic sales of
asphalt plants. However, this increase in domestic sales was
offset by a $20,656,000 decrease in international sales,
primarily as a result of a $25,447,000 decline in international
sales of asphalt plants. International sales by domestic
subsidiaries were 17.3% of total sales in 1996 compared to
24.3% of total sales in 1995.
The gross profit margin for 1996 was 22.3% compared to 20.5%
for 1995. This increase reflects the improvement attributable to
the disposition of German operations in 1995 where gross profit
margin was low. Domestic operations' gross profit margin for
1996 was 22.3% compared to 22.5% for 1995.
In 1996, selling, general, and administrative expenses increased
to 15.8% of net sales from 14.1% in 1995. In 1995, selling,
general, and administrative expenses were 14.0%, excluding the
German operations. ConExpo, an equipment show which
occurs once every three years, accounted for .4% of the
increase. As a percentage, the additional increase is attributed
to the reduction in net sales for 1996, increased sales
accommodations on the log loader product line, increased
selling expenses primarily related to salaries, travel, and
entertainment expenses at all subsidiaries, and product
demonstration expenses at the Roadtec subsidiary.
Research and development expenses increased from 2.1% of net
sales in 1995 to 2.6% in 1996. Excluding the German
operations, research and development expenses were 1.3% in
1995. This increase in 1996 was principally attributed to the
product development expenses related to a prototype mining
machine which will be discontinued in 1997.
Interest expense for 1996 decreased to .8% of sales from .9% of
sales in 1995. The decrease resulted from reduced average
borrowings and lower average interest rates during 1996.
Other income decreased by $5,076,000 from 1995 to 1996.
Excluding German operations, the decrease was only $525,000.
The 1995 other income, excluding Germany, included gains on
the sale of fixed assets, primarily related to the sale of the
former manufacturing facility operated by Telsmith, Inc., but no
such comparable gains occurred in 1996.
Income tax expense for 1996 was $2,673,000, or approximately
38.1% of pre-tax income, compared to $1,580,000, or
approximately 25.7%, of pre-tax income in 1995. The variance
from the normal corporate tax rate in 1995 was primarily
attributed to a lower effective tax rate related to the Company's
foreign operations. The Company has previously utilized the
majority of its tax credit carryforwards, therefore, the
Company's tax rate for 1996 and subsequent years will
approximate the normal corporate rate.
The backlog at December 31, 1996 was $44,911,000 compared
to $34,751,000 at December 31, 1995, representing a 29.2%
increase which was principally attributed to increased domestic
asphalt plant orders. The Company is unable to determine
whether this increase in backlog was experienced by the
industry as a whole or whether it reflects an increase of market
share. While this backlog reflects a positive development,
management does not believe this increase represents a trend,
but is attributed to periodic fluctuations in sales volume given
the nature of the Company's products and customers. In
contrast to the strong domestic market, international asphalt
plant orders continue to be slow and unpredictable. In an effort
to improve international asphalt plant sales, the Company is
reviewing its international sales efforts and developing a plan to
add agents in Singapore, Malaysia, and Indonesia, as well as
increase its participation in international trade shows in 1997.
The Company will also hold a service school for Spanish-
speaking customers in 1997.
Results of Operations
1995 vs. 1994
Net income for 1995 was $4,560,000 or $.45 per share
compared to net income of $23,436,000 or $2.38 per share in
1994. Net income for 1994 included $14,947,000 in non-
recurring gains as a result of final judgments entered in
connection with the CMI litigation. The decline in 1995 also
reflects a $7,037,000 loss resulting from the abandonment of
Astec-Europa, as well as continuing losses from foreign
operations during 1995. Income before income taxes was
$6,141,000 in 1995 compared to $25,737,000 in 1994.
This is shown in the following table:
Year Ended December 31,
1995 1994
Income before income taxes $ 6,141,000 $ 25,737,000
Patent suit recoveries - CMI litigation (14,947,000)
Gain on sale of Wibau-Astec (2,449,000)
Loss on abandonment of Astec-Europa 7,037,000
Loss from foreign subsidiaries 3,598,000 5,366,000
Adjusted pre-tax income from domestic
operations 14,327,000 16,156,000
Income taxes for domestic operations (5,487,000) (916,000)
Net income from domestic operations $ 8,840,000 $ 15,240,000
The decrease in adjusted pre-tax income for domestic operations
of $1,829,000 in 1995 as compared to 1994 was the result of
increased gross profit margin due to increased sales of domestic
subsidiaries which were more than offset by increased interest
and research and development expenses, and a decrease in other
income from domestic subsidiaries.
