f10q-033108.htm
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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
DC 20549
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FORM
10-Q
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(Mark
One)
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ý QUARTERLY REPORT PURSUANT TO
SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended March 31, 2008
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OR
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o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period
from to
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Commission
File
Number 001-11595
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Astec
Industries, Inc.
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(Exact
name of registrant as specified in its charter)
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Tennessee
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62-0873631
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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1725
Shepherd Road, Chattanooga,
Tennessee
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37421
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(Address
of principal executive
offices)
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(Zip
Code)
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(423)
899-5898
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(Registrant's
telephone number, including area code)
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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.
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YES ý
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NO o
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
Accelerated Filer ý
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Accelerated
Filer o
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Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller
Reporting Company o
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
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YES
o
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NO
ý
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Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Outstanding
at May 1, 2008
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Common
Stock, par value $0.20
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22,354,867
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ASTEC INDUSTRIES, INC.
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INDEX
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Item 1. Financial
Statements
Astec
Industries, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(in
thousands)
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March
31, 2008
(unaudited)
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December
31, 2007
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
29,154 |
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$ |
34,636 |
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Trade
receivables, net
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|
113,407 |
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84,198 |
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Other
receivables
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1,790 |
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3,289 |
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Inventories
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219,028 |
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210,819 |
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Prepaid
expenses and other
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6,497 |
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6,926 |
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Deferred
income tax assets
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10,124 |
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8,864 |
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Total
current assets
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380,000 |
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348,732 |
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Property
and equipment, net
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142,817 |
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141,528 |
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Investments
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19,349 |
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18,529 |
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Goodwill
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26,093 |
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26,416 |
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Other
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7,527 |
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7,365 |
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Total
assets
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$ |
575,786 |
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$ |
542,570 |
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Accounts
payable
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$ |
62,807 |
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$ |
54,840 |
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Accrued
product warranty
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8,861 |
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7,827 |
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Customer
deposits
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38,623 |
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37,751 |
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Accrued
payroll and related liabilities
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6,833 |
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12,556 |
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Accrued
loss reserves
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2,344 |
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2,859 |
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Income
taxes payable
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11,893 |
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2,703 |
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Other
accrued liabilities
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27,707 |
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25,357 |
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Total
current liabilities
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159,068 |
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143,893 |
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Deferred
income tax liabilities
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8,806 |
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8,361 |
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Other
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13,160 |
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12,843 |
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Minority
interest
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|
803 |
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884 |
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Total
shareholders' equity
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393,949 |
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376,589 |
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Total
liabilities and shareholders' equity
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$ |
575,786 |
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$ |
542,570 |
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
Astec Industries, Inc. and Subsidiaries
Condensed
Consolidated Statements of Income
(in
thousands, except per share amounts)
(unaudited)
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Three
Months Ended March 31,
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2008
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2007
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Net
sales
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$ |
263,072 |
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$ |
215,563 |
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Cost
of sales
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196,852 |
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161,190 |
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Gross
profit
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66,220 |
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54,373 |
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Selling,
general, administrative and engineering expenses
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38,779 |
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30,529 |
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Income
from operations
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27,441 |
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23,844 |
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Interest
expense
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131 |
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415 |
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Other
income, net of expense
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|
426 |
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685 |
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Income
before income taxes and minority interest
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27,736 |
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24,114 |
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Income
taxes
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10,160 |
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8,746 |
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Income
before minority interest
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17,576 |
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15,368 |
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Minority
interest
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57 |
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34 |
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Net
income
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$ |
17,519 |
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$ |
15,334 |
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Earnings
per common share
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Net
income:
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Basic
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$ |
0.79 |
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$ |
0.71 |
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Diluted
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$ |
0.78 |
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$ |
0.69 |
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Weighted
average common shares outstanding:
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Basic
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22,237,100 |
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21,644,097 |
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Diluted
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22,550,536 |
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22,194,736 |
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See Notes
to Unaudited Condensed Consolidated Financial Statements
Astec Industries, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(in
thousands)
(unaudited)
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Three
Months Ended March
31,
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2008
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2007
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Cash
flows from operating activities:
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Net
income
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$ |
17,519 |
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$ |
15,334 |
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization
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4,255 |
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3,637 |
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Provision
for doubtful accounts
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(89 |
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10 |
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Provision
for inventory reserve
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791 |
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741 |
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Provision
for warranty reserve
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4,447 |
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3,280 |
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Deferred
compensation provision
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139 |
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570 |
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Purchase
of trading securities, net
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(806 |
) |
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(149 |
) |
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Stock-based
payments
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548 |
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560 |
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Tax
benefit from stock option exercise
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(335 |
) |
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(1,040 |
) |
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Deferred
income tax benefit
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(1,006 |
) |
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(1,738 |
) |
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(Gain)
Loss on sale and disposition of fixed assets
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(11 |
) |
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14 |
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Minority
interest in earnings of subsidiary
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(57 |
) |
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(34 |
) |
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(Increase)
decrease in:
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Trade
and other receivables
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(27,621 |
) |
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(19,562 |
) |
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Inventories
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(9,000 |
) |
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(7,630 |
) |
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Prepaid
expenses and other
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738 |
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449 |
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Other
assets
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(152 |
) |
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(159 |
) |
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Increase
(decrease) in:
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Accounts
payable
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7,966 |
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10,276 |
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Accrued
product warranty
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(3,412 |
) |
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(2,552 |
) |
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Customer
deposits
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|
872 |
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8,274 |
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Income
taxes payable
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9,524 |
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8,822 |
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Other
accrued liabilities
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(3,688 |
) |
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(4,277 |
) |
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Net
cash provided by operating activities
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622 |
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14,826 |
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Cash
flows from investing activities:
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Expenditures
for property and equipment
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(6,110 |
) |
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(7,570 |
) |
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Proceeds
from sale of property and equipment
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20 |
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128 |
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Net
cash used by investing activities
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(6,090 |
) |
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(7,442 |
) |
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Cash
flows from financing activities:
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Tax
benefit from stock option exercise
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|
335 |
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1,040 |
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Sale
of company shares by supplemental executive retirement plan,
net
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11 |
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381 |
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Proceeds
from issuance of common stock
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|
942 |
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3,519 |
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Net
cash provided by financing activities
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1,288 |
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4,940 |
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Effect
of exchange rate changes on cash
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(1,302 |
) |
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(82 |
) |
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Net
increase (decrease) in cash and cash equivalents
|
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(5,482 |
) |
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12,242 |
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Cash
and cash equivalents at beginning of period
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|
34,636 |
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44,878 |
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Cash
and cash equivalents at end of period
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$ |
29,154 |
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$ |
57,120 |
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
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Astec
Industries, Inc. and Subsidiaries
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For
the Three Months Ended March 31, 2008
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(
in thousands, except shares)
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(unaudited)
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Common
Stock
Shares
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Common
Stock
Amount
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|
Additional
Paid
in
Capital
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Accumulated
Other
Comprehensive
Income
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|
Company
Shares
Held
by
SERP
|
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Retained
Earnings
|
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Total
Shareholders’
Equity
|
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|
Balance
December 31,
2007
|
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|
22,299,125 |
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|
$ |
4,460 |
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|
$ |
114,256 |
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$ |
5,186 |
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|
$ |
(1,705 |
) |
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$ |
254,392 |
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$ |
376,589 |
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Net
income
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17,519 |
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|
17,519 |
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Other
comprehensive income:
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Foreign
currency translation
adjustment
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(2,319 |
) |
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(2,319 |
) |
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Unrealized
gain on available-for-sale
investment
securities, net of tax
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|
310 |
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|
310 |
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Change
in unrecognized pension
and post retirement
benefit
costs
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14 |
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14 |
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Comprehensive income
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15,524 |
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Stock
incentive plan expense,
gross
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|
506 |
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|
506 |
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Exercise
of stock options
and
stock
to directors,
including
tax
benefits
|
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|
54,974 |
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|
11 |
|
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|
1,308 |
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|
1,319 |
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SERP
transactions, net
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20 |
|
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(9 |
) |
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11 |
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|
Balance,
March 31,
2008
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|
22,354,099 |
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|
$ |
4,471 |
|
|
$ |
116,090 |
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|
$ |
3,191 |
|
|
$ |
(1,714 |
) |
|
$ |
271,911 |
|
|
$ |
393,949 |
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
ASTEC
INDUSTRIES, INC. AND SUBSIDIARIES
Note
1. Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the
Securities Act of 1933. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March
31, 2008 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2008. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Astec Industries, Inc. and
subsidiaries Annual Report on Form 10-K for the year ended December 31,
2007.
