UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
DC 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 June 30, 2007
|
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 0-14714
|
|
Astec
Industries, Inc.
|
(Exact
name of registrant as specified in its charter)
|
|
Tennessee
|
62-0873631
|
(State
or other jurisdiction of
|
(I.R.S.
Employer 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 is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of
the
Exchange Act. (Check one):
|
Large
Accelerated Filer o
|
Accelerated
Filer ý
|
Non-accelerated
filer 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 July 30, 2007
|
Common
Stock, par value $0.20
|
22,144,913
|
|
ASTEC
INDUSTRIES, INC.
|
INDEX
|
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Item
1. Financial Statements
Astec
Industries, Inc. and Subsidiaries
|
|
|
|
(in
thousands)
|
|
|
|
June
30, 2007
(unaudited)
|
|
|
December
31,
2006
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
72,166
|
|
|
$ |
44,878
|
|
Trade
receivables, net
|
|
|
80,560
|
|
|
|
64,591
|
|
Other
receivables
|
|
|
1,424
|
|
|
|
2,083
|
|
Inventories
|
|
|
166,663
|
|
|
|
157,836
|
|
Prepaid
expenses and other
|
|
|
5,182
|
|
|
|
5,750
|
|
Deferred
income tax assets
|
|
|
8,891
|
|
|
|
7,880
|
|
Total
current assets
|
|
|
334,886
|
|
|
|
283,018
|
|
Property
and equipment, net
|
|
|
121,426
|
|
|
|
113,914
|
|
Goodwill
|
|
|
20,009
|
|
|
|
19,384
|
|
Other
|
|
|
11,518
|
|
|
|
5,547
|
|
Total
assets
|
|
$ |
487,839
|
|
|
$ |
421,863
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
47,679
|
|
|
$ |
42,561
|
|
Accrued
product warranty
|
|
|
8,137
|
|
|
|
7,184
|
|
Customer
deposits
|
|
|
27,180
|
|
|
|
22,486
|
|
Accrued
payroll and related liabilities
|
|
|
7,036
|
|
|
|
9,298
|
|
Accrued
loss reserves
|
|
|
2,939
|
|
|
|
2,976
|
|
Income
taxes payable
|
|
|
4,357
|
|
|
|
671
|
|
Other
accrued liabilities
|
|
|
23,480
|
|
|
|
19,693
|
|
Total
current liabilities
|
|
|
120,808
|
|
|
|
104,869
|
|
Deferred
income tax liabilities
|
|
|
5,541
|
|
|
|
6,332
|
|
Accrued
retirement benefit costs
|
|
|
2,587
|
|
|
|
3,000
|
|
Other
|
|
|
12,545
|
|
|
|
10,797
|
|
Minority
interest
|
|
|
778
|
|
|
|
699
|
|
Total
shareholders' equity
|
|
|
345,580
|
|
|
|
296,166
|
|
Total
liabilities and shareholders' equity
|
|
$ |
487,839
|
|
|
$ |
421,863
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements
Astec
Industries, Inc. and Subsidiaries
|
|
|
|
(in
thousands, except per-share and share amounts)
|
|
(unaudited)
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
$ |
226,414
|
|
|
$ |
191,262
|
|
|
$ |
441,976
|
|
|
$ |
376,986
|
|
Cost
of sales
|
|
|
167,471
|
|
|
|
143,835
|
|
|
|
328,660
|
|
|
|
284,407
|
|
Gross
profit
|
|
|
58,943
|
|
|
|
47,427
|
|
|
|
113,316
|
|
|
|
92,579
|
|
Selling,
general, administrative and engineering expenses
|
|
|
30,318
|
|
|
|
27,227
|
|
|
|
60,848
|
|
|
|
54,967
|
|
Income
from operations
|
|
|
28,625
|
|
|
|
20,200
|
|
|
|
52,468
|
|
|
|
37,612
|
|
Interest
expense
|
|
|
201
|
|
|
|
417
|
|
|
|
616
|
|
|
|
847
|
|
Other
income, net of expense
|
|
|
714
|
|
|
|
136
|
|
|
|
1,400
|
|
|
|
401
|
|
Income
before income taxes and minority interest
|
|
|
29,138
|
|
|
|
19,919
|
|
|
|
53,252
|
|
|
|
37,166
|
|
Income
taxes
|
|
|
10,584
|
|
|
|
7,512
|
|
|
|
19,330
|
|
|
|
13,859
|
|
Income
before minority interest
|
|
|
18,554
|
|
|
|
12,407
|
|
|
|
33,922
|
|
|
|
23,307
|
|
Minority
interest
|
|
|
49
|
|
|
|
42
|
|
|
|
83
|
|
|
|
45
|
|
Net
income
|
|
$ |
18,505
|
|
|
$ |
12,365
|
|
|
$ |
33,839
|
|
|
$ |
23,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.85
|
|
|
$ |
0.58
|
|
|
$ |
1.55
|
|
|
$ |
1.09
|
|
Diluted
|
|
$ |
0.83
|
|
|
$ |
0.56
|
|
|
$ |
1.52
|
|
|
$ |
1.06
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,879,134
|
|
|
|
21,424,731
|
|
|
|
21,762,265
|
|
|
|
21,314,446
|
|
Diluted
|
|
|
22,400,284
|
|
|
|
22,044,210
|
|
|
|
22,298,140
|
|
|
|
21,975,519
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements
Astec
Industries, Inc. and Subsidiaries
|
|
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
33,839
|
|
|
$ |
23,262
|
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,246
|
|
|
|
5,855
|
|
Provision
for doubtful accounts
|
|
|
295
|
|
|
|
450
|
|
Provision
for inventory reserve
|
|
|
1,182
|
|
|
|
1,869
|
|
Provision
for warranty reserve
|
|
|
6,369
|
|
|
|
6,567
|
|
Deferred
compensation provision
|
|
|
769
|
|
|
|
189
|
|
Purchase/sale
of trading security by supplemental executive retirement plan,
net
|
|
|
(806 |
) |
|
|
(391 |
) |
Stock-based
payments
|
|
|
910
|
|
|
|
381
|
|
Tax
benefit from stock option exercise
|
|
|
(2,732 |
) |
|
|
(2,397 |
) |
Deferred
income tax provision (benefit)
|
|
|
(1,802 |
) |
|
|
37
|
|
Loss
on sale and disposition of fixed assets
|
|
|
21
|
|
|
|
9
|
|
Minority
interest in earnings of subsidiary
|
|
|
83
|
|
|
|
(45 |
) |
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Trade
and other receivables
|
|
|
(15,605 |
) |
|
|
(26,508 |
) |
Inventories
|
|
|
(10,009 |
) |
|
|
(17,425 |
) |
Prepaid
expenses and other
|
|
|
569
|
|
|
|
2,630
|
|
Other
non-current assets
|
|
|
1,134
|
|
|
|
134
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
5,118
|
|
|
|
3,554
|
|
Accrued
product warranty
|
|
|
(5,416 |
) |
|
|
(5,197 |
) |
Customer
deposits
|
|
|
4,695
|
|
|
|
5,767
|
|
Income
taxes payable
|
|
|
6,352
|
|
|
|
2,352
|
|
Other
accrued liabilities
|
|
|
2,069
|
|
|
|
2,245
|
|
Net
cash provided by operating activities
|
|
|
34,281
|
|
|
|
3,338
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
164
|
|
|
|
28
|
|
Expenditures
for property and equipment
|
|
|
(14,532 |
) |
|
|
(15,108 |
) |
Purchase
of investment securities
|
|
|
(6,491 |
) |
|
|
-
|
|
Net
cash used by investing activities
|
|
|
(20,859 |
) |
|
|
(15,080 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Tax
benefit from stock option exercise
|
|
|
2,732
|
|
|
|
2,397
|
|
Sale/purchase,
net of company shares by supplemental executive retirement
plan
|
|
|
663
|
|
|
|
84
|
|
Proceeds
from issuance of common stock
|
|
|
9,817
|
|
|
|
8,969
|
|
Net
cash provided by financing activities
|
|
|
13,212
|
|
|
|
11,450
|
|
Effect
of exchange rate changes on cash
|
|
|
654
|
|
|
|
(291 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
27,288
|
|
|
|
(583 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
44,878
|
|
|
|
22,598
|
|
Cash
and cash equivalents at end of period
|
|
$ |
72,166
|
|
|
$ |
22,015
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements
Astec
Industries, Inc. and Subsidiaries
|
|
|
|
For
the Six Months Ended June 30, 2007
|
|
(
in thousands, except shares)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Shares
|
|
|
Common
Stock
Amount
|
|
|
Additional
Paid in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Company
Shares Held by SERP
|
|
|
Total
Shareholders' Equity
|
|
Balance
December 31, 2006
|
|
|
21,696,374
|
|
|
$ |
4,339
|
|
|
$ |
93,760
|
|
|
$ |
197,661
|
|
|
$ |
2,487
|
|
|
$ |
(2,081 |
) |
|
$ |
296,166
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,839
|
|
|
|
|
|
|
|
|
|
|
|
33,839
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,502
|
|
|
|
|
|
|
|
1,502
|
|
Minimum
pension
liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,357
|
|
Stock
incentive plan expense,
gross
|
|
|
|
|
|
|
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
910
|
|
FIN
48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
(65 |
) |
Exercise
of stock options and stock to directors,
including tax benefits
|
|
|
419,813
|
|
|
|
84
|
|
|
|
12,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,548
|
|
SERP
transactions, net
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
664
|
|
Balance,
June 30,
2007
|
|
|
22,116,187
|
|
|
$ |
4,423
|
|
|
$ |
107,648
|
|
|
$ |
231,435
|
|
|
$ |
4,005
|
|
|
$ |
(1,931 |
) |
|
$ |
345,580
|
|
See
Notes
to Unaudited Condensed Consolidated Financial Statements
ASTEC
INDUSTRIES, INC. AND SUBSIDIARIES
Note
1. Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
for
interim financial information and with the instructions to Form 10-Q and
Article
10 of Regulation S-X promulgated under the Securities Act of
1933. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended
June 30, 2007 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2007. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Astec Industries, Inc. and
subsidiaries Annual Report on Form 10-K for the year ended December 31,
2006.
