Back to GetFilings.com
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, 1998
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 $558,547,413 based upon the closing sales
price reported by the NASDAQ National Market on
March 8, 1999, 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 8, 1999
Common Stock, par value $.20 - 19,014,380 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 22, 1999
ASTEC INDUSTRIES, INC.
1998 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 A-1
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, markets, and finances equipment and components used primarily
in road building and related construction activities. The Company's products
are used in each phase of road building, from quarrying and crushing
the aggregate to application of the road surface. In addition, the
Company is partner in a joint venture that makes testing and sampling equipment
for the asphalt mix and aggregate processing industries. The Company also
manufactures certain equipment and components unrelated to road construction,
including trenching and excavating equipment, environmental remediation
equipment, and industrial heat transfer equipment. The
Company holds 99 United States and 64 foreign patents, has 39 patent
applications pending, and has been responsible for many technological and
engineering innovations in the industry. The Company currently
manufactures over 150 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 nine manufacturing subsidiaries are: (i) Astec, Inc., which
manufactures a line of hot-mix asphalt plants, soil purification and
environmental remediation equipment and related components; (ii) Heatec,
Inc., which manufactures thermal oil heaters, asphalt heaters
and other heat transfer equipment used in the Company's asphalt
mixing plants and in other industries; (iii) CEI Enterprises, Inc., which
manufactures heat transfer equipment and recycled rubber blending systems for
the hot-mix asphalt industry; (iv) Telsmith, Inc., which manufactures
aggregate processing equipment for the production and classification
of sand, gravel, and crushed stone for road and other construction
applications; (v) Kolberg-Pioneer, Inc., which manufactures aggregate
processing equipment for the crushed stone, manufactured sand,
recycle, top soil and remediation markets; (vi) Johnson Crushers
International, Inc. ("JCI") which manufactures portable and stationary
aggregate and ore processing equipment; (vii) Production Engineered Products,
Inc., which designs, manufactures and markets high-frequency vibrating
screens for sand and gravel and asphalt operations; (viii) Roadtec,
Inc., which manufactures milling machines used to recycle asphalt and concrete,
asphalt paving equipment and material transfer vehicles; and (ix) Trencor,
Inc., which manufactures chain and wheel trenching equipment and excavating
equipment.
Astec Financial Services, Inc. ("AFS") was formed in June 1996
as a wholly-owned subsidiary of the Company to provide a wide range of
financing products for leasing or acquiring the Company's equipment. AFS, a
captive finance company, is dedicated to working exclusively with the
Company's subsidiaries and their customers in arranging financing for the
Company's equipment. AFS provides loans, operating leases, floor plans for
dealers, fleet rental plans, and other financing plans to meet the needs of the
industry.
The Company is a 50% shareholder of Pavement Technology, Inc.
("PTI"). PTI manufactures innovative testing and sampling equipment and
packages design laboratory products, which allows 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
pavement performance of hot-mix asphalt. The pavement technology product line
enhances the services and equipment we are able to provide our customers.
The Company's strategy is to become the low-cost producer in
each of its product lines for any given product while continuing to develop
innovative new products and provide first class service for its customers.
Management believes that the Company is the technological
innovator in the markets in which it operates and is well positioned
to capitalize on the need to rebuild and enhance roadway infrastructure, both
in the United States and abroad.
Segment Reporting
In 1998, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which changes the way the
Company reports information about its operating segments. The information for
1996 and 1997 has been restated in order to conform to current presentation
requirements.
The Company's business units have separate management teams and
offer different products and services. The business units have been aggregated
into three reportable business segments based upon the nature of the product or
services produced, the type of customer for the products and the nature of the
production process. The reportable business segments are (i) Hot-mix Asphalt
Plant and Related Heat Transfer Equipment, (ii) Aggregate Processing
Equipment and (iii) Mobile Construction Equipment. All remaining
business units are included in the "Other" category for reporting.
Financial information in connection with the Company's financial
reporting for segments of a business under SFAS 131 is included in Note 12 to
"Notes to Consolidated Financial Statements - Operations by Industry Segment
and Geographic Area," appearing at Page A-23 of this report.
Hot-mix Asphalt Plants and Related Heat Transfer Equipment
The Hot-Mix Asphalt Plants and Related Heat Transfer Equipment
segment is made up of three business units-Astec, Inc., Heatec, Inc. and CEI
Enterprises, Inc. These business units design, manufacture and market a
complete line of asphalt plants and related components,
heating and heat transfer processing equipment and storage tanks for
the asphalt paving and other non-related industries.
Products
Astec, Inc. designs, engineers, manufactures and markets a complete
line of portable, stationary and relocatable hot-mix asphalt plants and related
components under the "ASTEC" trademark. An asphalt mixing plant typically
consists of heating and storage equipment for liquid
asphalt (manufactured by Heatec), cold feed bins for storing
aggregates, a drum mixer for drying, heating and mixing, a baghouse composed of
air filters and other pollution control devices, hot storage bins or silos for
temporary storage of hot-mix asphalt and a control house.
The Company introduced the concept of plant portability in 1979.
Its current generation of portable asphalt plants is marketed as the Six
PackTM and consists of six portable components, which can be disassembled and
moved to the construction site to reduce relocation expenses.
Plant portability represents an industry innovation developed and
successfully marketed by the Company. In 1996, an improved version of the Six
PackTM plant was developed, making it considerably more portable and
self-erecting. This design eliminated the use of cranes for
disassembly or erection. The enhanced version of the Six PackTM,
known as the Turbo Six PackTM, is a highly portable plant which is especially
useful in less populated areas where plants must be moved from job to job.
The components in Astec's asphalt mixing plants are fully
automated and use microprocessor-based control systems for efficient operation.
The plants are manufactured to meet or exceed federal and state clean air
standards.
The Company has also developed specialized asphalt recycling
equipment for use with its hot-mix asphalt plants. Many of its existing
products are suited for blending; vaporizing, drying and incinerating
contaminated products. As a result, Astec has developed a line of
thermal purification equipment for the remediation of petroleum
contaminated soil.
Heatec, Inc., designs, engineers, manufactures and markets a variety
of heaters and heat transfer processing equipment under the "HEATEC(r)"
trade mark for use in various industries, including the asphalt industry.
It manufactures a complete line of heating and liquid storage equipment for
the asphalt paving industry and heaters are offered in both direct-fired
and helical coil models. In addition, Heatec builds a wide variety
of industrial heaters to fit a broad range of applications, including equipment
for emulsion plants, roofing material plants, refineries, chemical processing,
rubber plants and the agribusiness. Heatec has the technical
staff to custom design heating systems and has systems operating as
large as 40,000,000 BTU's per hour. CEI Enterprises, Inc. (CEI), designs,
engineers, manufactures and markets heating equipment and storage tanks mainly
for the asphalt paving industry. While Heatec's equipment
employs a direct-fired and helical coil heating process, CEI's
equipment uses hot oil, direct fired or electric heating processes. CEI's
equipment includes portable and stationary tank models with capacities up to
35,000 gallons each.
Marketing
The Company markets its hot-mix asphalt and heat transfer products
both domestically and internationally. The principal purchasers of asphalt and
related equipment include highway contractors and foreign and domestic
governmental agencies. Asphalt equipment is sold
directly to its customers with domestic, soil remediation and
international sales departments. Outside dealers are not used to market
hot-mix asphalt products, but International agents are
used to market asphalt plants and their components.
Heatec equipment is marketed through both direct sales and dealer
sales. Approximately 18 manufacturers' representatives sell heating
products for applications in industries other than the asphalt industry with
such sales comprising approximately 20% of heating equipment volume during
1998. CEI equipment is marketed only through direct sales.
Direct sales employees are paid salaries and are generally entitled
to commissions after obtaining certain sales quotas.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from
steel mills and other sources. Raw materials for manufacturing are all readily
available and some steel is delivered on a "just-in-time" arrangement from
the supplier to reduce inventory requirements at the manufacturing facility.
Competition
This industry segment faces strong competition in price, service and
product performance and competes with both large publicly held companies
with resources significantly greater than those of the Company and with various
smaller manufacturers. Hot-mix asphalt plant competitors include CMI
Corporation; Cedarapids, Inc. a subsidiary of Raytheon Company;
and Gencor Industries, Inc. The market for the Company's heat
transfer equipment is diverse because of the multiple applications for such
equipment. Competitors for heating equipment include Gencor/Hyway Heat
Systems, American Heating, Gentec, and GTX Systems.
Employees
At December 31, 1998 the Hot-mix Asphalt Plant and Heat Transfer
Equipment segment employed 922 individuals, of which, 728 were engaged in
manufacturing, 73 in engineering and 121 in selling, general and administrative
functions.
Backlog
The backlog for the Hot-mix Asphalt and Heat Transfer Equipment
segment at December 31, 1998 and 1997 was approximately $56,520,000 and
$42,281,000, respectively.
Aggregate Processing Equipment
The Company's Aggregate Group is comprised of four business
units that are focused on the aggregate, metallic mining, and recycle markets.
Each subsidiary achieves its strength by distributing products into niche
markets and drawing on the advantages of brand recognition
in the global market. The business units in this group are Telsmith, Inc.,
Kolberg-Pioneer, Inc., Production Engineered Products, Inc. and Johnson
Crushers International, Inc.