Net sales for 1995 were $242,601,000, an increase of
$28,795,000 or approximately 13.5% compared to 1994. Of
this increase, $14,615,000 is attributable to the acquisition of
Gibat Ohl and the acquisition of the remaining 50% interest in
Wibau-Astec. CEI, which was acquired in 1995, accounted for
$3,543,000 in sales. Excluding the increase from the German
operations and the CEI acquisition, sales increased $10,637,000
or 5.2%. International sales by domestic subsidiaries were
24.3% of total sales in both 1995 and 1994. The net increase in
sales reflected a strong sales increase in asphalt plants, heaters
and rock crushing equipment, but reduced sales in mobile
equipment and trenchers.
The gross profit margin for 1995 was 20.5% compared to 22.5%
for 1994. This decrease was primarily due to lower gross profit
margins from our foreign operations which had gross profit
margins of 3.4% in 1995 compared to 11.4% in 1994.
Domestic operations gross profit margin for 1995 was 22.5%
compared to 23.0% for 1994.
In 1995, selling, general, and administrative expenses decreased
to 14.1% of net sales from 14.6% in 1994.
The Gencor patent litigation accounted for $699,000 of legal
fees which were included in 1995 patent damages and expenses.
Research and development expenses increased from 1.5% of net
sales in 1994 to 2.1% in 1995, primarily due to foreign
operations.
As noted above, income from operations was significantly
impacted by the losses of Astec-Europa in 1995. The total pre-
tax loss, including the cost of abandonment, was approximately
$9,945,000. Astec-Europa incurred pre-tax operating losses in
1995 of approximately $2,908,000. Due to Astec-Europa's
poor operating results and its negative net worth at December
31, 1995, the Company declined to contribute additional capital
to Astec-Europa, and elected instead to abandon the subsidiary
in accordance with German law. Astec-Europa management
filed a request for bankruptcy in Germany on February 9, 1996.
Consequently, the Company was not required to fund Astec-
Europa's liabilities except for certain liabilities previously
guaranteed by the Company. The loss on abandonment of
approximately $7,037,000 included the liabilities of Astec-
Europa that were guaranteed by the Company and the remainder
of the original investment recorded on the books of the
Company.
Interest expense for 1995 increased to .9% of net sales from .3%
in 1994. The increase resulted from increased inventories in
anticipation of sales which did not materialize and investment in
capital expenditures of $15,160,000.
Other income increased by approximately $722,000 or 36.7% in
1995, resulting primarily from Astec-Europa (formerly Gibat
Ohl) receiving $1,430,000 to settle various claims related to
Astec-Europa's business operations. The gain on sale of foreign
subsidiary of $2,449,000 in 1995 was due to the sale of Wibau-
Astec as described in Note 2 to Consolidated Financial
Statements.
Income tax expense for 1995 was $1,580,000, or approximately
25.7% of pre-tax income compared to $2,300,000, or
approximately 8.9% of pre-tax income in 1994. The reason for
the variance from the normal corporate tax rate in 1994 was the
utilization of net operating loss carryforwards and establishment
of a deferred tax benefit relative to net deductible temporary
differences which could be recovered against future taxes or
taxes previously paid. The variance in 1995 was primarily
attributed to foreign operations. See Note 9 to Consolidated
Financial Statements. Due to the utilization of the majority of
its credit carryforwards, the Company's tax rate for 1996 and
subsequent years will approximate the normal corporate rate.
The backlog at December 31, 1995 was $34,751,000 compared
to $50,465,000 at December 31, 1994 which represented a
31.1% decrease. The Company's backlog for 1994 was
unusually large primarily due to the optimism of many of our
major customers about the strength of the economy and
increased demand resulting from the renewed emphasis to
rebuild infrastructure.
Liquidity and Capital Resources
Working capital increased to $69,884,000 at December
31, 1996 from $58,015,000 at December 31, 1995. The Company's
debt-to-equity ratio was .33 to 1.00 at December 31, 1996 and .19 to 1.00 at
December 31, 1995. The Company's principal source of liquidity in 1996
was its borrowings under current and newly-obtained credit
facilities.
Total short-term borrowings, including current maturities of
long-term debt, were $2,051,000 at December 31, 1996 and
$774,000 at December 31, 1995. Included in short-term
borrowings at December 31, 1996 was a loan from the
Company's Chief Executive Officer, Dr. J. Don Brock, dated
March 18, 1996, in the amount of $1,078,000. The principal
and all accrued interest on the loan calculated at the Company's
current borrowing rate under its revolving credit facility with
First Chicago NBD, was repaid to Dr. Brock on January 6,
1997. Long-term debt, less current maturities was $30,497,000
at December 31, 1996 and $17,150,000 at December 31, 1995.