The
condensed consolidated balance sheet at December 31, 2006 has been derived
from
the audited financial statements at that date but does not include all of
the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.
Certain
reclassifications were made to the prior year presentation to conform to
the
current year presentation. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Astec
Industries, Inc. and subsidiaries Annual Report on Form 10-K for the year
ended
December 31, 2006.
Recent
Accounting Pronouncements
In
July
2006, the FASB issued FASB Interpretation 48, "Accounting for Uncertainty
in
Income Taxes: an interpretation of FASB Statement No. 109, Accounting for Income
Taxes" (FIN 48). FIN 48 defines a criterion that an income tax
position would have to meet for some or all of the benefit of that position
to
be recognized in an entity's financial statements. FIN 48 requires
that the cumulative effect of applying its provisions be reported as an
adjustment to retained earnings at the beginning of the period in which it
is
adopted. FIN 48 is effective for fiscal years beginning after
December 15, 2006 and the Company began applying its provisions effective
January 1, 2007. The impact of adopting this statement is described
in Note 7.
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157), which provides guidance on how to measure assets and liabilities
that
use fair value. SFAS No. 157 will apply whenever another US GAAP
standard requires (or permits) assets or liabilities to be measured at fair
value but does not expand the use of fair value to any new
circumstances. This standard also will require additional disclosures
in both annual and quarterly reports. SFAS No. 157 will be effective
for financial statements issued for fiscal years beginning after November
15,
2007, and the Company will begin applying its provisions effective January
1,
2008. The Company has not yet determined the impact, if any, that the
implementation of this statement will have on the Company's financial
statements.
In
February 2007, the FASB issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities". This statement allows entities to voluntarily choose,
at specified election dates, to measure many financial assets and financial
liabilities (as well as certain nonfinancial instruments that are similar
to
financial instruments) at fair value. The election is made on an
instrument-by-instrument basis and is irrevocable. SFAS No. 159 is
effective for an entity's fiscal year that begins after November 15, 2007,
and
the Company will begin applying its provisions effective January 1,
2008. The Company has not yet determined the impact, if any, the
implementation of this statement will have on the Company's financial
statements.
Note
2. Stock-based Compensation
Under
terms of the Company's stock
option plans, officers and certain other employees may be granted options
to
purchase the Company's common stock at no less than 100% of the market price
on
the date the option is granted. The Company has reserved shares of
common stock for exercise of outstanding non-qualified options and incentive
options of officers and employees of the Company and its subsidiaries at
prices
determined by the Board of Directors. In addition, a Non-employee
Directors
Stock Incentive Plan has been established to allow non-employee directors
to
have a personal financial stake in the Company
through an ownership interest. Directors may elect to receive their
compensation in cash, common stock, deferred stock or stock
options. Options granted under the Non-employee Directors Stock
Incentive Plan and the Executive Officer Annual Bonus Equity Election Plan
vest
and become fully exercisable immediately. Generally, other options
granted vest over 12 months. All stock options
have a ten-year term. All granted options were vested prior to
December 31, 2006, therefore no stock option
expense was recorded
in the six months ended June 30, 2007, and there were no unrecognized
compensation costs related to stock options previously granted as of that
date.
The Company recorded stock option expense of $21,000 and $381,000 in the
three
and six month periods ended June 30, 2006, respectively.
In
August
2006, the Compensation Committee of the Board of Directors implemented a
five-year plan to award key members of management restricted stock units
each
year. The details of the plan were formulated under the 2006 Incentive Plan
approved by the Company’s shareholders in their annual meeting held in April,
2006. The plan allows up to 700,000 shares to be granted to
employees. Units granted each year will be determined based upon
individual subsidiaries and consolidated annual financial performance. Each
award will vest at the end of five years from the date of grant, or at the
time
a recipient reaches age 65, if earlier. Based upon performance for 2006,
management was granted 71,100 restricted stock units on March 8, 2007, and
it is
anticipated that an additional 73,100 units will be granted in March 2008
for
performance in 2007. Compensation expense of $350,000 and $910,000 has been
recorded in the three and six month periods ended June 30, 2007, respectively,
to reflect the fair value of the 144,200 shares amortized over the portion
of
the vesting period occurring during the periods. Based upon the March
8, 2007 fair value of $38.76 for the 71,100 units and the June 29, 2007 fair
value of $42.22 for the 73,100 units, $4,221,000 of compensation costs will
be
recognized in future periods through 2013. The fair value of the 73,100
restricted stock units will be adjusted quarterly to the period-end market
value
of the Company’s stock until the units are actually granted, which is expected
to be in March, 2008.
Note
3. Receivables
Receivables
are net of allowance for doubtful accounts of $1,817,000 and $1,781,000 as
of
June 30, 2007 and December 31, 2006, respectively.
Note
4. Inventories
Inventories
are stated at the lower of
first-in, first-out cost or market and consist of the following:
|
|
(in
thousands)
|
|
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Raw
Materials
|
|
$ |
90,441
|
|
|
$ |
77,229
|
|
Work-in-Process
|
|
|
47,190
|
|
|
|
43,227
|
|
Finished
Goods
|
|
|
21,336
|
|
|
|
27,993
|
|
Used
Equipment
|
|
|
7,696
|
|
|
|
9,387
|
|
Total
|
|
$ |
166,663
|
|
|
$ |
157,836
|
|
Note
5. Earnings per Share
Basic
and diluted earnings per share
are calculated in accordance with SFAS No. 128 and SFAS No.
123(R). Basic earnings per share exclude any dilutive effects of
stock options and restricted stock units.
The
following table sets forth the computation of basic and diluted earnings
per
share:
|
|
Three
Months Ended
June
30, 2007
|
|
|
Six
Months Ended
June
30, 2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,505,000
|
|
|
$ |
12,365,000
|
|
|
$ |
33,839,000
|
|
|
$ |
23,262,000
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share
|
|
|
21,879,134
|
|
|
|
21,424,731
|
|
|
|
21,762,265
|
|
|
|
21,314,446
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock option & incentive plans
|
|
|
420,188
|
|
|
|
502,497
|
|
|
|
431,431
|
|
|
|
546,062
|
|
Supplemental
Executive Retirement Plan
|
|
|
100,962
|
|
|
|
116,982
|
|
|
|
104,444
|
|
|
|
115,011
|
|
Denominator
for diluted earnings per share
|
|
|
22,400,284
|
|
|
|
22,044,210
|
|
|
|
22,298,140
|
|
|
|
21,975,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.85
|
|
|
$ |
0.58
|
|
|
$ |
1.55
|
|
|
$ |
1.09
|
|
Diluted
|
|
$ |
0.83
|
|
|
$ |
0.56
|
|
|
$ |
1.52
|
|
|
$ |
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
options were antidilutive for the three months ended June 30, 2007. A
total of approximately 1,090 options were antidilutive for the three months
ended June 30, 2006 and were therefore not included in the diluted earnings
per
share computation. A total of approximately 160 and 930 options for
the six months ended June 30, 2007
and
2006, respectively, were antidilutive and were therefore not included in
the
diluted earnings per share computation.
Note
6. Property and Equipment
Property
and equipment is stated at
cost, less any required impairment charge. Property and equipment is
net of accumulated depreciation of $115,997,000 and $110,521,000 as of June
30,
2007 and December 31, 2006, respectively.
Note
7. Uncertainty in Income Taxes
Astec
Industries, Inc. and one or more of its subsidiaries (the Company) file income
tax returns in the U.S. federal jurisdiction, and in various state and foreign
jurisdictions. The Company is no longer subject to U.S. federal
income tax examinations by authorities for years prior to 2003. With
few exceptions, the Company is no longer subject to state and local or non-U.S.
income tax examinations by authorities for years prior to
2001. During the second quarter of 2007, Revenue Canada completed its
examination of the 2003, 2004 and 2005 Canadian income tax returns of Breaker
Technology, Ltd. (BTL), the Company’s Canadian subsidiary. The
resulting adjustments to income are immaterial and net operating loss
carry-forwards will offset any additional taxes due. The Provincial
Ministry of Finance is also completing an audit of BTL; however management
anticipates any adjustments will be immaterial.