Products
Telsmith, Inc. is the oldest subsidiary of the group, founded in
1906. The primary markets served under the Telsmith trade name are the
aggregate and metallic mining industries. Telsmith's core products are
the cone (Gyrasphere(r)), jaw and impact crushers, which are
recognized for their reliability. A wide range of vibrating feeders
for primary crushing operations are complemented with large vibrating screens
for the difficult scalping applications, and sizing screens to handle the
most rigorous specifications of finished aggregate products. Telsmith also
offers all their products as portables that are easily relocated to
quarry sites to minimize the costs of transporting crushed stone. Equipment
furnished by Telsmith can be purchased as individual components, as portable
plants for flexibility, or as completely engineered systems for
both portable and stationary applications.
The stringent demands for quality aggregate to meet the
specifications of the "Superpave" asphalt mixes has led to Telsmith's
development of the "Silver Bullet" narrow band
cone crusher, which provides unparalleled results in producing a
cubical product, as well as enhancing overall machine productivity.
In metallic mining operations, Telsmith(r) equipment is used in
primary crushing stages after the material has been blasted from the deposit.
Secondary and tertiary crushing equipment, as well as vibrating screens, are
employed in systems to reduce the material down to sizes for grinding mill
feed or leech bed processes.
In 1994, Telsmith received ISO 9001 certification, the
international standard of quality assurance in the design, development,
production, installation and servicing of their products.
This designation is recognition of the quality of Telsmith products
and services in the worldwide marketplace.
Kolberg-Pioneer, Inc. ("KPI") designs, manufactures and supports a
complete line of aggregate processing equipment for the sand and gravel,
mining, quarry and concrete recycle markets. KPI manufactures the
well-known Pioneer and Kolberg product lines.
Pioneer products include a complete line of primary, secondary,
tertiary and quaternary crushers, including jaws, cones, horizontal shaft
impactors, vertical shaft impactors and roll crushers. Kolberg-Pioneer rock
crushers are used by mining, quarry and sand and
gravel producers to crush oversized aggregate to salable size.
Feeders are used to transfer aggregate into crushing operations. Crusher
efficiency is increased as fines bypass the crusher.
Feeders include apron, vibrating grizzly, and heavy-duty models.
Kolberg's sand classifying and washing equipment is relied upon to
clean, segregate and re-blend deposits to meet the fineness modules and sand
equivalent specifications for critical applications. The product line includes
fine and coarse material washers, log washers
and blade mills. Screening plants are available in both stationary
and highly portable models. A full line of radial, stacking, overland and
specialty conveyors complete the aggregate equipment line of products.
Kolberg-Pioneer manufactures conveyors designed to move or store
aggregate and other bulk materials, typically in a radial cone-shaped
stockpile. Models offered include road portable, telescoping stationary,
and overland styles.
In addition, Kolberg manufactures pugmills which are highly
efficient homogenous mixing chambers consisting of twin shafts with timed,
overlapping paddles used for soil remediation, cement-treated base and cold-mix
asphalt. Pugmills are typically combined with either a bulk storage silo for
introducing dry additives, or with a pump for liquids.
Production Engineered Products, Inc. ("PEP") designs, manufactures,
and markets high-frequency vibrating screens for sand and gravel customers, as
well as customers engaged in asphalt production. In addition, PEP incorporates
the high-frequency screens into portable crushing and screening plants serving
he aggregate and industrial markets. High-frequency screens are adept in
separating out small mesh particles where conventional screens are not
ideally suited. The recent development of the "Fold 'n Go" plant
allows operators to separate sized and produce stockpiles with a minimum of
set-up time.
Johnson Crushers International, Inc. ("JCI") designs, manufactures
and distributes portable and stationary aggregate and ore processing
equipment. This equipment is used in the aggregate, mining and recycle
industries. The principal products are cone crushers, three shaft
horizontal screens, portable chassis and replacement parts for
competitive equipment. JCI offers completely re-manufactured, used cone
crushers and screens from its service repair facility.
JCI(tm) cone crushers are used primarily in secondary and tertiary
crushing applications, and come in both manual and remotely adjusted models.
Horizontal screens are low profile machines for use primarily in portable
applications. They are used to separate aggregate materials by sizes.
Portable plants combine various configurations of cone crushers, horizontal
screens, and conveyors mounted on a tow-away chassis.
Because today's transportation costs are high, producers use
portable equipment to operate nearer to their job site. Portable plants allow
the aggregate producers to quickly and efficiently move their equipment from
one location to another.
Marketing
Aggregate processing equipment is marketed domestically using
a leased sales branch in Lakeville, Massachusetts and direct and dealer sales.
Products are marketed internationally using direct sales and outside dealers.
Aggregate processing equipment is marketed by 28 direct sales employees and
by approximately 100 independent domestic distributors. Telsmith
and JCI share a leased sales office in Denver, Colorado from which
one inside salesman operates. The principal purchasers of aggregate processing
equipment include highway and heavy equipment contractors, open mine operators,
quarry operators and foreign and domestic governmental agencies.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from steel
mills and other sources. Raw materials for manufacturing are all readily
available.
Competition
The aggregate processing equipment segment faces strong
competition in price, service and product performance. Aggregate processing
equipment competitors include Svedala; Greystone; Cedarapids, Inc.; Nordberg,
Inc.; Powerscreen; Deister; Seco/Hewitt Robins; Eagle
Iron Works; Finley; Universal and other smaller manufacturers, both
domestic and international.
Employees
At December 31, 1998 the Aggregate Processing Equipment segment
employed 823 individuals, of which, 615 were engaged in manufacturing, 70 in
engineering and support functions, and 138 in selling, general and
administrative functions.
Backlog
At December 31, 1998 and 1997, the backlog for the Aggregate
Processing Equipment segment was approximately $28,900,000 and $20,713,000,
respectively. The 1997 backlog is adjusted for the acquisition of JCI, Inc.
Mobile Construction Equipment
The Mobile Construction Equipment includes the business unit
Roadtec, Inc. which designs, engineers, manufactures and markets asphalt
pavers, material transfer vehicles, and milling machines. Roadtec engineers
emphasize simplicity, productivity, versatility and accessibility in product
design and use.
Products
Roadtec's patented Shuttle 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 asphalt mix. By permitting continuous paving, the
Shuttle Buggy 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.
Recent studies using infrared technology have revealed problems
caused by differential cooling of the hot-mix during hauling. The Shuttle Buggy
remixes the material to a uniform temperature, eliminating the problem.
Asphalt pavers are used in the application of hot-mix asphalt to the
road surface. Roadtec pavers have been designed to minimize maintenance costs
while exceeding road surface smoothness requirements. Roadtec also manufactures
a paver model that must be used with the material transfer vehicle described
above.
Roadtec milling machines are designed to remove old asphalt
from the road surface before new asphalt mix is applied. They are manufactured
with a simplified control system, wide conveyors, direct drives and a wide
range of horsepower and cutting capabilities to provide
versatility in product application. Additional upgrades and options
are available to enhance the products and their capabilities.
Marketing
Mobile Construction Equipment is marketed both domestically
and internationally to highway and heavy equipment contractors, utility
contractors and foreign and domestic governmental agencies. Mobile
construction equipment is marketed both directly and through
dealers. This segment employs 13 direct sales staff, 29 foreign
independent distributors and 1 domestic independent distributor.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from
steel mills and other sources. Raw materials for manufacturing are all readily
available.
Competition
The paving equipment segment faces equally strong competition
in price, service and performance, as do the Company's other operating segments.
Mobile equipment competitors include Caterpillar Paving Products, Inc., a
subsidiary of Caterpillar, Inc.; Blaw-Knox Construction Equipment Company, a
subsidiary of Ingersoll-Rand Company; and Cedarapids,
Inc. The segment's milling machine equipment competitors include CMI
Corporation; Cedarapids, Inc.; Caterpillar, Inc.; and Wirtgen America, Inc.
Employees
At December 31, 1998 the Mobile Construction Equipment segment
employed 300 individuals, of which, 226 were engaged in manufacturing, 19 in
engineering and support functions, and 55 in selling, general and
administrative functions.
Backlog
The backlog for the Mobile Construction Equipment segment at
December 31, 1998 and 1997 was approximately $4,200,000 and $2,200,000,
respectively.
Others Business Units
This category consists of the Company's four other business
units that do not meet the requirements for separate disclosure as an operating
segment. These other operating units include Trencor, Inc., Astec Financial
Services, Inc., Astec Transportation, Inc. and the parent company Astec
Industries, Inc. Revenues in this category are derived predominantly from the
sale of trenching and excavating equipment and from operating leases
owned by the Company's finance subsidiary.
Products
Trencor, Inc. designs, engineers, manufactures and markets
chain and wheel trenching equipment, canal excavators, rock saws, material
processors and road miners.
Trencor's chain trenching machines utilize a heavy-duty chain
(equipped with cutting teeth attached to steel plates) wrapped around a long
moveable boom. These machines, with weights up to 450,000 pounds, are capable
of cutting a trench up to eight feet wide and thirty-five feet deep through
rock. Trencor also makes foundation trenchers used in areas where
drilling and blasting are prohibited. In addition, the wheel
trenching machines are used in pipeline excavation in soil and soft rock.
The wheel trenchers weigh up to 390,000 pounds and have a trench capacity of
up to seven feet in width and ten feet in depth.
Trencor canal excavators are used to make finished and trimmed
trapezoidal canal excavations within close tolerances primarily for irrigation
systems. The rock saw is used to lay water and gas lines, fiber optic cable,
and for constructing highway drainage systems, among other applications.
Four Road Miner(r) models are available with an attachment that
allows them to cut a path up to twelve and a half feet wide and five feet deep
on a single pass. The Road Miner(r) has applications in the road
construction industry and in mining and aggregate processing operations.