The
condensed consolidated balance sheet at December 31, 2007 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
Measurements” (SFAS No. 157), which provides guidance on how to measure assets
and liabilities that use fair value. SFAS No. 157 applies whenever
another US GAAP standard requires (or permits) assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also requires additional disclosures in
both annual and quarterly reports. Portions of SFAS No. 157 were
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and the Company began applying those provisions effective
January 1, 2008. The adoption of this statement did not have a
significant impact on the Company’s financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No.
133.” The objective of this statement is to require enhanced
disclosures about an entity’s derivative and hedging activities and to improve
the transparency of financial reporting. This statement changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. This statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. This statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The
Company will adopt the standard as of January 1, 2009. The adoption
of SFAS No. 161 is not expected to have a material impact on the
Company’s financial position or results of operations.
Note
2. Earnings per Share
Basic and
diluted earnings per share are calculated in accordance with SFAS No. 128 and
SFAS No. 123(R). Basic earnings per share exclude any dilutive
effects of stock options and restricted stock units.
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
|
Three
Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
17,519,000 |
|
|
$ |
15,344,000 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share
|
|
|
22,237,100 |
|
|
|
21,644,097 |
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Employee
stock option & incentive plans
|
|
|
227,712 |
|
|
|
442,674 |
|
|
Supplemental
Executive Retirement Plan
|
|
|
85,724 |
|
|
|
107,965 |
|
|
Denominator
for diluted earnings per share
|
|
|
22,550,536 |
|
|
|
22,194,736 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.79 |
|
|
$ |
0.71 |
|
|
Diluted
|
|
$ |
0.78 |
|
|
$ |
0.69 |
|
A total
of approximately 1,840 and 300 options were antidilutive for the three months
ended March 31, 2008 and 2007, respectively and were therefore not included in
the diluted earnings per share computation.
Note
3. Receivables
Receivables
are net of allowance for doubtful accounts of $1,534,000 and $1,713,000 as of
March 31, 2008 and December 31, 2007, respectively.
Note
4. Inventories
Inventories
are stated at the lower of first-in, first-out cost or market and consist of the
following:
|
|
|
(in
thousands)
|
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
Raw
materials and parts
|
|
$ |
103,033 |
|
|
$ |
96,719 |
|
|
Work-in-process
|
|
|
55,975 |
|
|
|
54,128 |
|
|
Finished
goods
|
|
|
51,500 |
|
|
|
51,027 |
|
|
Used
equipment
|
|
|
8,520 |
|
|
|
8,945 |
|
|
Total
|
|
$ |
219,028 |
|
|
$ |
210,819 |
|
The above
inventory amounts are net of reserves totaling $14,139,000 and $13,714,000 as of
March 31, 2008 and December 31, 2007, respectively.
Note
5. Property and Equipment
Property
and equipment is stated at cost, less accumulated depreciation of $126,130,000
and $122,689,000 as of March 31, 2008 and December 31, 2007,
respectively.
Note
6. Fair Value of Investments
The
Company’s investments consist of the following (amounts in
thousands):
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
(Net
Carrying
Amount)
|
|
|
March
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities
|
|
$ |
10,305 |
|
|
$ |
-- |
|
|
$ |
988 |
|
|
$ |
9,317 |
|
|
Trading
equity securities
|
|
|
2,585 |
|
|
|
66 |
|
|
|
94 |
|
|
|
2,557 |
|
|
Trading
debt securities
|
|
|
7,935 |
|
|
|
63 |
|
|
|
78 |
|
|
|
7,920 |
|
|
|
|
$ |
20,825 |
|
|
$ |
129 |
|
|
$ |
1,160 |
|
|
$ |
19,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities
|
|
$ |
10,305 |
|
|
$ |
-- |
|
|
$ |
1,483 |
|
|
$ |
8,822 |
|
|
Trading
equity securities
|
|
|
3,011 |
|
|
|
103 |
|
|
|
167 |
|
|
|
2,947 |
|
|
Trading
debt securities
|
|
|
6,861 |
|
|
|
49 |
|
|
|
1 |
|
|
|
6,909 |
|
|
|
|
$ |
20,177 |
|
|
$ |
152 |
|
|
$ |
1,651 |
|
|
$ |
18,678 |
|
Management
reviews several factors to determine whether a loss is other than temporary,
such as the length of time a security is in an unrealized loss position, the
extent to which fair value is less than amortized cost, the financial condition
and near term prospects of the issuer and the Company’s intent and ability to
hold the security for a period of time sufficient to allow for any anticipated
recovery in fair value. Management determined that the gross unrealized loss on
available-for-sale equity securities is considered temporary and, therefore, it
has been recorded in other comprehensive income in the periods in which it
arose.
Available-for-sale
equity securities are comprised of actively traded marketable equity securities
with quoted prices on national markets.
Trading
equity securities are mainly marketable equity mutual funds that comprise a
portion of the Company’s liability under its Supplemental Executive Retirement
Plan (“SERP”), an unqualified defined contribution plan.
Trading
debt securities are comprised mainly of marketable debt securities held by Astec
Insurance Company. At March 31, 2008 and December 31, 2007, respectively,
$445,000 and $149,000 of trading debt securities were due to mature within
twelve months and, accordingly, are included in other current
assets.
SFAS No.
157 requires that investments be categorized based upon the level of judgment
associated with the inputs used to measure their fair
value. Hierarchical levels, defined by SFAS No. 157 and directly
related to the amount of subjectivity associated with the inputs to fair
valuation of these investments, are as follows:
Level 1 –
Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.
Level 2 –
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life.
Level 3 –
Inputs reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to the model.
The table
below categorizes the Company’s investments based upon the lowest level of
significant input to the valuation (amounts in thousands).
|
|
|
Investments
at March 31, 2008
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Available-for-sale
securities
|
|
$ |
9,317 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
9,317 |
|
|
Trading
equity securities
|
|
|
2,557 |
|
|
|
- |
|
|
|
- |
|
|
|
2,557 |
|
|
Trading
debt securities
|
|
|
- |
|
|
|
7,920 |
|
|
|
- |
|
|
|
7,920 |
|
|
Total
|
|
$ |
11,874 |
|
|
$ |
7,920 |
|
|
$ |
- |
|
|
$ |
19,794 |
|
Note
7. Goodwill
At March
31, 2008 and December 31, 2007, the Company had goodwill in the amount of
$26,093,000 and $26,416,000, respectively.
