f10q-033113.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 (Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2013
OR
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the transition period from                     to
 
Commission File Number                    001-11595
 
Astec Industries, Inc.
(Exact name of registrant as specified in its charter)
 
Tennessee
62-0873631
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
1725 Shepherd Road, Chattanooga, Tennessee
37421
(Address of principal executive offices)
(Zip Code)
 
(423) 899-5898
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ý       
NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ý       
NO o
 
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. (Check one):
Large Accelerated Filer ý
Accelerated Filer o
 
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller Reporting Company o
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o
NO ý
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
Outstanding at April 26, 2013
Common Stock, par value $0.20
22,851,658

 
1

 


 
ASTEC INDUSTRIES, INC.
 INDEX
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
   
 
   
 
   
 
   
 
 
 
Item 1.  Legal Proceedings                                          
 
 
 
 
   
 





 
2

 

PART I -- FINANCIAL INFORMATION

Item 1.  Financial Statements

Astec Industries, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
   
March 31,
2013
   
December 31,
2012
 
ASSETS
           
Current assets:
           
  Cash and cash equivalents
  $ 73,175     $ 80,929  
  Trade receivables, net
    99,774       85,595  
  Other receivables
    4,825       3,453  
  Inventories
    322,007       308,622  
  Prepaid expenses and other
    16,840       11,282  
  Deferred income tax assets
    9,893       9,985  
    Total current assets
    526,514       499,866  
Property and equipment, net
    186,192       182,839  
Investments
    10,156       10,232  
Goodwill
    14,978       15,011  
Other long-term assets
    15,756       16,617  
    Total assets
  $ 753,596     $ 724,565  
LIABILITIES AND EQUITY
               
Current liabilities:
               
  Accounts payable
  $ 50,781     $ 46,210  
  Accrued product warranty
    11,254       11,052  
  Customer deposits
    54,478       44,224  
  Accrued payroll and related liabilities
    15,193       16,590  
  Accrued loss reserves
    3,679       3,221  
  Other current liabilities
    25,530       23,072  
    Total current liabilities
    160,915       144,369  
Deferred income tax liabilities
    14,147       14,868  
Other long-term liabilities
    17,852       17,330  
    Total liabilities
    192,914       176,567  
Shareholders’ equity
    557,410       546,354  
Non-controlling interest
    3,272       1,644  
    Total equity
    560,682       547,998  
    Total liabilities and equity
  $ 753,596     $ 724,565  

See Notes to Unaudited Condensed Consolidated Financial Statements

 
3

 



Astec Industries, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)

   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Net sales
  $ 247,833     $ 251,967  
Cost of sales
    189,266       193,371  
Gross profit
    58,567       58,596  
Selling, general, administrative and engineering expenses
    40,367       40,143  
Income from operations
    18,200       18,453  
Interest expense
    70       47  
Other income, net of expenses
    752       849  
Income from continuing operations before income taxes
    18,882       19,255  
Income taxes on continuing operations
    5,631       7,231  
Net income from continuing operations
    13,251       12,024  
Income from discontinued operations, net of tax
    -       234  
Net income
    13,251       12,258  
Net income attributable to non-controlling interest
    80       13  
Net income attributable to controlling interest
  $ 13,171     $ 12,245  
                 
Earnings per common share
               
Net income attributable to controlling interest from continuing operations:
               
    Basic
  $ 0.58     $ 0.53  
    Diluted
  $ 0.57     $ 0.52  
Income from discontinued operations, net of tax:
               
    Basic
  $ -     $ 0.01  
    Diluted
  $ -     $ 0.01  
Net income attributable to controlling interest:
               
    Basic
  $ 0.58     $ 0.54  
    Diluted
  $ 0.57     $ 0.53  
Weighted average number of common shares outstanding:
               
    Basic
    22,723       22,643  
    Diluted
    23,080       23,054  

See Notes to Unaudited Condensed Consolidated Financial Statements

 
4

 


Astec Industries, Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)

   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Net income
  $ 13,251     $ 12,258  
Other comprehensive income:
               
Change in unrecognized pension and post-retirement benefit
  costs, net of tax of $(70) and $(25)
    (53 )     (25 )
Foreign currency translation adjustments, net of tax of $(310) and $412
    (1,859 )     1,700  
Other comprehensive income (loss)
    (1,912 )     1,675  
Comprehensive income (loss) attributable to non-controlling interest
    (45 )     43  
Comprehensive income attributable to controlling interest
  $ 11,384     $ 13,890  
                 

See Notes to Unaudited Condensed Consolidated Financial Statements



 
5

 


Astec Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net income
  $ 13,251     $ 12,258  
Adjustments to reconcile net income to net cash provided (used)
  by operating activities:
               
Depreciation and amortization
    5,428       5,901  
Provision for doubtful accounts
    388       8  
Provision for warranties
    2,760       2,742  
Deferred compensation benefit
    186       446  
Sale of trading securities, net
    109       128  
Stock-based compensation
    435       61  
Tax expense (benefit) from stock incentive plans
    76       (173 )
Deferred income tax provision (benefit)
    (249 )     2,895  
Gain on disposition of fixed assets
    (65 )     (141 )
(Increase) decrease in:
               
Trade and other receivables
    (15,788 )     (11,351 )
Inventories
    (13,385 )     (18,239 )
Prepaid expenses
    (5,784 )     2,550  
Other assets
    (1,070 )     (764 )
Increase (decrease) in:
               
Accounts payable
    4,571       967  
Accrued product warranty
    (2,482 )     (3,210 )
Customer deposits
    10,255       (4,723 )
Prepaid and income taxes payable
    5,638       2,499  
Other current liabilities
    (3,488 )     (3,368 )
Net cash provided (used) by operating activities
    786       (11,514 )
Cash flows from investing activities:
               
Expenditures for property and equipment
    (9,339 )     (5,369 )
Proceeds from sale of property and equipment
    77       463  
Net cash used by investing activities
    (9,262 )     (4,906 )
Cash flows from financing activities:
               
Tax (expense) benefit from stock option exercise
    (76 )     173  
Supplemental Executive Retirement Plan transactions, net
    60       (58 )
Withholding tax paid upon vesting of restricted stock units
    (783 )     (686 )
Proceeds from exercise of stock options
    36       493  
Sale of subsidiaries shares to minority shareholders
    1,673       -  
Net cash provided (used) by financing activities
    910       (78 )
Effect of exchange rates on cash
    (188 )     635  
Net decrease in cash and cash equivalents
    (7,754 )     (15,863 )
Cash and cash equivalents, beginning of period
    80,929       57,505  
Cash and cash equivalents, end of period
  $ 73,175     $ 41,642  

See Notes to Unaudited Condensed Consolidated Financial Statements

 
6

 


Astec Industries, Inc.
 