The
Company adopted provisions of FASB Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes, on January 1, 2007. As a result of
the implementation of FIN 48, the Company recognized a $65,000 increase in
the
liability for unrecognized tax benefits, which was accounted for as a reduction
to the January 1, 2007 balance of retained earnings. The Company has
a $1,191,000 liability recorded for unrecognized tax benefits as of January
1,
2007, which includes interest and penalties of $94,000. The Company
recognizes interest and penalties accrued related to unrecognized tax benefits
in tax expense. The total amount of unrecognized tax benefits that,
if recognized, would affect the effective tax rate is $818,000, which includes
interest and penalties of $94,000. Management does not currently anticipate
that
the total amount of unrecognized tax benefits will significantly increase
or
decrease by the end of 2007. There were no material changes to the
liability for unrecognized tax benefits for the quarter-ended June 30,
2007.
In
the
June 30, 2007, balance of unrecognized tax benefits, there are no tax positions
for which the ultimate deductibility is highly certain but the timing of
such
deductibility is uncertain. Accordingly there is no impact to the
deferred tax accounting for certain tax benefits.
Note
8. Comprehensive Income
Total
comprehensive income for the three month periods ended June 30, 2007 and
2006
was $20,178,000 and $11,848,000, respectively. Total comprehensive
income for the six month periods ended June 30, 2007 and 2006 was $35,357,000
and $23,019,000, respectively. The components of comprehensive income
for the periods indicated are set forth below:
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
income
|
|
$ |
18,505
|
|
|
$ |
12,365
|
|
|
$ |
33,839
|
|
|
$ |
23,262
|
|
Minimum
pension liability adjustment
|
|
|
8
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
Increase
(decrease) in foreign currency translation
|
|
|
1,665
|
|
|
|
(517 |
) |
|
|
1,502
|
|
|
|
(243 |
) |
Total
comprehensive income
|
|
$ |
20,178
|
|
|
$ |
11,848
|
|
|
$ |
35,357
|
|
|
$ |
23,019
|
|
Note
9. Contingent Matters
Certain
customers have financed
purchases of Astec products through arrangements in which the Company is
contingently liable for customer debt of approximately $1,198,000 and for
residual value guarantees aggregating approximately $147,000 at June 30,
2007
and contingently liable for customer debt of approximately $2,755,000 and
for
residual value guarantees aggregating approximately $147,000 at December
31,
2006. At June 30, 2007, the maximum
potential amount of future payments under these guarantees for which the
Company
would be liable is equal to $1,345,000. The Company does not believe
it will be called on to fulfill any of these contingencies, and therefore
the
carrying amounts on the consolidated balance sheets of the Company for these
contingent liabilities are zero.
In
addition, the Company is contingently liable under letters of credit totalling
approximately $5,483,000, including a $2,000,000 letter of credit issued
to the
Company's South African subsidiary, Osborn Engineered Products SA (Pty)
(Osborn). Under the Company's credit facility, the terms of letters
of credit are limited to one year. Osborn is contingently liable for a total
of
$3,458,000 in performance and retention bonds, of which $2,000,000 are secured
by the $2,000,000 letter of credit issued by the Company. As of June
30, 2007, the maximum potential amount of future payments under these letters
of
credit and bonds for which the Company could be liable is approximately
$6,941,000.
The
Company is engaged in certain pending litigation involving claims or other
matters arising in the ordinary course of business. Most of these
claims involve product liability or other tort claims for property damage
or
personal injury against which the Company is insured. As a part of
its litigation management program, the Company maintains general liability
insurance coverage for product liability and other similar tort claims in
amounts the Company believes are adequate. The coverage is subject to
a substantial self-insured retention under the terms of which the Company
has
the right to coordinate and control the management of its claims and the
defense
of these actions.
The
Company is currently a party to various claims and legal proceedings that
have
arisen in the ordinary course of business. If management believes
that a loss arising from such claims and legal proceedings is probable and
can
reasonably be estimated, the Company records the amount of the loss (including
estimated legal costs), 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.
Note
10. Segment Information
The
Company has four reportable operating segments, which include the Asphalt
Group,
the Aggregate and Mining Group, the Mobile Asphalt Paving Group and the
Underground Group. The business units in the Asphalt Group design,
manufacture and market a complete line of asphalt plants and related components,
heating and heat transfer processing equipment and storage tanks for the
asphalt
paving and other non-related industries. The business units in the
Aggregate and Mining Group design, manufacture and market equipment for the
aggregate, metallic mining and recycling industries. The business
units in the Mobile Asphalt Paving Group design, manufacture and market asphalt
pavers, material transfer vehicles, milling machines and screeds. The
business units in the Underground Group design, manufacture and market a
complete line of trenching equipment and directional drills for the underground
construction market. The Company also has one other category that
contains the business units that do not meet the requirements for separate
disclosure as an operating segment. The business units in the Other
category include Astec Insurance Company and Astec Industries, Inc., the
parent
company.
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
|
|
|
|
June
30, 2007
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Net
sales from external customers
|
|
$ |
66,638
|
|
|
$ |
88,993
|
|
|
$ |
40,390
|
|
|
$ |
30,393
|
|
|
$ |
-
|
|
|
$ |
226,414
|
|
Intersegment
sales
|
|
|
4,319
|
|
|
|
3,209
|
|
|
|
2,017
|
|
|
|
2,595
|
|
|
|
-
|
|
|
|
12,140
|
|
Gross
profit
|
|
|
18,056
|
|
|
|
22,866
|
|
|
|
10,721
|
|
|
|
7,315
|
|
|
|
(15 |
) |
|
|
58,943
|
|
Gross
profit percent
|
|
|
27.1 |
% |
|
|
25.7 |
% |
|
|
26.5 |
% |
|
|
24.1 |
% |
|
|
-
|
|
|
|
26.0 |
% |
Segment
profit
|
|
$ |
11,718
|
|
|
$ |
12,330
|
|
|
$ |
5,748
|
|
|
$ |
2,279
|
|
|
$ |
(13,630 |
) |
|
$ |
18,445
|
|
|
|
(in
thousands)
|
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Net
sales from external customers
|
|
$ |
131,647
|
|
|
$ |
171,337
|
|
|
$ |
84,339
|
|
|
$ |
54,653
|
|
|
$ |
-
|
|
|
$ |
441,976
|
|
Intersegment
sales
|
|
|
7,348
|
|
|
|
5,493
|
|
|
|
3,618
|
|
|
|
7,788
|
|
|
|
-
|
|
|
|
24,247
|
|
Gross
profit
|
|
|
35,983
|
|
|
|
43,745
|
|
|
|
20,902
|
|
|
|
12,711
|
|
|
|
(25 |
) |
|
|
113,316
|
|
Gross
profit percent
|
|
|
27.3 |
% |
|
|
25.5 |
% |
|
|
24.8 |
% |
|
|
23.3 |
% |
|
|
-
|
|
|
|
25.6 |
% |
Segment
profit
|
|
$ |
23,171
|
|
|
$ |
22,705
|
|
|
$ |
11,225
|
|
|
$ |
3,292
|
|
|
$ |
(26,740 |
) |
|
$ |
33,653
|
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
|
|
|
|
June
30, 2006
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Net
sales from external customers
|
|
$ |
48,218
|
|
|
$ |
77,598
|
|
|
$ |
37,884
|
|
|
$ |
27,562
|
|
|
$ |
-
|
|
|
$ |
191,262
|
|
Intersegment
sales
|
|
|
2,854
|
|
|
|
3,186
|
|
|
|
968
|
|
|
|
650
|
|
|
|
-
|
|
|
|
7,658
|
|
Gross
profit
|
|
|
12,265
|
|
|
|
19,372
|
|
|
|
9,406
|
|
|
|
6,299
|
|
|
|
85
|
|
|
|
47,427
|
|
Gross
profit percent
|
|
|
25.4 |
% |
|
|
25.0 |
% |
|
|
24.8 |
% |
|
|
22.9 |
% |
|
|
-
|
|
|
|
24.8 |
% |
Segment
profit
|
|
$ |
6,491
|
|
|
$ |
9,184
|
|
|
$ |
5,164
|
|
|
$ |
2,137
|
|
|
$ |
(10,734 |
) |
|
$ |
12,242
|
|
|
|
(in
thousands)
|
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Net
sales from external customers
|
|
$ |
103,950
|
|
|
$ |
148,859
|
|
|
$ |
74,237
|
|
|
$ |
49,940
|
|
|
$ |
-
|
|
|
$ |
376,986
|
|
Intersegment
sales
|
|
|
5,367
|
|
|
|
6,245
|
|
|
|
2,085
|
|
|
|
1,828
|
|
|
|
-
|
|
|
|
15,525
|
|
Gross
profit
|
|
|
26,833
|
|
|
|
36,558
|
|
|
|
18,664
|
|
|
|
10,545
|
|
|
|
(21 |
) |
|
|
92,579
|
|
Gross
profit percent
|
|
|
25.8 |
% |
|
|
24.6 |
% |
|
|
25.1 |
% |
|
|
21.1 |
% |
|
|
-
|
|
|
|
24.6 |
% |
Segment
profit
|
|
$ |
14,783
|
|
|
$ |
17,166
|
|
|
$ |
10,096
|
|
|
$ |
2,438
|
|
|
$ |
(21,156 |
) |
|
$ |
23,327
|
|
Reconciliation
of the reportable segment totals for profit or loss to the Company's
consolidated totals is as follows:
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended June30,
|
|
|
Six
Months Ended June30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Total
profit for reportable segments
|
|
$ |
18,445
|
|
|
$ |
12,242
|
|
|
$ |
33,653
|
|
|
$ |
23,327
|
|
Minority
interest in earnings
|
|
|
(49 |
) |
|
|
(42 |
) |
|
|
(83 |
) |
|
|
(45 |
) |
Recapture
(elimination) of intersegment profit
|
|
|
109
|
|
|
|
165
|
|
|
|
269
|
|
|
|
(20 |
) |
Consolidated
net income
|
|
$ |
18,505
|
|
|
$ |
12,365
|
|
|
$ |
33,839
|
|
|
$ |
23,262
|
|
Note
11. Seasonality
Based
upon historical results of the past several years and expected results for
this
year, fifty-three percent (53%) to fifty-six percent (56%) of the Company's
business volume typically occurs during the first six months of the
year. During the usual seasonal trend, the first three quarters of
the year are the Company's stronger quarters for business volume, with the
fourth quarter normally being the weakest quarter.