The changes in the carrying amount of goodwill by operating segment for the
period ended March 31, 2008 are as follows (in thousands):
|
|
|
Asphalt
Group
|
|
|
Aggregate and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
Other
|
|
|
Total
|
|
|
Balance
December 31, 2007
|
|
$ |
1,157 |
|
|
$ |
17,799 |
|
|
$ |
1,646 |
|
|
$ |
- |
|
|
$ |
5,814 |
|
|
$ |
26,416 |
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
(323 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(323 |
) |
|
Balance
March 31, 2008
|
|
$ |
1,157 |
|
|
$ |
17,476 |
|
|
$ |
1,646 |
|
|
$ |
- |
|
|
$ |
5,814 |
|
|
$ |
26,093 |
|
Note
8. Debt
During
April 2007, the Company entered into an unsecured credit agreement with Wachovia
Bank, National Association (Wachovia) whereby Wachovia has extended to the
Company an unsecured line of credit loan of up to $100,000,000 including a
sub-limit for letters of credit of up to $15,000,000. The Wachovia
credit agreement replaced the previously $87,500,000 secured credit facility the
Company had in place with General Electric Capital Corporation and General
Electric Capital-Canada.
The
Wachovia credit facility is unsecured and has an original term of three years
(which is subject to further extensions as provided therein). The
interest rate for borrowings is a function of the Adjusted LIBOR Rate or
Adjusted LIBOR Market Index Rate, as elected by the Company, plus a margin based
upon a leverage ratio pricing grid ranging between 0.5% and 1.5%. As
of March 31, 2008, if any loans would have been outstanding, the applicable
margin based upon the leverage ratio pricing grid would equal
0.5%. The Wachovia credit facility requires no principal amortization
and interest only payments are due, in the case of loans bearing interest at the
Adjusted LIBOR Market Index Rate, monthly in arrears and, in the case of loans
bearing at the Adjusted LIBOR Rate, at the end of the applicable interest period
therefore. The Wachovia credit agreement contains certain financial
covenants related to minimum fixed charge coverage ratios, minimum tangible net
worth and maximum allowed capital expenditures. At March 31, 2008,
the Company had borrowing availability of $92,694,000, net of letters of credits
of $7,306,000, on its revolver. No amounts were outstanding under the
credit facility at March 31, 2008.
The
Company was in compliance with the financial covenants under its credit facility
as of March 31, 2008.
The
Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $4,456,000 (ZAR
33,000,000) to finance short-term working capital needs, as well as to cover the
short-term establishment of letter of credit performance guarantees. As of March
31, 2008, Osborn had no outstanding borrowings under the credit facility, but
approximately $3,421,000 in performance and retention bonds were guaranteed
under the facility. The facility is secured by Osborn's account
receivables, retention and cash balances and a $2,000,000 letter of credit
issued by the parent Company. The portion of the available facility
not secured by the $2,000,000 letter of credit fluctuates monthly based upon
fifty percent (50%) of Osborn's accounts receivable, retention plus total cash
balances at the end of the prior month. As of March 31, 2008, Osborn
Engineered Products had available credit under the facility of approximately
$1,035,000.
Note
9. Product Warranty Reserves
Changes
in the Company's product warranty liability for the three month periods ended
March 31, 2008 and 2007 are as follows:
|
|
|
(in
thousands)
|
|
|
|
|
Three
Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Reserve
balance at the beginning of the period
|
|
$ |
7,827 |
|
|
$ |
7,184 |
|
|
Warranty
liabilities accrued during the period
|
|
|
4,447 |
|
|
|
3,280 |
|
|
Warranty
liabilities settled during the period
|
|
|
(3,413 |
) |
|
|
(2,552 |
) |
|
Reserve
balance at the end of the period
|
|
$ |
8,861 |
|
|
$ |
7,912 |
|
The
Company warrants its products against manufacturing defects and performance to
specified standards. The warranty period and performance standards vary by
market and uses of its products. The Company estimates the costs that may be
incurred under its warranties and records a liability at the time product sales
are recorded. The product warranty liability is primarily based on
historical claim rates, nature of claims and the associated cost.
Note
10. Accrued Loss Reserves
The
Company accrues reserves for losses related to workers' compensation and general
liability claims that have been incurred but not yet paid or are estimated to
have been incurred but not yet reported to the Company. The reserves
are estimated based on the Company's evaluation of the type and severity of
individual claims and historical information, primarily its own claims
experience, along with assumptions about future events. Changes in
assumptions, as well as changes in actual experience, could cause these
estimates to change in the future.
Note
11. Pension and Post-retirement Benefits
The
Company expects to contribute approximately $800,000 to its pension plan and
$200,000 to its post-retirement benefit plan during
2008. Approximately $148,000 of the contribution was paid to the
pension plan and approximately $168,000 was paid for post-retirement benefits
during the three months ended March 31, 2008.
The
components of net periodic pension cost and post-retirement benefit cost for the
three months ended March 31, 2008 and 2007 are as follows:
|
|
|
(in
thousands)
|
|
|
|
|
Pension
Benefit
|
|
|
Post-Retirement
Benefits
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Service
cost
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12 |
|
|
$ |
14 |
|
|
Interest
cost
|
|
|
141 |
|
|
|
140 |
|
|
|
13 |
|
|
|
12 |
|
|
Expected
return on assets
|
|
|
(160 |
) |
|
|
(160 |
) |
|
|
- |
|
|
|
- |
|
|
Amortization
of prior service cost
|
|
|
- |
|
|
|
- |
|
|
|
12 |
|
|
|
7 |
|
|
Amortization
of net (gain) loss
|
|
|
23 |
|
|
|
20 |
|
|
|
4 |
|
|
|
(19 |
) |
|
Net
periodic benefit cost
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
41 |
|
|
$ |
14 |
|
Note
12. Uncertainty in Income Taxes
Regarding
FASB Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income Taxes: An
Interpretation of FASB Statement 109, Accounting for Income Taxes”, the
Company's liability recorded for unrecognized tax benefits as of March 31, 2008
has not changed significantly in amount or composition since December 31,
2007.
Note 13. Segment
Information
The
Company has four reportable operating segments, which include the Asphalt Group,
the Aggregate and Mining Group, the Mobile Asphalt Paving Group and the
Underground Group. The business units in the Asphalt Group 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. The business units in the
Aggregate and Mining Group design, manufacture and market equipment for the
aggregate, metallic mining and recycling industries. The business
units in the Mobile Asphalt Paving Group design, manufacture and market asphalt
pavers, material transfer vehicles, milling machines and screeds. The
business units in the Underground Group design, manufacture and market a
complete line of trenching equipment and directional drills for the underground
construction market. The Company also has one other category that
contains the business units that do not meet the requirements for separate
disclosure as an operating segment. The business units in the Other
category include Peterson Pacific Corp. (Peterson), Astec Insurance Company and
the parent company, Astec Industries, Inc. Peterson designs,
manufactures and markets whole-tree pulpwood chippers, horizontal grinders and
blower trucks.