Condensed Consolidated Statement of Equity
 
For the Three Months Ended March 31, 2013
 
(in thousands)
 
(unaudited)
 
                                                 
                                                 
   
Common
Stock
 Shares
   
Common
Stock
 Amount
   
Additional
Paid-in-
 Capital
   
Accum-
ulated
Other
Compre-
hensive
 Income
(Loss)
   
Company
Shares
Held
 by SERP
   
Retained
Earnings
   
Non-
controlling
Interest
   
Total
 Equity
 
Balance, December
  31, 2012
    22,799     $ 4,560     $ 133,809     $ 502     $ (2,855 )   $ 410,338     $ 1,644     $ 547,998  
Net income
    -       -       -       -       -       13,171       80       13,251  
Other comprehensive
  income
    -       -       -       (1,787 )     -       -       (125 )     (1,912 )
Change in
  ownership
  percentage of
  subsidiaries
    -       -       -       -       -       -       1,673       1,673  
Stock-based
  compensation
    1       -       435       -       -       -       -       435  
Stock issued under
  incentive plans
    51       10       (50     -       -       -       -       (40 )
Withholding tax
  paid upon vesting
  of RSUs
    -       -       (783 )     -       -       -       -       (783 )
SERP transactions,
  net
    -       -       11       -       49       -       -       60  
Balance, March 31,
  2013
    22,851     $ 4,570     $ 133,422     $ (1,285 )   $ (2,806 )   $ 423,509     $ 3,272     $ 560,682  

See Notes to Unaudited Condensed Consolidated Financial Statements




 
7

 

ASTEC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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 (“U.S. GAAP”) 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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  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. Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated balance sheet as of December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Recent Accounting Pronouncements
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities” which describes when it is appropriate to offset financial assets and liabilities on the balance sheet. Companies will now have to disclose both gross and net information about instruments eligible for offset in the statement of financial position, instruments and transactions subject to an agreement similar to a master netting arrangement, and the collateral received in a master netting arrangement. The new disclosure will enable users of financial statements to understand significant quantitative differences in balance sheets prepared under US GAAP and IFRS related to the offsetting of financial instruments. The update is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company adopted this standard as of January 1, 2013.  Adopting this update did not have a significant impact on the Company’s financial position or results of operations.

Note 2.  Earnings per Share
Basic earnings per share are determined by dividing earnings by the weighted average number of common shares outstanding during each period.  Diluted earnings per share include the potential dilutive effects of options, restricted stock units and shares held in the Company’s Supplemental Executive Retirement Plan.

The following table sets forth the computation of net income attributable to controlling interest from continuing operations and the number of basic and diluted shares used in the computation of earnings per share:

   
Three Months
Ended March 31,
 
   
2013
   
2012
 
Numerator:
           
Net income from continuing operations
  $ 13,251     $ 12,024  
Net income attributable to non-controlling interests
    80       13  
Net income attributable to controlling interest from continuing operations
  $ 13,171     $ 12,011  
Denominator:
               
Denominator for basic earnings per share
    22,723       22,643  
Effect of dilutive securities:
               
Employee stock options and restricted stock units
    243       305  
Supplemental Executive Retirement Plan
    114       106  
Denominator for diluted earnings per share
    23,080       23,054  
                 
 
 
8

 


A total of 323 options were antidilutive for each of the three-month periods ended March 31, 2013 and 2012.  Antidilutive options are not included in the diluted earnings per share computation.

Note 3.  Receivables
Receivables are net of allowances for doubtful accounts of $2,394,000 and $2,143,000 as of March 31, 2013 and December 31, 2012, respectively.

Note 4.  Inventories
Inventories consist of the following (in thousands):

   
March 31,
 2013
   
December 31,
 2012
 
Raw materials and parts
  $ 137,384     $ 129,676  
Work-in-process
    78,508       76,052  
Finished goods
    83,937       81,000  
Used equipment
    22,178       21,894  
   Total
  $ 322,007     $ 308,622  

Note 5.  Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation of $196,365,000 and $192,165,000 as of March 31, 2013 and December 31, 2012, respectively.

Note 6.  Fair Value Measurements
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance Company (“Astec Insurance”), the Company’s captive insurance company, and marketable equity securities held in an unqualified Supplemental Executive Retirement Plan (“SERP”).  The obligations of the Company associated with the financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes.  The Company’s subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.

The carrying amount of cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable approximates their fair value because of the short-term nature of these instruments.  Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset.  The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market based inputs.

Financial assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  The inputs used to measure the fair value are identified in the following hierarchy:

Level 1 -
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 -
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted
  quoted prices for identical or similar assets or liabilities in markets that are not active; or
  inputs other than quoted prices that are observable for the asset or liability.
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.


 
9

 

As indicated in the tables below (which excludes the Company’s pension assets), the Company has determined that all its financial assets and liabilities as of March 31, 2013 and December 31, 2012 are level 1 and level 2 in the fair value hierarchy as defined above (in thousands):

   
March 31, 2013
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets:
                       
Trading equity securities:
                       
SERP money market fund
  $ 996     $ -     $ -     $ 996  
SERP mutual funds
    1,803       -       -       1,803  
Preferred stocks
    736       -       -       736  
Trading debt securities:
                               
Corporate bonds
    3,928       911       -       4,839  
Municipal bonds
    1,271       761       -       2,032  
Floating rate notes
    574       -       -       574  
U.S. Treasury bill
    200       -       -       200  
Other
    51       394       -       445  
Derivative financial instruments
    -       230       -       230  
    Total financial assets
  $ 9,559     $ 2,296     $ -     $ 11,855  
                                 
Financial Liabilities:
                               
SERP liabilities
  $ -     $ 6,769     $ -     $ 6,769  
Derivative financial instruments
    -       37       -       37  
    Total financial liabilities
  $ -     $ 6,806     $ -     $ 6,806  
 
 

   
December 31, 2012
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets:
                       
Trading equity securities:
                       
SERP money market fund
  $ 996     $ -     $ -     $ 996  
SERP mutual funds
    1,835       -       -       1,835  
Preferred stocks
    720       -       -       720  
Trading debt securities:
                               
Corporate bonds
    3,342       909       -       4,251  
Municipal bonds
    1,449       957       -       2,406  
Floating rate notes
    749       -       -       749  
U.S. Treasury bill
    200       -       -       200  
Other
    -       409       -       409  
    Total financial assets
  $ 9,291     $ 2,275     $ -     $ 11,566  
                                 
Financial Liabilities:
                               
SERP liabilities
  $ -     $ 6,674     $ -     $ 6,674  
Derivative financial instruments
    -       145       -       145  
    Total financial liabilities
  $ -     $ 6,819     $ -     $ 6,819  

The Company reevaluates the volume of trading activity for each of its investments at the end of each quarter and adjusts the level within the fair value hierarchy as needed.  No transfers between levels occurred between December 31, 2012 and March 31, 2013.

 
10

 


The Company’s investments (other than pension assets) consist of the following (in thousands):
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value (Net
Carrying Amount)
 
March 31, 2013:
                       
  Trading equity securities
  $ 3,281     $ 254     $ -     $ 3,535  
  Trading debt securities
    7,948       142       -       8,090  
    $ 11,229     $ 396     $ -     $ 11,625  
                                 
December 31, 2012:
                               
  Trading equity securities
  $ 3,432     $ 130     $ 11     $ 3,551  
  Trading debt securities
    7,836       228       49       8,015  
    $ 11,268     $ 358     $ 60     $ 11,566  

The trading equity investments noted above are valued at their fair value based on their quoted market prices, and the debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service.  Additionally, a significant portion of the trading equity securities are in equities and in money market and mutual funds.  These money market and mutual funds are held in a SERP and thus are also included in the Company’s liability under its SERP.

Trading debt securities are comprised of marketable debt securities held by Astec Insurance. Astec Insurance has an investment strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities. As of March 31, 2013 and December 31, 2012, $1,469,000 and $1,334,000, respectively, of trading debt securities were due to mature within twelve months and, accordingly, are included in other current assets.  The financial liabilities related to the SERP shown above are included in other long-term liabilities in the accompanying balance sheets.

Net unrealized gains or losses incurred during the three-month periods ended March 31, 2013 and 2012 on investments still held as of the end of each reporting period amounted to gains of $134,000 and $65,000, respectively.