The majority of the increase in long-term debt related to
increased usage of the Company's revolving line of credit.
Contributing to the significant increase was payment of
$3,049,000 for liabilities guaranteed by the Company related to
the 1995 abandonment of Astec-Europa operations, capital
expenditures of $8,708,000, and an increase in finance
receivables of $5,226,000 related to the operations of Astec
Financial Services, Inc., which began in June 1996.
Capital expenditures of $8,708,000 were made in 1996 as
compared to capital expenditures in 1995 of $15,160,000.
The Company has an unsecured revolving credit loan agreement
with First Chicago NBD. The line of credit is $22,000,000.
This credit facility expires June 30, 1999. At December 31,
1996, $13,322,000 of the line of credit was utilized. Principal
covenants under the First Chicago credit agreement include (i)
the maintenance of certain levels of net worth and compliance
with certain current, leverage, interest expense, and fixed charge
ratios, (ii) a limitation on capital expenditures, (iii) a prohibition
against dividends, and (iv) a prohibition on large acquisitions
except upon the consent of the lenders. The Company was in
compliance with all financial covenants related to the above
loan agreement at December 31, 1996.
In addition to the Company's $22,000,000 revolving credit
facility, Astec Financial Services, Inc. established a
$15,000,000 line of credit with The CIT Group/Equipment
Financing. At December 31, 1996, Astec Financial Services, Inc. had utilized
$2,508,000 of this line. Advances under this line are limited to
"Eligible Receivables" of Astec Financial Services, Inc. as
defined in the credit agreement. Principal covenants under the
CIT Group credit agreement are substantially the same as those
of the First Chicago credit facility with the exception of a
minimum net worth requirement for Astec Financial Services,
Inc. The Company and Astec Financial Services, Inc. were in
compliance with all financial covenants related to the CIT line
of credit at December 31, 1996.
In 1996, year-end trade receivables rose to $30,040,000 from
$27,075,000 at December 31, 1995 with slower receivable
turnaround being the primary reason for the increase. Inventory
levels increased $881,000 during 1996 with the increase in
ending inventory of asphalt plants and aggregate processing
products offset by decreased ending inventory of asphalt paving
equipment.
For additional information on current and long-term debt, see
Note 7 to the Consolidated Financial Statements.
Contingencies
See Note 10 to Consolidated Financial Statements for
information on certain pending litigation and contingent
liabilities arising from recourse financing arrangements.
Environmental Matters
Based on information available from environmental
consultants, the Company has no material reserve requirements
for potential environmental liabilities.
Forward Looking Statments
The Company may from time to time make forward-looking statements, including
statements contained in the Company's filings with the Securities and Exchange
Commission (the "Commission") and its reports to shareholders. Statements
made in this annual report on Form 10-K, other than those concerning historical
information, should be considered forward-looking and subject to various
risks and uncertainties. Such foward-looking statements are made based on
management's belief as of the date thereof as well as assumptions made
by, and information currently available to, management pursuant to "safe
habor" provisions of the Private Securities Litigation Reform Act of 1995.
The Company's actual results may differ materially from the results anticipated
in these forward-looking statements due to a variety of factors, including,
without limitation: the effects of future economic conditions; the amount of
federal, state and local governmental revenues to support road building
and related activities, and the effects of competition in the design,
engineering, and manufacturing of equipment and components used in road
building and various other consturction activities. The Company does not
undertake to update any forward-looking statement that may be made from
time to time by, or on behalf of, the Company.