Finally, Trencor manufactures a material processor which
includes a crusher that operates independently from the trencher to process
rock and related material (spoil) removed from the trench to make it suitable
for use as a filler around pipes, cables or other lines being installed.
Competition
Competition for sales of trenching and excavating equipment
includes Ditch Witch; J.I. Case; Tesmec; Vermeer and other smaller
manufacturers in the small utility trencher market. Competitors of the
captive finance company include General Electric Credit Corporation, The
CIT Group, and Safeco Credit Company, Inc., as well as local
financial institutions.
Common to All Operating Segments
Although the Company has three reportable business segments, certain
information applies to all operating segments of the Company the reportable
segments and those operations included in the "Other" category.
Regulations
None of the Company's operating segments operate within highly
regulated industries. 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.
Requirement to comply with federal, state and local provisions
that regulate the discharge of materials into the environment or that
otherwise relate to the protection of the environment have no material
effect on capital expenditures, earnings, or the Company's competitive
position within the market.
Employees
At December 31, 1998 the Company and its subsidiaries employed
2,285 persons, of which 1,724 were engaged in manufacturing operations, 180 in
engineering, including support staff, and 381 in selling, administrative and
management functions. Telsmith has a labor agreement expiring on October 13,
2001. Except as set forth above, none of the Company's other employees are
covered by a collective bargaining agreement. Notwithstanding the current
proceeding before the National Labor Relations Board, the Company
considers its employee relations to be good.
On August 3, 1995, a union representation election was held at the
Trencor plant and a unit of Trencor production and maintenance employees voted
to be represented by the United States Steelworkers of American, AFL-CIO, CLC.
Trencor filed a Petition for Review with the United States Court of Appeals
for the Fifth Circuit and requested that the National Labor
Relation Board's certification of the election be overturned due to
alleged improper activity by the union. Trencor requested that a new
representation election be held. Recently, in response to
Trencor's appeal, the United States Court of Appeals for the Fifth
Circuit returned the matter to the National Labor Relations Board and ordered
that an evidentiary hearing on Trencor's complaints be held before an
administrative law judge. That hearing was held on January 15,
1998 with the administrative law judge rejecting Trencor's claims.
Consequently, Trencor appealed the decision to the National Labor Relations
Board which upheld the administrative law judge's ruling. Trencor appealed
to the U.S. Court of Appeals for the Fifth Circuit where it is still pending.
Risk Factors
Acquisition Strategy; Integration of Acquired Businesses
As part of its growth strategy, the Company intends to evaluate the
acquisitions of other companies, assets or product lines that would complement
or expand its existing businesses or broaden its customer relationships.
Although the Company conducts due diligence reviews of
potential acquisition candidates, the Company may not be able to
identify all material liabilities or risks related to potential acquisition
candidates. There can be no assurance that the Company
will be able to locate and acquire any business, retain key
personnel and customers of an acquired business or integrate any acquired
business successfully, including its recent acquisitions.
Competition
The Company faces strong competition in price, service and
product performance in each of its product lines. While the Company does not
compete with any one manufacturer in all of its product lines, it does
compete as to certain products with both large publicly-held
companies with resources significantly greater than the Company and
various smaller manufacturers. Furthermore, demand for the Company's products
is generally affected by economic conditions in the United States. A weak
domestic economy could result in increased competition and reduced margins on
sales of the Company's products.
Imports do not constitute significant competition for most of
the Company's products marketed in the United States. In connection with its
international sales, however, the Company generally competes with foreign
manufacturers which may have a local presence in the market
that the Company is attempting to penetrate. The competition of
foreign manufacturers and weak foreign economies could have a material impact
on the Company's international sales and results of operations.
Regulation
The Company does not operate within a highly regulated
industry. However, air pollution equipment manufactured by the Company
principally for hot mix asphalt plants must
comply with certain performance standards promulgated by the
Environmental Protection Agency under the Clean Air Act applicable to
"new sources" or new plants. While the Company's products are designed to meet
or exceed current regulatory requirements and
applicable state pollution standards and environmental protection
laws, there can be no assurance that any future changes to such requirements
will not adversely affect the Company. In addition, due the size and weight of
certain component equipment which the Company
manufacturers, the Company and its customers sometimes confront
conflicting state regulations on maximum weights transportable on highways and
roads. Also, some states have regulations governing the operation of the
Company's component equipment, including asphalt mixing plants and soil
remediation equipment, and most states have regulations relating to the
accuracy of weights and measures which affect some of the control systems
manufactured by the Company.
Year 2000 Compliance
Many existing computer systems and applications, and other
control devices use only two digits to identify a year in the date field,
without considering the impact of the upcoming
change in the century. As a result, such systems and applications
could fail or create erroneous results unless corrected so that they can
process data related to the year 2000. The Company
relies on its computer systems, applications and devices in
operating and monitoring all major aspects of its business. The Company has
for some time been pursuing a Year 2000 compliance program. The Company
believes that with modifications or replacements of existing
software and certain hardware, the Year 2000 issue will be
mitigated. However, if the Company is unable to make the required
modifications and replacements, or are if they are not made on a
timely basis, the Year 2000 issue could have a material impact on
the operations of the Company.
Product Liability
The Company is engaged in a business that could expose it to
possible liability claims for personal injury or property damage due to alleged
design or manufacturing defects in the Company's products. The Company
believes that it meets existing professional specification
standards recognized or required in the industries in which it
operates. Although the Company currently maintains product liability coverage
which it believes is adequate for the continued
operation of its business, such insurance may prove inadequate or
become difficult to obtain or unobtainable in the future on terms acceptable to
the Company.
Seasonality and Cyclicality in Operating Results
The Company's business can generally be characterized as
seasonal with sales tending to be stronger in the first and second quarters to
fill orders placed in the fourth quarter of the
preceding year in anticipation of warmer summer months when most
asphalt paving and heavy construction work is performed. The Company's
business is also somewhat cyclical with operating results typically affected by
general economic conditions and other factors affecting
the construction industry as a whole. Historically, during periods
of a weak domestic economy, economic pressures have adversely affected the
construction industry and have resulted in increased competition and reduced
margins on sales of the Company's products.
International Exposure
During fiscal year 1998, international sales represented
approximately 19.1% of the Company's total revenues. The Company anticipates
that international operations will continue
to account for a portion of its business for the foreseeable
future. As a result, the Company may be subject to certain risks, including
difficulty in managing distributors and dealers, adverse
tax consequences, political and economic instability of governments,
and difficulty in accounts receivable collection. The Company is subject to
the risks associated with the imposition of
protective legislation and regulations, including those relating to
import or export or otherwise resulting from trade or foreign policy, in the
nations in which it now or in the future will conduct
business. The Company cannot predict whether quotas, duties, taxes
or other charges or restrictions will be implemented by the U.S. or any other
country upon the import or export of the Company's products. There can be no
assurance that any of these factors, or the adoption of restrictive policies,
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
Intellectual Property Matters
The Company holds numerous patents covering technology and
applications related to various products, equipment and systems, and numerous
trademarks and trade names registered with the U.S. Patent and Trademark Office
and in various foreign countries. There can be no assurance as to the
breadth or degree of protection that existing or future patents or
trademarks may afford the Company, or that any pending patent or
trademark applications will result in issued patents or trademarks, or that the
Company's patents, registered trademarks or
patent applications, if any, will be upheld if challenged, or that
competitors will not develop similar or superior methods or products outside
the protection of any patents issued, licensed or
sublicensed to the Company. Although the Company believes that none
of its patents, technologies, products or trademarks infringe upon the patents,
technologies, products or trademarks of others, it is possible that its
existing patent, trademark or other rights may not be
valid or that infringement of existing or future patents, trademarks
or proprietary rights may occur. In the event that the Company's products are
deemed to infringe upon the patent or proprietary rights of others, the
Company could be required to modify the design of its products,
change the name of its products or obtain a license for the use of
certain technologies incorporated into its products. There can be no assurance
that the Company would be able to do any of the foregoing in a timely manner,
upon acceptable terms and conditions, or at all, and the failure to do so
could have a material adverse effect on the Company.
Dependence on Key Personnel
The success of the Company's business will continue to depend
substantially upon the efforts, abilities and services of its executive
officers and certain other key employees. The loss
of one or more key employees could adversely affect the Company's
operations. The Company's ability to attract and retain qualified engineers
and other professionals, either through direct hiring, or acquisition of other
businesses employing such professionals, will also
be an important factor in determining the Company's future success.
Anti-takeover Provisions
The Company's charter and its bylaws contain various
provisions that may have the affect, either alone or in combination with each
other, of making more difficult or discouraging a
business combination or an attempt to obtain control of the Company
that is deemed undesirable by the Board of Directors. These provisions include
(i) the right of the Board of Directors to issue shares of Preferred Stock and
one or more series and designate the number of shares of each such series and
the relative rights and preferences of such series, including
voting rights, terms of redemption, redemption prices and conversion
rights without further shareholder approval; (ii) a classified Board of
Directors elected in three year staggered terms;
(iii) prohibitions on the right of shareholders to remove directors
other than for cause, and any such removal requiring at least two-thirds of
the total number of shares issued and outstanding;
(iv) requirements for advanced notice of actions proposed by
shareholders for consideration at meetings of the shareholders; (v) limitations
on the right of shareholders to call a special
meeting of the shareholders or from acting by written consent in
lieu of a meeting unless all shareholders entitled to vote on such action
consent to taking such action without a meeting;
and (vi) an election to be governed by the Tennessee Control Share
Acquisition Act. The Company's charter and bylaws also limit the liability of
directors in certain cases and provide for the Company to indemnify its
directors and officers to the fullest extent permitted by applicable
law. In addition, as a Tennessee Corporation, the Company is
subject to the Tennessee Business Combination Act which may have the affect of
discouraging a non-negotiated bid or proposal to acquire the Company.