Note 7.  Debt
On April 12, 2012, the Company and certain of its subsidiaries entered into a new amended and restated credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), whereby Wells Fargo extended to the Company an unsecured line of credit of up to $100,000,000, including a sub-limit for letters of credit of up to $25,000,000.  The new amended and restated credit agreement replaced an expiring $100,000,000 credit facility between the Company and Wells Fargo.  There were no outstanding revolving or term loan borrowings under the credit facilities at the time of transition or as of March 31, 2013.  Letters of credit totaling $10,295,000 were outstanding under the new agreement as of March 31, 2013, resulting in additional borrowing ability of $89,705,000 on the Wells Fargo credit facility as of March 31, 2013.  The new amended and restated agreement has a five-year term expiring in April 2017.  Borrowings under the agreement are subject to an interest rate equal to the daily one month LIBOR rate plus a 0.75% margin.  The unused facility fee is 0.175%.  Interest only payments are due monthly.  The new amended and restated credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income, minimum tangible net worth and maximum allowed capital expenditures.  The Company was in compliance with these covenants as of March 31, 2013.

 
11

 

The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $8,124,000 (ZAR 75,000,000) to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of March 31, 2013, Osborn had $918,000 of borrowings, which are included in other current liabilities in the balance sheet, and $1,903,000 in performance, advance payment and retention guarantees outstanding under the facility. The facility is unsecured and no unused facility fees are charged.  As of March 31, 2013, Osborn had available credit under the facility of $5,303,000. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 8.25% as of March 31, 2013.

The Company’s Australian subsidiary, Astec Australia Pty Ltd (“Astec Australia”), has a credit facility to finance short-term working capital needs of $104,000 (AUD 100,000) and a bank guarantee facility of $1,355,000 (AUD 1,300,000) to facilitate contractual commitments and banking arrangements to finance foreign exchange dealer limit orders of up to $3,910,000 (AUD 3,750,000), secured by cash balances in the amount of $782,000 (AUD 750,000) and a $1,600,000 letter of credit issued by the parent Company.  No amounts were outstanding under the credit facility as of March 31, 2013; however, performance guarantees in the amount of $1,212,000 were outstanding under the bank guarantee facility as of March 31, 2013.  The interest rate is the Australian adjusted Bank Business Rate plus a margin of 1.05%. The interest rate was 11.17% as of March 31, 2013.

Note 8.  Product Warranty Reserves
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, but generally range from three months to one year or up to a specified number of hours of operations. 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.

Changes in the Company’s product warranty liability for the three-month periods ended March 31, 2013 and 2012 are as follows (in thousands):
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Reserve balance, beginning of the period
  $ 11,052     $ 12,663  
Warranty liabilities accrued
    2,760       2,742  
Warranty liabilities settled
    (2,482 )     (3,210 )
Other
    (76 )     63  
Reserve balance, end of the period
  $ 11,254     $ 12,258  

Note 9.  Accrued Loss Reserves
The Company accrues reserves for losses related to known 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 undiscounted reserves are actuarially determined 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.  Total accrued loss reserves were $7,678,000 as of March 31, 2013 compared to $7,315,000 as of December 31, 2012, of which $3,999,000 and $4,094,000 were included in other long-term liabilities as of March 31, 2013 and December 31, 2012, respectively.

Note 10.  Income Taxes
The Company’s combined effective income tax rate on continuing operations was 29.8% and 37.6% for the three-month periods ended March 31, 2013 and 2012, respectively.  The Company’s effective tax rates for the three-month periods ended March 31, 2013 and 2012 include the effect of state income taxes and other discrete items.  The tax rate for the three-month period March 31, 2013 also includes a benefit for research and development tax credits on eligible expenses incurred from January 1, 2012 through March 31, 2013 as legislation enacting the research and development credit for 2012 and 2013 was not approved by Congress until January 2013.  The Company’s effective tax rate for the three-month period ended March 31, 2012 did not include a benefit for research and development tax credits.

The Company’s liability recorded for uncertain tax positions as of March 31, 2013 has not changed significantly in amount or composition since December 31, 2012.  
 
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Note 11.  Segment Information
The Company has four reportable segments. These segments are combinations of business units that offer similar products and services. A brief description of each segment is as follows:

Asphalt Group - This segment consists of three business units that design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants and related components and a variety of heaters, heat transfer processing equipment, thermal fluid storage tanks and concrete plants. The principal purchasers of these products are asphalt producers, highway and heavy equipment contractors and foreign and domestic governmental agencies.

Aggregate and Mining Group - This segment consists of seven business units that design, engineer, manufacture and market a complete line of rock crushers, feeders, conveyors, screens and washing equipment. The principal purchasers of these products are open-mine and quarry operators.

Mobile Asphalt Paving Group - This segment consists of three business units that design, engineer, manufacture and market asphalt pavers, asphalt material transfer vehicles, milling machines and paver screeds. The principal purchasers of these products are highway and heavy equipment contractors and foreign and domestic governmental agencies.

Underground Group - This segment currently consists of two business units that design, engineer, manufacture and market a complete line of drilling rigs for the oil and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells and a four-track surface miner. This segment previously included American Augers, Inc., which was sold in November 2012.

All Others - This category consists of the Company’s other business units, including Peterson Pacific Corp., Astec Australia Pty Ltd, Astec Insurance Company and the parent company, Astec Industries, Inc., that do not meet the requirements for separate disclosure as an operating segment.

The Company evaluates performance and allocates resources based on profit or loss from operations before U.S. federal income taxes and corporate overhead. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

Segment Information:

   
(in thousands)
 
   
Three Months Ended
 
   
March 31, 2013
 
   
Asphalt
Group
   
Aggregate
and Mining
Group
   
Mobile Asphalt
Paving
Group
   
Underground
Group
   
All
Others
   
Total
 
Net sales to external
  customers
  $ 71,549     $ 90,762     $ 47,290     $ 14,706     $ 23,526     $ 247,833  
Intersegment sales
    5,174       8,255       6,446       55       -       19,930  
Gross profit
    20,154       23,040       10,559       275       4,539       58,567  
Gross profit percent
    28.2 %     25.4 %     22.3 %     1.9 %     19.3 %     23.6 %
Segment profit (loss)
  $ 11,141     $ 9,057     $ 4,221     $ (2,381 )   $ (8,172 )   $ 13,866  


 
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(in thousands)
 
   
Three Months Ended
 
   
March 31, 2012
 
   
Asphalt
Group
   
Aggregate
and Mining
Group
   
Mobile Asphalt
Paving
Group
   
Underground
Group
   
All
Others
   
Total
 
Net sales to external
  customers
  $ 68,671     $ 91,304     $ 41,993     $ 22,059     $ 27,940     $ 251,967  
Intersegment sales
    7,910       6,996       3,218       541       -       18,665  
Gross profit
    16,396       23,737       10,604       3,084       4,775       58,596  
Gross profit percent
    23.9 %     26.0 %     25.3 %     14.0 %     17.1 %     23.3 %
Segment profit (loss)
  $ 7,391     $ 9,571     $ 3,921     $ (173 )   $ (9,213 )   $ 11,497  

A reconciliation of total segment profits to the Company’s consolidated totals is as follows (in thousands):
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Total segment profits
  $ 13,866     $ 11,497  
Recapture (elimination) of intersegment profit
    (615 )     527  
Net income from continuing operations
    13,251       12,024  
Income from discontinued operations, net of tax
    -       234  
Net income attributable to non-controlling interest in subsidiaries
    80       13  
Net income attributable to controlling interest
  $ 13,171     $ 12,245  

Note 12.  Contingent Matters
Certain customers have financed purchases of Company products through arrangements in which the Company is contingently liable for customer debt of $2,049,000 and $2,091,000 as of March 31, 2013 and December 31, 2012, respectively.  The maximum potential amount of future payments for which the Company would be liable was equal to $2,049,000 as of March 31, 2013.  These arrangements also provide that the Company will receive the lender’s full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements.  The Company has recorded a liability of $210,000 related to these guarantees as of March 31, 2013.