|
|
|
(in
thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
March
31, 2008
|
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
|
Net
sales from external customers
|
|
$ |
71,585 |
|
|
$ |
91,090 |
|
|
$ |
47,131 |
|
|
$ |
32,643 |
|
|
$ |
20,623 |
|
|
$ |
263,072 |
|
|
Intersegment
sales
|
|
|
4,187 |
|
|
|
5,972 |
|
|
|
1,787 |
|
|
|
1,502 |
|
|
|
- |
|
|
|
13,448 |
|
|
Gross
profit
|
|
|
19,606 |
|
|
|
23,157 |
|
|
|
12,592 |
|
|
|
7,103 |
|
|
|
3,762 |
|
|
|
66,220 |
|
|
Gross
profit percent
|
|
|
27.4 |
% |
|
|
25.4 |
% |
|
|
26.7 |
% |
|
|
21.8 |
% |
|
|
18.2 |
% |
|
|
25.2 |
% |
|
Segment
profit
|
|
$ |
11,845 |
|
|
$ |
10,259 |
|
|
$ |
6,528 |
|
|
$ |
1,845 |
|
|
$ |
(12,725 |
) |
|
$ |
17,752 |
|
|
|
|
(in
thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
March
31, 2007
|
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
|
Net
sales from external customers
|
|
$ |
65,010 |
|
|
$ |
82,343 |
|
|
$ |
43,950 |
|
|
$ |
24,260 |
|
|
$ |
- |
|
|
$ |
215,563 |
|
|
Intersegment
sales
|
|
|
3,029 |
|
|
|
2,284 |
|
|
|
1,601 |
|
|
|
5,193 |
|
|
|
- |
|
|
|
12,107 |
|
|
Gross
profit
|
|
|
17,927 |
|
|
|
20,879 |
|
|
|
10,182 |
|
|
|
5,395 |
|
|
|
(10 |
) |
|
|
54,373 |
|
|
Gross
profit percent
|
|
|
27.6 |
% |
|
|
25.4 |
% |
|
|
23.2 |
% |
|
|
22.2 |
% |
|
|
- |
|
|
|
25.2 |
% |
|
Segment
profit
|
|
$ |
11,453 |
|
|
$ |
10,375 |
|
|
$ |
5,477 |
|
|
$ |
1,014 |
|
|
$ |
(13,110 |
) |
|
$ |
15,209 |
|
Reconciliation
of the reportable segment totals for profit to the Company's consolidated totals
is as follows:
|
|
|
(in
thousands)
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Total
profit for reportable segments
|
|
$ |
17,752 |
|
|
$ |
15,209 |
|
|
Minority
interest in earnings
|
|
|
(57 |
) |
|
|
(34 |
) |
|
Recapture
(elimination) of intersegment profit
|
|
|
(176 |
) |
|
|
159 |
|
|
Consolidated
net income
|
|
$ |
17,519 |
|
|
$ |
15,334 |
|
Note
14. Contingent Matters
Certain
customers have financed purchases of the Company’s products through arrangements
in which the Company is contingently liable for customer debt of approximately
$568,000 and for residual value guarantees aggregating approximately $147,000 at
March 31, 2008 and contingently liable for customer debt of approximately
$629,000 and for residual value guarantees aggregating approximately $147,000 at
December 31, 2007. At March 31, 2008, the maximum potential amount of
future payments under these guarantees for which the Company would be liable is
equal to $715,000. The Company does not believe it will be called on
to fulfill any of these contingencies, and therefore the carrying amounts on the
consolidated balance sheets of the Company for these contingent liabilities are
zero.
In
addition, the Company is contingently liable under letters of credit totaling
approximately $7,306,000, including a $2,000,000 letter of credit issued on
behalf of the Company’s South African subsidiary, Osborn Engineered Products SA
(Pty) (Osborn). The outstanding letters of credit expire at various
dates through July 2009. Osborn is contingently liable for a total of $3,421,000
in performance and retention bonds, of which $1,211,000 are secured by the
$2,000,000 letter of credit issued by the Company. As of March 31,
2008, the maximum potential amount of future payments under these letters of
credit and bonds for which the Company could be liable is approximately
$9,516,000.
The
Company is engaged in certain pending litigation involving claims or other
matters arising in the ordinary course of business. Most of these
claims involve product liability or other tort claims for property damage or
personal injury against which the Company is insured. As a part of
its litigation management program, the Company maintains general liability
insurance coverage for product liability and other similar tort claims in
amounts the Company believes are adequate. The coverage is subject to
a substantial self-insured retention under the terms of which the Company has
the right to coordinate and control the management of its claims and the defense
of these actions.
The
Company is currently a party to various claims and legal proceedings that have
arisen in the ordinary course of business. If management believes
that a loss arising from such claims and legal proceedings is probable and can
reasonably be estimated, the Company records the amount of the loss (excluding
estimated legal fees), or the minimum estimated liability when the loss is
estimated using a range, and no point within the range is more probable than
another. As management becomes aware of additional information
concerning such contingencies, any potential liability related to these matters
is assessed and the estimates are revised, if necessary. If
management believes that a loss arising from such claims and legal proceedings
is either (i) probable but cannot be reasonably estimated or (ii) reasonably
possible but not probable, the Company does not record the amount of the loss,
but does make specific disclosure of such matter, if material. Based
upon currently available information and with the advice of counsel, management
believes that the ultimate outcome of its current claims and legal proceedings,
individually and in the aggregate, will not have a material adverse effect on
the Company’s financial position, cash flows or results of
operations. However, claims and legal proceedings are subject to
inherent uncertainties and rulings unfavorable to the Company could
occur. If an unfavorable ruling were to occur, there exists the
possibility of a material adverse effect on the Company’s financial position,
cash flows or results of operations.
Note
15. Stock-based Compensation
Under
terms of the Company’s stock option plans, officers and certain other employees
may be granted options to purchase the Company’s common stock at no less than
100% of the market price on the date the option is granted. The
Company has reserved shares of common stock for exercise of outstanding
non-qualified options and incentive options of officers and employees of the
Company and its subsidiaries at prices determined by the Board of
Directors. In addition, a Non-employee Directors Stock Incentive Plan
has been established to allow non-employee directors to have a personal
financial stake in the Company through an ownership
interest. Directors may elect to receive their compensation in cash,
common stock, deferred stock or stock options. For 2008, all the
directors elected to receive their compensation in either common stock or
deferred stock. Total compensation expense for these director related
shares equaled $42,000 for the three months ended March 31,
2008. Options granted under the Non-employee Directors Stock
Incentive Plan and the Executive Officer Annual Bonus Equity Election Plan vest
and become fully exercisable immediately. Generally, other options
granted vest over 12 months. All stock options have a ten-year term.
All granted options were vested prior to December 31, 2006, therefore no stock
option expense was recorded in the three months ended March 31, 2008 and 2007
and there were no unrecognized compensation costs related to stock options
previously granted as of those dates.
In August
2006, the Compensation Committee of the Board of Directors implemented a
five-year plan to award key members of management restricted stock units each
year. The details of the plan were formulated under the 2006 Incentive Plan
approved by the Company’s shareholders in their annual meeting held in April,
2006. The plan allows up to 700,000 shares to be granted to
employees. Units granted each year will be determined based upon the
performance of individual subsidiaries and consolidated annual financial
performance. Each award will vest at the end of five years from the date of
grant, or at the time a recipient reaches age 65, if earlier. On March 8, 2007,
management was granted 64,950 restricted stock units, net of forfeitures of
6,150 units for performance during 2006. An additional 74,800 units were
granted on February 28, 2008 for performance in 2007. It is
anticipated that an additional 77,800 units will be granted in February 2009 for
performance in 2008. Expenses previously recorded for units forfeited
are reversed in the period of forfeiture. Based upon the grant date
fair values of $38.76 and $38.52 for the units still outstanding from the March
8, 2007 and February 28, 2008 grants, respectively and the March 31, 2008 fair
value of $38.76 for the 77,800 units expected to be granted in February 2009,
compensation costs, after reduction for expected forfeitures of $5,669,000 will
be recognized in future periods through 2014. The fair value of the units
expected to be issued in February 2009 will be adjusted quarterly to the
period end market value of the Company’s stock until the units are actually
granted. Compensation expense of $506,000 and $560,000 has been
recorded in the three month periods ended March 31, 2008 and 2007, respectively,
to reflect the fair value of the total shares amortized over the portion of the
vesting period occurring during the periods.