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
Assets Current assets:
Cash and cash equivalents Note 1 $ 3,382,484 $ 3,133,070
Trade receivables less allowance
for doubtful accounts of $1,267,000
in 1996 and $1,279,000 in 1995 30,039,813 27,075,401
Finance receivables Note15 3,371,513
Notes and other receivables 1,191,223 596,134
Inventories Note 1 56,764,085 55,882,679
Prepaid expenses 1,967,999 894,593
Refundable income taxes 2,071,063 2,341,849
Deferred tax asset Note 9 5,534,950 6,667,052
Other current assets 4,169 5,214
Total current assets 104,327,299 96,595,992
Property and equipment, net Note 5 54,317,352 51,709,033
Other assets:
Goodwill 5,285,051 4,066,152
Finance receivables Note 15 1,854,443
Notes receivable 320,000 572,829
Deferred tax asset Note 9 442,458
Other 1,306,113 1,412,326
Total other assets 9,208,065 6,051,307
Total $ 167,852,716 $ 154,356,332
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term
debt Note 7 $ 2,051,003 $ 774,274
Accounts payable 14,613,782 15,877,964
Customer deposits 2,150,852 4,989,557
Accrued product warranty 2,364,705 2,470,775
Deferred tax liability Note 9 173,388
Accrued insurance 2,672,274 2,783,246
Amounts payable in business combination 2,405,145
Liabilities related to abandoned
subsidiary Note 3 593,886 3,643,077
Other accrued liabilities 7,418,242 8,041,719
Total current liabilities 34,443,277 38,580,612
Long-term debt, less current
maturities Note 7 30,496,734 17,150,000
Deferred tax liability Note 9 2,838,024 2,351,283
Deferred retirement costs Note 8 544,911 373,310
Other 136,842
Total liabilities 68,459,788 58,455,205
Shareholders' equity: Note 1,11
Preferred stock - authorized 2,000,000
shares of $1.00 par value; none issued
Common stock - authorized 20,000,000
shares of $.20 par value; issued and
outstanding - 10,101,199 in 1996 and
10,092,199 in 1995 2,020,240 2,018,440
Additional paid-in-capital 51,980,855 51,940,580
Retained earnings 46,286,983 41,942,107
Minimum pension liability adjustment (127,150)
100,160,928 95,901,127
Less common stock in treasury at
cost - 64,000 shares in 1996 (768,000)
Total shareholders' equity 99,392,928 95,901,127
Total $ 167,852,716 $ 154,356,332
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
Net sales $ 221,412,796 $ 242,601,351 $ 213,806,411
Cost of sales 172,147,913 192,844,160 165,709,245
Gross profit 49,264,883 49,757,191 48,097,166
Selling, general, and
administrative expenses 35,081,800 34,325,974 31,142,335
Research and
development expenses 5,867,909 5,128,495 3,165,795
Patent suit damages and
expenses (net recoveries
and accrual adjustments) Note 10 263,978 699,222 (14,947,498)
Restructuring costs Note 12 1,500,469
Loss on abandonment
of foreign subsidiary Note 3 7,037,105
Income from operations 8,051,196 2,566,395 27,236,065
Other income (expense):
Interest expense (1,656,466) (2,125,261) (712,853)
Interest income 386,646 565,724 426,489
Other income - net 247,434 2,685,161 1,963,633
Gain on sale of foreign
subsidiary Note 2 2,448,551
Equity in loss of joint
venture Note 2 (10,652) (3,176,834)
Income before income taxes 7,018,158 6,140,570 25,736,500
Income taxes Note 9 2,673,282 1,580,210 2,300,126
Net income $ 4,344,876 $ 4,560,360 $ 23,436,374
Earnings per Common and
Common Equivalent Share:
Net income $ .43 $ .45 $ 2.38
Weighted average number of
common and common
equivalent shares
outstanding Note 1 10,047,442 10,071,930 9,843,980
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995, and 1994
Foreign
Common Stock Additional Currency Pension Common
Note 1 Paid-in Translation Retained Liability Stock in
Shares Amount Capital Adjustment Earnings Adjustment Treasury
Balance
December 31, 1993 9,795,402 $1,959,080 $48,200,446 $13,945,373
Issuance of common
stock 206,429 41,286 2,700,462
Change during year $ 89,975
Net income 23,436,374
Balance
December 31, 1994 10,001,831 2,000,366 50,900,908 89,975 37,381,747
Issuance of common
stock 90,368 18,074 1,039,672
Change during year (89,975)
Net income 4,560,360
Balance
December 31, 1995 10,092,199 2,018,440 51,940,580 41,942,107
Issuance of common
stock 9,000 1,800 40,275
Common stock acquired
for treasury - 64,000
shares $(768,000)
Minimum pension liability
adjustment $(127,150)
Net income 4,344,876
Balance
December 31, 1996 10,101,199 $2,020,240 $51,980,855 $0 $46,286,983 $(127,150) $(768,000)
[FN] See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
Cash Flows From