In addition, the Company is contingently liable under letters of credit issued by Wells Fargo totaling $10,295,000 as of March 31, 2013, including a $1,600,000 letter of credit issued on behalf of Astec Australia, one of the Company’s foreign subsidiaries.  The outstanding letters of credit expire at various dates through November 2017.  As of March 31, 2013, Osborn is contingently liable for a total of $1,903,000 in performance letters of credit, advance payments and retention guarantees.  As of March 31, 2013, Astec Australia is contingently liable for a total of $1,212,000 in performance bank guarantees.  The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $13,410,000 as of March 31, 2013.

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.  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.
 
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During 2004, the Company received notice from the Environmental Protection Agency (“EPA”) that it may be responsible for a portion of the costs incurred in connection with an environmental cleanup in Illinois. The discharge of hazardous materials and associated cleanup relate to activities occurring prior to the Company’s acquisition of Barber-Greene in 1986. The Company believes that over 300 other parties have received similar notices. At this time, the Company cannot predict whether the EPA will seek to hold the Company liable for a portion of the cleanup costs or the amount of any such liability.  The Company has not recorded a liability with respect to this matter because no estimate of the amount of any such liability can be made at this time.

Note 13.  Shareholders’ Equity
Under terms of the Company’s stock option plans, officers and certain other employees were granted options to purchase the Company’s common stock at no less than 100% of the market price on the date the option was granted.  No additional options can be granted under these plans; however, the Company has reserved unissued shares of common stock for the exercise of the 17,862 unexercised and outstanding options as of March 31, 2013 under these employee plans.  All options granted under these plans vested prior to 2007.

In addition, the Company’s Non-employee Directors Stock Incentive Plan allows 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.  Options granted under the Non-employee Directors Stock Incentive Plan vest and become fully exercisable immediately.  All stock options have a 10-year term.  The shares reserved under the 1998 Non-Employee Directors Stock Incentive Plan total 124,081 as of March 31, 2013, of which 102,715 shares are available for future grants of stock or deferred stock to directors.  No additional options can be granted under this plan.  The fair value of stock awards granted to non-employee directors totaled $58,000 for each of the three-month periods ended March 31, 2013 and 2012.

In 2006, the Company adopted a five-year plan to award key members of management restricted stock units (“RSUs”) each year under the Company’s 2006 Incentive Plan.  The plan allowed the Company to grant up to 700,000 RSUs to employees based upon the annual performance of individual subsidiaries and the Company as a whole during each of the five years ended December 31, 2010.  Additional RSUs were granted in 2011 based upon cumulative five-year performance.  Generally, each award will vest at the end of five years from its date of grant, or at the time a recipient retires after reaching age 65, if earlier.  In early 2011, a subsequent plan was formulated under the Company’s 2011 Incentive Plan, which was approved by the Company’s shareholders in their annual meeting held in April 2011.  This plan also allows the Company to grant up to 700,000 RSUs to employees and will operate in a similar fashion to the 2006 Incentive Plan for each of the five years ending December 31, 2015.  Compensation expense of $377,000 and $68,000 has been recorded in the three-month periods ended March 31, 2013 and 2012, respectively, to reflect the fair value of the total shares granted or expected to be granted under both plans, amortized over the portion of the vesting period occurring during the periods.  A total of 68,629 and 62,307 RSUs vested during the three-month periods ended March 31, 2013 and 2012, respectively.  The Company withheld 22,330 and 19,146 shares due to statutory payroll tax withholding requirements upon the vesting of the RSUs in the first quarter of 2013 and 2012, respectively, and used Company funds to remit the related required minimum withholding taxes to the various tax authorities.  The vesting date fair value of the RSUs that vested in the first quarter of 2013 and 2012, respectively, was $2,405,000 and $2,233,000.

Note 14.  Seasonality
Based upon historical results of the past several years, 24% to 28% of the Company’s annual revenues typically occur during the first three months of the year.

 
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Note 15.  Other Income, net of expenses
Other income, net of expenses for the three-month periods ended March 31, 2013 and 2012 is presented below (in thousands):

   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Interest income
  $ 339     $ 247  
Gain on investments
    48       74  
License fee income
    214       427  
Other
    151       101  
  Total
  $ 752     $ 849  

Note 16.  Derivative Financial Instruments
The Company is exposed to certain risks related to its ongoing business operations.  The primary risk managed by using derivative instruments is foreign currency risk.  From time to time the Company’s foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.  The fair value of the derivative financial instrument is recorded on the Company’s balance sheet and is adjusted to fair value at each measurement date.  The changes in fair value are recognized in the consolidated statements of income in the current period.  The Company does not engage in speculative transactions nor does it hold or issue financial instruments for trading purposes.  The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $11,618,000 during the three-month period ended March 31, 2013. The Company reported $230,000 of derivative assets in other current assets and $37,000 of other derivative liabilities in other current liabilities at March 31, 2013 and $145,000 of derivative liabilities in other current liabilities at December 31, 2012.  The Company recognized, as a component of cost of sales, a net gain on the change in fair value of derivative financial instruments of $337,000 in the three-month period ended March 31, 2013.  In the three-month period ended March 31, 2012, the Company recognized, as a component of cost of sales, net losses on the change in fair value of derivative financial instruments of $324,000.  There were no derivatives that were designated as hedges at March 31, 2013.

 
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Note 17.  Business Formation
During the second quarter of 2012, the Company funded the first $5,000,000 of an expected $12,000,000 investment in Astec Agregados E Mineracao Do Brasil LTDA (“Astec Brazil”) located in Vespasiano, Minas Gerais, Brazil, a consolidated subsidiary of the Company.  When fully funded by both the Company and a minority Brazil based shareholder, the Company anticipates a 75% ownership in Astec Brazil.  To date, Astec Brazil has had only limited revenues and start-up related expenditures, but plans to construct a manufacturing facility in Brazil during 2013 with an expected cost of approximately $20,000,000.  Ground breaking for the manufacturing facility is scheduled for May 2013.  Astec Brazil plans to fund the acquisition costs of the plant and equipment with borrowings from a local Brazilian bank.  The Company expects to increase its international market penetration in Brazil and Latin American countries with the aggregate and mining segment’s product lines to be produced in this facility.

Note 18.  Discontinued Operations
In October 2012, the Company entered into an agreement to sell its American Augers, Inc. (“Augers”) subsidiary, as well as certain assets related to the Trencor large trencher product line of Astec Underground, Inc., to The Charles Machine Works, Inc. of Perry, Oklahoma. Augers and the Trencor large trencher product line were part of the Company’s Underground Group. The sale of Augers included substantially all the assets and liabilities of Augers and was completed on November 30, 2012 for $42,940,000, net of cash included in the sale and subject to closing adjustments. The Company retained the Augers vertical oil and gas drill rig product line and transferred it to the Company’s GEFCO, Inc. subsidiary located in Enid, Oklahoma. This divestiture, as well as the sale of the small utility trencher and drill line of products to Toro earlier in 2012, is part of the Company’s strategy to exit the cyclical underground sector.

Augers’ results of operations are presented as discontinued operations for the three-month period ended March 31, 2012 in the Company’s consolidated statements of income.  The sale of the Trencor large trencher product line, the small utility trencher and drill product lines, and their operating results during 2012 were immaterial and are included in 2012 results from continuing operations in the consolidated statements of income.  Augers’ previously reported sales of $14,670,000 for the three-month period ended March 31, 2012 are excluded from sales reported in the accompanying consolidated statement of income.  The Company has calculated the post-closing adjustments to the sale price and has recorded the resulting $499,000 purchase price adjustment in other current liabilities in the March 31, 2013 consolidated balance sheet. The post-closing adjustment is subject to review and potential negotiation with the buyer.