Manufacturing
The Company manufactures many of the component parts and
related equipment for its products while several large components of their
products are purchased "ready for use"; such
items include engines, axles, tires and hydraulics. In many cases,
the Company designs, engineers and manufactures custom component parts and
equipment to meet the particular needs of individual customers. Manufacturing
operations during 1998 took place at ten separate
locations. The Company's manufacturing operations consist primarily
of fabricating steel components and the assembly and testing of its products to
ensure quality control standards have been achieved.
Seminars and Technical Bulletins
The Company periodically conducts technical and service
seminars, which are primarily for contractors, employees and owners of asphalt
mixing plants. In 1998, approximately 375 representatives of contractors and
owners of hot-mix asphalt plants attended seminars held by
the Company in Chattanooga, Tennessee. These seminars, which are
taught by Company management and employees, cover a range of subjects
including technological innovations in the hot-mix asphalt, aggregate
processing, paving, milling, and recycle markets in which the
Company manufactures products.
The Company also sponsors executive seminars for the
management of the customers of Astec, Inc. The seminars are taught primarily
by the management of the Company, but
outside speakers are also utilized. In 1998, approximately 160
participants attended the executive seminars at the Company's state-of-the-art
training center.
The Company sponsors Paving Professionals workshops at its
training center for customers or potential customers of Roadtec, Inc. In 1998,
approximately 320 participants attended these classroom sessions. Actual
equipment application experience was provided at
the Roadtec facility. Service training seminars were also held at
the Roadtec facility for approximately 360 customer service representatives.
During 1998, Telsmith had technical seminars for 130 English-
speaking customer representatives and another multi-lingual seminar with 35
attendees.
In addition to seminars, the Company publishes a number of technical
bulletins detailing various technological and business issues relating to the
asphalt industry.
Patents and Trademarks
The Company seeks to obtain patents to protect the novel features of
its products. The Company and its subsidiaries hold 99 United States patents
and 64 foreign patents. There are 39 United States and foreign patent
applications pending.
The Company and its subsidiaries have approximately 59 trademarks
registered in the United States including logos for Astec, Telsmith, Roadtec
and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC, TRENCOR AND
KOLBERG. Eight trademarks are also registered in foreign countries, including
Canada, Great Britain, Mexico, New Zealand and Indonesia. The Company has
20 United States and foreign trademark applications pending.
The Company and its subsidiaries also license their technology to
other manufacturers.
Engineering and Product Development
The Company dedicates substantial resources to engineering and
product development. At December 31, 1998, the Company and its subsidiaries
had 180 full-time individuals employed domestically in engineering and design
capacities.
Seasonality and Backlog
During 1997 and 1998 the Company's business has become less
seasonal. In years prior, the sales volume was strong from January through
June in anticipation of the summer paving season, but currently, due mainly to
increased international sales, the formerly "slow" periods of business have
become typical periods of business for sales volume.
As of December 31, 1998, the Company had a backlog for
delivery of products at certain dates in the future of approximately
$92,590,000. At December 31, 1997, the total backlog, updated to include
Johnson Crushers International, Inc., was approximately $65,373,000.
The Company's contracts reflected in the backlog are not, by
their terms, subject to termination. Management believes that the Company is
in substantial compliance with all manufacturing and delivery timetables.
Competition
Each business segment operates in a highly competitive
domestic market in price, service and product quality. While specific
competitors are named within each business segment discussion, as a whole,
imports do not constitute significant competition in the United
States. However, in international sales, the Company generally
competes with foreign manufacturers that may have a local presence in the
market the Company is attempting to penetrate.
Also, asphalt and concrete are generally considered competitive
products as a surface choice for new roads and highways. A portion of the
interstate highway system is paved in concrete, but over 90% of all surfaced
roads in the United States are paved with asphalt. Although concrete is used
for some new road surfaces, asphalt is used for virtually all
resurfacing, even the resurfacing of most concrete roads.
Management does not believe that concrete, as a competitive surface choice,
materially impacts the Company's business prospects. Competition is
discussed in detail for each reportable segment.
All international sales efforts are decentralized, with each
business unit maintaining responsibility for its own international marketing
strategies and labors.
Item 2. PROPERTIES
The location, approximate square footage, acreage occupied and
principal function of the properties owned or leased by the Company are set
forth below:
Approximate Approximate
Location Square Footage Acreage Principal Function
Chattanooga, Tennessee 424,000 59.1 Corporate and subsidiary
offices, manufacturing
- Astec
Chattanooga, Tennessee --- 63.0 Storage yard - Astec
Chattanooga, Tennessee 84,200 5.0 Offices, manufacturing
- Heatec
Chattanooga, Tennessee 135,000 15.1 Offices, manufacturing
- Roadtec
Chattanooga, Tennessee 1,820 --- Leased offices - Astec
Financial Services
Cleveland, Tennessee 28,441 2.8 Offices and manufacturing
- Esstee division of
Astec
Chattanooga, Tennessee --- 1.7 Construction in Progress
- Offices for Astec
Financial Services
Mequon, Wisconsin 203,000 30.0 Offices and
manufacturing - Telsmith
Sterling, Illinois 32,000 7.5 Offices and manufacturing
- PEP
Rossville, Georgia 40,500 2.6 Manufacturing - Astec
Grapevine, Texas 175,513 51.7 Offices, manufacturing
- Trencor
Lakeville, Massachusetts 815 --- Leased sales and service
office - Telsmith
Eugene, Oregon 25,000 3.0 Leased offices,
manufacturing-Johnson
Crushers International
Eugene, Oregon 25,750 8.0 Leased offices,
manufacturing-Johnson
Crushers International
Odessa, Texas 4,072 0.8 Sales office and parts
warehouse - Trencor
Inman, South Carolina 13,600 8.0 Leased until September 30,
2000 with option to
buy (office and
warehouse of former Soil
Purification of Carolina)
Albuquerque, New Mexico 110,700 14.0 Offices and
manufacturing - CEI
Covington, Georgia 11,000 6.0 Offices and
manufacturing -
Pavement Technology
Denver, Colorado 2,500 --- Leased sales office
- Telsmith and JCI
Yankton, South Dakota 252,000 50.0 Offices and
manufacturing -
Kolberg-Pioneer
With the exception of JCI, which is seeking a suitable site on which to
build a manufacturing facility during 1999, management believes that each of
the Company's facilities provides office or manufacturing space suitable for
its current needs and considers the terms under which it leases facilities
to be reasonable.
Item 3. Legal Proceedings
Management has reviewed all claims and lawsuits and, upon the advice
of counsel, has made provision for any estimable losses; however, the Company
is unable to predict the ultimate outcome of the outstanding claims and
lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The name, title, ages and business experience of the executive
officers of the Company are listed below.
J. Don Brock, Ph.D., P.E., has been President and a Director
of the Company since its incorporation in 1972 and assumed the additional
position of Chairman of the Board in 1975. He was the Treasurer of the Company
from 1972 until 1994. From 1969 to 1972, Dr. Brock was
President of the Asphalt Division of CMI Corporation. He earned his
Ph.D. degree in mechanical engineering from the Georgia Institute of
Technology. Dr. Brock and Thomas R. Campbell, President of Roadtec, are
first cousins. He is 60.
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
0as the Company's litigation counsel since 1983. He is 46.
F. McKamy Hall, a Certified Public Accountant, became Chief
Financial Officer during 1998 and has served as Vice President and Treasurer
since April 1997. He has served as Corporate Controller of the Company
since May 1987. From 1985 to 1987, Mr. Hall was Vice President of Finance at
Quadel Management Corporation, a company engaged in real estate management.
Mr. Hall has an undergraduate degree in accounting and a Master of Business
Administration degree from the University of Tennessee at Chattanooga. He
is 56.
W. Norman Smith was appointed Group Vice President-Asphalt in
December, 1998 and 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 59.
Robert G. Stafford was appointed Group Vice President-
Aggregate in December 1998. Prior to that time he 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 60.
Thomas R. Campbell has served as President of Roadtec, Inc.
since 1988. From 1981 to 1988 he served as Operations Manager of Roadtec.
Mr. Campbell and J. Don Brock, President of the Company, are first cousins.
He is 49.
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 57.
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 54.
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 59.
Richard A. Patek became President of Kolberg-Pioneer, Inc. on
December 2, 1997. From 1995 to 1997, he served as Director of Materials of
Telsmith, Inc. From 1992 to 1995, Mr. Patek was Director of Materials and
Manufacturing of the former Milwaukee plant location. From
1978 to 1992, he held various manufacturing management positions at
Telsmith. Mr. Patek is a graduate of Milwaukee School of Engineering.
He is 42.
Ronald B. DeDiemar, P.E., became President of Telsmith, Inc. on
January 4, 1999. From 1996 to 1998 he served as President of a consulting
company, Cal-Mar Technology, Inc. From 1978 to 1996 Mr. DeDiemar held various
executive positions with Process Technology Holdings, Inc., most recently as
President of the We-Kers and Tyler Divisions. From 1960 to 1978 he held
various engineering and marketing positions at Telsmith, a Division of Barber-
Greene. He is 60.
