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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
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
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62-0873631
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1725
Shepherd Road, Chattanooga, Tennessee
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37421
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code:
(423) 899-5898
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.20 par value
Securities
registered pursuant to Section 12(g) of the Act:
None
(Title
of class)
I
ndicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
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.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to be best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
ý
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.
Large accelerated filer
ý
Accelerated filer
o
Non-accelerated filer
o
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
|
Yes
o
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No
ý
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(Form
10-K Cover Page - Continued)
As of
June 30, 2008, the aggregate market value of the registrant's voting stock held
by non-affiliates of the registrant was approximately $628,645,000 based upon
the closing sales price as reported on the
National
Association of Securities Dealers Automated Quotation System National Market
System.
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
As of
February 20, 2009, Common Stock, par value $0.20 - 22,509,252
shares
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the following documents
have been incorporated by reference into the Parts of this Annual Report on Form
10-K indicated:
Document
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Form 10-K
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Proxy
Statement relating to Annual Meeting of Shareholders to be held on April
23, 2009
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Part
III
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ASTEC INDUSTRIES, INC.
2008 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1.
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2
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Item
1A.
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16
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Item
1B.
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21
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Item 2.
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21
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Item 3.
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24
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Item 4.
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24
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24
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PART II
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Item 5.
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27
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Item 6.
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Item 7.
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Item
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Item 8.
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Item 9
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Item 9A.
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Item 9B.
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PART III
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Item
10.
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29
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Item
11.
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29
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Item
12.
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29
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Item
13.
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30
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Item
14.
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31
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PART IV
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Item
15.
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31
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Appendix
A
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A-1
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Signatures
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FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K 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 Annual Report on Form
10-K 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, including,
without limitation, statements regarding:
·
execution
of the Company’s growth and operation strategy;
·
plans for
technological innovation;
·
compliance
with covenants in our credit facility;
·
ability
to secure adequate or timely replacement of financing to repay our
lenders;
·
liquidity
and capital expenditures;
·
compliance
with government regulations;
·
compliance
with manufacturing and delivery timetables;
·
forecasting
of results;
·
general
economic trends and political uncertainty;
·
government
funding and growth of highway construction;
·
integration
of acquisitions;
·
financing
plans;
·
industry
trends;
·
pricing
and availability of oil;
·
pricing
and availability of steel;
·
pricing
of scrap metal;
·
presence
in the international marketplace;
·
suitability
of our current facilities;
·
future
payment of dividends;
·
competition
in our business segments;
·
product
liability and other claims;
·
protection
of proprietary technology;
·
future
filling of backlogs;
·
employees;
·
tax
assets;
·
the
impact of account changes;
·
the
effect of increased international sales on our backlog;
·
critical
account policies;
·
ability
to satisfy contingencies;
·
contributions
to retirement plans;
·
supply of
raw materials; and
·
inventory.
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 us 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 us on
the date hereof, and we assume no obligation to update any such forward-looking
statements to reflect future events or circumstances. You can
identify these statements by forward-looking words such as "expect," "believe,"
"goal," "plan," "intend," "estimate," "may," "will" and similar
expressions.
In
addition to the risks and uncertainties identified elsewhere herein and in other
documents filed by us with the Securities and Exchange Commission, the risk
factors described in this document under the caption "Risk Factors" should be
carefully considered when evaluating our business and future
prospects.
PART I
General
Astec
Industries, Inc. (the "Company") is a Tennessee corporation which was
incorporated in 1972. The Company designs, engineers, manufactures
and markets equipment and components used primarily in road building, utility
and related construction activities. The Company's products are used
in each phase of road building, from quarrying and crushing the aggregate to
application of the road surface. The Company also manufactures certain equipment
and components unrelated to road construction, including trenching, auger
boring, directional drilling, gas and oil drilling rigs, industrial heat
transfer equipment, whole-tree pulpwood chippers, horizontal grinders and blower
trucks. The Company has also designed and introduced a line of
multiple use plants for cement treated base, roller compacted concrete and
ready-mix concrete. The Company's subsidiaries hold 94 United States
patents and 39 foreign patents, have 50 patent applications pending, and have
been responsible for many technological and engineering innovations in the
industry. The Company's products are marketed both domestically and
internationally. In addition to equipment sales, the Company
manufactures and sells replacement parts for equipment in each of its product
lines and replacement parts for some competitors' equipment. The
distribution and sale of replacement parts is an integral part of the Company's
business.
The
Company's fourteen manufacturing subsidiaries are: (i) Breaker Technology
Ltd/Inc., which designs, manufactures and markets rock breaking and processing
equipment and utility vehicles for mining; (ii) Johnson Crushers International,
Inc., which designs, manufactures and markets portable and stationary aggregate
and ore processing equipment; (iii) Kolberg-Pioneer, Inc., which designs,
manufactures and markets aggregate processing equipment for the crushed stone,
manufactured sand, recycle, top soil and remediation markets; (iv) Osborn
Engineered Products SA (Pty) Ltd, which designs, manufactures and markets a
complete line of bulk material handling and minerals processing plant and
equipment used in the aggregate, mineral mining, metallic mining and recycling
industries; (v) Astec Mobile Screens, Inc. which designs, manufactures and
markets mobile screening plants, portable and stationary structures and
vibrating screens for the material processing industries; (vi) Telsmith, Inc.,
which designs, manufactures and markets aggregate processing and mining
equipment for the production and classification of sand, gravel, crushed stone
and minerals used in road construction and other applications; (vii) Astec,
Inc., which designs, manufactures and markets hot-mix asphalt plants, concrete
mixing plants and related components of each; (viii) CEI Enterprises, Inc.,
which designs, manufactures and markets thermal fluid heaters, storage tanks,
hot-mix asphalt plants, rubberized asphalt and polymer blending systems; (ix)
Heatec, Inc., which designs, manufactures and markets thermal fluid heaters,
process heaters, waste heat recovery equipment, liquid storage systems and
polymer and rubber blending systems; (x) American Augers, Inc., which designs,
manufactures and markets large horizontal, directional drills, oil and gas
drilling rigs, auger boring machines and the down-hole tooling to support these
units; (xi) Astec Underground, Inc., formerly Trencor, Inc., which designs,
manufactures, and markets heavy-duty Trencor trenchers, and a comprehensive line
of Astec utility trenchers, vibratory plows, and compact horizontal directional
drills; (xii) Carlson Paving Products, Inc., which designs, manufactures and
markets asphalt paver screeds, a commercial paver and a windrow
pickup machine; (xiii)
Roadtec, Inc., which designs, manufactures and markets asphalt pavers, material
transfer vehicles, milling machines and a line of asphalt reclaiming and soil
stabilizing machinery; and (xiv) Peterson Pacific Corp., which designs,
manufactures and markets whole-tree pulpwood chippers, horizontal grinders and
blower trucks. The Company also has a subsidiary in Australia, Astec
Australia Pty Ltd that distributes certain of the Company’s products in the
region.
The
Company's strategy is to be the industry's most cost-efficient producer in each
of its product lines, while continuing to develop innovative new products and
provide first class service for its customers. Management believes
that the Company is the technological innovator in the markets in which it
operates and is well positioned to capitalize on the need to rebuild and enhance
roadway and utility infrastructure, and other areas in which it offers products
and services, both in the United States and abroad.
Segment
Reporting
The
Company's business units have their own decentralized management teams and offer
different products and services. The business units have been
aggregated into four reportable business segments based upon the nature of the
product or services produced, the type of customer for the products, the
similarity of economic characteristics, the manner in which management reviews
results and the nature of the production process among other
considerations. The reportable business segments are (i) Asphalt
Group, (ii) Aggregate and Mining Group, (iii) Mobile Asphalt Paving Group and
(iv) Underground Group. All remaining companies, including the
Company, Astec Insurance Company, Peterson Pacific Corp. and Astec Australia Pty
Ltd, as well as federal income tax expenses for all business segments are
included in the "Other Business Units" category for reporting.
Financial
information in connection with the Company's financial reporting for segments of
a business and for geographic areas under Statement of Financial Accounting
Standards (SFAS) No. 131 is included in Note 15 to "Notes to Consolidated
Financial Statements - Operations by Industry Segment and Geographic Area,"
presented in Appendix A of this report.
Asphalt
Group
The
Asphalt Group segment is made up of three business units: Astec, Inc. ("Astec"),
Heatec, Inc. ("Heatec") and CEI Enterprises, Inc. ("CEI"). These
business units design, manufacture and market a complete line of asphalt plants
and related components, heating and heat transfer processing equipment and
storage tanks for the asphalt paving and other non-related
industries.
Products
Astec
designs, engineers, manufactures and markets a complete line of portable,
stationary and relocatable hot-mix asphalt plants and related components under
the ASTEC
®
trademark. In
January 2009, Astec, Inc. introduced a new line of concrete mixing
plants. An asphalt mixing plant typically consists of heating and
storage equipment for liquid asphalt (manufactured by CEI or Heatec); cold feed
bins for blending aggregates; a counter-flow continuous type unit (Astec Double
Barrel) for drying, heating and mixing; a baghouse composed of air filters and
other pollution control devices; hot storage bins or silos for temporary storage
of hot-mix asphalt; and a control house. Astec introduced the concept
of high plant portability in 1979. Its current generation of portable
asphalt plants is marketed as the Six Pack
TM
and
consists of six or more portable components, which can be disassembled, moved to
the construction site and reassembled, thereby reducing relocation
expenses. High plant portability represents an industry innovation
developed and successfully marketed by Astec. Astec's enhanced
version of the Six Pack
TM
,
known as the Turbo Six
Pack
TM
, is a
highly portable plant which is especially useful in less populated areas where
plants must be moved from job-to-job and can be disassembled and erected without
the use of cranes.