 
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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,” “may,” “believes,” “anticipates,” “intends,” “forecasts” and “expects” and similar expressions.  Such forward-looking statements include, without limitation, statements regarding the Company’s expected sales and results of operations during 2013, the Company’s expected capital expenditures in 2013, 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, 2014, the amount and impact of any current or future state or federal funding for transportation construction programs, the need for road improvements, the amount and impact of other public sector spending and funding mechanisms, 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 being called upon to fulfill certain contingencies, 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 and the impact of such changes generally and on the demand for the Company’s products, customer’s buying decisions and the Company’s business, the ability of the Company to offset future changes in prices in raw materials, the change in the strength of the dollar and the level of the Company’s presence and sales in international markets, the impact that further development of domestic oil and natural gas production capabilities would have on the domestic economy and the Company’s business, the seasonality of the Company’s business, the percentage of the Company’s equipment sold directly to end users, the amount or value of unrecognized tax benefits, plans for the startup of the Company’s manufacturing facility in Brazil, 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.

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, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, should be carefully considered when evaluating the Company’s business and future prospects.

Overview
The Company is a leading manufacturer and seller of equipment for road building, aggregate processing, geothermal, water and oil and gas drilling and wood processing. The Company’s businesses:

•           design, engineer, manufacture and market equipment that is used in each phase of road building, including quarrying and crushing the aggregate to producing asphalt or concrete, recycling old asphalt or concrete and applying the asphalt;

•           design, engineer, manufacture and market additional equipment and components including geothermal drilling, oil and natural gas drilling, industrial heat transfer, wood chipping and grinding, wood pellet processing; and

•           manufacture and sell replacement parts for equipment in each of its product lines.


 
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The Company has 15 manufacturing companies, 14 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 including energy production, concrete mixing plants and wood pellet processing equipment. 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 portable drilling rigs and related equipment for the water well, environmental, groundwater monitoring, construction, geothermal, mining and oil and gas exploration and production industries. 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 Australia Pty Ltd (“Astec Australia”), Astec Insurance Company (“Astec Insurance” or “the captive”) and Astec Industries, Inc., the parent company. Peterson designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia markets and installs equipment, services and provides parts for many of the products produced by the Company’s manufacturing companies. Astec Insurance is a captive insurance company.

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, which affects the cost of fuel and liquid asphalt, and changes in the price of steel.

In August 2005, President Bush signed into law the Safe, Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users (“SAFETEA-LU”), which authorized appropriation of $286.5 billion in guaranteed federal funding for road, highway and bridge construction, repair and improvement of the federal highways and other transit projects for federal fiscal years October 1, 2004 through September 30, 2009. The Company believes that federal highway funding such as SAFETEA-LU influences the purchasing decisions of the Company’s customers who are more comfortable making purchasing decisions with such legislation in place. Federal funding provides for approximately 25% of all highway, street, roadway and parking construction in the United States.

SAFETEA-LU funding expired on September 30, 2009 and federal transportation funding operated on short-term appropriations through March 17, 2010. On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. This law extended authorization of the surface transportation programs previously funded under SAFETEA-LU through December 31, 2010 at 2009 levels. In addition, the HIRE Act authorized a one-time transfer of $19.5 billion from the general fund to the highway trust fund related to previously foregone interest payments. It also shifted the cost of fuel tax exemptions for state and local governments from the highway trust fund to the general fund, which is estimated to generate an anticipated $1.5 billion annually, and allows the highway trust fund to retain interest earned on future unexpended balances. The U.S. Congress funded federal transportation expenditures for the fiscal year ending September 30, 2011 at the 2010 level of $41.1 billion, and it approved short-term funding of federal transportation expenditures for the six-month period ending on March 31, 2012 at the same levels.

In July 2012, President Obama signed into law the “Moving Ahead for Progress in the 21st Century Act” (“Map-21”), which authorizes $105 billion of federal spending on highway and public transportation programs through fiscal year 2014. Map-21 is the first long-term highway legislation enacted since 2005 and continues federal highway and transit funding at 2012 levels with modest increases for inflation. Although the Company believes Map-21 will help stabilize the federal highway program in the near term, the Company believes a longer multi-year highway program would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer-term projects. The level of future federal highway construction is uncertain and any future funding may be at lower levels than in the past.

Several other countries have implemented infrastructure spending programs to stimulate their economies. The Company believes these spending programs have had a positive impact on its financial performance; however, the magnitude of that impact cannot be determined.

 
19

 


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 greater than amounts approved to date, and funding mechanisms such as the federal usage fee per gallon of gasoline, which has not been increased in 20 years, would likely 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’ purchasing decisions and the price of steel may each affect the Company’s financial performance. Economic downturns 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. Rising interest rates also typically negatively impact customers’ attitudes toward purchasing equipment. The Federal Reserve has maintained historically low interest rates in response to the current economic downturn; however interest rates may increase during the remainder of 2013.

Significant portions of the Company’s revenues relate to the sale of equipment involved in the production, handling, recycling or installation of asphalt mix. Liquid asphalt is a by-product of oil production. An increase in the price of oil increases the cost of asphalt, which is likely to decrease demand for asphalt and therefore decrease demand for certain Company products. While increasing oil prices may have a negative financial impact on many of the Company’s customers, the Company’s equipment can use a significant amount of recycled asphalt pavement, thereby mitigating the effect of increased oil prices on the final 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 did not appear to significantly impair equipment purchases in 2012 or the first quarter of 2013. The Company expects oil prices to continue to fluctuate in 2013 and thereafter. Minor fluctuations in oil prices should not have a significant impact on customers’ buying decisions. However, political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other economic factors could significantly impact oil prices which could negatively impact demand for the Company’s products.

Contrary to the negative impact of higher oil prices on many of the Company’s products as discussed above, sales of several of the Company’s products, including products manufactured by the Underground Group, which are used to drill for oil and natural gas, would benefit from higher oil and natural gas prices, to the extent that such higher prices lead to further development of oil and natural gas production. The Company believes further development of domestic oil and natural gas production capabilities is needed and would positively impact the domestic economy and the Company’s business.

Steel is a major component in the Company’s equipment.  Steel prices began to decline in late March 2013 after remaining stable for much of the first quarter of 2013.  Industry steel demand is expected to be relatively weak for the second quarter of 2013 with short mill lead times for most products. Management expects this trend to continue and believes that steel pricing may further weaken in the second quarter. The Company will review the trends in steel prices as we progress toward the latter portion of 2013 and establish future contract pricing accordingly to minimize the impact of any potential price increases. 

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 dealers that produce and sell similar products. During 2010, 2011 and a portion of 2012 a weak dollar, combined with improving economic conditions in certain foreign economies, had a positive impact on the Company’s international sales. The dollar strengthened against many foreign currencies during the later portion of 2012 and the first three months of 2013 which has negatively impacted pricing in certain foreign markets.  Increasing domestic interest rates or weakening economic conditions abroad could cause the dollar to further strengthen, which could negatively impact the Company’s international sales.

 
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In the United States and internationally, the Company’s equipment is marketed directly to customers as well as through dealers. During 2012, approximately 75% to 80% of equipment sold by the Company was sold directly to the end user. The Company expects this ratio to remain relatively consistent through 2013.

The Company is operated on a decentralized basis and there is a complete management team for each operating subsidiary. Finance, insurance, legal, shareholder relations, corporate accounting and other corporate matters are primarily handled at the corporate level (i.e., Astec Industries, Inc., the parent company). The engineering, design, sales, manufacturing and basic accounting functions are all handled at each individual subsidiary. Standard accounting procedures are prescribed and followed in all reporting.

The non-union employees of each subsidiary have the opportunity to earn profit-sharing incentives in the aggregate of up to 10% of each subsidiary’s after-tax profit if such subsidiary meets established goals. These goals are based on the subsidiary’s return on capital employed, cash flow on capital employed and safety. The profit-sharing incentives for subsidiary presidents are normally paid from a separate corporate pool.