Robert R. Hoitt has been the President of Johnson Crushers
International, Inc., which was acquired by the Company on November 1, 1998,
since July 1995. From April 1966 through June 1995 he served in various
management positions, including General Manager and Vice
President of Cedarapids, Inc. in its Eljay division. He is 51.
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
cash 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 (adjusted to give effect to a two-for-one stock split which took
effect on January 18, 1999), are as follows:
Price Per Share
1998 High Low
1st Quarter 13-1/8 7-9/16
2nd Quarter 18-1/8 12-5/8
3rd Quarter 21-3/8 15-11/16
4th Quarter 28-3/4 17-3/4
Price Per Share
1997 High Low
1st Quarter 5-1/16 4-1/8
2nd Quarter 6-7/16 4-13/16
3rd Quarter 8-7/8 6-5/32
4th Quarter 9-3/16 7-11/16
The approximate number of shareholders of the Company's Common Stock
as of March 8, 1999 was approximately 4,156.
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-7 of this Report.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information
appear on pages A-8 to A-25 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 22, 1999, 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 22, 1999 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 22, 1999 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
On December 14, 1998, Edna F. Brock, the mother of Dr. J. Don
Brock, Chairman of the Board and President of the Company loaned $85,000 to the
Company to supplement its working capital revolving credit facility. The
Company executed a demand note payable to Mrs. Brock in
connection with this loan bearing interest at a rate equal to that
paid to First Chicago NBD under the Company's unsecured revolving line of
credit. At the time Mrs. Brock loaned these funds to
the Company, the Company's outstanding balance under its $22,000,000
revolving credit facility was $10,000,000. The Company is making monthly
interest payments to Mrs. Brock.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements and other
information appear in Appendix "A" to this Report and are filed as a part
hereof:
. Selected Consolidated Financial Data.
. Management's Discussion and Analysis of Financial
Condition and Results of
Operations.
. Report of Independent Auditors.
. Consolidated Balance Sheets at December 31, 1998 and
1997.
. Consolidated Statements of Income for the Years Ended December
31, 1998, 1997 and 1996.
. Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996.
. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.
. Notes to Consolidated Financial Statements.
(a)(2) Other than as described below, Financial Statement
Schedules are not filed with this Report because the Schedules are either
inapplicable or the required information is presented in the Financial
Statements or Notes thereto. The following Schedules appear in
Appendix "A" to this Report and are filed as a part hereof:
. Consent of Independent Auditors.
. Schedule II - Valuation and Qualifying Accounts.
(a)(3) The following Exhibits* are incorporated by reference
into or are filed with this Report:
3.1 Restated Charter of the Company (incorporated by
reference to the Company's Registration Statement on Form S-1, effective
June 18, 1986, File No. 33-5348).
3.2 Articles of Amendment to the Restated Charter of the
Company, effective September 12, 1988 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 0-14714).
3.3 Articles of Amendment to the Restated Charter of the
Company, effective June 8, 1989 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 0-14714).
3.4 Amended and Restated Bylaws of the Company,
adopted March 14, 1990 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1989, File No. 0-14714).
4.1 Trust Indenture between City of Mequon and Firstar Trust
Company, as Trustee, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
4.2 Indenture of Trust, dated April 1, 1994, by and between
Grapevine Industrial Development Corporation and Bank One,
Texas, NA, as Trustee (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.3 Shareholder Protection Rights Agreement, dated December
22, 1995 (incorporated by reference to the Company's Current
Report on Form 8-K dated December 22, 1995, File No. 0-
14714).
10.75 Loan Agreement between City of Mequon, Wisconsin and
Telsmith, Inc. dated as of February 1, 1994 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 0-14714).
10.76 Credit Agreement by and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
10.77 Security Agreement by and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
10.78 Mortgage and Security Agreement and Fixture Financing
Statement by and between Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1, 1994 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 0-14714).
10.79 Guarantee of Astec Industries, Inc. in favor of M&I
Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.83 Loan Agreement dated as of April 1, 1994, between
Grapevine Industrial Development Corporation and Trencor, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 0-
14714).
10.84 Letter of Credit Agreement, dated April 1, 1994, between
First Chicago NBD and Trencor, Inc. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.85 Guaranty Agreement, dated April 1, 1994, between Astec
Industries, Inc. and Bank One, Texas, NA, as Trustee
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 0-
14714).
10.86 Astec Guaranty, dated April 29, 1994, of debt of
Trencor, Inc. in favor of First Chicago NBD (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.87 Credit Agreement, dated as of July 20, 1994, between the
Company and First Chicago NBD (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.89 Waiver for December 31, 1994, dated February 24, 1995
with respect to First Chicago NBD Credit Agreement dated July 20,
1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
File No. 0-14714).
10.90 First Amendment to Guaranty of Payment, dated March 21,
1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.;
Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.;
CEI Enterprises, Inc.; and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.91 First Amendment to Credit Agreement, dated May 22, 1995
between the Company and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.92 Second Amendment to Guaranty of Payment, dated May 22,
1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.;
Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.;
CEI Enterprises, Inc.; and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.95 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).
10.103 Amended and Restated Credit Agreement dated
November 27, 1997 between the Company, Astec Financial Services, Inc. and
First Chicago NBD (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-14714).
10.104 Asset Purchase Agreement dated October 16, 1997
between Portec, Inc. and Astec Industries, Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, File No. 0-14714).
10.105 Amendment to Asset Purchase Agreement dated
December 2, 1997 by and between Astec Industries, Inc. and Portec, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
0-14714).
10.106 Revolving Line of Credit Note dated December 2, 1997
between Kolberg-Pioneer, Inc. and Astec Holdings, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, File No. 0-14714).
10.107 Guaranty Joinder Agreement dated December 1997 between
Kolberg-Pioneer, Inc. and Astec Holdings, Inc. in favor of the
First National Bank of Chicago. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-14714).
10.108 Loan Agreement between the City of Yankton, South Dakota
and Kolberg-Pioneer, Inc. dated August 11, 1998 for
variable/fixed rate demand Industrial Development Revenue
Bonds, Series 1998.
10.109 Letter of Credit Agreement dated August 12, 1998 between the
First National Bank of Chicago and Astec Industries, Inc., Astec
Financial Services, Inc. and Kolberg-Pioneer, Inc.
10.110 Promissory Note dated December 14, 1998 between Astec
Industries, Inc. and Edna F. Brock.
10.111 Waiver for December 31, 1998, dated March 9, 1999, with
respect to The First National Bank of Chicago Second
Amended and Restated Credit Agreement, dated November 24,
1997.
10.112 Guaranty of Astec Industries, Inc., dated February 23, 1998,
of debt of Pavement Technology, Inc. in favor of Tucker Federal Bank.
10.113 Purchase Agreement dated October 30, 1998
and effective October 31, 1998 between Astec Industries, Inc. and Johnson
Crushers International, Inc.
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, 1998 and 1997 A-8
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996 A-9
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 A-10
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996 A-11
Notes to Consolidated Financial Statements A-13
Report of Independent Auditors A-26
Schedule II - Valuation and Qualifying Accounts A-27
FORWARD-LOOKING STATEMENTS
The Company may, from time to time, make forward-looking statements,
including statements contained in the Company's filings with the Securities and
Exchange Commission (the "Commission") and its reports to shareholders.
Statements made in this annual report on Form
10-K, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties.
Such forward-looking statements are made based on management's belief as of the
date thereof, as well as assumptions made by, and information currently
available to management, pursuant to "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including, without
limitation: the effects of future economic conditions; the amount of
federal, state and local governmental revenues to support road building and
related activities; and the effects of competition in the design,
engineering and manufacturing of equipment and components used in
road building and various other construction activities. The
Company does not undertake to update any forward-looking statement that may
be made from time to time by, or on behalf of, the Company.
PAGE A-1
Selected Consolidated Financial Data
(in thousands, except as noted*)
Consolidated Income Statement Data
1998 1997 1996 1995 1994
Net sales $363,945 $265,365 $221,413 $242,601 $213,806
Selling, general and
administrative
expenses 46,796 36,125 35,082 34,326 31,142
Research and
development 4,681 3,707 5,868 5,128 3,166
Patent suit damages and
expenses (net recoveries
and accrual adjustments) 264 699 (14,947)
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 40,427 24,661 8,051 2,566 27,236
Interest expense 2,709 2,398 1,656 2,125 713
Net income 24,436 13,809 4,345 4,560 23,436
Earnings per common share*(1)
Basic 1.30 .72 .22 .23 1.19
Diluted 1.26 .71 .21 .23 1.18
Consolidated Balance Sheet Data
Working capital $ 81,865 $ 71,459 $ 69,884 $ 58,015 $ 53,000
Total assets 249,164 192,243 167,853 154,356 155,964
Total short-term debt 646 500 2,051 774 8,573
Long-term debt, less
current maturities 47,220 35,230 30,497 17,150 16,155
Shareholders' equity 132,658 105,612 99,393 95,901 90,373
Book value per common
share at year-end*(1) 7.44 6.12 5.37 4.75 4.52
Quarterly Financial
Highlights (Unauditied) First Second Third Fourth
Quarter Quarter Quarter Quarter(2)
1998
Net sales $ 88,164 $ 108,124 $ 88,798 $ 78,860
Gross profit 22,304 25,826 22,175 21,599
Net income 5,559 7,389 5,779 5,709
Earnings per common share*(1)
Basic .30 .39 .31 .30
Diluted .29 .38 .30 .29
1997
Net sales $ 62,980 $ 73,159 $ 65,040 $ 64,186
Gross profit 15,875 17,765 14,633 16,220
Net income 3,525 4,625 2,821 2,838
Earnings per common share*(1)
Basic .18 .24 .15 .15
Diluted .18 .24 .15 .15
Common Stock Price*(1)
1998 High 13-1/8 18-1/8 21-3/8 28-3/4
1998 Low 7-9/16 12-5/8 15-11/16 17-3/4
1997 High 5-1/16 6-7/16 8-7/8 9-3/16
1997 Low 4-1/8 4-13/16 6-5/32 7-11/16
The Company's common stock is traded on the National Association of
Securities Dealers
Automated Quotation (NASDAQ) National Market under the symbol ASTE. Prices
shown are the high and low bid prices as announced by NASDAQ. The Company has
never paid any dividends on its common stock. The number of common
shareholders is approximately 4,156.