Note
12. Goodwill
At
June
30, 2007 and December 31, 2006, the Company had unamortized goodwill in the
amount of $20,009,000 and $19,384,000, respectively.
The
changes in the carrying amount of goodwill by operating segment for the periods
ended June 30, 2007 are as follows:
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining
Group
|
|
|
(in
thousands)
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
Total
|
|
Balance
December 31, 2006
|
|
$ |
1,157
|
|
|
$ |
16,581
|
|
|
$ |
1,646
|
|
|
$ |
-
|
|
|
$ |
19,384
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
Balance
March 31, 2007
|
|
$ |
1,157
|
|
|
$ |
16,621
|
|
|
$ |
1,646
|
|
|
$ |
-
|
|
|
$ |
19,424
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
585
|
|
|
|
-
|
|
|
|
-
|
|
|
|
585
|
|
Balance
June 30, 2007
|
|
$ |
1,157
|
|
|
$ |
17,206
|
|
|
$ |
1,646
|
|
|
$ |
-
|
|
|
$ |
20,009
|
|
Note
13. Debt
During
April 2007, Astec Industries, Inc. and certain of its subsidiaries (the Company)
entered into an unsecured credit agreement with Wachovia Bank, National
Association (Wachovia) whereby Wachovia has extended to the Company an unsecured
line of credit loan of up to $100,000,000 including a sub-limit for letters
of
credit of up to $15,000,000. The Wachovia credit agreement replaced
the previously $87,500,000 secured credit facility the Company had in place
with
General Electric Capital Corporation and General Electric
Capital-Canada.
The
Wachovia credit facility is unsecured and has an original term of three years
(which is subject to further extensions as provided therein). The
interest rate for borrowings is a function of the Adjusted LIBOR Rate or
Adjusted LIBOR Market Index Rate, as elected by the Company, plus a margin
based
upon a leverage ratio pricing grid ranging between 0.5% and 1.5%. As
of June 30, 2007, if any loans would have been outstanding, the applicable
margin based upon the leverage ratio pricing grid would equal
0.5%. The Wachovia credit facility requires no principal amortization
and interest only payments are due, in the case of loans bearing interest
at the
Adjusted LIBOR Market Index Rate, monthly in arrears and, in the case of
loans
bearing at the Adjusted LIBOR Rate, at the end of the applicable interest
period
therefore. The Wachovia credit agreement contains certain financial
covenants related to minimum fixed charge coverage ratios, minimum tangible
net
worth and maximum allowed capital expenditures. No amounts were
outstanding under the credit facility at June 30, 2007.
The
Company was in compliance with the financial covenants under its credit facility
as of June 30, 2007.
The
Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $4,839,000 (ZAR
34,088,000) to finance short-term working capital needs, as well as to cover
the
short-term establishment of letter of credit performance guarantees. As of
June
30, 2007, Osborn had no outstanding borrowings under the credit facility,
but
approximately $3,458,000 in performance and retention bonds were guaranteed
under the facility. The facility is secured by Osborn's account
receivables, retention and cash balances and a $2,000,000 letter of credit
issued by the parent Company. The portion of the available facility
not secured by the $2,000,000 letter of credit fluctuates monthly based upon
fifty percent (50%) of Osborn's accounts receivable, retention and cash balances
at the end of the prior month. As of June 30, 2007, Osborn Engineered
Products had available credit under the facility of approximately
$1,381,000.
Note
14. Product Warranty Reserves
Changes
in the Company's product
warranty liability for the three and six month periods ended June 30, 2007
and
2006 are as follows:
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Reserve
balance at the beginning of the period
|
|
$ |
7,912
|
|
|
$ |
6,559
|
|
|
$ |
7,184
|
|
|
$ |
5,666
|
|
Warranty
liabilities accrued during the period
|
|
|
3,090
|
|
|
|
2,968
|
|
|
|
6,369
|
|
|
|
6,562
|
|
Warranty
liabilities settled during the period
|
|
|
(2,865 |
) |
|
|
(2,491 |
) |
|
|
(5,416 |
) |
|
|
(5,192 |
) |
Reserve
balance at the end of the period
|
|
$ |
8,137
|
|
|
$ |
7,036
|
|
|
$ |
8,137
|
|
|
$ |
7,036
|
|
The
Company warrants its products against manufacturing defects and performance
to
specified standards. The warranty period and performance standards vary by
market and uses of its products. The Company estimates the costs that may
be
incurred under its warranties and records a liability at the time product
sales
are recorded. The product warranty liability is primarily based on
historical claim rates, nature of claims and the associated cost.
Note
15. Post Retirement Benefits
The
Company expects to contribute approximately $700,000 to its pension plan
and
$200,000 to its post-retirement benefit plan during
2007. Approximately $302,000 of the contribution was paid to the
pension plan and approximately $122,000 was paid for post-retirement benefits
during the six months ended June 30, 2007.
The
components of net periodic pension cost and post-retirement benefit cost
for the
six months ended June 30, 2007 and 2006 are as follows:
|
|
(in
thousands)
|
|
|
|
Pension
Benefit
|
|
|
Post-Retirement
Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
29
|
|
|
$ |
2
|
|
Interest
cost
|
|
|
280
|
|
|
|
272
|
|
|
|
24
|
|
|
|
8
|
|
Expected
return on assets
|
|
|
(320 |
) |
|
|
(273 |
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
(3 |
) |
Amortization
of net (gain) loss
|
|
|
40
|
|
|
|
68
|
|
|
|
(38 |
) |
|
|
(2 |
) |
Net
periodic benefit cost
|
|
$ |
-
|
|
|
$ |
67
|
|
|
$ |
29
|
|
|
$ |
5
|
|
Note
16. Accrued Loss Reserves
The
Company accrues reserves for losses
related to workers' compensation and general liability claims that have been
incurred but not yet paid or are estimated to have been incurred but not
yet
reported to the Company. The reserves are estimated based on the
Company's evaluation of the type and severity of individual claims and
historical information, primarily its own claims experience, along with
assumptions about future events. Changes in assumptions, as well as
changes in actual experience, could cause these estimates to change in the
future.
Note
17. Other Income, net of expense
For
the three months ended June 30,
2007 and 2006, the Company had other income, net of expenses, totalling $714,000
and $136,000, respectively. For the six months ended June 30, 2007
and 2006, the Company had other income, net of expenses, totalling $1,400,000
and $401,000, respectively. Major items comprising the net totals for
the periods are as follows:
|
|
(in
thousands)
Three
Months Ended
June
30,
|
|
|
(in
thousands)
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Interest
income
|
|
$ |
785
|
|
|
$ |
309
|
|
|
$ |
1,428
|
|
|
$ |
501
|
|
Loss
on foreign currency transactions
|
|
|
(56 |
) |
|
|
(251 |
) |
|
|
(130 |
) |
|
|
(243 |
) |
Other
|
|
|
(15 |
) |
|
|
78
|
|
|
|
102
|
|
|
|
143
|
|
Total
|
|
$ |
714
|
|
|
$ |
136
|
|
|
$ |
1,400
|
|
|
$ |
401
|
|
Note
18. Subsequent Event
On
July
31, 2007 the Company consummated its purchase of all the outstanding capital
stock of Peterson, Inc., an Oregon company (Peterson) with approximately
$21,100,000 being paid to the sellers. Peterson is a leading
manufacturer of whole-tree pulpwood chippers, horizontal grinders and blower
trucks. Founded in 1961 as Wilbur Peterson & Sons, a heavy
construction company, Peterson expanded into manufacturing in 1982 to develop
equipment to suit their land clearing and construction
needs. Peterson will continue to operate from its Eugene, Oregon
headquarters under the name Peterson Pacific Corp. Additional
conditional earn-out payments of up to $3,000,000 may be due to the sellers
based upon actual 2008 and 2009 results of operations. In addition to
the purchase price paid to the sellers, the Company also paid off approximately
$7,000,000 of outstanding Peterson debt coincident with the
purchase. The Company and Peterson’s majority owner and his wife have
also entered into a separate agreement for the Company to purchase the real
estate and improvements used by Peterson for $7,000,000 at a later
date.