Results of Operations
Net Sales
Net sales decreased $4,134,000 or 1.6% from $251,967,000 for the first quarter of 2012 (after eliminating sales by American Augers, which was sold in November 2012) to $247,833,000 for the first quarter of 2013. Sales are generated primarily from new equipment and parts sales to domestic and international customers. Sales decreased by $7,353,000 in the Underground Group, $4,414,000 in the Other Group and $542,000 in the Aggregate and Mining Group.  These decreased sales were offset by sales increases of $5,297,000 in the Mobile Asphalt Paving Group and $2,878,000 in the Asphalt Group.

Domestic sales for the first quarter of 2013 were $161,942,000 or 65.3% of consolidated net sales compared to $155,073,000 or 61.5% of consolidated net sales for the first quarter of 2012, an increase of $6,869,000 or 4.4%, due primarily to increases in sales by the Mobile Asphalt Paving, Asphalt and Other groups.  International sales for the first quarter of 2013 were $85,891,000 or 34.7% of consolidated net sales compared to $96,894,000 or 38.5% of consolidated net sales for the first quarter of 2012, a decrease of $11,003,000 or 11.4%, due primarily to decreases in sales by the Underground, Mobile Asphalt Paving and Other groups offset by a sales increase in the Aggregate and Mining group.  Sales were negatively impacted by economic uncertainties in several of the countries in which the Company markets its products as well as a strengthening of the U.S. dollar against many foreign currencies.  The decreases in international sales occurred primarily in Australia, Brazil and other South American countries and Post-Soviet States offset by sales increases in Europe, Africa and Russia.

Parts sales for the first quarter or 2013 were $68,031,000 compared to $72,801,000 for the first quarter of 2012, a decrease of $4,770,000 or 6.6%.  Parts sales as a percentage of net sales decreased 140 basis points from 28.9% for the first quarter of 2012 to 27.5% for the first quarter of 2013.

Gross Profit
Consolidated gross profit remained relatively flat at $58,567,000 for the first quarter of 2013 compared to $58,596,000 for the first quarter of 2012.  Gross profit as a percentage of sales increased 30 basis points from 23.3% for the first quarter of 2012 to 23.6% for the first quarter of 2013.

Selling, General, Administrative and Engineering Expenses
Selling, general, administrative and engineering expenses for the first quarter of 2013 were $40,367,000, or 16.3% of net sales, compared to $40,143,000, or 15.9% of net sales, for the first quarter of 2012, an increase of $224,000, or 0.6%.

Interest Expense
Interest expense for the first quarter of 2013 increased $23,000 to $70,000 from $47,000 for the first quarter of 2012.

 
21

 


Other Income, net of expenses
Other income, net of expenses was $752,000 for the first quarter of 2013 compared to $849,000 for the first quarter of 2012, a decrease of $97,000, due primarily to a $213,000 reduction in license fee income offset by a $92,000 increase in interest income.  Other income is generated primarily by earnings on investments held by Astec Insurance, the Company’s captive insurance company, as well as interest income and license fee income.

Income Tax on Continuing Operations
Income tax expense on continuing operations for the first quarter of 2013 was $5,631,000, compared to $7,231,000 for the first quarter of 2012. The Company’s combined effective tax rates for the first quarters of 2013 and 2012 were 29.8% and 37.6%, respectively.  The first quarter 2013 effective tax rate was favorably impacted by benefits for research and development tax credits on eligible expenses incurred in both 2012 and the first quarter of 2013 as the tax legislation enacting the tax credit for 2012 was not approved by Congress until January 2013.

Net Income
The Company had net income attributable to controlling interest of $13,171,000 for the first quarter of 2013 compared to $12,245,000 for the first quarter of 2012, an increase of $926,000, or 7.6%. Net income attributable to controlling interest per diluted share was $0.57 for the first quarter of 2013 compared to $0.53 for the first quarter of 2012, an increase of $0.04 or 7.5%. Diluted shares outstanding for the quarters ended March 31, 2013 and 2012 were 23,080,000 and 23,054,000, respectively. The increase in diluted shares outstanding is primarily due to granting of restricted stock units and the exercise of stock options by employees of the Company.

Business Divesture
On October 31, 2012, the Company entered into an agreement to sell its ownership interest in American Augers, Inc., (“Augers”) a wholly owned subsidiary of the Company, as well as certain assets of the Trencor large trencher product line of Astec Underground to The Charles Machine Works, Inc.  The sale of Augers was completed in November 2012 and  is being accounted for as a discontinued operations and therefore revenues, expenses and net income from continuing operations for the three-month period ended March 31, 2012 shown in the consolidated statement of income have been adjusted from previously reported results to exclude the operations of Augers.  Augers accounted for approximately $14,670,000 of net sales during the three months ended March 31, 2012.

The Company’s strategy over the years has been to buy and grow companies; however, the Company sold its utility trencher and drill line to Toro earlier in 2012 and the opportunity subsequently arose to sell the Company’s investment in American Augers and the Trencor line of large trenchers at Astec Underground.  This sale will allow future redeployment of the investment into the Company’s core industries of infrastructure, mining and energy.  The Company retained the vertical oil drilling rigs and related equipment product lines which have been relocated to GEFCO in Enid, Oklahoma.  The Company also retained its four-track surface miner product line manufactured by Astec Underground.  The Company expects to continue to expand its surface miner product line and to grow its fracturing pump trailer business while developing more equipment related to the fracking industry.  These product lines will continue to be manufactured at Astec Underground.

Dividends
In November 2012, the Company paid its first ever dividend to the holders of its common stock.  The $1.00 per share dividend was paid in December 2012 to shareholders of record of the Company’s common stock on November 20, 2012.

On February 28, 2013, the Company’s Board of Directors approved a dividend policy pursuant to which the Company intends to pay a quarterly $0.10 per share dividend on its common stock beginning in the second quarter of 2013.  The actual amount of these quarterly dividends will be based upon the Company’s financial position, results of operations, cash flows, capital requirements and restrictions under the Company’s existing credit agreement among other factors.  The Board retained the power to modify, suspend or cancel the Company’s dividend policy in any manner and at any time it deems necessary or appropriate in the future.  On April 25, 2013, the Board of Directors approved the first of these quarterly dividends to common shareholders of record as of May 13, 2013.  The $0.10 per common share dividend is expected to be paid to shareholders on or after May 30, 2013.

 
22

 


Backlog
The backlog of orders as of March 31, 2013 was $276,525,000 compared to $276,172,000 as of March 31, 2012, an increase of $353,000, or 0.1%. Domestic backlogs increased $7,673,000 or 4.8% while international backlogs decreased $7,320,000.  The increase in total backlog was primarily due to increases in the Underground Group of $4,557,000 or 17.3% and in the Asphalt Group of $3,568,000 or 2.9%, offset by a decrease in the Aggregate and Mining Group of $8,819,000 or 8.6%.  The March 31, 2013 backlog was comprised of 60.5% domestic orders and 39.5% international orders as compared to 57.8% domestic orders and 42.2% international orders as of March 31, 2012.  The Company is unable to determine whether the changes in backlogs were experienced by the industry as a whole; however, the Company believes the changes in backlogs reflect the current economic conditions the industry is experiencing.