(1) Restated to retroactively reflect the two-for-one stock split effected
in the form of a dividend on January 18, 1999.
(2) Positive physical inventory adjustments, offset by certain other fourth
quarter charges, increased earnings per share in the fourth quarter
of 1997 by approximately $.02 per share.
PAGE A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1998 vs. 1997
Results of Operations Net income for 1998 was
$24,436,000, or $1.26 per share diluted, compared to
net income of $13,809,000, or $0.71 per share
diluted, in 1997, restated to reflect the two-for-
one stock split that took effect on January 18,
1999.
Net sales for 1998 were $363,945,000, an
increase of $98,580,000, or 37.1%, compared to 1997.
The 1998 international sales increased $10,613,000,
or 18.0%, to approximately $69,515,000 compared to
1997 international sales of $58,902,000. The 1998
domestic sales increased from $206,463,000 to
$294,430,000, or $87,967,000, for a 42.6% increase
from 1997. The increase in domestic sales is
principally attributed to increased sales in asphalt
plants, mobile equipment and aggregate processing.
A strong domestic economy and expectation of the
initiation of spending under the new six-year
highway bill which authorized a record $217 billion
in federal investment through 2003 for road repair,
improvement and other federal highway and transit
projects are the primary impetus of the domestic
sales. Approximately 59% of the sales growth was
generated internally, with 41% being from
acquisitions.
In 1998, the Company experienced an increase
in international sales of $10,613,000. Due to the
economic instability of certain parts of the world
during 1998, the Company redirected sales efforts
toward countries that were financially capable of
purchasing its equipment. As a result, the
$9,183,000 decrease in sales in Southeast Asia was
more than offset by increased sales of asphalt
plants and trenching equipment, primarily in Central
and South America and Canada. International sales
by domestic subsidiaries represented 19.1% and 22.2%
of total sales in 1998 and 1997, respectively.
The gross profit margin was 25.3% in 1998
compared to 24.3% in 1997. The improvement was
primarily related to increased sales volume. It can
also be attributed to improved manufacturing
processes, better product design and the Company's
continuing efforts to minimize sales discounts and
control costs.
In 1998, selling, general, and administrative
expenses decreased to 12.9% of net sales from 13.6%
of net sales in 1997. The volume increase in net
sales is the primary factor responsible for the
decreased percentage. Approximately 42% of the
increase in dollars related to expenses of acquired
operations. The single largest increase in
expenses not related to acquisitions was selling
expenses.
Research and development expenses
decreased to 1.3% of net sales in 1998 from 1.4% in
the prior year. The increase in sales volume is the
primary reason for the reduction in the percentage.
Acquisitions accounted for 81% of the increase in
dollars of research and development.
Interest expense for 1998 decreased to 0.7% of
sales from 0.9% of sales for 1997. The increase in
dollars related primarily to borrowings required for
the growing captive finance company and for
acquisitions.
Income tax expense for 1999 was $15,126,381,
or 38.2% of pre-tax income, compared to $9,156,977
for 1997, or 39.9% of pre-tax income. The reduction
is the result of Kolberg-Pioneer being located in a
state with no corporate income tax and the Company's
increased utilization of a foreign sales
corporation.
The backlog at December 31, 1998 was
$95,665,000 compared to $67,435,000, restated for
acquisitions. This represents a 41.9% increase over
1997. The 1997 backlog without taking into account
backlog associated with Johnson Crushers
International and EssTee was $61,381,000. The
increase is principally attributed to increased
asphalt plant and aggregate processing orders. The
Company is unable to determine whether this increase
in backlog was experienced by the industry as a whole
or whether it reflects an increase of market share.
The expectation of future business
growth by our customers has had a positive impact on
our backlog, but we are unable to assess the amount of
the increase attributable to the TEA21 legislation which was
effective October 1998. While this backlog reflects a positive
development, management cannot confirm that this increase
represents a trend, but the sales volume seems to be less
seasonal based on 1997 and 1998 quarters. International
sales tend to be stronger in the third and fourth quarters,
offsetting
normal slowing of domestic sales in those quarters.
Hot-mix Asphalt Plant and Related Heat Transfer Equipment
Segment: This segment had increases in sales of $30,271,000,
or 22.8%, and segment profit of $7,455,000, or 52.8%, over
1997. The primary reason for the increase in volume was a
strong economy accompanied by the expected impact of the
TEA21 legislation effective October 1998 upon future customer
business. International sales increased by 26.0% in 1998 over 1997.
Aggregate Processing Segment: The 1998 sales in this segment
increased $57,343,000, or 103.6%, over 1997, primarily due to
the acquisition of Kolberg-Pioneer, Inc. in December 1997 and
Johnson Crushers International, Inc. at November 1, 1998, while
segment profit increased $6,888,000, or 88.2%. The growth due
to acquisitions for 1998 over 1997 was approximately 35%.
International sales for this segment decreased approximately
12.1%.
Mobile Construction Equipment Segment: The 1998 sales in
this segment increased $11,830,000, or 24.4% over 1997.
Segment profit also increased $3,369,000, or 51.7%. The
primary increase in sales volume comes from an increase in
units of the patented material transfer vehicle. International
sales increased 6.7%. The increase in profit was primarily a
result of increased volume coupled with gross margin
improvement.
Results of Operations
1997 vs. 1996
Net income for 1997 was $13,809,000, or $0.71 per share
diluted, compared to net income of $4,345,000, or $0.21 per
share diluted, in 1996 restated to reflect the two-for-one
stock split that took effect on January 18, 1999. The effect of
the Company's purchase of its common shares in the second
quarter of 1997 increased diluted net income per share by $.04.
The 1996 results included approximately $3,000,000 of charges
related to the discontinuance and writedown of a
newly-developed mining machine product line, increases in
inventory reserves related to the log loader business and
litigation expenses.
Net sales for 1997 were $265,365,000, an increase of
$43,952,000, or approximately 19.9% compared to 1996. The
1997 international sales increased by $20,593,000, or 53.8%, to
approximately $58,902,000 compared to 1996 international
sales of $38,309,000. The 1997 international sales represented
a return to within $63,000 of the 1995 international sales
volume. The 1997 domestic sales increased from $183,104,000
to $206,463,000, or $23,359,000, for a 12.8% increase from
1996. The increase in domestic sales is principally attributed
to increased sales in asphalt plants and mobile equipment.
The increase in international sales was attributed to all
subsidiaries increasing their sales, with asphalt plants,
mobile equipment and rock crushing equipment being the
leaders. International sales by domestic subsidiaries in 1997
were 22.2% of total sales compared to 17.3% in 1996.
The gross profit margin was 24.3% in 1997 compared to 22.3%
in 1996. The improvement was generated primarily from
increased volumes in the asphalt plant and mobile equipment
operations and efficiencies being realized from capital
expenditures made over the last few years.
In 1997, selling, general, and administrative expenses decreased
to 13.6% of net sales from 15.8% of net sales in 1996. The
volume increase in net sales, coupled with significant
reductions in legal expenses from 1996, are the primary factors
responsible for the decreased percentage.
Results of Operations
1997 vs. 1996
Research and development expenses decreased to 1.4% of net
sales in 1997 from 2.7% in the prior year. Research and
development expenses decreased from 1996 to 1997 primarily
because of the product development expenses related to the
mining machine in 1996, which were approximately $2,300,000.
The reduction in expenses, coupled with the increase in sales
volume, impacted the percentage of research and development
expenses to net sales.
Interest expense for 1997 increased to .9% of sales from .8% of
sales for 1996. The increase related primarily to borrowings
required for the captive finance company, which completed its
first full year of operations in 1997 and funds needed for the
purchase of shares under the Company's dutch tender offer
completed in May 1997.
Income tax expense for 1997 was $9,156,977, or 39.9% of
pre-tax income, compared to $2,673,000 for 1996, or 38.1% of
pre-tax income.
The backlog at December 31, 1997 was $61,387,000 (including
$8,022,000 for Kolberg-Pioneer) compared to $54,298,000 at
December 31, 1996. This represents a 13.1% increase over 1996.
The backlog without Kolberg-Pioneer at December 31, 1996 was
$44,911,000. The increase was principally attributed to
increased asphalt plant orders. The Company was unable to
determine whether this increase in backlog was experienced by
the industry as a whole or whether it reflected an increase of
market share.
Hot-mix Asphalt Plant and Related Heat Transfer Equipment Segment:
Sales in 1997 increased by $16,452,000, or 14.1%, over 1996, while segment
profit increased $6,577,000, or 87.3%, during the same period. International
sales in 1997 increased $14,029,000 over 1996. The strong economy was the
primary reason for the sales increase. The net income increased as a
result of both volume increases and margin improvement.