Note
16. Seasonality
Based
upon historical results of the past several years and expected results for this
year, 25% to 27% of the Company's business volume typically occurs during the
first three months of the year. During the usual seasonal trend, the
first three quarters of the year are the Company's stronger quarters for
business volume, with the fourth quarter normally being the weakest
quarter.
Note
17. Comprehensive Income
Total
comprehensive income for the three month periods ended March 31, 2008 and 2007
was $15,524,000 and $15,180,000, respectively. The components of
comprehensive income for the periods indicated are set forth below:
|
|
|
(in
thousands)
|
|
|
|
|
Three
Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
income
|
|
$ |
17,519 |
|
|
$ |
15,334 |
|
|
Change
in unrecognized pension and post retirement benefit costs
|
|
|
14 |
|
|
|
8 |
|
|
Unrealized
gain on available for sale securities, net of income tax
|
|
|
310 |
|
|
|
- |
|
|
Foreign
currency translation adjustments
|
|
|
(2,319 |
) |
|
|
(162 |
) |
|
Total
comprehensive income
|
|
$ |
15,524 |
|
|
$ |
15,180 |
|
Note
18. Other Income, net of expense
For the
three months ended March 31, 2008 and 2007, the Company had other income, net of
expenses, totaling $426,000 and $685,000, respectively. Major items
comprising the net totals for the periods are as follows:
|
|
|
(in
thousands)
Three
Months Ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Interest
income
|
|
$ |
358 |
|
|
$ |
644 |
|
|
(Gain)
on foreign currency transactions
|
|
|
(69 |
) |
|
|
(74 |
) |
|
Other
|
|
|
137 |
|
|
|
115 |
|
|
Total
|
|
$ |
426 |
|
|
$ |
685 |
|
Note
19. Business Combination
On July
31, 2007 the Company acquired all of the outstanding capital stock of Peterson,
Inc., an Oregon company (Peterson) for approximately $21,105,000 including cash
acquired of approximately $1,702,000, plus transaction costs of approximately
$252,000. One million dollars of the purchase price is being held in escrow
pending the resolution of certain contingent matters. In addition to the
purchase price paid to the sellers, the Company also paid off approximately
$7,500,000 of outstanding Peterson debt coincident with the purchase. The
effective date of the purchase was July 1, 2007 and the results of Peterson’s
operations have been included in the consolidated financial statements since
that date. The transaction resulted in the recognition of approximately
$5,814,000 of goodwill. The purchase price allocation is preliminary and will be
finalized upon the earlier of June 30, 2008 or distribution of the
escrow.
Peterson
is a manufacturer of whole-tree pulpwood chippers, horizontal grinders and
blower trucks. Founded in 1961 as Wilbur Peterson & Sons, a heavy
construction company, Peterson expanded into manufacturing in 1982 to develop
equipment to suit their land clearing and construction needs. Peterson will
continue to operate from its Eugene, Oregon headquarters under the name Peterson
Pacific Corp.
Conditional
earn-out payments of up to $3,000,000 may be due to the sellers based upon
actual 2008 and 2009 results of operations. The Company and Peterson’s former
majority owner and his wife have also entered into a separate agreement for the
Company to purchase the real estate and improvements used by Peterson for
$7,000,000 at a later date.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Statements contained anywhere in this Quarterly Report on Form
10-Q that are not limited to historical information are considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are
sometimes identified by the words, “will,” “would,” “should,” “could,”
“believes,” “anticipates,” “intends,” and “expects” and similar
expressions. Such forward-looking statements include, without
limitation, statements regarding the Company's expected sales and results of
operations during 2008, the Company's expected effective tax rates for 2008, the
Company's expected capital expenditures in 2008, the expected benefit and impact
of financing arrangements, the ability of the Company to meet its working
capital and capital expenditure requirements through March 31, 2009, the impact
of the enactment of Safe, Accountable, Flexible and Efficient Transportation
Equity Act - A Legacy for Users (SAFETEA-LU), the need for road improvements,
the impact of other public sector spending and funding mechanisms, the Company's
backlog levels, changes in the economic environment as it affects the Company,
the timing and impact of changes in the economy, the market confidence of
customers and dealers, the Company's general liability insurance coverage for
product liability and other similar tort claims, the Company being called upon
to fulfill certain contingencies, the expected contributions by the Company to
its pension plan, its post-retirement plan and other benefits, the expected
dates of granting of restricted stock units, changes in interest rates and the
impact of such changes on the financial results of the Company, changes in the
prices of steel and oil, the change in the level of the Company's presence in
international markets, the seasonality of the Company’s business, the outcome of
audits by taxing authorities, the amount or value of unrecognized tax benefits,
the Company’s discussion of its critical accounting policies and the ultimate
outcome of the Company's current claims and legal proceedings.
These
forward-looking statements are based largely on management's expectations which
are subject to a number of known and unknown risks, uncertainties and other
factors discussed in this Report and in other documents filed by the Company
with the Securities and Exchange Commission, which may cause actual results,
financial or otherwise, to be materially different from those anticipated,
expressed or implied by the forward-looking statements. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statements to reflect future events or
circumstances.
In
addition to the risks and uncertainties identified herein under the caption
“Item 1A. Risk Factors” in Part II of this Report, elsewhere herein and in other
documents filed by the Company with the Securities and Exchange Commission, most
recently in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, the risk factors described in the section under the caption
“Risk Factors” should be carefully considered when evaluating the Company's
business and future prospects.
Overview
The
Company is a leading manufacturer and marketer of construction
equipment. The Company's businesses:
§ design,
engineer, manufacture and market equipment that is used in each phase of road
building, from quarrying and crushing the aggregate to applying asphalt to the
road surface;
§ manufacture
certain equipment and components unrelated to road construction, including
trenching, auger boring, directional drilling, industrial heat transfer, wood
chipping and grinding; and
§ manufacture
and sell replacement parts for equipment in each of its product
lines.
The
Company has 14 manufacturing companies, 13 of which fall within four reportable
operating segments, which include the Asphalt Group, the Aggregate and Mining
Group, the Mobile Asphalt Paving Group and the Underground Group. The
business units in the Asphalt Group 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
unrelated industries. The business units in the Aggregate and Mining
Group design, manufacture and market equipment for the aggregate, metallic
mining and recycling industries. The business units in the Mobile
Asphalt Paving Group design, manufacture and market asphalt pavers, material
transfer vehicles, milling machines, stabilizers and screeds. The
business units in the Underground Group design, manufacture and market a
complete line of trenching equipment, directional drills and auger boring
machines for the underground construction market. The Company also
has one other category that contains the business units that do not meet the
requirements for separate disclosure as an operating segment. The
business units in the Other category include Peterson Pacific Corp. (Peterson),
Astec Insurance Company and Astec Industries, Inc., the parent
company. Peterson designs, manufactures and markets whole-tree pulp
wood chippers, horizontal grinders and blower trucks.
The
Company's financial performance is affected by a number of factors, including
the cyclical nature and varying conditions of the markets it
serves. Demand in these markets fluctuates in response to overall
economic conditions and is particularly sensitive to the amount of public sector
spending on infrastructure development, privately funded infrastructure
development, changes in the price of crude oil (fuel costs and liquid asphalt)
and changes in the price of steel.
In August
2005, President Bush signed SAFETEA-LU into law, which authorizes appropriation
of $286.5 billion in guaranteed federal funding for road, highway and bridge
construction, repair and improvement of the federal highway and transit projects
for federal fiscal years October 1, 2004 through September 30,
2009. The Company believes that the federal highway funding
significantly influences the purchasing decisions of many of the Company's
customers who are more comfortable making purchasing decisions with the
legislation in place. The Federal funding provides for approximately
25% of highway, street, roadway and parking construction funding in the United
States. President Bush signed into law on December 26, 2007, a
funding bill for the 2008 fiscal year, which fully funds the highway program at
$40.2 billion for the 2008 fiscal year.