Astec
recently developed a Double Barrel Green System (patent pending), which allows
the asphalt mix to be prepared and placed at lower temperatures than
conventional systems and operates with a substantial reduction in smoke
emissions during paving and load-out. Previous technologies for warm
mix production rely on expensive additives, procedures and/or special asphalt
cement delivery systems that add significant costs to the cost per ton of
mix. The Company’s new Astec Multi-nozzle Device eliminates the need
for the expensive additives by mixing a small amount of water and asphalt cement
together to create microscopic bubbles that reduces the viscosity of the asphalt
mix coating on the rock thereby allowing the mix to be handled and worked at
lower temperatures.
The
components in Astec's asphalt mixing plants are fully automated and use both
microprocessor-based and programmable logic control systems for efficient
operation. The plants are manufactured to meet or exceed federal and
state clean air standards. Astec also builds batch type asphalt
plants and has developed specialized asphalt recycling equipment for use with
its hot-mix asphalt plants.
Heatec
designs, engineers, manufactures and markets a variety of thermal fluid heaters,
process heaters, waste heat recovery equipment, liquid storage systems and
polymer and rubber blending systems under the HEATEC
®
trademark. For the construction industry, Heatec manufactures a
complete line of asphalt heating and storage equipment to serve the hot-mix
asphalt industry and water heaters for concrete plants. In addition,
Heatec builds a wide variety of industrial heaters to fit a broad range of
applications, including heating equipment for marine vessels, roofing material
plants, refineries, chemical processing, rubber plants and the
agribusiness. Heatec has the technical staff to custom design heating
systems and has systems operating as large as 50,000,000 BTU's per
hour.
CEI
designs, engineers, manufactures and markets thermal fluid heaters, storage
tanks, hot-mix asphalt plants, rubberized asphalt and polymer blending systems
under the CEI
®
trademark. CEI
designs and builds heaters with outputs up to 6,300,000 BTU’s per hour and
portable, vertical, and stationary storage tanks up to 40,000 gallons in
capacity. CEI’s hot-mix plants are built for domestic and
international use and employ parallel and counter flow designs with capacities
up to 180 tons per hours. CEI is a leading supplier of crumb rubber
blending plants in the U.S.
Marketing
Astec
markets its hot-mix asphalt products both domestically and
internationally. Dillman Equipment, Inc., a manufacturer of asphalt
production equipment in Praire du Chien, WI was acquired by Astec, Inc. in
October 2008 and now operates as a division of Astec, Inc. The
Dillman line of equipment is offered to the market as an addition to the Astec
product line. The principal purchasers of asphalt and related
equipment are highway contractors. Asphalt equipment, including
Dillman products, are sold directly to the customers through Astec's domestic
and international sales departments, although independent agents are also used
to market asphalt plants and their components in international
markets.
Heatec
equipment is marketed through both direct sales and dealer
sales. Manufacturers' representatives sell heating products for
applications in industries other than the asphalt industry. CEI
equipment is marketed through both direct and dealer sales.
In total,
the products of the Asphalt Group segment are marketed by approximately 48
direct sales employees, 19 domestic independent distributors and 32
international independent distributors.
Raw
Materials
Raw
materials used in the manufacture of products include carbon steel and various
types of alloy steel, which are normally purchased from
distributors. Raw materials for manufacturing are normally readily
available. Most steel is delivered on a "just-in-time" arrangement from the
supplier to reduce inventory requirements at the manufacturing facilities, but
some steel is bought and occasionally inventoried.
Competition
This
industry segment faces strong competition in price, service and product
performance and competes with both large publicly-held companies with resources
significantly greater than those of the Company and with various smaller
manufacturers. Domestic hot-mix asphalt plant competitors include Terex
Corporation, Gencor Industries, Inc., ADM and Almix. In the
international market the hot-mix asphalt plant competitors include Ammann,
Parker Citfali and SpecoIndicate. The market for the Company's heat transfer
equipment is diverse because of the multiple applications for such
equipment. Competitors for the construction product line of heating
equipment include, among others, Gencor Industries, Inc., American Heating,
Pearson Heating Systems, F&C and Meeker. Competitors for the industrial
product line of heating equipment include New Point Thermal, Fulton Thermal
Corporation, Vapor Power International, NATCO, Broach and TFS, among
others.
Employees
At
December 31, 2008, the Asphalt Group segment employed 1,135 individuals, of
which 855 were engaged in manufacturing, 125 in engineering and 155 in selling,
general and administrative functions.
Backlog
The
backlog for the hot-mix asphalt and heat transfer equipment at December 31, 2008
and 2007 was approximately $106,223,000 and $133,358,000, respectively.
Management expects all current backlogs to be filled in 2009.
Aggregate and Mining
Group
The
Company's Aggregate and Mining Group is comprised of six business units focused
on the aggregate, metallic mining and recycling markets. These
business units achieve their strength by distributing products into niche
markets and drawing on the advantages of brand recognition in the global
market. These business units are Telsmith, Inc. ("Telsmith"),
Kolberg-Pioneer, Inc. ("KPI"), Astec Mobile Screens, Inc. ("AMS"), Johnson
Crushers International, Inc. ("JCI"), Breaker Technology Ltd/Breaker Technology
Inc. ("BTI") and Osborn Engineered Products, SA (Pty) Ltd
("Osborn").
Products
Founded
in 1906, Telsmith is the oldest subsidiary of the group. The primary
markets served under the TELSMITH
®
trade
name are the aggregate and metallic mining industries.
Telsmith’s
core products are jaw, cone and impact crushers as well as vibrating feeders,
inclined and horizontal screens. Telsmith also provides consulting and
engineering services to provide complete “turnkey” processing systems. Both
portable and modular plant systems are available in production ranges from 300
tph up to 1500 tph.
Recent
additions to the Telsmith product lines are the Quarry-Trax
®
track
mobile primary crushing plants and several hydraulically controlled jaw
crushers. These products incorporate features that enhance the
operator’s ability to safely maintain the equipment and optimize
productivity.
Telsmith
maintains an ISO 9001:2000 certification, an internationally recognized standard
of quality assurance. In addition, Telsmith has achieved CE designation (a
standard for quality assurance and safety) on its jaw crusher, cone crusher and
vibrating screen products marketed into European Union
countries.
KPI
designs, manufactures and supports a complete line of aggregate processing
equipment for the sand and gravel, mining, quarrying, concrete and asphalt
recycling markets under the Pioneer
®
and
Kolberg
®
product
brand names. This equipment, along with the full line of portable and stationary
aggregate and ore processing products from JCI and the related screen products
from AMS, are all jointly marketed through an extensive network of KPI-JCI
dealers.
Pioneer
®
products include a
complete line of primary, secondary, tertiary and quaternary crushers, including
jaws, horizontal shaft impact, vertical shaft impact and roll crushers. KPI rock
crushers are used by mining, quarrying and sand and gravel producers to crush
oversized aggregate to salable size, in addition to their use for recycled
concrete and asphalt. Equipment furnished by Pioneer can be purchased as
individual components, as portable plants for flexibility or as completely
engineered systems for both portable and stationary applications. Included in
the portable area is a highly-portable Fast Pack
®
System,
featuring quick setup and teardown, thereby maximizing production time and
minimizing downtime. Also included in the portable Pioneer
®
line are the fully self-contained and self-propelled Fast Trax
®
Track-Mounted-Jaw and HSI Crushers in five different models, which are ideal for
either recycle or hard rock applications, allowing the producer to move the
equipment to the material.
Kolberg
®
sand classifying and
washing equipment is relied upon to clean, separate and re-blend deposits to
meet the size specifications for critical applications. The Kolberg
®
product
line includes fine and coarse material washers, log washers, blade mills and
sand classifying tanks. Screening plants are available in both stationary and
highly portable models, and are complemented by a full line of radial stacking
and overland belt conveyors.
Kolberg
®
conveying equipment, including telescopic conveyers, is designed to move or
store aggregate and other bulk materials in radial cone-shaped or windrow
stockpiles. The Wizard Touch
™
automated controls are designed to add efficiency and accuracy to whatever the
stockpile specifications require.
Founded
in 1995, JCI is one of the youngest subsidiaries in the group. JCI
designs, manufactures and distributes portable and stationary aggregate and ore
processing equipment. This equipment is used in the aggregate, mining and
recycle industries. JCI's principal products are cone crushers, three-shaft
horizontal screens, portable plants, track-mounted plants and replacement parts
for competitive equipment. JCI offers completely re-manufactured cone crushers
and screens from its service repair facility.
JCI
®
cone
crushers are used primarily in secondary and tertiary crushing applications, and
come in both remotely adjusted and manual models. Horizontal screens are
low-profile machines for use primarily in portable applications. They are used
to separate aggregate materials by sizes. The Combo
®
screen
features an inclined feed section with flat discharge section and utilizes the
oval stroke impulse mechanism, and offers increased capacity particularly in
scalping application where removal of fines is desired.
Portable
plants combine various configurations of cone crushers, horizontal screens,
Combo
®
screens, and conveyors mounted on tow-away chassis. Because
transportation costs are high, producers use portable equipment to operate
nearer to their job sites. Portable plants allow the aggregate producers to
quickly and efficiently move their equipment from one location to another. JCI
and KPI market a portable rock crushing plant appropriately named the Fast
Pack
®
. This
complete portable plant is self-erecting with production capability in excess of
500 tons per hour and can be reassembled and ready for production in under four
hours, making it one of the industry's most mobile and cost-effective
high-capacity crushing systems. The Fast Pack
®
design
reduces operating costs as much as 30%, compared to traditional plant designs,
and the user-friendly controls provide a safer work environment for the
user.
JCI
mounts its screens and cone crushers on self-contained track mounted units
marketed under the name Fast Trax
®
. JCI
co-markets the Fast Trax
®
with
KPI. These units are self-contained and easily transported to where
the work is. This product fits nicely into JCI’s distribution channel as
many sales start as short-term rentals. All products sold by KPI or
JCI carry the main branding logo of KPI-JCI.