As
the
transaction was not complete at June 30, 2007, the related assets, liabilities
and results of operations of Peterson are not included in the June 30, 2007
financial statements.
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,” "believes,"
"anticipates," "intends," and "expects" and similar expressions. Such
forward-looking statements include, without limitation, statements regarding
the
Company's expected sales during 2007, the Company's expected effective tax
rates
for 2007, the Company's expected capital expenditures in 2007, the expected
benefit of financing arrangements, the ability of the Company to meet its
working capital and capital expenditure requirements through June 30, 2008,
the
impact of the enactment of SAFTEA-LU, the need for road improvements, the
impact
of other public sector spending and funding mechanisms, the Company's backlog
levels, changes in the economic environment as it affects the Company, the
timing and impact of changes in the economy, the market confidence of customers
and dealers, the Company's general liability insurance coverage for product
liability and other similar tort claims, the Company being called upon to
fulfill certain contingencies, the expected contributions by the Company
to its
pension plan, its post-retirement plan and other benefits, the expected dates
of
granting of restricted stock units, the rise of interest rates and the impact
of
such rise on the financial results of the Company, changes in the prices
of
steel and oil, the change in the level of the Company's presence in
international markets, the outcome of audits by taxing authorities, the amount
or value of unrecognized tax benefits and the ultimate outcome of the Company's
current claims and legal proceedings.
These
forward-looking statements are based largely on management's expectations
which
are subject to a number of known and unknown risks, uncertainties and other
factors discussed in this Report and in other documents filed by the Company
with the Securities and Exchange Commission, which may cause actual results,
financial or otherwise, to be materially different from those anticipated,
expressed or implied by the forward-looking statements. All forward-looking
statements included in this document are based on information available to
the
Company on the date hereof, and the Company assumes no obligation to update
any
such forward-looking statements to reflect future events or
circumstances.
In
addition to the risks and uncertainties identified elsewhere herein and in
other
documents filed by the Company with the Securities and Exchange Commission,
most
recently in the Company's Annual Report on Form 10-K for the fiscal year
ended
December 31, 2006, the risk factors described in the section under the caption
"Risk Factors" should be carefully considered when evaluating the Company's
business and future prospects.
Overview
The
Company is a leading manufacturer and marketer of construction
equipment. The Company's businesses:
§ design,
engineer, manufacture and market equipment that is used in road building,
from
quarrying and crushing the aggregate, to the road surface;
§ manufacture
certain equipment and components unrelated to road construction, including
trenching, auger boring, directional drilling, industrial heat transfer;
and
§ manufacture
and sell replacement parts for equipment in each of its product
lines.
The
Company has 13 companies that fall within four reportable operating segments,
the Asphalt Group, the Aggregate and Mining Group, the Mobile Asphalt Paving
Group and the Underground Group. The business units in the Asphalt
Group design, manufacture and market a complete line of asphalt plants and
related components, heating and heat transfer processing equipment and storage
tanks for the asphalt paving and other unrelated industries. The
business units in the Aggregate and Mining Group design, manufacture and
market
equipment for the aggregate, metallic mining and recycling
industries. The business units in the Mobile Asphalt Paving Group
design, manufacture and market asphalt pavers, material transfer vehicles,
milling machines and screeds. The business units in the Underground
Group design, manufacture and market a complete line of trenching equipment
and
directional drills and auger boring machines for the underground construction
market. The Company also has one other category that contains the
business units that do not meet the requirements for separate disclosure
as an
operating segment. The business units in the Other category include
Astec Insurance Company and Astec Industries, Inc., the parent
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 (fuel costs 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
authorizes appropriation of $286.5 billion in guaranteed federal funding
for
road, highway and bridge construction, repair and improvement of the federal
highway and transit projects for federal fiscal years October 1, 2004 through
September 30, 2009. The Company believes that the federal highway
funding significantly influences the purchasing decisions of the Company's
customers who are more comfortable making purchasing decisions with the six-year
legislation in place. The Federal funding provides for approximately
25% of highway, street, roadway and parking construction funding in the United
States. President Bush signed into law on February 15, 2007, a
funding bill for the 2007 fiscal year, which among other things includes
record
investment levels for the federal highway programs.
The
public sector spending described above is needed to fund road, bridge and
mass
transit improvements. Unquestionably, the Company believes that
increased funding is needed to restore the nation's highways to a quality
level
required for safety, fuel efficiency and mitigation of congestion. In
the Company's opinion, amounts needed for such improvements are significantly
above amounts proposed, and funding mechanisms such as the federal usage
fee per
gallon of gasoline, which has not been increased in thirteen years, would
need
to be increased along with other measures to generate the funds
needed.
In
addition to public sector funding, the economies in the markets the Company
serves, the price of oil and its impact on customers' purchase decisions
and the
price of steel may each affect the Company's financial
performance. Economic downturns, like the one experienced from 2001
through 2003, generally result in decreased purchasing by the Company's
customers, which, in turn, causes reductions in sales and increased pricing
pressure on the Company's products. Rising interest rates also
typically have the effect of negatively impacting customers' attitudes toward
purchasing equipment. The Company expects only slight changes in
interest rates in 2007 and does not expect such changes to have a material
impact on the financial results of the Company. Significant portions
of the Company's revenues relate to the sale of equipment that produces asphalt
mix. A major component of asphalt is oil. A rise in the
price of oil increases the cost of providing asphalt, which could likely
decrease demand for asphalt, and therefore decrease demand for certain Company
products. Steel is a major component in the Company's
equipment. Steel prices increased dramatically during 2004 and,
although they abated somewhat during 2005 and 2006, they remain at historically
high levels. Although the Company increased prices in response to the
rising cost of steel, purchased parts and component prices, if the Company
is
not able to raise the prices of its products enough to cover the increased
costs
of goods, the Company's financial results will be negatively
affected. If the Company sees increases in upcoming steel prices it
will take advantage of buying opportunities to offset such future pricing
where
possible. Oil price volatility makes it difficult to predict the costs of
oil-based products used in road construction such as liquid asphalt and
gasoline. The Company's customers appear to be adapting their prices
in response to the fluctuating oil prices and the fluctuations do not appear
to
be significantly impairing the equipment purchases by them at this
time. In addition to the factors stated above, many of the Company's
markets are highly competitive, and its products compete worldwide with a
number
of other manufacturers and distributors that produce and sell similar
products. The reduced value of the dollar relative to many foreign
currencies and the current positive economic conditions in certain foreign
economies continue to have a positive impact on international
sales.
Results
of Operations
For
the
three months ended June 30, 2007, net sales increased $35,152,000, or 18.4%,
to
$226,414,000 from $191,262,000 for the three months ended June 30,
2006. Sales are generated primarily from new equipment purchases made
by customers for use in construction for privately funded infrastructure
development and public sector spending on infrastructure
development. The overall growth in sales for three months ended June
30, 2007 compared to the three months ended June 30, 2006 is reflective of
a
strong economy, an overwhelming need for road improvements resulting in state
initiatives to increase funding, market acceptance of new products, improving
market share, increasing sales of recycling equipment and stronger international
sales. For the quarter ended June 30, 2007 compared to the quarter
ended June 30, 2006, (1) net sales for the Asphalt Group increased approximately
$18,420,000 or 38.2%; (2) net sales for the Aggregate and Mining Group increased
approximately $11,395,000 or 14.7%; (3) net sales for the Underground Group
increased approximately $2,831,000 or 10.3%; and (4) net sales for the Mobile
Asphalt Paving Group increased approximately $2,506,000 or
6.6%. Parts sales for the quarter ended June 30, 2007 were
$45,035,000 compared to $42,077,000 for the quarter ended June 30, 2006,
for an
increase of $2,958,000 or 7.0%. For the quarter ended June 30, 2007
compared to the same period of 2006, international sales increased in the
Asphalt, Aggregate and Mining, and Mobile Asphalt Paving segments while
international sales decreased in the Underground segment. Domestic
sales increased in all segments. Domestic sales accounted for 69.2%
and international sales 30.8% of the second quarter revenues of 2007 compared
to
72.0% for domestic sales and 28.0% for international sales for the second
quarter of 2006.