Segment Net Sales-Quarter (in thousands):
 
   
Three Months Ended
March 31,
       
   
2013
   
2012
   
$ Change
   
% Change
 
 
Asphalt Group
  $ 71,549     $ 68,671     $ 2,878       4.2 %
 
Aggregate and Mining Group
    90,762       91,304       (542 )     (0.6 %)
 
Mobile Asphalt Paving Group
    47,290       41,993       5,297       12.6 %
 
Underground Group
    14,706       22,059       (7,353 )     (33.3 %)
 
Other Group
    23,526       27,940       (4,414 )     (15.8 %)

Asphalt Group: Sales in this group were $71,549,000 for the first quarter of 2013 compared to $68,671,000 for the same period in 2012, an increase of $2,878,000 or 4.2%.  Domestic sales for the Asphalt Group increased $3,478,000 or 6.8% for the first quarter of 2013 compared to the same period in 2012.  International sales for the Asphalt Group decreased $600,000 or 3.5% for the first quarter of 2013 compared to the same period in 2012 due primarily to decreased sales in the Post–Soviet states and Asia offset by increased sales in Europe and Russia.  Parts sales for the Asphalt Group decreased 1.9% for the first quarter of 2013 compared to the same period in 2012.

Aggregate and Mining Group: Sales in this group were $90,762,000 for the first quarter of 2013 compared to $91,304,000 for the same period in 2012, a decrease of $542,000 or 0.6%.  Domestic sales for the Aggregate and Mining Group decreased $3,165,000 or 6.6% for the first quarter of 2013 compared to the same period in 2012.  International sales for the Aggregate and Mining Group increased $2,623,000 or 6.0% for the first quarter of 2013 compared to the same period in 2012. The increases in international sales occurred primarily in Mexico, Russia and Europe offset by decreases in sales in Brazil and China.  Parts sales for this group increased 4.8% for the first quarter of 2013 compared to the same period in 2012.

Mobile Asphalt Paving Group: Sales in this group were $47,290,000 for the first quarter of 2013 compared to $41,993,000 for the same period in 2012, an increase of $5,297,000 or 12.6%.  Domestic sales for the Mobile Asphalt Paving Group increased $6,761,000 or 20.8% for the first quarter of 2013 compared to the same period in 2012 due primarily to the impact of the new Map-21 long-term federal funding passed by Congress in 2012 as well as gains in market share.  International sales for the Mobile Asphalt Paving Group decreased $1,464,000 or 15.4% for the first quarter of 2013 compared to the same period in 2012. The decrease in international sales occurred primarily in Russia offset by increased sales in Canada.  Parts sales for this group decreased 10.6% for the first quarter of 2013 compared to the same period in 2012.

Underground Group: Sales in this group were $14,706,000 for the first quarter of 2013 compared to $22,059,000 for the same period in 2012, a decrease of $7,353,000 or 33.3%.  Domestic sales for the Underground Group decreased $5,291,000 or 33.2% for the first quarter of 2013 compared to the same period in 2012.  International sales for the Underground Group decreased $2,062,000 or 33.6% for the first quarter of 2013 compared to the same period in 2012. The decreases in international sales occurred primarily in South America and Mexico offset by an increase in sales in Africa.  Parts sales for this group decreased 46.2% for the first quarter of 2013 compared to the same period in 2012.

 
23

 


Other Group: Sales in this group were $23,526,000 for the first quarter of 2013 compared to $27,940,000 for the same period in 2012, a decrease of $4,414,000 or 15.8%.  Domestic sales for the Other Group increased $5,086,000 or 67.5% for the first quarter of 2013 compared to the same period in 2012 due to increases in sales by Peterson Pacific.  International sales for the Other Group decreased $9,500,000 or 46.6% for the first quarter of 2013 compared to the same period in 2012. The decreases in international sales occurred primarily in Australia and were offset by increases in sales in Canada and the Middle East.  Parts sales for this group increased 2.3% for the first quarter of 2013 compared to the same period in 2012.

 
Segment Profit (Loss)-Quarter (in thousands):
 
   
Three Months Ended
March 31,
       
   
2013
   
2012
   
$ Change
   
% Change
 
 
Asphalt Group
  $ 11,141     $ 7,391     $ 3,750       50.7 %
 
Aggregate and Mining Group
    9,057       9,571       (514 )     (5.4 %)
 
Mobile Asphalt Paving Group
    4,221       3,921       300       7.7 %
 
Underground Group
    (2,381 )     (173 )     (2,208 )     (1276.3 %)
 
Other Group
    (8,172 )     (9,214 )     1,042       11.3 %

Asphalt Group: Segment profit for this group was $11,141,000 for the first quarter of 2013 compared to $7,391,000 for the same period in 2012, an increase of $3,750,000 or 50.7%. This increase is due primarily a 430 basis point increase in gross margin due primarily to a return to more normal margins on asphalt plants as compared to the first quarter of 2012.

Aggregate and Mining Group: Segment profit for this group was $9,057,000 for the first quarter of 2013 compared to $9,571,000 for the same period in 2012, a decrease of $514,000 or 5.4%.  This group’s profits were negatively impacted by $542,000 of decreased sales and a 60 basis point decrease in gross margin as well as a $217,000 reduction in license fee income.

Mobile Asphalt Paving Group: Segment profit for this group was $4,221,000 for the first quarter of 2013 compared to $3,921,000 for the first quarter of 2012, an increase of $300,000 or 7.7%. This increase is due primarily to a $5,297,000 increase in sales offset with a 300 basis point decrease in gross margin for the first quarter of 2013 compared to the first quarter of 2012.  Sales growth is attributed to market share growth due to favorable customer response to the Company’s Tier IV compliant machinery and recently added features, such as remote diagnostic technology which allows factory technicians to diagnose performance issues over wireless connections via the internet.  Margins for the first quarter of 2013 were negatively impacted by low sales and the related absorption of fixed overhead in Europe by the Company’s new facility in Germany compared to the first quarter of 2012; however, margins for the first quarter of 2013 were 370 basis points above calendar year 2012 margins.  These improved margins are attributable to improved fixed overhead absorption due to the higher sales as well as many of the Tier IV production and pricing issues being resolved.

Underground Group: This group had a segment loss of $2,381,000 for the first quarter of 2013 compared to $173,000 loss for the first quarter of 2012, a decrease of $2,208,000 or 1276.3%.  This group’s profits were negatively impacted by a $2,392,000 decrease in margins at GEFCO attributed primarily to inefficiencies and additional costs associated with the reorganization of GEFCO’s manufacturing facilities to implement lean manufacturing concepts.

 
24

 

Other Group: The Other Group had a segment loss of $8,172,000 for the first quarter of 2013 compared to a loss of $9,214,000 for the first quarter of 2012, an improvement of $1,042,000 or 11.3%.  The improvement in profits in the first quarter of 2013 as compared to the first quarter of 2012 is due primarily to a reduction in the tax rate on U.S. federal income taxes primarily resulting from the research and development tax credits on both annual 2012 and first quarter of 2013 expenditures being included in the first quarter 2013 due to the timing of the passage of the tax credit legislation.

Liquidity and Capital Resources
The Company’s primary sources of liquidity and capital resources are its cash on hand, investments, borrowing capacity under a $100,000,000 revolving credit facility and cash flows from operations. The Company had $73,175,000 of cash available for operating purposes as of March 31, 2013. In addition, the Company had no borrowings outstanding under its credit facilities with Wells Fargo Bank, N.A. (“Wells Fargo”) at any time during the three months ended March 31, 2013. Net of letters of credit of $10,295,000, the Company had borrowing availability of $89,705,000 under the credit facility as of March 31, 2013.  The Wells Fargo credit facility is a five-year agreement entered into in April 2012 to replace an expiring prior agreement.  This amended and restated credit agreement continues the Company’s previous $100,000,000 revolving credit facility, with an increase in the sub-limit for letters of credit from $15,000,000 to $25,000,000.  Borrowings under the agreement are subject to an interest rate equal to the daily one month LIBOR rate plus a 0.75% margin.  Interest only payments are due monthly. The unused facility fee is 0.175%.  The amended and restated credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income, minimum tangible net worth and maximum allowed capital expenditures.