Operating Activities
Net income $ 4,344,876 $ 4,560,360 $ 23,436,374
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 5,812,723 5,697,862 3,941,871
Provision for doubtful accounts 157,183 533,136 362,089
Provision for inventory reserves 1,231,828 1,196,876 3,621,218
Provision for warranty 3,018,990 3,194,240 2,616,565
Provision for patent damages
(net recoveries and
accrual adjustments) (13,250,048)
Foreign currency translation
adjustment (74,519) 89,975
(Gain) loss on sale of fixed assets 59,118 (263,195) 322,587
(Gain) on sale of finance
receivables (67,492)
Equity in loss of joint venture 10,652 3,176,834
Gain on sale of foreign subsidiary (2,448,551)
Loss on abandonment of foreign
subsidiary 7,037,105
(Increase) decrease in:
Receivables (3,855,177) (2,551,526) (7,660,990)
Inventories (1,353,245) (5,921,052) (3,537,955)
Prepaid expenses (991,145) (2,071,266) (803,177)
Patent damage escrow funds 12,309,420
Deferred tax asset 1,349,773 413,524 (4,156,695)
Other assets 196,607 (993,322) (1,916,921)
Increase (decrease) in:
Accounts payable (1,383,256) 6,062,733 2,138,449
Customer deposits (2,838,705) (1,211,925) (1,738,643)
Accrued product warranty (3,127,860) (3,433,374) (2,256,128)
Income taxes payable 270,786 (1,117,518) 400,355
Other accrued liabilities (3,723,984) (2,373,657) (947,201)
Total adjustments (5,233,204) 1,675,571 (7,288,395)
Net cash (used) provided by
operating activities (888,328) 6,235,931 16,147,979
Cash Flows From Investing Activities
Proceeds from sale of property
and equipment - net 1,202,335 953,766 307,099
Expenditures for property
and equipment (8,707,987) (15,159,921) (21,886,011)
Additions to finance receivables (8,333,293)
Collections of finance receivables 536,089
Proceeds from sale of finance
receivables 2,638,739
Cash received in connection
with sale of subsidiary (36,687)
Cash balance abandoned
with subsidiary (203,643)
Additions to notes receivable (60,000)
Repayments on notes receivable 901,233 95,256 600,499
Investment in joint venture (100,000) (635,700)
Cash payments in connection
with business combination, net
of cash acquired 164,794 (834,591) 1,447,965
Net cash (used by) investing
activities (11,758,090) (15,185,820) (20,166,148)
Cash Flows From Financing Activities
Proceeds from industrial bonds $ 14,000,000
Purchase of treasury shares $ (768,000)
Proceeds from issuance of
common stock 42,075 $ 9,750 34,750
Net borrowings under
revolving credit loan 11,680,000 1,495,000 2,655,000
Principal repayments of industrial
bonds, loans and notes payable (1,027,023) (1,523,213) (5,658,355)
Proceeds from debt and notes payable 2,968,780 1,629,978
Net cash provided by
financing activities 12,895,832 1,611,515 11,031,395
Increase (decrease) in cash and
cash equivalents 249,414 (7,338,374) 7,013,226
Cash and cash equivalents,
beginning of period 3,133,070 10,471,444 3,458,218
Cash and cash equivalents
end of period $ 3,382,484 $ 3,133,070 $ 10,471,444
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 1,572,642 $ 1,800,598 $ 595,767
Income taxes $ 3,466,100 $ 5,088,465 $ 282,709
Excluded from the Consolidated
Statements of Cash Flows were
the following effects of non-cash
investing and financing activities:
Non-cash business combination:
Investment in subsidiary $ 2,405,145
Accrued liability (2,405,145)
Non-cash transfer of assets:
Trade receivables $ 1,200,000
Notes receivables (1,200 000)
Capital stock issued for purchase
of subsidiary:
Investment in subsidiary $ 1,047,996 $ 2,706,996
Capital stock (17,467) (39,871)
Additional paid-in-capital (1,030,529) (2,667,125)
Non-cash purchase of assets:
Property, plant and equipment, $ 547,587
Accrued liability (547,587)
Non-cash assets assumed in
connection with recourse
customer financing:
Notes receivables, $ 369,229
Inventory (369,229)
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995, and 1994
1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements
include the accounts of Astec Industries, Inc. and its
subsidiaries. The Company's wholly-owned subsidiaries at
December 31, 1996, are as follows:
Astec, Inc. Production Engineered Products, Inc.
Astec Financial Services, Inc. Roadtec, Inc.
CEI Enterprises, Inc. Telsmith, Inc.
Heatec, Inc. Trencor, Inc.
All significant intercompany transactions have been eliminated
in consolidation.
The Company's investment in a 50% owned joint venture,
Pavement Technology, Inc., is accounted for on an equity basis.