Aggregate Processing Segment:
Sales in 1997 increased $2,623,000, or 5.0%, compared to 1996 primarily due
to the acquisition of Production Engineered Products in January 1996.
Segment profit for 1997 decreased $402,000, or 5.5%, compared
to 1996. Net income decreased due to erosion of gross margins
and some increase in expenses. International sales in 1997
increased $2,385,000 over 1996.
Mobile Construction Equipment Segment:
Sales in 1997 increased $10,661,000, or 28.2%, and segment profit increased
$4,579,000, or 235.9%, over 1996. International sales for 1997
increased $2,822,000 over 1996. The improvement in operating
profits resulted principally from significant efficiencies
achieved in the manufacturing process and increased sales
volume.
Liquidity and Capital
During 1998, the Company continued to maintain a strong financial position,
funding capital projects and working capital needs principally with cash
provided by operations, while utilizing low interest rate industrial revenue
bonds and bank borrowings to fund business combinations and the growth of the
Company's captive finance subsidiary. At December 31, 1998, working capital
totaled $81,865,000 compared to $71,459,000 at December 31, 1997. The working
capital increase was primarily the result of strong fourth quarter sales
that led to a $6,231,000 increase in trade receivables net of customer
deposits, a $2,426,000 increase in cash, and a $1,977,000
increase in refundable income taxes. Other items that had a
positive impact on operating cash flow included improved days
sales in receivables (46 in 1998 compared to 49 in 1997),
improved inventory turnover (3.9in 1998 compared to 3.4 in 1997), and
planned inventory increases to service sales projections for the first and
second quarters of 1999.
The Company has an unsecured $70,000,000 revolving credit loan
agreement with First Chicago NBD which expires on November 22,
2002. At December 31, 1998, the Company was utilizing
$26,520,000 of the amount available under the agreement for
borrowing and an additional $19,975,000 to support outstanding
letters of credit (primarily for industrial revenue bond issues).
Principal covenants under the loan agreement include (i) the maintenance of
certain levels of net worth and compliance with certain net worth, leverage
and interest coverage ratios, (ii) a limitation on capital expenditures
and rental expense, (iii) a prohibition against the payment of
dividends, and (iv) a prohibition on large acquisitions except upon the
consent of the lenders.
The revolving credit loan agreement with First Chicago NBD
provides for a segregated portion of $30,000,000 for use by the
Company's captive finance subsidiary, Astec Financial Services
("AFS"). Advances under this portion of the loan agreement are
limited to the "Eligible Receivables" of AFS as defined in the
loan agreement. At December 31, 1998, AFS borrowings
represented $16,300,000 of the total $26,520,000 outstanding
under the loan agreement.
The Company considers the unused portion of its revolving credit
loan agreement with First Chicago NBD, coupled with cash
expected to be generated by operations, adequate to meet its
foreseeable funding needs, including planned 1999 capital
expenditures (excluding those for equipment leased to others) of
approximately $18,000,000. Capital expenditures (excluding
those for equipment leased to others) were $18,465,000 in 1998
and $9,044,000 in 1997.
For additional information on current and long-term debt, see
Note 6 to the Consolidated Financial Statements.
Contingencies
See Note 9 to Consolidated Financial Statements for information
on certain pending litigation and contingent liabilities arising
from recourse financing arrangements.
Environmental Matters Based on information available, management believes the
Company has adequately reserved for potential environmental liabilities
and does not believe the potential liability will materially impact the
future position of the Company.
Impact of Year 2000
The Company recognizes the need to ensure its operations will
not be adversely impacted by Year 2000 software failures. The
term "Year 2000" is a general term used to describe the various
problems that may result from the improper processing of dates
and date-sensitive calculations by computers and other
machinery as the year 2000 is approached and reached. Many
computer systems process dates using two digits rather than
four to define a specific year. Absent corrective actions, a
program may recognize a date using "00" as the year 1900
rather than the year 2000. Such an occurrence could result in
system failures or miscalculations causing disruptions to
various activities. Software failures due to processing errors
potentially arising from calculations using the Year 2000 date
are a known risk.
Management presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 issue will be mitigated.
However, in the unlikely event such modifications and replacements are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: assessment, remediation, testing and
implementation. With the exception of a newly-acquired
aggregate processing manufacturer and the third-party inquiries
of Year 2000 compliance, assessment of all systems that could
be significantly affected by the Year 2000 is 100% complete. In
connection with the ongoing information systems management,
the Company has previously modified or replaced a portion of the
key financial information and operational systems and a
Impact of Year 2000 significant number of personal computers. Completion of
all modifications or replacements of personal computers and
related testing is scheduled for June 1999. The Company's
assessment indicated that updating key financial systems, such
as general ledger and invoicing systems, and ensuring operating
equipment was Year 2000 compliant were the major hurdles
prior to the millennium. Since manufactured products use either
internally or externally developed software that is susceptible
to Year 2000, diligent efforts began in early 1998 to notify
customers of products that contain software that should be
updated. The Company has gathered information about the Year
2000 compliance status of its significant suppliers and
sub-contractors and continues to monitor their compliance. To
date, substantial progress has been made toward completion of
the Year 2000 project. The Company does not expect the
financial impact of making the required system changes for Year
2000 compliance to have a material effect on the financial
statements.
As related to information technology exposure, the Company is
approximately 80% complete in remediation and approximately
70% complete in testing and implementation. The Company
completed the installation of two major financial operating
systems during 1998 and will complete the implementation of
one additional system during 1999 at a subsidiary currently
without a Year 2000 compliant financial operating system. The
Company is utilizing both internal and external resources to
identify, correct or reprogram, and test its systems for Year
2000 compliance.
A limited amount of operating equipment, mainly used in
manufacturing, is date sensitive. Manufacturers of the affected
equipment were contacted and the Company has either already
installed update modifications or has the appropriate
modification on order to install and test prior to September 30,
1999. The remediation phase of updating the operating
equipment is more than 95% complete, and the testing and
implementation phases of modifying the operating equipment is
approximately 80% complete.
The Company manufactures products that use either internally or
externally developed software that is susceptible to Year 2000.
For customers with products which contain externally developed
software, the Company is notifying them by mail that it does not
own the source code to these specific software products and
cannot provide a Year 2000 update. A version of internally
generated software to replace that provided with the original
equipment is offered to the customer for a fee. Some internally
developed equipment software was designed to be Year 2000
compliant. For customers with products purchased within the
last five years that contain internally developed software that
is not Year 2000 compliant, the Company is sending out disks to
update the software for Year 2000. If the equipment was
purchased more than five years earlier, the software is updated
for a fee.
In addition, a portion of the manufactured products are
automated and utilize personal computers to operate. Beginning
in 1998 and forward, the computer equipment installed in the
Company's products was Year 2000 compliant. For equipment
purchased by customers prior to 1998, the Company is mailing
instructions to test the product's computer for Year 2000
compliance. If the computer is not Year 2000 compliant, the
customers are instructed to contact the Company for
instructions to update their computer. Due to the nature of
products, updates and information produced following the initial
information letters is based upon individual inquiry. The
Company is more than 95% complete in the remediation, testing
and implementation phases of modifying product systems.
Furthermore, the Company is in the process of querying its
significant suppliers and any other external agents (no external
agents share information systems with the Company). The
assessment phase of querying significant third party
associations is approximately 80% complete and the
remediation, testing and implementation phases are
appproximately 75% complete. To date, the Company is not aware
of any external agents with a Year 2000 issue that would
materially impact the results of operations, liquidity or capital
resources. However, the Company has no means of ensuring that
external agents will be Year 2000 ready and the effect of any
non-compliance by external agents is not determinable. The
query of third-party associations is scheduled to be completed
by June 30, 1999.
The Company's newest subsidiary began its Year 2000 project in
January 1999. Currently, this subsidiary is approximately 60%
complete in its assessment of IT systems and approximately
30% complete in the remediation, testing and implementation
phases of modifying the necessary systems. The same
subsidiary is approximately 90% complete in the assessment of
its operating equipment, while it is just under 50% complete in
the remediation, testing and implementation phases of
modifying its operating equipment. This subsidiary has not
begun to assess its product lines, although it does not
manufacture equipment that is date sensitive. In addition, it has
not begun to inquire of its third-party associations of their Year
2000 compliance status. The new company began its
comprehensive Year 2000 project and is scheduled to complete
all phases of the plan by September 30, 1999.
The total cost of the Year 2000 project is estimated to be
approximately $3,000,000 and is being funded through operating
cash flows. To date, the Company has incurred approximately
$2,200,000, related to all phases of the Year 2000 project, with
approximately $1,900,000 being capitalized during 1998. Of the
total remaining project costs, approximately $620,000 is
attributable to the purchase of new hardware, software and
operating equipment, which will be capitalized. The remaining
$180,000 is related to modification of hardware and software
and will be expensed as incurred.
The systems replaced in 1998 were planned before the Year
2000 project, but assessments and implementations were
accelerated due to Year 2000 issues. The Year 2000 budget
includes the costs related to replacement of the mainframe
systems and are capitalized.
Management of the Company believes it has an effective program
in place to timely resolve the Year 2000 issue. In the event that
the Company does not complete any additional phases, the
Company could lose revenues due to inability to manufacture its
product to specified quality or deliver equipment as scheduled.