For
the
six months ended June 30, 2007, net sales increased $64,990,000, or 17.2%,
to
$441,976,000 from $376,986,000 for the six months ended June 30,
2006. Sales are generated primarily from new equipment purchases made
by customers for use in construction for privately funded infrastructure
development and public sector spending on infrastructure
development. The overall growth in sales for six months ended June
30, 2007 compared to the six months ended June 30, 2006 is reflective of
a
strong economy, an overwhelming need for road improvements resulting in state
initiatives to increase funding, market acceptance of new products, improving
market share, increasing sales of recycling equipment and stronger international
sales. For the six months ended June 30, 2007 compared to the six
months ended June 30, 2006, (1) net sales for the Asphalt Group increased
approximately $27,697,000 or 26.6%; (2) net sales for the Aggregate and Mining
Group increased approximately $22,478,000 or 15.1%; (3) net sales for the
Underground Group increased approximately $4,713,000 or 9.4%; and (4) net
sales
for the Mobile Asphalt Paving Group increased approximately $10,102,000 or
13.6%. Parts sales for the six months ended June 30, 2007 were
$88,025,000 compared to $86,750,000 for the six months ended June 30, 2006,
for
an increase of $1,275,000 or 1.5%. For the six months ended June 30,
2007 compared to the same period of 2006, the increase in sales for all segments
was due to increases in both international and domestic
sales. Domestic sales accounted for 73.1% and international sales
26.9% of the first six months revenues of 2007 compared to 76.6% for domestic
sales and 23.4% for international sales for the first six months of
2006.
International
sales for the quarter ended June 30, 2007 compared to the same period of
2006
increased $16,322,000, or 30.5%. International sales were $69,847,000
for the quarter ended June 30, 2007 compared to $53,525,000 for the quarter
ended June 30, 2006. For the quarters ended June 30, 2007 and 2006,
international sales accounted for approximately 30.8% and 28.0% of net sales,
respectively. International sales increased for the second quarter of
2007 compared to the same period in 2006, in Australia, West Indies, Europe,
Canada, Central America, China, Japan and Korea while international sales
decreased in South America, Africa and the Middle East for the comparable
periods. There were only nominal changes in all other geographic
markets. The Company believes the overall increased level of
international sales relates to strong economic conditions in certain foreign
markets, continued weakness of the U.S. dollar compared to most foreign
currencies and increased sales efforts by the Company in foreign
markets.
International
sales for the six months ended June 30, 2007 compared to the same period
of 2006
increased $30,763,000, or 34.9%. International sales were
$118,980,000 for the six months ended June 30, 2007 compared to $88,217,000
for
the six months ended June 30, 2006. For the six months ended June 30,
2007 and 2006, international sales accounted for approximately 26.9% and
23.4%
of net sales, respectively. International sales increased for the
first six months of 2007 compared to the same period in 2006, in Canada,
Europe,
Australia, Central America, the Middle East and Africa while international
sales
decreased in South America and the West Indies for the comparable
periods. There were only nominal changes in all other geographic
markets. The Company believes the overall increased level of
international sales relates to strong economic conditions in certain foreign
markets, continued weakness of the U.S. dollar compared to most foreign
currencies and increased sales efforts by the Company in foreign
markets.
Gross
profit for the three months ended June 30, 2007 increased $11,516,000 or
24.3%,
to $58,943,000 from $47,427,000 for the three months ended June 30,
2006. Gross profit as a percentage of sales for the three months
ended June 30, 2007 and 2006 was 26.0% and 24.8%, respectively, or an increase
of 120 basis points. For the quarter ended June 30, 2007 compared to
the same period in 2006, gross profit for the Asphalt Group increased from
approximately $12,265,000 to approximately $18,056,000 or an increase of
approximately $5,791,000 or 47.2%. This resulted in an increase in
gross profit as a percentage of sales from 25.4% to 27.1% or 170 basis points
for the same periods for this group. For the quarter ended June 30,
2007 compared to the same period in 2006, gross profit for the Aggregate
and
Mining Group increased from approximately $19,372,000 to approximately
$22,866,000 or an increase of approximately $3,494,000 or
18.0%. Gross profit as a percentage of sales increased 70 basis
points from 25.0% to 25.7% for the second quarter of 2007 as compared to
the
second quarter of 2006 for the Aggregate and Mining Group. For the
quarter ended June 30, 2007 compared to the same period in 2006, gross profit
for the Mobile Asphalt Paving Group increased from approximately $9,406,000
to
approximately $10,721,000 or an increase of approximately $1,315,000 or
14.0%. Gross profit, as a percentage of sales increased from 24.8% to
26.5%, or 170 basis points. For the quarter ended June 30, 2007
compared to the same period in 2006, gross profit for the Underground Group
increased from approximately $6,299,000 to approximately $7,315,000 or an
increase of approximately $1,016,000 or 16.1%. This resulted in an
increase in gross profit as a percentage of sales from 22.9% to 24.1% or
120
basis points for the same periods for this group. On a consolidated
basis, the gross profit percentage increase for the quarter ended June 30,
2007
compared to the same period of 2006 was primarily due to a favorable mix
of
products, increased international sales, increased factory through-put resulting
in improved utilization of overhead, price increases and the impact of the
Company's cost and design initiative programs.
Gross
profit for the six months ended June 30, 2007 increased $20,737,000 or 22.4%,
to
$113,316,000 from $92,579,000 for the six months ended June 30,
2006. Gross profit as a percentage of sales for the six months ended
June 30, 2007 and 2006 was 25.6% and 24.6%, respectively, or an increase
of 100
basis points. For the six months ended June 30, 2007 compared to the
same period in 2006, gross profit for the Asphalt Group increased from
approximately $26,833,000 to approximately $35,983,000 or an increase of
approximately $9,150,000 or 34.1%. This resulted in an increase in
gross profit as a percentage of sales from 25.8% to 27.3% or 150 basis points
for the same periods for this group. For the six months ended June
30, 2007 compared to the same period in 2006, gross profit for the Aggregate
and
Mining Group increased from approximately $36,558,000 to approximately
$43,745,000 or an increase of approximately $7,187,000 or
19.7%. Gross profit as a percentage of sales increased 90 basis
points from 24.6% to 25.5% for the first six months of 2007 and 2006,
respectively, for the Aggregate and Mining Group. For the six months
ended June 30, 2007 compared to the same period in 2006, gross profit for
the
Mobile Asphalt Paving Group increased from approximately $18,664,000 to
approximately $20,902,000 or an increase of approximately $2,238,000 or
12.0%. Although the gross profit increased for this group in dollar
terms, as a percentage of sales gross profit decreased from 25.1% to 24.8%,
or
30 basis points. The decrease in margins for the Mobile Asphalt Paving Group
was
primarily caused by product mix variations, production inefficiencies
encountered during a plant expansion and related relocation of manufacturing
equipment and pricing pressures from a competitor that was being
sold. For the six months ended June 30, 2007 compared to the same
period in 2006, gross profit for the Underground Group increased from
approximately $10,545,000 to approximately $12,711,000 or an
increase of approximately $2,166,000 or 20.5%.
This resulted in an increase in gross profit as a percentage of sales from
21.1% to 23.3% or 220 basis points for the same
periods for this group. On a consolidated basis, the gross profit
percentage increase for the six months ended June 30, 2007 compared to the
same
period of 2006 was primarily due to a favorable mix of products, increased
international sales, increased factory through-put resulting in improved
utilization of overhead, price increases and the impact of the Company's
cost
and design initiative programs.
Selling,
general, administrative and engineering expenses for the quarter ended June
30,
2007 were $30,318,000, or 13.4% of net sales, compared to $27,227,000, or
14.2%
of net sales for the quarter ended June 30, 2006, an increase of
$3,091,000 or 11.4%. The increase in selling, general, administrative
and engineering expenses for the three months ended June 30, 2007 compared
to
the same period of 2006 related primarily to an increase in personnel and
related expenses of approximately $992,000 due to increased staffing in order
to
support increased sales volume. The profit sharing bonus expense,
which is formula driven, increased approximately $855,000 due to improved
performance by the subsidiaries. Expenses related to the Company’s
stock-based compensation plan increased approximately $329,000 due primarily
to
the timing of the approval of the new restricted stock unit plan discussed
below
(the plan was not approved until the third quarter of 2006 and thus no expense
was recorded in the first two quarters of 2006) and no significant grants
of
stock options under the previous incentive plan had been made since March
2005. Group health insurance expense increased approximately $181,000
due to an increase in the utilization rate as compared to the prior year
and an
increase in staffing. Sales commissions increased approximately
$145,000 due to increased sales volumes while travel expense, including airline
tickets, rental cars, lodging and meals increased approximately $331,000
due to
increased selling efforts by the Company and cost increases by
vendors. Depreciation also increased approximately $207,000 due
primarily to recent capital expenditures.