AMS,
located in Sterling, Illinois, develops, manufactures and markets mobile
screening plants, portable and stationary screen structures and vibrating
screens designed for the recycle, crushed stone, sand and gravel, industrial and
general construction industries. These screening plants include the AMS
Vari-Vibe and Duo-Vibe high frequency screens. The AMS high frequency screens
are used for chip sizing, sand removal and sizing recycled asphalt where
conventional screens are not ideally suited.
During
2008, AMS expanded the mobile screening plant family with the introduction of
the DirectFeed 2516T which is a heavy duty screening plant for processing larger
materials. AMS also continued its development of high frequency
screen boxes with the focus on increased production and performance in fine
screening applications. These new products are primarily marketed to
the crushed stone, recycle, sand & gravel and general construction
industries.
BTI
designs, manufactures and markets hydraulic rock breaker systems for the
aggregate, mining and recycling industries. BTI also designs and manufactures a
complete line of four-wheel drive articulated utility vehicles for underground
mines and quarries. Complementing its DS Series of scaling vehicles is a BTI
scaling vehicle. BTI's product line now includes an effective and
innovative vibratory pick scaling attachment.
In
addition to the quarry and mining industries, BTI designs, manufactures and
markets a complete line of hydraulic breakers, compactors and demolition
attachments for the North American construction and demolition markets. These
attachments are designed to fit a variety of equipment including excavators,
backhoe loaders, wheel loaders and skid steer loaders.
BTI
offers an extensive aftermarket sales and service program through a highly
qualified and trained dealer network.
Osborn
designs, manufactures and markets a complete line of bulk material handling and
minerals processing plant and equipment. This equipment is used in the
aggregate, mineral mining, metallic mining and recycling industries. Osborn has
been a licensee of Telsmith's technology for over 50 years. In addition to
Telsmith, Osborn also manufactures under license of American Pulverizer (USA),
IFE (Austria) and Mogensen (UK) and has an in-house brand, Hadfields. Osborn
also offers the following equipment: double-toggle jaw crushers, rotary
breakers, roll crushers, rolling ring crushers, mills, out-of-balance or
exciter-driven screens and feeders, portable track-mounted or fixed crushing and
screening plants conveyor systems, and a full range of idlers.
Marketing
Aggregate
processing and mining equipment is marketed by approximately 75 direct sales
employees, 122 independent domestic distributors and 71 independent
international distributors. The principal purchasers of aggregate
processing equipment include highway and heavy equipment contractors, open mine
operators, quarry operators and foreign and domestic governmental
agencies.
Raw
Materials
Raw
materials used in the manufacture of products include carbon steel and various
types of alloy steel, which are normally purchased from
distributors. Raw materials for manufacturing are normally readily
available. BTI purchases hydraulic breakers under purchasing
arrangements with a Japanese and a Korean supplier. The Japanese and
Korean suppliers have sufficient capacity to meet the Company's anticipated
demand; however, alternative suppliers exist for these components should any
supply disruptions occur.
Competition
The
Aggregate and Mining Group faces strong competition in price, service and
product performance. Aggregate processing and mining equipment competitors
include Metso (Nordberg); Sandvik (formerly Svedala Industry AB), Extec, Fintec;
Rammer, subsidiaries of Terex Corporation (Cedarapids, Powerscreen, Finlay, B-L
and Pegson), Deister; Eagle Iron Works, McLanahan, McCloskey, Lippmann, Equipos
Minera, Normet, Gia, Atlas Copco and other smaller manufacturers, both domestic
and international.
Employees
At
December 31, 2008, the Aggregate and Mining Group segment employed 1,619
individuals, of which 1,187 were engaged in manufacturing, 123 in engineering
and engineering support functions, and 309 in selling, general and
administrative functions.
Telsmith
has a labor agreement covering approximately 195 manufacturing employees which
expires on September 18, 2010. None of Telsmith's other employees are
covered by a collective bargaining agreement.
Approximately
145 of Osborn's manufacturing employees are members of three national labor
unions with agreements that expire on June 30, 2011.
Backlog
At
December 31, 2008 and 2007, the backlog for the Aggregate and Mining Group was
approximately $65,340,000 and $113,031,000, respectively. Management
expects most current backlogs to be filled in 2009.
Mobile Asphalt Paving
Group
The
Mobile Asphalt Paving Group is comprised of Roadtec, Inc. ("Roadtec") and
Carlson Paving Products, Inc. ("Carlson"). Roadtec designs,
engineers, manufactures and markets asphalt pavers, material transfer vehicles,
milling machines and a line of asphalt reclaiming and soil stabilizing
machinery. Carlson designs and manufactures asphalt paver screeds
that attach to the asphalt paver to control the width and depth of the asphalt
as it is applied to the roadbed. Carlson also manufactures Windrow
pickup machines which transfer hot mix asphalt from the road bed into the
paver's hopper and a new commercial class 8 ft. asphalt paver developed in
2008.
Products
Roadtec's
Shuttle Buggy
®
is a
mobile, self-propelled material transfer vehicle which allows continuous paving
by separating truck unloading from the paving process while remixing the
asphalt. A typical asphalt paver must stop paving to permit truck
unloading of asphalt mix. By permitting continuous paving, the
Shuttle Buggy
®
allows
the asphalt paver to produce a smoother road surface, while reducing the time
required to pave the road surface. As a result of the pavement
smoothness achieved with this machine, certain states now require the use of the
Shuttle Buggy
®
. Studies
using infrared technology have revealed problems caused by differential cooling
of the hot-mix during hauling. The Shuttle Buggy
®
remixes
the material to a uniform temperature and gradation, thus eliminating these
problems.
Asphalt
pavers are used in the application of hot-mix asphalt to the road
surface. Roadtec pavers have been designed to minimize maintenance
costs while exceeding road surface smoothness requirements. Roadtec
also manufactures a paver model designed for use with the material transfer
vehicle described above, which is designed to carry and spray tack coat directly
in front of the hot mix asphalt in a single process.
Roadtec
manufactures milling machines designed to remove old asphalt from the road
surface before new asphalt mix is applied. Roadtec's milling machine
lines, for larger jobs, are manufactured with a simplified control system, wide
conveyors, direct drives and a wide range of horsepower and cutting capabilities
to provide versatility in product application. In addition to its
larger half-lane and up highway class milling machines, Roadtec also
manufactures a smaller, utility class machine for 2 ft. to 4ft. cutting
widths. Additional upgrades and options are available from Roadtec to
enhance its products and their capabilities.
Roadtec’s
700 hp soil stabilizer which also doubles as an asphalt reclaiming machine for
road rehabilitation, stabilizes the sub-grade with additives to provide an
improved base on which to pave. The existing road materials are
pulverized and remixed with additives to prepare the surface so the new combined
asphalt mix can be applied. Roadtec’s engineering staff is currently
developing the second, lower horsepower machine in this class that is expected
to be introduced in 2009 with a third machine to be introduced
thereafter.
Carlson's
patented screeds are part of the asphalt paving machine that lays asphalt on the
roadbed at a desired thickness and width, while smoothing and compacting the
surface. Carlson screeds can be configured to fit many types of
asphalt paving machines. A Carlson screed uses a hydraulic powered
generator to electrify elements that heat a screed plate so that asphalt will
not stick to it while paving. The generator is also available to
power tools or lights for night paving. Carlson offers options which
allow extended paving widths and the addition of a curb on the road
edge. In 2008, Carlson introduced the CP 90 commercial class 8 ft.
paver which fills the void between competitors commercial pavers, which tend to
be lighter and less robust machines, and Roadtec’s highway class paver
line.
Marketing
The
Mobile Asphalt Paving Group equipment is marketed both domestically and
internationally to highway and heavy equipment contractors, utility contractors
and foreign and domestic governmental agencies. Mobile construction equipment
and factory authorized machine rebuild services are marketed both directly and
through dealers. This segment employs 29 direct sales staff, 32
domestic independent distributors and 28 foreign independent
distributors.
Raw
Materials
Raw
materials used in the manufacture of products include carbon steel and various
types of alloy steel, which are normally purchased from distributors and other
sources. Raw materials for manufacturing are normally readily
available. Most steel is delivered on a "just-in-time" arrangement
from the supplier to reduce inventory requirements at the manufacturing
facilities, but some steel is bought and occasionally
inventoried. Components used in the manufacturing process include
engines, gearboxes, power transmissions and electronic systems.
Competition
The
Mobile Asphalt Paving Group faces strong competition in price, service and
performance. Paving equipment and screed competitors include
Caterpillar Paving Products, Inc., a subsidiary of Caterpillar, Inc., Volvo
Construction Equipment, CMI Corporation, a subsidiary of Terex Corporation,
Vogele America, a subsidiary of Wirtgen America, and Dynapac. The
segment's milling machine equipment competitors include Wirtgen America, Inc.,
CMI Corporation, a subsidiary of Terex Corporation, Caterpillar, Inc., and Bomag
Americas.
Employees
At
December 31, 2008, the Mobile Asphalt Paving Group segment employed 441
individuals, of which 292 were engaged in manufacturing, 31 in engineering and
engineering support functions, and 118 in selling, general and administrative
functions.
Backlog
The
backlog for the Mobile Asphalt Paving Group segment at December 31, 2008 and
2007 was approximately $2,855,000 and $12,142,000, respectively. Management
expects all current backlogs to be filled in 2009.
This segment typically
operates with a smaller backlog in relation to sales than the Company’s other
segments as many customers expect immediate delivery due to the types of
products being sold and the lead times typically available on competitors’
equipment sold through dealers.
Underground
Group
The
Underground Group consists of two manufacturing companies, Astec Underground,
Inc. ("Astec Underground"), previously named Trencor, Inc., and American Augers,
Inc. ("American Augers"). These two business units design, engineer
and manufacture a complete line of underground construction equipment and
related accessories. Astec Underground produces heavy-duty Trencor
trenchers and the Astec line of utility trenchers, vibratory plows, and compact
horizontal directional drills. American Augers manufactures maxi
drills and auger boring machines, and the down-hole tooling to support these
units for the underground construction market. American Augers also
manufacturers large vertical drills for the oil and gas industry.