The
public sector spending described above is needed to fund road, bridge and mass
transit improvements. The Company believes that increased funding is
unquestionably needed to restore the nation's highways to a quality level
required for safety, fuel efficiency and mitigation of congestion. In
the Company's opinion, amounts needed for such improvements are significantly
above amounts approved, and funding mechanisms such as the federal usage fee per
gallon of gasoline, which has not been increased in fourteen years, would need
to be increased along with other measures to generate the funds
needed.
In
addition to public sector funding, the economies in the markets the Company
serves, the price of oil and its impact on customers’ purchase decisions and the
price of steel may each affect the Company’s financial performance. Economic
downturns, like the one experienced from 2001 through 2003, generally result in
decreased purchasing by the Company’s customers, which, in turn, causes
reductions in sales and increased pricing pressure on the Company’s products.
When interest rates rise, they typically have the effect of negatively impacting
customers’ attitudes toward purchasing equipment. Although the Federal Reserve
has recently made significant reductions to interest rates, primarily in
response to weakness in the housing sector, the Company expects only slight
changes in interest rates in the remainder of 2008 and does not expect such
changes to have a material impact on the financial results of the
Company.
Significant
portions of the Company's revenues relate to the sale of equipment that produces
asphalt mix. A major component of asphalt is oil. An
increase in the price of oil increases the cost of providing asphalt, which
could likely decrease demand for asphalt, and therefore decrease demand for
certain Company products. While increasing oil prices may have an
impact on the Company’s customers, the Company’s equipment can use a significant
amount of recycled asphalt pavement, thereby mitigating the cost of asphalt for
the customer. The Company continues to develop products and
initiatives to reduce the amount of oil and related products required to produce
asphalt mix. Oil price volatility makes it difficult to predict the
costs of oil-based products used in road construction such as liquid asphalt and
gasoline. The Company's customers appear to be adapting their prices
in response to the fluctuating oil prices, and the fluctuations do not appear to
be significantly impairing their equipment purchases at this time.
Steel is
a major component in the Company’s equipment. Steel prices retracted somewhat
during 2005 and 2006 from record highs during 2004 but returned to historically
high levels during 2007. Steel prices have increased significantly
during the first quarter of 2008. In response to rapidly increasing
steel prices the Company has negotiated with suppliers to lock in steel pricing
at current levels where possible. The Company has also
increased sales prices to offset steel costs and is contemplating additional
price increases and other methods to mitigate the rapid rise in steel
prices. Although the Company has instituted price increases in
response to the rising costs of steel and components, the Company may not be
able to raise the prices of its products enough to cover the increased costs
which will negatively impact the Company’s financial results. The
Company will also take advantage of additional buying opportunities to offset
such future pricing where possible.
In
addition to the factors stated above, many of the Company’s markets are highly
competitive, and its products compete worldwide with a number of other
manufacturers and distributors that produce and sell similar products. The
reduced value of the dollar relative to many foreign currencies and the current
positive economic conditions in certain foreign economies continue to have a
positive impact on the Company’s international sales.
Results
of Operations
For the
three months ended March 31, 2008, net sales increased $47,509,000 or 22.0%, to
$263,072,000 from $215,563,000 for the three months ended March 31,
2007. Peterson accounted for $20,623,000 of the sales increase,
resulting in an increase, net of Peterson, of $26,886,000 or 12.5% for the first
quarter of 2008 as compared to the first quarter of 2007. Sales are
generated primarily from new equipment purchases made by customers for use in
construction for privately funded infrastructure development and public sector
spending on infrastructure development. The overall growth in sales
for the three months ended March 31, 2008 compared to the three months ended
March 31, 2007 is reflective of a weak dollar resulting in stronger
international sales, market acceptance of new products, improving market share
and increasing sales of recycling equipment. For the quarter ended
March 31, 2008 compared to the quarter ended March 31, 2007, (1) net sales for
the Asphalt Group increased approximately $6,575,000 or 10.1%; (2) net sales for
the Aggregate and Mining Group increased approximately $8,747,000 or 10.6%; (3)
net sales for the Underground Group increased approximately $8,383,000 or 34.6%;
and (4) net sales for the Mobile Asphalt Paving Group increased approximately
$3,181,000 or 7.2%. Parts sales for the quarter ended March 31, 2008
were $52,590,000 compared to $42,991,000 for the quarter ended March 31, 2007,
for an increase of $9,599,000 or 22.3%. Peterson accounted for
$3,913,000 of the increase in parts sales, resulting in a change in parts sales,
net of Peterson, of $5,686,000 or 13.2% for the first quarter of 2008 compared
to the same quarter in 2007.
For the
quarter ended March 31, 2008 compared to the same quarter in 2007, domestic
sales increased 2.5% from $166,430,000 to $170,586,000. Excluding
Peterson, domestic sales were $156,253,000 for a decrease of 6.1% compared to
the prior year. Domestic sales increased in the Underground segment
while domestic sales decreased in the Aggregate and Mining, Asphalt and the
Mobile Asphalt Paving segments. Domestic sales accounted for 64.8%
and international sales accounted for 35.2% of the first quarter sales of 2008
compared to 77.2% for domestic sales and 22.8% for international sales for the
first quarter of 2007.
International
sales for the quarter ended March 31, 2008 compared to the same period of 2007
increased $43,353,000, or 88.2% from $49,133,000 to
$92,486,000. Excluding Peterson, international sales increased
$37,063,000, or 75.4% for the first quarter of 2008 compared to the same period
in 2007. International sales increased for the first quarter of 2008
compared to the same period in 2007, in Canada, Asia, South America, Central
America and Australia. There were only nominal changes in all other
geographic markets. The Company believes the overall increased level
of international sales relates to strong economic conditions in certain foreign
markets, continued weakness of the U.S. dollar compared to most foreign
currencies and increased sales efforts by the Company in foreign
markets. For the quarter ended March 31, 2008 compared to the same
period of 2007, international sales increased in all segments.
Gross
profit for the three months ended March 31, 2008 increased $11,847,000 or 21.8%,
to $66,220,000 from $54,373,000 for the three months ended March 31,
2007. Peterson accounted for $3,747,000 of the gross profit increase
in the first quarter of 2008 compared to the first quarter of
2007. Excluding Peterson, gross profit increased $8,100,000, or
14.9%, for the first quarter of 2008 compared to the same period in
2007. Gross profit as a percentage of sales remained flat for the
three months ended March 31, 2008 and 2007 at 25.2% for both
periods. For the quarter ended March 31, 2008 compared to the same
period in 2007, gross profit for the Asphalt Group increased from $17,927,000 to
$19,606,000 or an increase of $1,679,000 or 9.4%. This resulted in a
decrease in gross profit as a percentage of sales from 27.6% to 27.4%, or 20
basis points. For the quarter ended March 31, 2008 compared to the
same period in 2007, gross profit for the Aggregate and Mining Group increased
from $20,879,000 to $23,157,000 or an increase of $2,278,000 or
10.9%. Gross profit as a percentage of sales remained flat at 25.4%
for both periods. For the quarter ended March 31, 2008 compared to
the same period in 2007, gross profit for the Mobile Asphalt Paving Group
increased from $10,182,000 to $12,592,000 or an increase of $2,410,000 or
23.7%. Gross profit, as a percentage of sales increased from 23.2% to
26.7%, or 350 basis points. The primary reasons for the increase in
the Mobile Asphalt Paving Group gross margin are increased efficiencies in the
manufacturing plant due to the implementation of lean concepts along with
pricing increases. For the quarter ended March 31, 2008 compared to
the same period in 2007, gross profit for the Underground Group increased from
$5,395,000 to $7,103,000 or an increase of $1,708,000 or 31.7%. Gross
profit as a percentage of sales for the Underground Group decreased from 22.2%
to 21.8% or 40 basis points.