The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $8,124,000 (ZAR 75,000,000) to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of March 31, 2013, Osborn had $918,000 of borrowings under the credit facility and $1,903,000 in performance, advance payment and retention guarantees outstanding under the facility. The facility is unsecured and no unused facility fees are charged.  Osborn had available credit under the facility of $5,303,000 as of March 31, 2013. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 8.25% as of March 31, 2013.

The Company’s Australian subsidiary, Astec Australia Pty Ltd (“Astec Australia”), has a credit facility to finance short-term working capital needs of $104,000 (AUD 100,000) and a bank guarantee facility of $1,335,000 (AUD 1,300,000) to facilitate contractual commitments and banking arrangements to finance foreign exchange dealer limit orders of up to $3,910,000 (AUD 3,750,000), secured by cash balances in the amount of $782,000 (AUD 750,000) and a $1,600,000 letter of credit issued by the parent Company.  No amounts were outstanding under the credit facility as of March 31, 2013; however, performance guarantees in the amount of $1,212,000 were outstanding under the bank guarantee facility as of March 31, 2013.  The interest rate is the Australian adjusted Bank Business Rate plus a margin of 1.05%. The interest rate was 11.17% as of March 31, 2013.

Cash Flows from Operating Activities (in thousands):
   
Three Months Ended
March 31,
   
Increase
 
   
2013
   
2012
   
(Decrease)
 
Net income
  $ 13,251     $ 12,258     $ 993  
Depreciation and amortization
    5,428       5,901       (473 )
Deferred income tax provision (benefit)
    (249     2,895       (3,144 )
Changes in working capital:
                       
    Increase in trade and other receivables
    (15,788 )     (11,351 )     (4,437 )
    Increase in inventories
    (13,385 )     (18,239 )     4,854  
    (Increase) decrease in prepaid expenses
    (5,784 )     2,550       (8,334 )
    Increase in accounts payable
    4,571       967       3,604  
    Increase (decrease) in customer deposits
    10,255       (4,723 )     14,978  
    Other, net
    2,487       (1,772 )     4,259  
Net cash provided (used) by operating activities
  $ 786     $ (11,514 )   $ 12,300  
 
 
25

 


For the three-month period ended March 31, 2013, net cash provided (used) by operating activities improved by $12,300,000 compared to the same period in 2012.  The primary reasons for the improved cash from operations in the first quarter of 2013 compared to the first quarter of 2012 are an increase in cash received from customer deposits of $14,978,000 and a decrease in cash used for inventory of $4,854,000 offset by an increase in cash used for prepaid expenses of $8,334,000 and cash used to finance accounts receivable of $4,437,000.

Cash Flows from Investing Activities (in thousands):

   
Three Months Ended
March 31,
   
Increase
 
   
2013
   
2012
   
(Decrease)
 
Expenditures for property and equipment
  $ (9,339 )   $ (5,369 )   $ (3,970
Proceeds from sale of property and equipment
    77       463       (386
Net cash (used) by investing activities
  $ (9,262 )   $ (4,906 )   $ (4,356

For the three-month period ended March 31, 2013, net cash used by investing activities increased $4,356,000 compared to the same period in 2012 primarily due to an increase in cash used for planned capital expenditures of $3,970,000.

Capital expenditures for 2013, excluding those by the Company’s Brazilian operations, are forecasted to total $31,455,000. The Company expects to finance these expenditures using currently available cash balances, internally generated funds and available credit under the Company’s credit facilities. Capital expenditures are generally for machinery, equipment and facilities used by the Company in the production of its various products. The Company plans to construct a manufacturing facility in Brazil in 2013 with an expected cost of $20,000,000 and plans to fund the costs of the plant and equipment with borrowings from a local Brazilian bank. The Company believes that its current working capital, cash flows generated from future operations and available capacity under its credit facilities will be sufficient to meet the Company’s working capital and capital expenditure requirements through March 31, 2014.

Cash Flows from Financing Activities (in thousands):

   
Three Months Ended
March 31,
   
Increase
 
   
2013
   
2012
   
(Decrease)
 
Proceeds from exercise of stock options
  $ 36     $ 493     $ (457 )
Withholding taxes (paid) upon vesting of restricted
  stock units
    (783 )     (686 )     (97 )
Net proceeds from sale of subsidiaries shares to
  minority shareholders
    1,673       -       1,673  
Other, net
    (16 )     115       (131 )
Net cash provided (used) by financing activities
  $ 910     $ (78   $ 988  

Cash provided by financing activities increased $988,000 for the first three months of 2013 compared to the same period in 2012, due primarily to the net proceeds from the sale of shares to the minority shareholder of the Company’s Brazilian subsidiary of $1,673,000, offset by a $457,000 reduction in cash received from the exercise of stock options between periods.

The Company sold American Augers, Inc. on November 30, 2012. Cash flows from the operations of American Augers are reflected in the statements of cash flows for the three month period ending March 31, 2012. Cash flows from the operations of American Augers were not material during the periods presented, and the absence of cash flows related to American Augers is not expected to impact materially the Company’s future liquidity or capital resources. See Note 18, Discontinued Operations, for additional information regarding the sale of American Augers.

 
26

 


Financial Condition
The Company’s current assets increased to $526,514,000 as of March 31, 2013 from $499,866,000 as of December 31, 2012, an increase of $26,648,000, or 5.3%.  The increase is primarily attributable to an increase in inventories of $13,385,000 combined with an increase in receivables of $15,551,000. These increases were offset by decreases in cash and cash equivalents of $7,754,000.

The Company’s current liabilities increased to $160,915,000 as of March 31, 2013 as compared to $144,369,000 as of December 31, 2012, an increase of $16,546,000, or 11.5%.  The increase is primarily attributable to increases in customer deposits of $10,254,000 and accounts payable of $4,571,000.

Market Risk and Risk Management Policies
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, 2012.
 
 
Off-balance Sheet Arrangements
As of March 31, 2013, the Company does not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

Seasonality
The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the three-month period ended March 31, 2013 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.  Based upon historical results of the past several years, 24% to 28% of the Company’s annual revenues typically occur during the first three months of the year.

Contractual Obligations
During the three months ended March 31, 2013, there were no substantial changes in our commitments or contractual liabilities.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
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, 2012.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
27

 


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
The Company is involved from time to time in legal actions arising in the ordinary course of our business. Other than as set forth in Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2012, we currently have no pending or threatened litigation that we believe will result in an outcome that would materially affect our business, financial position, cash flows or results of operations. Nevertheless, there can be no assurance that future litigation to which we become a party will not have a material adverse effect on our business, financial position, cash flows or results of operations.

Item 1A.  Risk Factors
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, 2012, 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, 2012.  The risks described in our Annual Report on Form 10-K for the year ended December 31, 2012 and in this Quarterly Report on Form 10-Q 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.

Item 6.  Exhibits

Exhibit No.
 
                                   Description                                                                                                                       
 10.1  
Amendment to Appendix A of the Astec Industries, Inc. Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2008, effective February 28, 2013.
 31.1  
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2  
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32*  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase

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.

 
28

 


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.
 
 
 
ASTEC INDUSTRIES, INC.
(Registrant)
 
     
     
Date: May 10, 2013
/s/ J. Don Brock                                                          
 
 
J. Don Brock
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
 
     
 
 
 
Date: May 10, 2013
/s/ David C. Silvious                                                    
 
 
David C. Silvious
Chief Financial Officer, Vice President, and Treasurer
(Principal Financial and Accounting Officer)
 



Exhibit Index
 
Exhibit No.
 
Description           
 10.1  
Amendment to Appendix A of the Astec Industries, Inc. Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2008, effective February 28, 2013.
 31.1  
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2  
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase

29