Products
Astec
Underground produces 12 trencher models and 4 compact horizontal directional
drills at its Loudon, Tennessee facility. American Augers
manufactures 19 models of trenchless equipment at its West Salem, Ohio
location. In addition to these product models, each factory produces
numerous attachments and tools for the equipment.
Astec
branded products include trenchers and vibratory plows from 13 to 250
horsepower, and horizontal directional drill (HDD) models with pullback ratings
from 6,000 to 100,000 pounds. These are sold and serviced through a
network of 56 dealers that operate 100 locations worldwide.
Trencor
heavy-duty trenchers are among the most powerful in the world. They
have the ability to cut a trench 35 feet deep and 8 feet wide through solid rock
in a single pass. Utilizing a unique mechanical power train, Trencor
machines are used to trench pipelines, lay fiber optic cable, cut irrigation
ditches, insert highway drainage materials, and more. Astec
Underground also makes foundation trenchers that are used in areas where
drilling and blasting are prohibited. Astec Underground manufactures
a side-cutting rock saw, which permits trenching alongside vertical objects like
fences, guardrails, and rock wall in mountainous terrain. The rock saw is used
for laying water and gas lines, fiber optic cable, and constructing highway
drainage systems, among other uses.
Four Road
Miner
®
models
are available with an attachment that allows them to cut a path up to 13½ feet
wide and 5 feet deep on a single pass. The Road Miner
®
has
applications in the road construction industry and in mining and aggregate
processing operations.
American
Augers engineers, designs, manufactures and markets a wide range of trenchless
and vertical drilling equipment. Today, American Augers is one of the
largest manufacturers of auger boring machines in the world, designing and
engineering state of the art boring machines, vertical rigs, directional drills
and fluid/mud systems used in the underground construction or trenchless
market. The company has one of the broadest product lines in the
industry. It serves global customers in the sewer, power, fiber-optic
telecommunication, electric, oil and gas, and water industries throughout the
world.
American
Augers introduced the new VR-500 vertical drilling rig for use in the oil and
gas industry in 2008. The VR-500 utilizes a rack and pinion carriage design,
which is a recently developed technology that was typically not found in
previously existing methods of oil and gas exploration. For drillers, the VR-500
provides superior bit load from initial surface contact throughout the entire
drilling operation and gives the operators the ability to immediately start a
horizontal curve after surface penetration resulting in greater access to
shallow product formations. These formations are typically off limits
when using most current conventional vertical drilling techniques. The
VR-500 also emphasizes safety, as it eliminates many traditional drilling
components, and it requires less man power to operate than most
rigs.
Marketing
Astec
Underground and American Augers market their products domestically through
direct sales representatives and a dealer network, as well as internationally
through direct sales, independent dealers and sales agents. This
segment employs 40 direct sales staff, 33 domestic independent distributors and
37 foreign independent distributors.
Raw
Materials
Astec
Underground and American Augers maintain excellent relationships with suppliers
and have experienced minimal turnover. The purchasing group has
developed partnering relationships with many of the company's key vendors to
improve "just-in-time" delivery and thus lower inventory, but some steel is
bought and occasionally inventoried. Steel is the predominant raw
material used to manufacture the products of the Underground Group, and is
normally readily available. Components used in the manufacturing
process include engines, hydraulic pumps and motors, gearboxes, power
transmissions and electronics systems.
Competition
The
Underground Group segment faces strong competition in price, service and product
performance and competes with both large publically held companies with
resources significantly greater than those of the Company and with various
smaller manufacturers. Competition for trenching, excavating, auger
boring, vertical and directional drilling and fluid/mud equipment includes
Charles Machine Works (Ditch Witch), Tesmec, Vermeer, and other smaller custom
manufacturers.
E
mployees
At
December 31, 2008, the Underground Group segment employed 508 individuals, of
which 358 were engaged in manufacturing, 52 in engineering and 98 in selling,
general and administrative functions.
Backlog
The
backlog for the Underground Group segment at December 31, 2008 and 2007 was
approximately $12,118,000 and $13,347,000, respectively. Management
expects all current backlogs to be filled in 2009.
Other Business
Units
This
category consists of the Company's business units that do not meet the
requirements for separate disclosure as an operating segment. At
December 31, 2008, these other operating units included Peterson
Pacific Corp. (“Peterson”), Astec Australia Pty Ltd, Astec Insurance Company and
the Company. Peterson designs, engineers, manufactures and
distributes whole-tree pulpwood chippers, horizontal grinders and blower
trucks. Astec Australia was formed to acquire certain of the assets
of Q-Pave Pty Ltd (“Q-Pave”) in October 2008. Astec Australia sells,
installs, services and provides parts support for certain of the products
produced by the Company’s Asphalt, Mobile Asphalt Paving and Underground
groups.
Products
The
primary markets served by Peterson are the waste wood grinding, chipping and
blower truck markets. Peterson produces two models of whole-tree pulpwood
chippers ranging from 765 to 1200 horsepower, one flail debarker, eight models
of horizontal grinders and two models of blower trucks and self contained blower
trailers ranging from 45 to 90 cubic yards.
Peterson
introduced two new products in 2008, a 1200 HP version of the 6700B grinder and
a 2710C track grinder that is a 475 to 580 hp machine designed for lower volume
grinder needs. The upgraded 500 hp mobile flail chipper released at the end of
2007 helped to more than double prior years sales for that product line.
Peterson offers its horizontal grinders in four size ranges to fit any
application: 475 to 580 hp, 765 hp, 950 to 1050 hp and 1050 to 1200
hp. Each size range is also available in a trailer mount and track
version with diesel engine or electric power options. The electric
power option is now frequently requested by stationary application
users.
Astec
Australia sells relocatable and portable asphalt plants and components produced
by Astec, Heatec and CEI, asphalt paving equipment and components produced by
Roadtec and Carlson as well as trenching equipment produced by Astec
Underground. In addition to selling this equipment, Astec Australia
will also install, service and provide spare parts support for the
equipment. We expect Astec Australia to add products from the
Company’s Aggregate & Mining group to its sales portfolio beginning in
2009.
Marketing
Peterson
markets its machines and spare parts both domestically and internationally in
the waste, wood grinding, chipping and blower truck industries. Its
line of blower trucks serve the mulch compost and erosion control
markets. Domestic sales are accomplished through a combination of 9
independent domestic distributors and 10 direct sales employees. International
sales are through 8 independent distributors plus direct sales to customers. The
principle purchasers of Peterson products are independent contractors in the
waste wood grinding, chipping and blower truck businesses. Municipal governments
are also customers for waste wood grinders.
The
business now operated as Astec Australia, which began 12 years ago as Q-Pave,
has built its success by partnering with large corporate
customers. Astec Australia plans to focus on growing its existing
business operations and developing new business opportunities which have direct
exposure to infrastructure development. The addition of several new
Astec product lines will allow Astec Australia to access market segments not
previously serviced by Q-Pave. Management believes that Astec
Australia has the organizational structure (construction, service and
maintenance personnel) and systems in place to penetrate the Australia and New
Zealand markets with this expanded product line.
Raw
Materials
Raw
materials used in the manufacture of products include carbon steel and various
types of alloy steel, which are normally purchased from distributors and other
sources. Raw materials for manufacturing are normally readily
available. Most steel is delivered on a "just-in-time" arrangement
from the supplier to reduce inventory requirements at the manufacturing
facilities, but some steel is bought and occasionally
inventoried. Purchased components used in the manufacturing process
include engines, gearboxes, power transmissions and electronic control
systems.
Competition
Peterson
has strong competitors based on product performance, price and service. The
principal competitors in North America for high speed grinders are Morbark,
Vermeer, Bandit, Diamond Z and CBI with other smaller competitors.
Internationally, Doppstadt, Jenz and other smaller companies compete in the
grinder segment. Mobile chipper competitors include Morbark, Precision,
Doppstadt and other smaller companies. The principal competitors in the blower
truck business are Finn and Express Blower (a division of Finn).
Astec
Australia’s competitors in each product line are typically the same companies
that compete with the Company in other locations. Competitors for
asphalt plant and mobile asphalt equipment are all overseas manufacturers and
consequently they are subject to the same importing issues as Astec
Australia.
Employees
At
December 31, 2008, the Other Business Units segment employed 270 individuals of
which 208 were employed by Peterson and 21 were employed by Astec
Australia. Peterson has 128 employees engaged in manufacturing, 21 in
engineering and 59 in selling and general and administrative
functions. Astec Australia has 10 employees engaged in service and
installation work and 11 in selling and general and administrative
functions. The remaining 41 employees are engaged general and
administrative functions at the parent company.
Backlog
The
backlog for the Other Business Units segment, all of which is attributable to
Peterson and Astec Australia, at December 31, 2008 and 2007 was approximately
$6,780,000 and $9,045,000, respectively. Management expects all
current backlogs to be filled in 2009.
Common to All Operating
Segments
Although
the Company has four reportable business segments, the following information
applies to all operating segments of the Company.
Raw
Materials
Steel is
a major component in the Company’s equipment. Steel prices retracted somewhat
during 2005 and 2006 from record highs during 2004 but returned to historically
high levels during 2008. Steel prices increased significantly during the
first eight months of 2008, and the Company increased sales prices during the
first half of 2008 to offset these rising steel costs. Late in the third
quarter of 2008, steel prices began to retreat from their 2008 highs. Steel
pricing declined sharply in the fourth quarter of 2008. We expect
fourth quarter pricing to continue through the first quarter of 2009 and pricing
levels throughout 2009 to remain well below the peak levels reached in the third
quarter of 2008. However, moderate increases are possible during 2009
due to reduced mill output and reductions in automotive and appliance output
which reduce the amount of high quality scrap, a prime input factor for steel
pricing.