As discussed in Notes 2 and 3, in 1995 the Company sold
Wibau-Astec Maschinenfabrik GmbH ("Wibau-Astec") and
abandoned Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik
("Gibat Ohl").
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents - The Company considers all highly liquid
instruments purchased with a maturity of less than three months
to be cash equivalents.
Inventories - Inventories (excluding used equipment) are stated
at the lower of first-in, first-out cost or market. Used equipment
inventories are stated on the specific unit cost method, which in
the aggregate is less than market.
Property and Equipment - Property and equipment is stated at
cost. Depreciation is calculated for financial reporting purposes
using the straight-line method based on the estimated useful
lives of the assets as follows: buildings - 40 years and
equipment - 3 to 10 years. Both accelerated and straight-line
methods are used for tax reporting purposes.
Goodwill - Goodwill represents the excess of cost over the fair
value of net assets acquired. Goodwill amounts are being
amortized using the straight-line method over twenty years.
Additions to goodwill in 1996 reflect the purchase of
Production Engineered Products, Inc.
Product Warranty - The Company provides product warranties
against defects in materials and workmanship for periods
ranging from ninety days to one year following the date of sale.
Estimated costs of product warranties are charged to cost of
sales in the period of the sale.
Income Taxes - Income taxes have been provided using the
liability method in accordance with SFAS No. 109 "Accounting
for Income Taxes".
Revenue Recognition - A portion of the Company's equipment
sales represents equipment produced in the Company's plants
under short-term contracts for a specific customer project or
equipment designed to meet a customer's specific requirements.
Equipment revenues are recognized in compliance with the
terms and conditions of each contract, which is ordinarily at the
time the equipment is shipped. Certain contracts include terms
and conditions through which the Company recognized
revenues upon completion of equipment production which is
subsequently stored at the Company's plant at the customer's
request. Revenue is recorded on such contracts upon the
customer's assumption of title and all risks of ownership.
Advertising Expense - The cost of advertising is expensed as
incurred. The Company incurred $2,661,000, $2,199,000, and
$1,504,000 in advertising costs during 1996, 1995, and 1994,
respectively.
Foreign Currency Translation - The financial statements of
foreign subsidiaries have been translated into U.S. Dollars in
accordance with SFAS No. 52, "Foreign Currency Translation."
All balance sheet accounts have been translated using the
exchange rate in effect at the balance sheet date. Income
statement amounts have been translated using the average
exchange rate for the year. The gains and losses resulting from
the changes in exchange rates from year to year have been
reported separately as a component of shareholders' equity.
Stock Based Compensation - The Company grants stock options
for a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant. The
Company accounts for stock options granted in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation
expense for the stock option grants. The Company adopted
SFAS No. 123, "Accounting for Stock-based Compensation," in
1996 and is utilizing the disclosure only option permitted by the
statement. See Note 11.
Earnings Per Share - Primary and fully diluted earnings per
share are based on the weighted average number of common
and common equivalent shares outstanding and include the
potentially dilutive effects of the exercise of stock options in
years where there are earnings. Fully diluted earnings per share
are not presented for 1996, 1995, or 1994 since the dilution is
not material.
Impairment of Assets - In 1995, the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." SFAS No. 121
requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. During 1995, events and
circumstances indicated that approximately $4,400,000 of assets
of the Company's subsidiary, Astec-Europa might be impaired.
As further discussed in Note 3, these assets were written off in
connection with the abandonment of Astec-Europa.
Reclassifications - Certain amounts for 1995 and 1994 have
been reclassified to conform with the 1996 presentation.
2. Business Combinations
Effective December 1, 1996, the Company acquired the
operating assets and liabilities of Production Engineered
Products, Inc. ("PEP") in exchange for $2,405,145 in cash. The
operations of PEP are included in the consolidated statements of
income from the effective date of acquisition. The transaction
was accounted for as a purchase and the purchase price of
$2,405,145 was allocated to the net tangible assets acquired
based on the estimated fair market value of the assets acquired.
The excess of the purchase price over the fair market value of
PEP's net tangible assets was recorded as goodwill and is being
amortized using the straight-line method over 20 years.
On February 28, 1995, the Company acquired
the operating assets and liabilities of Trace Industries, Inc., a
New Mexico corporation doing business as CEI Enterprises
("CEI"), in exchange for 87,333 shares of the Company's
common stock and approximately $852,000 in cash. The
operations of CEI are included in the consolidated statements of
income from the effective date o