Selling,
general, administrative and engineering expenses for the quarter ended March 31,
2008 were $38,779,000, or 14.7% of net sales, compared to $30,529,000, or 14.2%
of net sales for the quarter ended March 31, 2007, an increase of $8,250,000 or
27.2%. The following discussion is presented net of the increase in
selling, general, administrative and engineering expenses of $2,484,000 due to
the operations of Peterson. The increase in selling, general,
administrative and engineering expenses for the three months ended March 31,
2008 compared to the same period of 2007 was primarily related to the ConExpo
show in March 2008. ConExpo costs for the first quarter of 2008 were
$3,205,000 higher than the same quarter in 2007. The ConExpo, show
which is held once every three years, was held in March 2008. Personnel and related
expenses increased approximately $893,000 due to increased staffing in order to
support increased sales volume while health insurance costs increased
$904,000. Sales commissions also increased approximately $460,000 due
to increased sales volume.
On
January 1, 2006, the Company began accounting for share based payments under the
provisions of Statement of Financial Accounting Standards No. 123R, “Share Based
Payment” (SFAS 123R). SFAS 123R requires the share based compensation
expense to be recognized over the period during which an employee is required to
provide service in exchange for the award (the vesting period). All
granted options were vested prior to December 31, 2006, therefore no stock
option expense was recorded in the three months ended March 31, 2008 and 2007
and there were no unrecognized compensation costs related to stock options
previously granted as of those dates.
In August
2006, the Compensation Committee of the Board of Directors implemented a
five-year plan to award key members of management restricted stock units each
year. The details of the plan were formulated under the 2006 Incentive Plan
approved by the Company’s shareholders in their annual meeting held in April,
2006. The plan allows up to 700,000 shares to be granted to
employees. Units granted each year will be determined based upon the
performance of individual subsidiaries and consolidated annual financial
performance. Each award will vest at the end of five years from the date of
grant, or at the time a recipient reaches age 65, if earlier. On March 8, 2007
management was granted 64,950 restricted stock units, net of forfeitures of
6,150 units for performance during 2006. An additional 74,800 units
were granted on February 28, 2008 for performance in 2007. It is
anticipated that an additional 77,800 units will be granted in February 2009 for
performance in 2008. Expenses previously recorded for units forfeited
are reversed in the period of forfeiture. Based upon the grant date
fair values of $38.76 and $38.52 for the units still outstanding from the March
8, 2007 and February 28, 2008 grants, respectively, and the March 31, 2008 fair
value of $38.76 for the 77,800 units expected to be granted in February 2009,
$5,669,000 of compensation costs will be recognized in future periods through
2014. The fair value of the units expected to be issued in February 2009 will be
adjusted quarterly to the period-end market value of the Company’s stock until
the units are actually granted. Compensation expense of $506,000 and
$560,000 has been recorded in the three month periods ended March 31, 2008 and
2007, respectively, to reflect the fair value of the total shares amortized over
the portion of the vesting period occurring during the periods.
For the
quarter ended March 31, 2008 compared to the quarter ended March 31, 2007,
interest expense decreased $284,000, or 68.4%, to $131,000 from
$415,000. Interest expense as a percentage of net sales was 0.05% and
0.19% for the quarters ended March 31, 2008 and 2007,
respectively. Interest expense for the three months ended March 31,
2008 related primarily to the payment of interest on letters of credit issued by
the Company. The reduction in interest expense was due to significant
reductions in collection day charges, unused line of credit fees and
amortization of prepaid loan costs under the Company’s new financing arrangement
with Wachovia, as compared to these costs under the Company’s previous financing
agreement.
Other
income, net was $426,000 for the quarter ended March 31, 2008 compared to other
income, net of $685,000 for the quarter ended March 31, 2007, for a decrease of
$259,000. Other income, net for the quarters ended March 31, 2008
consisted primarily of interest income earned on the Company’s cash
balances. The decrease in interest income is a result of a decrease
in cash invested in interest bearing investments combined with lower interest
rates.
For the
three months ended March 31, 2008, the Company recorded income tax expense of
$10,160,000, compared to income tax expense of $8,746,000 for the three months
ended March 31, 2007. This resulted in effective tax rates for the
quarters ended March 31, 2008 and 2007 of 36.6% and 36.3%,
respectively.
For the
three months ended March 31, 2008, the Company had net income of $17,519,000
compared to net income of $15,334,000 for the three months ended March 31, 2007
for an increase of $2,185,000, or 14.2%. Earnings per diluted share
for the three months ended March 31, 2008 were $0.78 compared to earnings per
diluted share for the quarter ended March 31, 2007 of $0.69 for an increase of
$0.09, or 13.0%. Diluted shares outstanding for the three months
ended March 31, 2008 and 2007 were 22,550,536 and 22,194,736,
respectively. The increase in shares outstanding is primarily due to
the exercise of stock options by employees of the Company.
The
backlog of orders at March 31, 2008 was $263,011,000 compared to $266,226,000,
including the backlog of Peterson, at March 31, 2007, for a decrease of
$3,215,000, or 1.2%. The decrease in the backlog of orders at March
31, 2008 compared to March 31, 2007 related to a decrease in domestic backlog
totaling approximately $1,978,000 and a decrease in international backlog of
approximately $1,237,000. The decrease in domestic backlog at March
31, 2008 was due primarily to decreases of $9,969,000 in the Aggregate and
Mining Group and $4,183,000 in the Mobile Asphalt Paving Group. These
decreases were offset by increases in the domestic backlogs of the Asphalt Group
of $9,728,000 and the Other Group of $2,953,000. The decrease in
international backlog at March 31, 2008 related primarily to a $10,999,000
decrease in the Aggregate and Mining Group along with a decrease in the Asphalt
Group of $1,578,000. These decreases were offset by increases in the
international backlogs of the Underground Group of $5,703,000, the Other Group
of $4,577,000 and the Mobile Asphalt Paving Group of
$1,060,000. Although the backlog decreased slightly compared to the
same quarter in the prior year, the March 31, 2007 backlog reflected an 80%
increase over the March 31, 2006 backlog. This large growth in the
prior year backlog combined with strong first quarter of 2008 revenues
contributed to the decline in the March 31, 2008 backlog as compared to March
31, 2007 backlog. The Company is unable to determine
whether the continued strength of the backlog was experienced by the industry as
a whole.
Liquidity
and Capital Resources
During
April 2007, the Company entered into an unsecured credit agreement with Wachovia
Bank, National Association (Wachovia) whereby Wachovia has extended to the
Company an unsecured line of credit loan of up to $100,000,000 including a
sub-limit for letters of credit of up to $15,000,000. The Wachovia
credit agreement replaced the previous $87,500,000 secured credit facility the
Company had in place with General Electric Capital Corporation and General
Electric Capital-Canada.