Government
Regulations
The
Company is subject to various laws and governmental regulations concerning
environmental matters and employee safety and health in the United States and
other countries. The Environmental Protection Agency, OSHA, other
federal agencies and certain state agencies have the authority to promulgate
regulations that have an effect on the Company’s operations. Many of
these federal and state agencies may seek fines and penalties for violations of
these laws and regulations. The Company has been able to operate
under these laws and regulations without any materially adverse effect on its
business.
None of
the Company's operating segments operate within highly regulated
industries. However, air pollution control equipment manufactured by
the Company, principally for hot-mix asphalt plants, must comply with certain
performance standards promulgated by the federal Environmental Protection Agency
under the Clean Air Act applicable to "new sources" or new
plants. Management believes that the Company's products meet all
material requirements of such regulations and of applicable state pollution
standards and environmental protection laws.
In
addition, due to the size and weight of certain equipment the Company
manufactures, the Company and its customers may encounter conflicting state
regulations on maximum weights transportable on highways. Also, some
states have regulations governing the operation of asphalt mixing plants and
most states have regulations relating to the accuracy of weights and measures,
which affect some of the control systems manufactured by the
Company.
Compliance
with these government regulations has no material effect on capital
expenditures, earnings, or the Company's competitive position within the
market.
Employees
At
December 31, 2008, the Company and its subsidiaries employed 3,973 individuals,
of which 2,830 were engaged in manufacturing, 352 in engineering, including
support staff, and 791 in selling, administrative and management
functions.
Other
than the Telsmith and Osborn labor agreements described under the Employee
subsection of the Asphalt and Mining Group, there are no other collective
bargaining agreements applicable to the Company. The Company
considers its employee relations to be good.
Manufacturing
The
Company manufactures many of the component parts and related equipment for its
products, while several large components of their products are purchased
"ready-for-use". Such items include engines, axles, tires and
hydraulics. In many cases, the Company designs, engineers and
manufactures custom component parts and equipment to meet the particular needs
of individual customers. Manufacturing operations during 2008 took
place at 17 separate locations. The Company's manufacturing
operations consist primarily of fabricating steel components and the assembly
and testing of its products to ensure that the Company achieves quality control
standards.
Seminars and Technical
Bulletins
The
Company periodically conducts technical and service seminars, which are
primarily for contractors, employees and owners of asphalt mixing
plants. In 2008, approximately 450 representatives of contractors and
owners of hot-mix asphalt plants attended seminars held by the Company in
Chattanooga, Tennessee. These seminars, which are taught by Company
management and employees, along with select outside speakers and discussion
leaders, cover a range of subjects including, but not limited to, technological
innovations in the hot-mix asphalt, aggregate processing, paving, milling, and
recycling markets.
The
Company also sponsors executive seminars for the management of the customers of
Astec, Heatec, CEI and Roadtec. Primarily, members of the Company's
management conduct the various seminars, but outside speakers and discussion
leaders are also utilized.
During
2008, service training seminars were also held at the Roadtec facility for
approximately 300 customer representatives and an additional five remote
seminars were conducted at other locations throughout the
country. Telsmith conducted 4 technical seminars for approximately 90
customer and dealer representatives during 2008 at its facility in Mequon,
Wisconsin. Telsmith also conducted two service training seminars at customer
sites. Total attendance at these two seminars was approximately
95. KPI, JCI and AMS jointly conduct an annual dealer event called
NDC (National Dealers Conference). The event offers the entire dealer network a
preview of future product, marketing and promotional programs to help dealers
operate successful businesses. Along with this event, both companies provide
local, regional and national sales and service dealer training programs
throughout the year.
During
2008, Astec Underground hosted 8 product training events for trenchers and
horizontal drills at the Loudon, Tennessee facility. Over 50 people
received technical and operational training at these product training
events.
In
addition to seminars, the Company publishes a number of technical bulletins and
information bulletins detailing various technological and business issues
relating to the asphalt industry.
Patents and
Trademarks
The
Company seeks to obtain patents to protect the novel features of its
products. The Company's subsidiaries hold 94 United States patents
and 39 foreign patents. There are 50 United States and foreign patent
applications pending.
The
Company and its subsidiaries have approximately 76 trademarks registered in the
United States including logos for Astec, CEI, Heatec, JCI, Peterson, Roadtec,
Telsmith and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC, TRENCOR,
AMERICAN AUGERS, KOLBERG, JCI and PIONEER as well as a number of other product
names. The Company also has 42 trademarks registered in foreign
countries, including Australia, Brazil, Canada, China, France, Germany, Great
Britain, India, Italy, Mexico, South Africa, Thailand, Vietnam and the European
Union. The Company and its subsidiaries have 6 United States and
foreign trademark applications pending.
Engineering and Product
Development
The
Company dedicates substantial resources to engineering and product
development. At December 31, 2008, the Company and its subsidiaries
had 352 full-time individuals employed in engineering and design
capacities.
Seasonality and
Backlog
Generally,
revenues are strongest during the first three quarters of the year with the
fourth quarter consistently being the weakest of the
quarters. Operations during the entire year in 2008 were
significantly impacted by the various economic factors discussed in the
following paragraphs.
As of
December 31, 2008, the Company had a backlog for delivery of products at certain
dates in the future of approximately $193,316,000. At December 31,
2007, the total backlog was approximately $280,923,000. The Company's
contracts reflected in the backlog are not, by their terms, subject to
termination. Management believes that the Company is in substantial
compliance with all manufacturing and delivery timetables.
Competition
Each
business segment operates in domestic markets that are highly competitive
regarding price, service and product quality. While specific
competitors are named within each business segment discussion above, imports do
not generally constitute significant competition for the Company in the United
States, except for milling machines. In international sales, however,
the Company generally competes with foreign manufacturers that may have a local
presence in the market the Company is attempting to penetrate.
In
addition, asphalt and concrete are generally considered competitive products as
a surface choice for new roads and highways. A portion of the
interstate highway system is paved in concrete, but over 90% of all surfaced
roads in the United States are paved with asphalt. Although concrete
is used for some new road surfaces, asphalt is used for most
resurfacing. Management does not believe that concrete, as a
competitive surface choice, materially impacts the Company's business
prospects.
Available
Information
Our
internet website can be found at www.astecindustries.com. We make
available free of charge on or through our internet website, access to our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after such material
is filed, or furnished, to the Securities and Exchange Commission.
Downturns
in the general economy or the commercial construction industry may adversely
affect our revenues and operating results.
General
economic downturns, including downturns in the commercial construction industry,
could result in a material decrease in our revenues and operating
results. Demand for many of our products, especially in the
commercial construction industry, is cyclical. Sales of our products
are sensitive to the states of the U.S., foreign and regional economies in
general, and in particular, changes in commercial construction spending and
government infrastructure spending. In addition, many of our costs
are fixed and cannot be quickly reduced in response to decreased
demand. The following factors could cause a downturn in the
commercial construction industry:
·
|
a
decrease in the availability of funds for
construction;
|
·
|
labor
disputes in the construction industry causing work
stoppages;
|
·
|
rising
gas and fuel oil prices;
|
·
|
rising
steel prices and steel-up charges;
|
·
|
energy
or building materials shortages;
|
·
|
availability
of credit for customers.
|
Downturns in the general economy and
restrictions in the credit markets may negatively
impact our earnings, cash flows
and/or financial position and
access to financing sources by the
Company and our customers.
Worldwide
economic conditions and the international credit markets have recently
significantly deteriorated and will likely remain depressed for the foreseeable
future. Continued deterioration of economic conditions and credit markets could
adversely impact our earnings as sales of our products are sensitive to
general declines in U.S. and foreign economies and the ability of our customers
to obtain credit. In addition, we rely on the capital markets and the
banking markets to meet our financial commitments and short-term liquidity
needs if internal funds are not available from our operations. Further
disruptions in the capital and credit markets, or further deterioration of
our creditors' financial condition could adversely affect
the Company's ability to draw on its revolving credit facility.
The restrictions in the credit markets could make it more difficult or expensive
for us to replace our current credit facility or obtain additional
financing.
A
decrease or delay in government funding of highway construction and maintenance
may cause our revenues and profits to decrease.
Many of
our customers depend substantially on government funding of highway construction
and maintenance and other infrastructure projects. Any decrease or
delay in government funding of highway construction and maintenance and other
infrastructure projects could cause our revenues and profits to
decrease. Federal government funding of infrastructure projects is
usually accomplished through bills, which establish funding over a multi-year
period. In August 2005, the President signed into law, the Safe
Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for
Users ("SAFETEA-LU"), which authorizes the appropriation of $286.5 billion in
guaranteed funding for federal highway, transit and safety
programs. President Bush signed into law on September 30, 2008 a
funding bill under SAFETEA-LU for the 2009 fiscal year, which fully funds the
highway program at $41.2 billion. On February 17, 2009, President
Obama signed into law the American Recovery and Reinvestment Act of 2009
(‘ARRA”). The measure includes approximately $27.5 billion for
highway and bridge construction which is in addition to amounts approved under
SAFETEA-LU. Although SAFETEA-LU and ARRA guarantee federal funding at certain
minimum levels, these and other legislation may be revised in future
congressional sessions and federal funding of infrastructure may be decreased in
the future. In addition, Congress could pass legislation in future
sessions, which would allow for the diversion of highway funds for other
national purposes or could restrict funding of infrastructure projects unless
states comply with certain federal policies.
The
cyclical nature of our industry and the customization of the equipment we sell
may cause adverse fluctuations to our revenues and operating
results.
We sell
equipment primarily to contractors whose demand for equipment depends greatly
upon the volume of road or utility construction projects underway or to be
scheduled by both government and private entities. The volume and
frequency of road and utility construction projects is cyclical; therefore,
demand for many of our products is cyclical. The equipment we sell is
durable and typically lasts for several years, which also contributes to the
cyclical nature of the demand for our products. As a result, we may
experience cyclical fluctuations to our revenues and operating
results.
An
increase in the price of oil or decrease in the availability of oil could reduce
demand for our products. Significant increases in the purchase price
of certain raw materials used to manufacture our equipment could have a negative
impact on the cost of production and related gross margins.