Selling,
general, administrative and engineering expenses for the six months ended
June
30, 2007 were $60,848,000, or 13.8% of net sales, compared to $54,967,000,
or
14.6% of net sales for the six months ended June 30, 2006, an increase of
$5,881,000 or 10.7%. The increase in selling, general, administrative
and engineering expenses for the six months ended June 30, 2007 compared
to the
same period of 2006 related primarily to an increase in personnel expenses
of
approximately $1,401,000 due to increased staffing in order to support increased
sales volume. Group health insurance expense increased approximately
$742,000 due to an increase in the utilization rate as compared to the prior
year and an increase in staffing. The profit sharing bonus expense,
which is formula driven, increased approximately $1,374,000 due to improved
performance by the subsidiaries. Expenses related to the Company’s
stock-based compensation plan increased approximately $529,000 due primarily
to
the timing of the approval of the new restricted stock unit plan discussed
below
(the plan was not approved until the third quarter of 2006 and thus no expense
was recorded in the first two quarters of 2006) and no significant grants
of
stock options under the previous incentive plan had been made since March
2005. Sales commissions increased approximately $573,000 due to
increased sales volumes while travel expense, including airline tickets,
rental
cars, lodging and meals increased approximately $675,000 due to increased
selling efforts by the Company and cost increases by
vendors. Depreciation also increased approximately $420,000 due
primarily to recent capital expenditures.
On
January 1, 2006, the Company began accounting for share based payments under
the
provisions of Statement of Financial Accounting Standards No. 123R, "Share
Based
Payment" (SFAS 123R). SFAS 123R requires the share based compensation
expense to be recognized over the period during which an employee is required
to
provide service in exchange for the award (the vesting period). All
granted stock options were vested prior to December 31, 2006, therefore no
stock
option expense was recorded in the six months ended June 30, 2007, and there
was
no unrecognized compensation costs related to stock options previously granted
as of that date. The Company recorded stock option expense of $21,000 and
$381,000 in the three and six month periods ended June 30, 2006,
respectively.
In
August
2006, the Compensation Committee of the Board of Directors implemented a
five-year plan to award key members of management restricted stock units
each
year. The details of the plan were formulated under the 2006 Incentive Plan
approved by the Company’s shareholders in their annual meeting held in April,
2006. The plan allows up to 700,000 shares to be granted to
employees. Units granted each year will be determined based upon
individual subsidiaries and consolidated annual financial performance. Each
award will vest at the end of five years from the date of grant, or at the
time
a recipient reaches age 65, if earlier. Based upon performance for 2006,
management was granted 71,100 restricted stock units on March 8, 2007 and
it is
anticipated that an additional 73,100 units will be granted in March 2008
for
performance in 2007. Compensation expense of $350,000 and $910,000 has been
recorded in the three and six month periods ended June 30, 2007, respectively,
to reflect the fair value of the 144,200 shares amortized over the portion
of
the vesting period occurring during the periods. Based upon the March
8, 2007 fair value of $38.76 for the 71,100 units and the June 29, 2007 fair
value of $42.22 for the 73,100
units, $4,221,000 of compensation costs will be recognized in future periods
through 2013. The fair value of the 73,100 restricted stock units will be
adjusted quarterly to the period-end market value of the Company’s stock until
the units are actually granted, which is expected to be in March,
2008.
For
the
quarter ended June 30, 2007 compared to the quarter ended June 30, 2006,
interest expense decreased $216,000, or 51.8%, to $201,000 from
$417,000. Interest expense as a percentage of net sales was 0.09% and
0.22% for the quarters ended June 30, 2007 and 2006,
respectively. Interest expense for the three months ended June 30,
2007 related primarily to the amortization of prepaid loan fees ending in
April
2007 and the payment of interest on letters of credit issued by the
Company.
For
the
six months ended June 30, 2007 compared to the six months ended June 30,
2006,
interest expense decreased $231,000, or 27.3%, to $616,000 from
$847,000. Interest expense as a percentage of net sales was 0.14% and
0.22% for the six months ended June 30, 2007 and 2006,
respectively. Interest expense for the six months ended June 30, 2007
related primarily to the amortization of prepaid loan fees ending in April
2007
and the payment of interest on letters of credit issued by the
Company.
Other
income, net was $714,000 for the quarter ended June 30, 2007 compared to
other
income, net of $136,000 for the quarter ended June 30, 2006, for an increase
of
$578,000. Other income, net for the quarters ended June 30, 2007 and
2006 consisted primarily of interest income earned on the Company's cash
balances.
Other
income, net was $1,400,000 for the six months ended June 30, 2007 compared
to
other income, net of $401,000 for the six months ended June 30, 2006, for
an
increase of $999,000. Other income, net for the six months ended June
30, 2007 and 2006 consisted primarily of interest income earned on the Company's
cash balances.
For
the
three months ended June 30, 2007, the Company recorded income tax expense
of
$10,584,000, compared to income tax expense of $7,512,000 for the three months
ended June 30, 2006. This resulted in effective tax rates for the
quarters ended June 30, 2007 and 2006 of 36.3% and 37.7%,
respectively.
For
the
six months ended June 30, 2007, the Company recorded income tax expense of
$19,330,000, compared to income tax expense of $13,859,000 for the six months
ended June 30, 2006. This resulted in effective tax rates for the six
months ended June 30, 2007 and 2006 of 36.3% and 37.3%,
respectively.
The
Company adopted provisions of FASB Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes, on January 1, 2007. As a result of
the implementation of FIN 48, the Company recognized an approximately $65,000
increase in the liability for unrecognized tax benefits, which was accounted
for
as a reduction to the January 1 balance of retained earnings. The
Company had a liability of approximately $1,191,000 recorded for unrecognized
tax benefits as of January 1, 2007 which includes interest and penalties
of
approximately $94,000. The Company recognizes interest and penalties
accrued related to unrecognized tax benefits in tax expense. The
total amount of unrecognized tax benefits that, if recognized, would affect
the
effective tax rate is approximately $818,000, which includes interest and
penalties of approximately $94,000. Management does not currently
anticipate that the total amount of unrecognized tax benefits will significantly
increase or decrease by the end of 2007. There were no material
changes to the liability for unrecognized tax benefits for the quarter end
June
30, 2007.
For
the
three months ended June 30, 2007, the Company had net income of $18,505,000
compared to net income of $12,365,000 for the three months ended June 30,
2006
for an increase of $6,140,000 or 49.7%. Earnings per diluted share
for the three months ended June 30, 2007 were $0.83 compared to earnings
per
diluted share for the quarter ended June 30, 2006 of $0.56 for an increase
of
$0.27 or 48.2%. Diluted shares outstanding for the three months ended
June 30, 2007 and 2006 were 22,400,284 and 22,044,210,
respectively. The increase in shares outstanding is primarily due to
the exercise of stock options by employees of the Company.
For
the
six months ended June 30, 2007, the Company had net income of $33,839,000
compared to net income of $23,262,000 for the six months ended June 30, 2006
for
an increase of $10,577,000 or 45.5%. Earnings per diluted share for
the six months ended June 30, 2007 were $1.52 compared to earnings per diluted
share for the six months ended June 30, 2006 of $1.06 for an increase of
$0.46
or 43.4%. Diluted shares outstanding for the six months ended June
30, 2007 and 2006 were 22,298,140 and 21,975,519, respectively. The
increase in shares outstanding is primarily due to the exercise of stock
options
by employees of the Company.
The
backlog of orders at June 30, 2007 was $228,851,000 compared to $121,650,000
at
June 30, 2006, for an increase of $107,201,000 or 88.1%. The increase
in the backlog of orders at June 30, 2007 compared to June 30, 2006 related
to
an increase in domestic backlog totalling approximately $48,690,000 and an
increase in international backlog
of orders of approximately $58,511,000. The increase in domestic
backlog at June 30, 2007 was due primarily to a $44,340,000 increase in the
Asphalt Group's domestic backlog. The increase in international
backlog at June 30, 2007 related primarily to
a
$42,410,000 increase in the Aggregate and Mining Group’s international backlog
accompanied by an increase of $16,261,000 in the Asphalt Group’s international
backlog. The primary reason for the increase in the backlog as a
whole is the strength of economic conditions in certain foreign markets,
continued weakness of the U.S. dollar compared to certain foreign currencies,
a
strong domestic economy, increased state funding of road projects, market
acceptance of new products, improving market share and increasing sales of
recycling equipment. The Company is unable to determine whether the
increase in backlog was experienced by the industry as a
whole.
Liquidity
and Capital Resources
During
April 2007, Astec Industries, Inc. and certain of its subsidiaries (the Company)
entered into an unsecured credit agreement with Wachovia Bank, National
Association (Wachovia) whereby Wachovia has extended to the Company an unsecured
line of credit loan of up to $100,000,000 including a sub-limit for letters
of
credit of up to $15,000,000. The Wachovia credit agreement replaced
the previously $87,500,000 secured credit facility the Company had in place
with
General Electric Capital Corporation and General Electric
Capital-Canada.