The
Wachovia credit facility is unsecured and has an original term of three years
(which is subject to further extensions as provided therein). The
interest rate for borrowings is a function of the Adjusted LIBOR Rate or
Adjusted LIBOR Market Index Rate, as defined, as elected by the Company, plus a
margin based upon a leverage ratio pricing grid ranging between 0.5% and
1.5%. As of March 31, 2008, if any loans would have been outstanding,
the applicable margin based upon the leverage ratio pricing grid would equal
0.5%. The Wachovia credit facility requires no principal amortization
and interest only payments are due, in the case of loans bearing interest at the
Adjusted LIBOR Market Index Rate, monthly in arrears and, in the case of loans
bearing at the Adjusted LIBOR Rate, at the end of the applicable interest
period. The Wachovia credit agreement contains certain financial
covenants related to minimum fixed charge coverage ratios, minimum tangible net
worth and maximum allowed capital expenditures. At March 31, 2008,
the Company had borrowing availability of $92,694,000, net of letters of credits
of $7,306,000 on its revolver. No amounts were outstanding under the
credit facility at March 31, 2008.
The
Company was in compliance with the financial covenants under its credit facility
as of March 31, 2008.
The
Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $4,456,000 (ZAR
33,000,000) to finance short-term working capital needs, as well as to cover the
short-term establishment of letter of credit performance guarantees. As of March
31, 2008, Osborn had no outstanding borrowings under the credit facility, but
approximately $3,421,000 in performance and retention bonds were guaranteed
under the facility. The facility is secured by Osborn's account
receivables, retention and cash balances and a $2,000,000 letter of credit
issued by the parent Company. The portion of the available facility
not secured by the $2,000,000 letter of credit fluctuates monthly based upon
fifty percent (50%) of Osborn's accounts receivable, retention plus total cash
balances at the end of the prior month. As of March 31, 2008, Osborn
Engineered Products had available credit under the facility of approximately
$1,035,000.
Net cash
provided by operating activities for the three months ended March 31, 2008 was
$622,000 compared to net cash provided by operating activities of $14,826,000
for the three months ended March 31, 2007. The primary differences in
cash provided by operating activities are increases in trade and other
receivables of $8,059,000 over the prior year increase and inventory of
$1,370,000 over the prior year increase. Customer deposits at March
31, 2008 increased $7,402,000 less than the same quarter in 2007 also detracting
from operating cash flows. Providing operating cash in 2008 was an
increase in the provision for warranty reserves which is $1,167,000 in excess of
the prior year’s provision.
Net cash
used by investing activities for the three months ended March 31, 2008 was
$6,090,000 compared to net cash used by investing activities of $7,442,000, for
the three months ended March 31, 2007. The decrease in net cash used
by investing activities for the three months ended March 31, 2008 compared to
the same period of 2007 relates primarily to a reduction of $1,460,000 in
expenditures for property and equipment.
Net cash
provided by financing activities for the three months ended March 31, 2008 was
$1,288,000 compared to net cash provided by financing activities of $4,940,000
for the three months ended March 31, 2007. The decrease in net cash
provided by financing activities for the three months ended March 31, 2008,
compared to the same period of 2007, relates primarily to a $2,577,000 reduction
in the proceeds from the exercise of stock options by Company employees in 2008
as compared with 2007, combined with a pro rata reduction in the tax benefit of
those option exercises.
The
Company believes that its current working capital, cash flows generated from
future operations and available capacity remaining under its credit facility
will be sufficient to meet the Company's working capital and capital expenditure
requirements through March 31, 2009.
Capital
expenditures for 2008 are forecasted to total approximately $43,000,000, which
includes amounts added to the Company’s forecast in early 2008 for additional
plant buildings and equipment to provide increased production
capacity. The Company expects to finance these expenditures using
currently available cash balances and internally generated
funds.
Off-balance
Sheet Arrangements
As of
March 31, 2008, the Company does not have any off-balance sheet arrangements as
defined by Item 303(a)(4) of Regulation S-K.
Contingencies
During
the three months ended March 31, 2008, there were no substantial changes in our
commitments or contractual liabilities including the effects of the adoption of
FIN 48. We are unable to make reasonably reliable estimates of the
period of potential cash settlements, if any, with taxing
authorities.
The
Company is engaged in certain pending litigation involving claims or other
matters arising in the ordinary course of business. Most of these
claims involve product liability or other tort claims for property damage or
personal injury against which the Company is insured. As a part of
its litigation management program, the Company maintains general liability
insurance coverage for product liability and other similar tort claims in
amounts the Company believes are adequate. The coverage is subject to
a substantial self-insured retention under the terms of which the Company has
the right to coordinate and control the management of its claims and the defense
of these actions.
As
mentioned above, the Company is currently a party to various claims and legal
proceedings that have arisen in the ordinary course of business. If
management believes that a loss arising from such claims and legal proceedings
is probable and can reasonably be estimated, the Company records the amount of
the loss (excluding estimated legal fees), or the minimum estimated liability
when the loss is estimated using a range, and no point within the range is more
probable than another. As management becomes aware of additional
information concerning such contingencies, any potential liability related to
these matters is assessed and the estimates are revised, if
necessary. If management believes that a loss arising from such
claims and legal proceedings is either (i) probable but cannot be reasonably
estimated or (ii) reasonably possible but not probable, the Company does not
record the amount of the loss but does make specific disclosure of such matter,
if material. Based upon currently available information and with the
advice of counsel, management believes that the ultimate outcome of its current
claims and legal proceedings, individually and in the aggregate, will not have a
material adverse effect on the Company's financial position, cash flows or
results of operations. However, claims and legal proceedings are
subject to inherent uncertainties and rulings unfavorable to the Company could
occur. If an unfavorable ruling were to occur, there exists the
possibility of a material adverse effect on the Company's financial position,
cash flows or results of operations.
We have
no material changes to the disclosure on this matter made in our Annual Report
on Form 10-K for the year ended December 31, 2007.
Disclosure Controls and
Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's “disclosure controls
and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)) as of the end of the period covered by
this report. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that, as of the end of the period
covered by this report, the Company's disclosure controls and procedures were
effective in timely making known to them material information relating to the
Company and the Company's subsidiaries required to be disclosed in the Company's
reports filed or submitted under the Exchange Act.
Internal Control over
Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities exchange Act
of 1934, as amended) that occurred during the quarter ended March 31, 2008 that
have materially affected or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
There
have been no material developments in the legal proceedings previously reported
by the registrant since the filing of its Annual Report on Form 10-K for the
year ended December 31, 2007. See “Management's Discussion and
Analysis of Financial Condition and Results of Operations - Contingencies” in
Part I - Item 2 of this Report.
In
addition to the other information set forth in this Report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2007, which could materially
affect our business, financial condition or future results. There
have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K for the year ended December 31,
2007. The risks described in our Annual Report on Form 10-K for the
year ended December 31, 2007 are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition or operating results.
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Exhibit No.
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Description
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31.1
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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31.2
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Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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32*
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Certification
of Chief Executive Officer and Chief Financial Officer of Astec
Industries, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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The
Exhibits are numbered in accordance with Item 601 of Regulation
S-K. Inapplicable Exhibits are not included in the list.
* In
accordance with Release No. 34-47551, this exhibit is hereby furnished to the
SEC as an accompanying document and is not to be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section, nor shall it be deemed incorporated
by reference into any filing under the Securities Act of 1933, as
amended.
Items
2, 3, 4 and 5 are not applicable and have been omitted.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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ASTEC
INDUSTRIES, INC.
(Registrant)
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Date
May 12 , 2008
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/s/ J. Don
Brock
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J.
Don Brock
Chairman
of the Board and President
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Date
May 12, 2008
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/s/ F. McKamy
Hall
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F.
McKamy Hall
Chief
Financial Officer, Vice President, and Treasurer
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EXHIBIT
INDEX
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31.1
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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31.2
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Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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32
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Certification
of Chief Executive Officer and Chief Financial Officer of Astec
Industries, Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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