A
significant portion of our revenues relates to the sale of equipment involved in
the production, handling or installation of asphalt mix. A major
component of asphalt is oil, and asphalt prices correlate with the price and
availability of oil. An increase in the price of oil or a decrease in
the availability of oil would increase the cost of producing asphalt, which
would likely decrease demand for asphalt, resulting in decreased demand for our
products. This would likely cause our revenues and profits to
decrease. In fact, rising gasoline, diesel fuel and liquid asphalt
prices during the last several years significantly impacted the operating and
raw material costs of our contractor and aggregate producer customers, and if
they did not properly adjust their pricing could have reduced their profits and
caused delays in some of their capital equipment purchases.
Steel
prices increased significantly during the first eight months of 2008 and the
Company increased its sales prices to offset these cost increases where
possible. Late in the third quarter of 2008, steel prices began to
retreat from their 2008 highs. Steel pricing declined sharply in the fourth
quarter of 2008. We expect fourth quarter pricing to continue through
the first quarter of 2009 and pricing levels throughout 2009 to remain well
below the peak levels reached in the third quarter of 2008. However,
moderate increases are possible during 2009 due to reduced mill output and
reductions in automotive and appliance output which reduce the amount of high
quality scrap, a prime input factor for steel pricing.
Acquisitions
that we have made in the past and future acquisitions involve risks that could
adversely affect our future financial results.
We have
completed several acquisitions in the recent past, including the acquisition of
Peterson in 2007, the acquisition of Dillman in 2008 and the acquisition of
certain of the assets of Q-Pave in 2008. We may acquire additional businesses in
the future. We may be unable to achieve the benefits expected to be
realized from our acquisitions. In addition, we may incur additional
costs and our management's attention may be diverted because of unforeseen
expenses, difficulties, complications, delays and other risks inherent in
acquiring businesses, including the following:
·
|
we
may have difficulty integrating the financial and administrative functions
of acquired businesses;
|
·
|
acquisitions
may divert management's attention from our existing
operations;
|
·
|
we
may have difficulty in competing successfully for available acquisition
candidates, completing future acquisitions or accurately estimating the
financial effect of any businesses we
acquire;
|
·
|
we
may have delays in realizing the benefits of our strategies for an
acquired business;
|
·
|
we
may not be able to retain key employees necessary to continue the
operations of the acquired
business;
|
·
|
acquisition
costs may deplete significant cash amounts or may decrease our operating
income;
|
·
|
we
may choose to acquire a company that is less profitable or has lower
profit margins than our company;
and
|
·
|
future
acquired companies may have unknown liabilities that could require us to
spend significant amounts of additional
capital.
|
Competition
could reduce revenue from our products and services and cause us to lose market
share.
We
currently face strong competition in product performance, price and
service. Some of our national competitors have greater financial,
product development and marketing resources than we have. If
competition in our industry intensifies or if our current competitors enhance
their products or lower their prices for competing products, we may lose sales
or be required to lower the prices we charge for our products. This
may reduce revenue from our products and services, lower our gross margins or
cause us to lose market share.
Our
success depends on key members of our management and other
employees.
Dr. J.
Don Brock, our Chairman and President, is of significant importance to our
business and operations. The loss of his services may adversely
affect our business. In addition, our ability to attract and retain
qualified engineers, skilled manufacturing personnel and other professionals,
either through direct hiring or acquisition of other businesses employing such
professionals, will also be an important factor in determining our future
success.
Difficulties
in managing and expanding in international markets could divert management's
attention from our existing operations.
In 2008,
international sales represented approximately 36.2% of our total
sales. We plan to continue our growth efforts in international
markets. In connection with any increase in international sales
efforts, we will need to hire, train and retain qualified personnel in countries
where language, cultural or regulatory barriers may exist. Any
difficulties in expanding our international sales may divert management's
attention from our existing operations. In addition, international
revenues are subject to the following risks:
·
|
fluctuating
currency exchange rates which can reduce the profitability of foreign
sales;
|
·
|
the
burden of complying with a wide variety of foreign laws and
regulations;
|
·
|
dependence
on foreign sales agents;
|
·
|
political
and economic instability of governments;
and
|
·
|
the
imposition of protective legislation such as import or export
barriers.
|
We
may be unsuccessful in complying with the financial ratio covenants or other
provisions of our amended credit agreement.
As of
December 31, 2008, we were in compliance with the financial covenants contained
in our Credit Agreement, as amended, with Wachovia Bank, National
Association. However, in the future we may be unable to comply with
the financial covenants in our credit facility or to obtain waivers with respect
to such financial covenants. If such violations occur, the Company’s
creditors could elect to pursue their contractual remedies under the credit
facility, including requiring immediate repayment in full of all amounts then
outstanding. As of December 31, 2008, the Company had $3,129,000
outstanding borrowings and $10,734,000 of letters of credit outstanding under
the credit agreement. Additional amounts may be borrowed in the
future. The Company’s Osborn subsidiary has its own independent loan
agreement in place. A separate loan agreement for Astec Australia is
in process.
Our
quarterly operating results are likely to fluctuate, which may decrease our
stock price.
Our
quarterly revenues, expenses and operating results have varied significantly in
the past and are likely to vary significantly from quarter to quarter in the
future. As a result, our operating results may fall below the
expectations of securities analysts and investors in some quarters, which could
result in a decrease in the market price of our common stock. The
reasons our quarterly results may fluctuate include:
·
|
general
competitive and economic
conditions;
|
·
|
delays
in, or uneven timing in, the delivery of customer
orders;
|
·
|
the
seasonal trend in our industry;
|
·
|
the
introduction of new products by us or our
competitors;
|
·
|
product
supply shortages; and
|
·
|
reduced
demand due to adverse weather
conditions.
|
Period-to-period
comparisons of such items should not be relied on as indications of future
performance.
We
may face product liability claims or other liabilities due to the nature of our
business. If we are unable to obtain or maintain insurance or if our
insurance does not cover liabilities, we may incur significant costs which could
reduce our profitability.
We
manufacture heavy machinery, which is used by our customers at excavation and
construction sites and on high-traffic roads. Any defect in, or
improper operation of, our equipment can result in personal injury and death,
and damage to or destruction of property, any of which could cause product
liability claims to be filed against us. The amount and scope of our
insurance coverage may not be adequate to cover all losses or liabilities we may
incur in the event of a product liability claim. We may not be able
to maintain insurance of the types or at the levels we deem necessary or
adequate or at rates we consider reasonable. Any liabilities not
covered by insurance could reduce our profitability or have an adverse effect on
our financial condition.
If
we are unable to protect our proprietary technology from infringement or if our
technology infringes technology owned by others, then the demand for our
products may decrease or we may be forced to modify our products which could
increase our costs.
We hold
numerous patents covering technology and applications related to many of our
products and systems, and numerous trademarks and trade names registered with
the U.S. Patent and Trademark Office and in foreign countries. Our
existing or future patents or trademarks may not adequately protect us against
infringements, and pending patent or trademark applications may not result in
issued patents or trademarks. Our patents, registered trademarks and
patent applications, if any, may not be upheld if challenged, and competitors
may develop similar or superior methods or products outside the protection of
our patents. This could reduce demand for our products and materially
decrease our revenues. If our products are deemed to infringe upon
the patents or proprietary rights of others, we could be required to modify the
design of our products, change the name of our products or obtain a license for
the use of some of the technologies used in our products. We may be
unable to do any of the foregoing in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do so could cause us to incur
additional costs or lose revenues.
If
we become subject to increased governmental regulation, we may incur significant
costs.
Our
hot-mix asphalt plants contain air pollution control equipment that must comply
with performance standards promulgated by the Environmental Protection
Agency. These performance standards may increase in the
future. Changes in these requirements could cause us to undertake
costly measures to redesign or modify our equipment or otherwise adversely
affect the manufacturing processes of our products. Such changes
could have a material adverse effect on our operating results.
Also, due
to the size and weight of some of the equipment that we manufacture, we often
are required to comply with conflicting state regulations on the maximum weight
transportable on highways and roads. In addition, some states
regulate the operation of our component equipment, including asphalt mixing
plants and soil remediation equipment, and most states regulate the accuracy of
weights and measures, which affect some of the control systems we
manufacture. We may incur material costs or liabilities in connection
with the regulatory requirements applicable to our business.
As
an innovative leader in the asphalt and aggregate industries, we occasionally
undertake the engineering, design, manufacturing and construction of equipment
systems that are new to the market. Estimating the cost of such
innovative equipment can be difficult and could result in our realization of
significantly reduced or negative margins on such projects.
In the
past, we have experienced negative margins on certain large, specialized
aggregate systems projects. These large contracts included both
existing and innovative equipment designs, on-site construction and minimum
production levels. Since it can be difficult to achieve the expected
production results during the project design phase, field testing and redesign
may be required during project installation, resulting in added cost. In
addition, due to any number of unforeseen circumstances, which can include
adverse weather conditions, projects can incur extended construction and testing
delays which can cause significant cost overruns. We may not be able
to sufficiently predict the extent of such unforeseen cost overruns and may
experience significant losses on specialized projects.
Our
Articles of Incorporation, Bylaws, Rights Agreement and Tennessee law may
inhibit a takeover, which could delay or prevent a transaction in which
shareholders might receive a premium over market price for their
shares.