Year 2000 issues could also hinder the Company's ability to
provide customer technical support or to provide customer parts
orders as quickly as necessary, among other potential risks. In
addition, the Company could be subject to litigation for
computer systems product failure or for failure to properly date
business records. Also, for applications using software and
systems dependent on outside technical support, depending upon
demand, technical support may not be available with sufficient
time to prevent adverse effects on operations. The amount of
potential liability and lost revenues cannot be reasonably
estimated at this time.
The Company does not currently have a fully documented
contingency plan in place in the event it does not complete all
phases of the Year 2000 project, but it has begun to investigate
and document prudent preventive measures that can be
undertaken to secure operational capabilities in case of their
failure. These measures include identifying secondary sources
for raw materials, goods and services; identifying alternate
manufacturing routing methods; stocking additional critical raw
materials; printing of paper documents and reports as reference
tools; and performing disaster recovery testing for potential
power interruptions of machine failures. The Company plans to
evaluate the status of completion of the Year 2000 project after
March 1999 and determine whether a full contingency plan is
necessary.
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
Assets
Current assets:
Cash and cash equivalents Note 1 $ 5,352,739 $ 2,926,294
Trade receivables less allowance for
doubtful accounts of $1,460,000 in
1998 and $1,342,000 in 1997
44,922,366 33,945,574
Finance receivables Note13 6,189,285 4,074,230
Notes and other receivables 1,315,650 751,235
Inventories Note 1, 3 76,728,969 69,395,351
Prepaid expenses 2,717,896 1,985,197
Refundable income taxes 1,168,056
Deferred tax asset Note 8 6,480,217 5,536,666
Other current assets 7,303 7,550
Total current assets 144,882,481 118,622,097
Property and equipment, net Note 4 81,142,117 61,605,153
Other assets:
Goodwill 12,511,530 8,226,831
Finance receivables Note 13 7,120,082 670,801
Notes receivable 1,054,987 1,261,985
Deferred tax asset Note 8 788,318 711,987
Other 1,664,436 1,144,245
Total other assets 23,139,353 12,015,849
Total $ 249,163,951 $ 192,243,099
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of
long-term debt Note 6 $ 646,060 $ 500,000
Accounts payable 27,418,287 21,421,882
Customer deposits 11,210,413 6,464,842
Accrued product warranty 3,624,252 3,206,372
Accrued payroll and related
liabilities 11,516,286 8,291,876
ncome taxes payable 809,384
Deferred tax liability Note 8 55,357 275,687
Liabilities related to abandoned
subsidiary 125,000 360,760
Other accrued liabilities 8,421,594 5,832,716
Total current liabilities 63,017,249 47,163,519
Long-term debt, less current
maturities Note 6 47,220,000 35,230,000
Deferred tax liability Note 8 3,879,787 3,216,948
Deferred retirement costs Note 7 970,866 320,314
Other 1,417,914 700,155
Total liabilities 116,505,816 86,630,936
Shareholders' equity: Note 1, 10
Preferred stock - authorized 4,000,000
shares of $1.00 par value; none issued
Common stock - authorized 40,000,000
shares of $.20 par value; issued
and outstanding - 18,967,232 in 1998
and 18,641,160 in 1997 3,793,446 3,728,232
Additional paid-in capital 44,332,177 41,787,534
Retained earnings 84,532,512 60,096,397
Total shareholders' equity 132,658,135 105,612,163
Total $ 249,163,951 $ 192,243,099
See Notes to Consolidated Financial Statements.
Consolidated Statements of Income
Year Ended December 31,
1998 1997 1996
Net sales $ 363,945,191 $ 265,365,312 $ 221,412,796
Cost of sales 272,040,941 200,872,181 172,147,913
Gross profit 91,904,250 64,493,131 49,264,883
Selling, general and
administrative expenses 46,796,409 36,124,728 35,081,800
Research and development
expenses 4,681,019 3,706,909 5,867,909
Patent suit damages and
expenses 263,978
Income from operations 40,426,822 24,661,494 8,051,196
Other income (expense):
Interest expense (2,708,981) (2,397,902) (1,656,466)
Interest income 101,208 259,388 386,646
Other income - net 1,668,869 347,253 247,434
Equity in income
(loss) of joint
venture Note 1 74,578 96,158 (10,652)
Income before
income taxes 39,562,496 22,966,391 7,018,158
Income taxes Note 8 15,126,381 9,156,977 2,673,282
Net income $ 24,436,115 $ 13,809,414 $ 4,344,876
Earnings per Common Share
Net income:
Basic $ 1.30 $ .72 $ .22
Diluted 1.26 .71 .21
Weighted average number of
common shares outstanding: Note 1
Basic 18,799,063 19,111,880 20,094,884
Diluted 19,441,184 19,452,192 20,317,316
See Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders' Equity
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
Balance
December 20,184,398 $4,036,880 $49,922,140 $41,942,107 $ 95,901,127
31, 1995
Net income 4,344,876 4,344,876
Minimum
pension
liability
adjustment $(127,150) (127,150)
Comprehensive
income 4,217,726
Issuance of
common
stock 18,000 3,600 38,475 42,075
Repurchase and
retirement
of common
stock (128,000) (25,600) (742,400) (768,000)
Balance
December
31, 1996 20,074,398 4,014,880 49,218,215 46,286,983 (127,150) 99,392,928
Net income 13,809,414 13,809,414
Minimum
pension
liability
adjustment 127,150 127,150
Comprehensive
income 13,936,564
Issuance of
common stock 20,000 4,000 60,975 64,975
Repurchase and
retirement of
common
stock (1,453,238) (290,648) (7,491,656) (7,782,304)
Balance
December 31, 18,641,160 3,728,232 41,787,534 60,096,397 105,612,163
1997
Net and
comprehensive
income 24,436,115 24,436,115
Issuance of
common
stock 326,072 65,214 2,544,643 2,609,857
Balance
December 31, 18,967,232 $3,793,446 $44,332,177 $84,532,512 $ 0 $132,658,135
31, 1998
[FN] See Notes to Consolidated Financial Statements.
Year Ended December 31,
1998 1997 1996
Cash Flows From Operating Activities
Net income $24,436,115 $13,809,414 $ 4,344,876
Activities
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 8,129,585 6,944,918 5,812,723
Provision for doubtful accounts 1,092,185 272,578 157,183
Provision for inventory reserves 1,289,740 418,906 1,231,828
Provision for warranty 4,048,899 2,811,009 3,018,990
(Gain) loss on sale of
fixed assets (341,575) 747,112 59,118
(Gain) loss on sale of
equipment on
operating lease (956,271) (505,473)
(Gain) on sale of finance
receivables (278,824) (158,043) (67,492)
Equity in (income) loss
of joint venture (74,578) (96,158) 10,652
(Increase) decrease in:
Receivables (11,352,173) 1,005,946 (3,855,177)
Inventories (3,717,271) (1,833,029) (1,353,245)
Prepaid expenses (703,735) (2,010) (991,145)
Deferred tax asset (723,156) 209,978 1,349,773
Other assets (444,725) 261,094 196,607
Increase (decrease) in:
Accounts payable 2,664,949 3,867,396 (1,383,256)
Customer deposits 4,094,466 4,285,052 (2,838,705)
Accrued product warranty (3,828,493) (2,143,242) (3,127,860)
Income taxes payable (817,515) 2,880,447 270,786
Other accrued liabilities 5,977,639 1,885,445 (3,723,984)
Total adjustments 4,059,147 20,851,926 (5,233,204)
Net cash provided (used) by
operating activities 28,495,262 34,661,340 (888,328)
Cash Flows from Investing Activities
Proceeds from sale of property
and equipment - net 992,841 459,025 1,202,335
Expenditures for property
and equipment (18,465,257) (9,043,675) (6,826,216)
Proceeds from sale
of equipment
on operating lease 22,609,684 15,400,539
Expenditures for
equipment on
operating lease (28,015,599) (16,295,790) (1,881,771)
Additions to finance
receivables (18,398,321) (13,480,827) (8,333,293)
Collections of finance
receivables 365,514 1,349,934 536,089
Proceeds from sale of
finance receivables 9,820,384 12,769,861 2,638,739
Additions to notes
receivable (12,386) (116,536) (60,000)
Repayments on notes
receivable 229,454 758,076 901,233
Investment in joint venture (100,000)
Cash payments in connection
with business combinations,
net of cash acquired (8,506,458) (22,383,071) 164,794
Net cash (used) by investing
activities (39,380,144) (30,582,464) (11,758,090)
Cash Flows From Financing Activities
Repurchase and retirement of
common stock (7,782,304) (768,000)
Proceeds from issuance of
common stock 1,350,510 64,975 42,075
Net borrowings under revolving
credit loan 3,290,000 9,908,000 11,680,000
Principal repayments
of industrial bonds,
loans and notes payable (614,183) (6,725,737) (1,027,023)
Proceeds from debt
and notes payable 9,285,000 2,968,780
Net cash provided
(used) by financing
activities 13,311,327 (4,535,066) 12,895,832
Increase (decrease)
in cash and cash
equivalents 2,426,445 (456,190) 249,414
Cash and cash equivalents,
beginning of period 2,926,294 3,382,484 3,133,070
Cash and cash equivalents\
end of period $ 5,352,739 $ 2,926,294 $ 3,382,484
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 2,778,422 $ 2,369,389 $ 1,572,642
Income taxes $ 16,545,127 $ 8,142,405 $ 3,466,100
Excluded from the
Consolidated
Statements of
Cash Flows were
the following
effects of non-cash
investing and
fin