The
Wachovia credit facility is unsecured and has an original term of three years
(which is subject to further extensions as provided therein). The
interest rate for borrowings is a function of the Adjusted LIBOR Rate or
Adjusted LIBOR Market Index Rate, as elected by Astec, plus a margin based
upon
a leverage ratio pricing grid ranging between 0.5% and 1.5%. As of
June 30, 2007, if any loans would have been outstanding, the applicable margin
based upon the leverage ratio pricing grid would equal 0.5%. The
Wachovia credit facility requires no principal amortization and interest
only
payments are due, in the case of loans bearing interest at the Adjusted LIBOR
Market Index Rate, monthly in arrears and, in the case of loans bearing at
the
Adjusted LIBOR Rate, at the end of the applicable interest period
therefore. The Wachovia credit agreement contains certain financial
covenants related to minimum fixed charge coverage ratios, minimum tangible
net
worth and maximum allowed capital expenditures. No amounts were
outstanding under the credit facility at June 30, 2007.
The
Company was in compliance with the financial covenants under its credit facility
as of June 30, 2007.
The
Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $4,839,000 (ZAR
34,088,000) to finance short-term working capital needs, as well as to cover
the
short-term establishment of letter of credit performance guarantees. As of
June
30, 2007, Osborn had no outstanding borrowings under the credit facility,
but
approximately $3,458,000 in performance and retention bonds were guaranteed
under the facility. The facility is secured by Osborn's account
receivables, retention and cash balances and a $2,000,000 letter of credit
issued by the parent Company. The portion of the available facility
not secured by the $2,000,000 letter of credit fluctuates monthly based upon
fifty percent (50%) of Osborn's accounts receivable, retention and cash balances
at the end of the prior month. As of June 30, 2007, Osborn Engineered
Products had available credit under the facility of approximately
$1,381,000.
Net
cash
provided by operating activities for the six months ended June 30, 2007 was
$34,281,000 compared to net cash provided by operating activities of $3,338,000
for the six months ended June 30, 2006. The increase in net cash
provided by operating activities for the six months ended June 30, 2007 compared
to the same period of 2006 relates primarily to an increase in net income,
accounts payable and income taxes payable accompanied by reduced rates of
growth
in inventory and receivables compared to the prior period. These
increases were offset by an increase in net deferred tax benefits in the
first
six months of 2007 compared to a decrease in net deferred tax benefits in
the
first six months of 2006.
Net
cash
used by investing activities for the six months ended June 30, 2007 was
$20,859,000 compared to net cash used by investing activities of $15,080,000,
for the six months ended June 30, 2006. The increase in net cash used
by investing activities for the six months ended June 30, 2007 compared to
the
same period of 2006 relates primarily to the purchase of investment securities
of $6,491,000 by Astec Insurance Company during the current period.
Net
cash
provided by financing activities for the six months ended June 30, 2007 was
$13,212,000 compared to net cash provided by financing activities of $11,450,000
for the six months ended June 30, 2006. The increase in net cash
provided by financing activities for the six months ended June 30, 2007 compared
to the same period of 2006 relates primarily to increased proceeds from the
exercise of stock options by Company employees in 2007 in comparison with
2006
combined with the tax benefit of those option exercises and the net proceeds
from the sale of shares of the Company’s stock by the Supplemental Executive
Retirement Plan.
The
Company believes that its current working capital, cash flows generated from
future operations and available capacity remaining under its credit facility
will be sufficient to meet the Company's working capital and capital expenditure
requirements through June 30, 2008.
Capital
expenditures for 2007 are forecasted to total approximately
$27,600,000. The Company expects to finance these expenditures using
currently available cash balances and internally generated funds.
Off-balance
Sheet Arrangements
As
of June 30, 2007, the Company does
not have any off-balance sheet arrangements as defined by Item 303(a)(4)
of
Regulation S-K.
Contingencies
During
the six months ended June 30, 2007, there were no substantial changes in
our
commitments or contractual liabilities including the effects of the adoption
of
FIN 48. We are unable to make reasonably reliable estimates of the
period of potential cash settlements, if any, with taxing
authorities.
The
Company is engaged in certain pending litigation involving claims or other
matters arising in the ordinary course of business. Most of these
claims involve product liability or other tort claims for property damage
or
personal injury against which the Company is insured. As a part of
its litigation management program, the Company maintains general liability
insurance coverage for product liability and other similar tort claims in
amounts the Company believes are adequate. The coverage is subject to
a substantial self-insured retention under the terms of which the Company
has
the right to coordinate and control the management of its claims and the
defense
of these actions.
As
mentioned above, the Company is currently a party to various claims and legal
proceedings that have arisen in the ordinary course of business. If
management believes that a loss arising from such claims and legal proceedings
is probable and can reasonably be estimated, the Company records the amount
of
the loss (including estimated legal costs), 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.
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, 2006.
Disclosure
Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's "disclosure controls
and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange
Act
of 1934, as amended (the Exchange Act)) as of the end of the period covered
by
this report. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that, as of the end of the period
covered by this report, the Company's disclosure controls and procedures
are
effective in timely making known to them material information relating to
the
Company and the Company's subsidiaries required to be disclosed in the Company's
reports filed or submitted under the Exchange Act.
Internal
Control Over Financial Reporting
There
have been no changes in the
Company’s internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities exchange Act of 1934, as amended)
that occurred during the quarter ended June 30, 2007 that have materially
affected or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II - OTHER INFORMATION
There
have been no material developments in the legal proceedings previously reported
by the registrant since the filing of its Annual Report on Form 10-K for
the
year ended December 31, 2006. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Contingencies"
in
Part I - Item 2 of this Report.
In
addition to the other information set forth in this Report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2006, 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,
2006. The risks described in our Annual Report on Form 10-K for the
year ended December 31, 2006 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.
Our
annual meeting of stockholders was held on May 1, 2007. At the annual
meeting, the following matters were voted on with the following
results:
Election
of Directors
At
the
annual meeting, J. Don Brock, W. Norman Smith, William B. Sansom and J. Neal
Ferry were elected to serve as Class III directors for three-year terms expiring
at the 2010 annual meeting of stockholders. Voting results were as
follows:
Name
of Director
|
|
Votes
For
|
|
|
Votes
Withheld
|
|
|
Abstentions
|
|
J.
Don Brock
|
|
|
19,603,742
|
|
|
|
786,675
|
|
|
|
-
|
|
W.
Norman Smith
|
|
|
19,086,315
|
|
|
|
1,304,102
|
|
|
|
-
|
|
William
B. Sansom
|
|
|
19,134,326
|
|
|
|
1,256,091
|
|
|
|
-
|
|
J.
Neal Ferry
|
|
|
19,086,415
|
|
|
|
1,304,002
|
|
|
|
-
|
|
On
July 18,
2007, J. Neal Ferry, Chief Operating Officer, Group Vice President Aggregate
and
Mining and a member of the Company’s Board of Directors notified the Company
that he was resigning his employment with the Company and from the Company’s
Board of Directors for personal reasons. The vacancy created by this
resignation on the Board of Directors remains unfilled. The
following persons continued as directors following the annual meeting:
Daniel K.
Frierson, Robert G. Stafford, Glen E. Tellock, William D. Gehl, Ronald
F. Green
and Philip E. Casey.
Exhibit
No.
|
Description
|
3.5
|
Amended
and Restated Bylaws of the Company, adopted March 14, 1990 and
amended on
July 29, 1993 and July 27, 2007.
|
10.1
|
Stock
Purchase Agreement by and among Astec Industries, Inc., Peterson,
Inc., A.
Neil Peterson and the Other Shareholders of Peterson, Inc.
dated May 31, 2007.
|
10.2
|
Credit
Agreement dated as of April 13, 2007 between Astec Industries,
Inc. and
Certain of Its Subsidiaries and Wachovia Bank,
National
Association (previously filed as an exhibit to the Form 10-Q
(File No. 001−11595) on May 8, 2007).
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
32*
|
Certification
of Chief Executive Officer and Chief Financial Officer of Astec
Industries, Inc. pursuant to 18 U.S.C.
Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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 and 5 are not applicable and have been omitted.
SIGNATURES
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
ASTEC
INDUSTRIES, INC.
(Registrant)
|
|
|
|
|
|
|
|
Date
August 8, 2007
|
/s/
J. Don
Brock
|
|
|
J.
Don Brock
Chairman
of the Board and President
|
|
|
|
|
|
|
|
Date
August 8, 2007
|
/s/
F. McKamy
Hall
|
|
|
F.
McKamy Hall
Chief
Financial Officer, Vice President, and Treasurer
|
|
|
EXHIBIT
INDEX
|
|
|
3.5
|
Amended
and Restated Bylaws of the Company, adopted March 14, 1990 and
amended on
July 29, 1993 and July 27, 2007.
|
10.1
|
Stock
Purchase Agreement by and among Astec Industries, Inc., Peterson,
Inc., A.
Neil Peterson and the Other Shareholders
of
Peterson, Inc. dated May 31, 2007.
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer of Astec
Industries, Inc. pursuant to 18 U.S.C.
Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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