Our
charter, bylaws and Tennessee law contain provisions that may delay, deter or
inhibit a future acquisition or an attempt to obtain control of
us. This could occur even if our shareholders are offered an
attractive value for their shares or if a substantial number or even a majority
of our shareholders believe the takeover is in their best
interest. These provisions are intended to encourage any person
interested in acquiring us or obtaining control of us to negotiate with and
obtain the approval of our Board of Directors in connection with the
transaction. Provisions that could delay, deter or inhibit a future
acquisition or an attempt to obtain control of us include the
following:
·
|
having
a staggered Board of Directors;
|
·
|
requiring
a two-thirds vote of the total number of shares issued and outstanding to
remove directors other than for
cause;
|
·
|
requiring
advance notice of actions proposed by shareholders for consideration at
shareholder meetings;
|
·
|
limiting
the right of shareholders to call a special meeting of
shareholders;
|
·
|
requiring
that all shareholders entitled to vote on an action provide written
consent in order for shareholders to act without holding a shareholders’
meeting; and
|
·
|
being
governed by the Tennessee Control Share Acquisition
Act.
|
In
addition, the rights of holders of our common stock will be subject to, and may
be adversely affected by, the rights of the holders of our preferred stock that
may be issued in the future and that may be senior to the rights of holders of
our common stock. In December 2005, our Board of Directors approved
an Amended and Restated Shareholder Protection Rights Agreement, which provides
for one preferred stock purchase right in respect of each share of our common
stock ("Rights Agreement"). These rights become exercisable upon the
acquisition by a person or group of affiliated persons, other than an
existing
15%
shareholder, of 15% or more of our then-outstanding common stock by all
persons. This Rights Agreement also could discourage bids for the
shares of common stock at a premium and could have a material adverse effect on
the market price of our shares.
Item
1B
.
Unresolved Staff
Comments
None.
The
location, approximate square footage, acreage occupied and principal function of
the properties owned or leased by the Company are set forth below:
Location
|
|
Approximate
Square
Footage
|
|
|
Approximate
Acreage
|
|
Principal
Function
|
Chattanooga,
Tennessee
|
|
|
457,600
|
|
|
|
59
|
|
Offices
and manufacturing – Astec (Asphalt Group)
|
Chattanooga,
Tennessee
|
|
|
-
|
|
|
|
63
|
|
Storage
yard – Astec (Asphalt Group)
|
Rossville,
Georgia
|
|
|
40,500
|
|
|
|
3
|
|
Manufacturing
– Astec (Asphalt Group)
|
Prairie
du Chien, WI
|
|
|
91,500
|
|
|
|
39
|
|
Manufacturing
– Dillman division of Astec (Asphalt Group)
|
Chattanooga,
Tennessee
|
|
|
84,200
|
|
|
|
5
|
|
Offices
and manufacturing - Heatec (Asphalt Group)
|
Chattanooga,
Tennessee
|
|
|
196,000
|
|
|
|
15
|
|
Offices
and manufacturing - Roadtec (Mobile Asphalt Paving Group)
|
Chattanooga,
Tennessee
|
|
|
51,200
|
|
|
|
7
|
|
Manufacturing
and parts warehouse - Roadtec (Mobile Asphalt Paving Group)
|
Chattanooga,
Tennessee
|
|
|
14,100
|
|
|
|
-
|
|
Leased
Hanger and Offices - Astec Industries, Inc.
|
Chattanooga,
Tennessee
|
|
|
10,000
|
|
|
|
2
|
|
Corporate
offices - Astec Industries, Inc.
|
Mequon,
Wisconsin
|
|
|
203,000
|
|
|
|
30
|
|
Offices
and manufacturing - Telsmith (Aggregate and Mining Group)
|
Sterling,
Illinois
|
|
|
60,000
|
|
|
|
8
|
|
Offices
and manufacturing - AMS (Aggregate and Mining Group)
|
Orlando,
Florida
|
|
|
9,000
|
|
|
|
-
|
|
Leased
machine repair and service facility - Roadtec (Mobile Asphalt Paving
Group) and warehouse - Astec Underground (Underground Group)
|
Columbus,
Ohio
|
|
|
20,000
|
|
|
|
5
|
|
Leased
Dealership - Buckeye Underground, LLC
(Underground
Group)
|
Loudon,
Tennessee
|
|
|
327,000
|
|
|
|
112
|
|
Offices
and manufacturing – Astec Underground (Underground Group)
|
Eugene,
Oregon
|
|
|
130,000
|
|
|
|
8
|
|
Offices
and manufacturing – JCI (Aggregate and Mining Group)
|
Albuquerque,
New Mexico
|
|
|
115,000
|
|
|
|
14
|
|
Offices
and manufacturing – CEI (Asphalt Group) (partially leased to a third
party)
|
Location
|
|
Approximate
Square
Footage
|
|
|
Approximate
Acreage
|
|
Principal
Function
|
Yankton,
South Dakota
|
|
|
312,000
|
|
|
|
50
|
|
Offices
and manufacturing – KPI (Aggregate and Mining Group)
|
West
Salem, Ohio
|
|
102,000
plus 103,000
under
construction
|
|
|
|
33
|
|
Offices
and manufacturing – American Augers (Underground Group)
|
Thornbury,
Ontario, Canada
|
|
|
60,500
|
|
|
|
12
|
|
Offices
and manufacturing – BTI (Aggregate and Mining Group)
|
Thornbury, Ontario
Canada
|
|
|
7,000
|
|
|
|
-
|
|
Leased
warehouse/parts sales office – BTI (Aggregate and Mining
Group)
|
Riverside,
California
|
|
|
12,500
|
|
|
|
-
|
|
Leased
offices and warehouse – BTI (Aggregate and Mining Group)
|
Solon,
Ohio
|
|
|
8,900
|
|
|
|
-
|
|
Leased
offices and assembly – BTI (Aggregate and Mining Group)
|
Tacoma,
Washington
|
|
|
41,000
|
|
|
|
5
|
|
Offices
and manufacturing – Carlson (Mobile Asphalt Paving Group)
|
Cape
Town, South Africa
|
|
|
4,600
|
|
|
|
-
|
|
Leased
sales office and warehouse – Osborn (Aggregate and Mining
Group)
|
Durban,
South Africa
|
|
|
3,800
|
|
|
|
-
|
|
Leased
sales office and warehouse – Osborn (Aggregate and Mining
Group)
|
Witbank,
South Africa
|
|
|
1,400
|
|
|
|
-
|
|
Leased
sales office and warehouse – Osborn (Aggregate and Mining
Group)
|
Johannesburg,
South Africa
|
|
|
177,000
|
|
|
|
18
|
|
Offices
and manufacturing – Osborn (Aggregate and Mining Group)
|
Eugene,
Oregon
|
|
|
130,000
|
|
|
|
7
|
|
Offices
and manufacturing - Peterson Pacific Corp. (Other Business
Units)
|
Summer
Park, Australia
|
|
|
13,500
|
|
|
|
1
|
|
Leased-
Offices, warehousing and storage yard - Astec Australia Pty Ltd (Other
Business
Units)
|
The
properties above are owned by the Company unless they are indicated as being
leased.
Management
believes each of the Company's facilities provides office or manufacturing space
suitable for its current needs, and management considers the terms under which
it leases facilities to be reasonable.
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 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.
The
Company has received notice that Johnson Crushers International, Inc.
is subject to an enforcement action brought by the U.S. Environmental
Protection Agency and the Oregon Department of Environmental
Quality related to an alleged failure to comply with federal and state air
permitting regulations. Each agency is expected to seek sanctions that
will include monetary penalties. No penalty has yet been proposed.
The Company believes that it has cured the alleged violations and is cooperating
fully with the regulatory agencies. At this stage of the investigations,
the Company is unable to predict the outcome and the amount of any such
sanctions.
The
Company has also received notice from the Environmental Protection Agency 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 notice. 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.
Item 4
.
Submission of Matters
to a Vote of Security Holders
No matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise, during the fiscal quarter ended December 31, 2008.
The name,
title, ages and business experience of the executive officers of the Company are
listed below.
J. Don Brock, Ph.D., P.E.,
has been President and a Director of the Company since its incorporation in 1972
and assumed the additional position of Chairman of the Board in
1975. He was the Treasurer of the Company from 1972 until
1994. From 1969 to 1972, Dr. Brock was President of the Asphalt
Division of CMI Corporation. He earned his Ph.D. degree in mechanical
engineering from the Georgia Institute of Technology. Dr. Brock is
the father of Benjamin G. Brock, President of Astec, Inc., and Dr. Brock and
Thomas R. Campbell, Group Vice President - Mobile Asphalt Paving and
Underground, are first cousins. He is 70.
F. McKamy Hall
, a Certified
Public Accountant, became Chief Financial Officer during 1998 and has served as
Vice President and Treasurer since 1997. He previously served as
Corporate Controller of the Company since 1987. Mr. Hall has an
undergraduate degree in accounting and a Master of Business Administration
degree from the University of Tennessee at Chattanooga. He is 66
.
W. Norman Smith
was appointed
Group Vice President-Asphalt in 1998 and additionally served as President of
Astec, Inc. from 1994 until October 2006. He formerly served as
President of Heatec, Inc. from 1977 to 1994. From 1972 to 1977, Mr.
Smith was a Regional Sales Manager with the Company. From 1969 to
1972, Mr. Smith was an engineer with the Asphalt Division of CMI
Corporation. Mr. Smith has also served as a director of the Company
since 1982. He is 69.
Thomas R. Campbell
was
appointed Group Vice President - Mobile Asphalt Paving & Underground in
November 2001. He served as President of Roadtec, Inc. from 1988 to
2004. He has served as President of Carlson Paving Products and
American Augers since November 2001 until December 2006. He served as
President of Astec Underground, Inc. from 2001 to May 2005. From 1981
to 1988, he served as Operations Manager of Roadtec. Mr. Campbell and
J. Don Brock, President of the Company, are first cousins. He is
59.
Richard J. Dorris
was
appointed President of Heatec, Inc. in April of 2004. From 1999 to
2004 he held the positions of National Accounts Manager, Project Manager and
Director of Projects for Astec, Inc. Prior to joining Astec, Inc. he
was President of Esstee Manufacturing Company from 1990 to 1999 and was Sales
Engineer from 1984 to 1990. Mr. Dorris has a B.S. degree in
mechanical engineering from the University of Tennessee. He is
48.
Richard A. Patek
was
appointed Group Vice President-Aggregate & Mining Group in March of
2008. He has also served as President of Telsmith, Inc. since May of
2001. He served as President of Kolberg-Pioneer, Inc. from 1997 until
May 2001. From 1995 to 1997, he served as Director of Materials of
Telsmith, Inc. From 1992 to 1995, Mr. Patek was Director of Materials
and Manufacturing of the former Milwaukee plant location. From 1978
to 1992, he held various manufacturing management positions at
Telsmith. Mr. Patek is a graduate of the Milwaukee School of
Engineering. He is 52.
Frank D. Cargould
was
appointed
President of Breaker
Technology Ltd and Breaker Technology, Inc. on October 18, 1999. The
Breaker Technology companies were formed on August 13, 1999 when the Company
purchased substantially all of the assets of Teledyne Specialty Equipment's
Construction and Mining business unit from Allegheny Teledyne
Inc. From 1994 to 1999, he was Director of Sales - East for Teledyne
CM Products, Inc. He is 66.
Jeffery J. Elliott
was
appointed President of Johnson Crushers, Inc. in December 2001. From
1999 to 2001, he served as Senior Vice President for Cedarapids, Inc., (a Terex
company), and from 1996 to 1999, he served as Vice President of the Crushing and
Screening Group. From 1978 to 1996, he held various domestic and
international sales and marketing positions with Cedarapids, Inc. He
is 55.
Timothy Gonigam
was appointed
President of Astec Mobile Screens, Inc., in October 2000. From 1995
to 2000, Mr. Gonigam held the position of Sales Manager of Astec Mobile Screens,
Inc. He is 46.
Tom Kruger
was appointed
Managing Director of Osborn Engineered Products SA (Pty) Ltd on February 1,
2005. For the previous five years, Mr. Kruger was employed as
Operations Director of Macsteel Tube and Pipe (Pty) Ltd, a manufacturer of
carbon steel tubing in Johannesburg, South Africa. He served as Sales
and Marketing Director of Macsteel prior to becoming Operations Director. From
1993 to 1998, Mr. Kruger was employed by Barloworld Ltd as Operations Director
and Regional Managing Director responsible for a trading organization in steel,
tube and water conveyance systems. Prior to that, he held the position of Works
Director. He is 51.
Joseph P. Vig
was appointed
Group Vice President of the AggRecon Group in March 2008. He has also
served as President of Kolberg-Pioneer, Inc., since May 2001. From
1994 until May 2001, he served as Engineering Manager of Kolberg-Pioneer,
Inc. From 1978 to 1993 he was Director of Engineering with Morgen Mfg.
Co., and then Engineering Manager of Essick-Mayco in 1993-94. Mr. Vig has
a B.S. degree in civil engineering from the South Dakota School of Mines and
Technology and is registered as a Professional Engineer. He is
59.
Jeffrey L. Richmond, Sr.
was
appointed President of Roadtec, Inc. in April 2004. From 1996 until
April 2004, he held the positions of Sales Manager, Vice President of Sales and
Marketing and Vice President/General Manager of Roadtec, Inc. He is
53.
Joe K. Cline
was appointed President of
Astec Underground, Inc. in February 2008. Previously he held numerous
manufacturing positions with the Company since 1982 including the Company’s
Corporate Manufacturing Manager/Safety Champion beginning in July 2007 and
Manufacturing Manager for Mobile Asphalt & Underground Groups from 2003 to
mid 2007. He is 52.
Michael A. Bremmer
was
appointed President of CEI Enterprises, Inc. in January 2006. From
January 2003 until January 2006, he held the position of Vice President and
General Manager of CEI Enterprises, Inc. From January 2001 until
January 2003, he held the position of Director of Engineering of CEI
Enterprises, Inc. He is 53.
Benjamin G. Brock
was
appointed President of Astec, Inc. in November 2006. From January
2003 until October 2006 he held the position of Vice President - Sales of Astec,
Inc. and Vice President/General Manager of CEI Enterprises, Inc. from 1997 until
December 2002. Mr. Brock's career with Astec began as a salesman in
1993. Mr. Brock has a B.S. in Economics with a minor in Marketing
from Clemson University. Mr. Brock is the son of J. Don Brock,
President of the Company. He is 38.
David L. Winters
was
appointed President of Carlson Paving Products in January 2007 after previously
serving as its Vice President and General Manager from March 2002 until December
2006. Mr. Winters also served as Quality Assurance Manager,
Manufacturing Manager and Service Manager for Roadtec from August 1997 to
February 2002. From 1977 to 1997 he held various positions in
maintenance management with the Tennessee Valley Authority. Mr.
Winters is 59.
James F. Pfeiffer
was
appointed President of American Augers, Inc. in January 2007 after previously
serving as its Vice President and General Manager from March 2005 until December
2006. Prior to joining Astec, Mr. Pfeiffer was Vice President and
General Manager of Daedong USA from April 2004 to October 2004 and Vice
President of Marketing for Blount, Inc. from April 2002 to April 2004.
Previously he held numerous positions with Charles Machine Works over a nineteen
year period. Mr. Pfeiffer holds a bachelors degree in Agriculture
from Oklahoma State University. Mr. Pfeiffer is 51.
Stephen C. Anderson
was
appointed Secretary of the Company in January 2007 and assumed the role of
Director of Investor Relations in January 2003. Mr. Anderson also serves as the
Company’s compliance officer and manages the corporate information technology
and aviation departments. He has also been President of Astec
Insurance Company since January 2007. He was Vice President of Astec
Financial Services, Inc. from November 1999 to December 2002. Prior
to this Mr. Anderson spent a combined fourteen years in Commercial Banking with
AmSouth and SunTrust Banks. He has a B.S. degree in Business Management from the
University of Tennessee at Chattanooga and is a graduate of the Stonier Graduate
School of Banking. He is 45.
David C. Silvious
, a
Certified Public Accountant, was appointed Corporate Controller in
2005. He previously served as Corporate Financial Analyst since
1999. Mr. Silvious earned his undergraduate degree in accounting from
Tennessee Technological University and his Masters of Business Administration
from the University of Tennessee at Chattanooga. He is
41.
Larry Cumming
was appointed
President of Peterson Pacific Corp. in August 2007. He joined the company in
2003 and held the earlier positions of General Manager and Chief Executive
Officer of Peterson, Inc. Prior to joining Peterson, he held senior management
positions in North America and Europe with Timberjack and John Deere (Deere
acquired Timberjack in 2000). Mr. Cumming also held prior positions with
Timberjack as Vice President Engineering and Senior Vice President Sales and
Marketing, Chief Operating Officer and Executive Vice President Product Supply.
Mr. Cumming is a graduate mechanical engineer from Cornell University with
additional senior management courses from INSEAD in France. He is a registered
professional engineer in the Province of Ontario. Mr. Cumming is
60.
PART II
Item 5
.
Market for
Registrant's Common Equity; Related Shareholder Matters and Issuer's
Purchases
of Equity
Securities
The
Company's Common Stock is traded in the Nasdaq National Market under the symbol
"ASTE." The Company has never paid any cash dividends on its Common
Stock and the Company does not intend to pay dividends on its Common Stock in
the foreseeable future.
The high
and low sales prices of the Company's Common Stock as reported on the Nasdaq
National Market for each quarter during the last two fiscal years are as
follows:
|
|
Price
Per Share
|
|
2008
|
|
High
|
|
Low
|
|
1st
Quarter
|
|
$
|
39.76
|
|
$
|
25.51
|
|
2nd
Quarter
|
|
$
|
42.38
|
|
$
|
31.16
|
|
3rd
Quarter
|
|
$
|
37.55
|
|
$
|
19.40
|
|
4th
Quarter
|
|
$
|
33.99
|
|
$
|
17.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
Per Share
|
|
2007
|
|
High
|
|
Low
|
|
1st
Quarter
|
|
$
|
40.90
|
|
$
|
32.94
|
|
2nd
Quarter
|
|
$
|
45.24
|
|
$
|
39.43
|
|
3rd
Quarter
|
|
$
|
59.36
|
|
$
|
42.53
|
|
4th
Quarter
|
|
$
|
60.40
|
|
$
|
33.75
|
|
As of
February 20, 2009, there were approximately 14,000 holders of the Company's
Common Stock.
We
maintain the following option plans: (i) 1998 Long-term Incentive Plan and (ii)
1998 Non-Employee Director Stock Incentive Plan. No additional options can be
granted under either plan; however previously granted options are still
available for exercising under each plan. We also maintain the 2006
Incentive Plan for the awarding of stock to key management based upon achieving
profitability goals. Information regarding these plans may be found
in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters” of this Report.
Selected
financial data appears in Appendix "A" of this Report.
Item
7
.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
Management's
discussion and analysis of financial condition and results of operations appears
in Appendix "A" of this Report.
Item
7A
.
Quantitative and Qualitative
Disclosures about Market Risk
Information
appearing under the caption "Market Risk and Risk Management Policies" appears
in Appendix "A" of this report.
Item 8
.
Financial Statements
and Supplementary Data
Financial
statements and supplementary financial information appear in Appendix "A" of
this Report.
Item
9
.
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
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
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required financial disclosures. Because of
inherent limitations, our disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of such disclosure controls and procedures are
met.
As of the
end of the period covered by this Report we conducted an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b).
Based on this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures were
effective as of December 31, 2008.
Management’s
assessment report and the Company’s independent registered public accounting
firm’s audit report on the effectiveness of the Company’s internal controls over
financial reporting appear in Appendix “A” of this Report.
Changes in Internal Control
over Financial Reporting
There
were no changes in our internal controls over financial reporting during the
quarter ended December 31, 2008 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
None
PART III
Item
10
.
Directors, Executive
Officers and Corporate Governance
Information regarding the Company's
directors, executive officers, director nominating process, audit committee, and
audit committee financial expert is included under the captions "Election of
Directors - Certain Information Concerning Nominees and Directors" and
“Corporate Governance” in the Company's definitive Proxy Statement to be
delivered to the shareholders of the Company in connection with the Annual
Meeting of Shareholders to be held on April 23, 2009, which is incorporated
herein by reference. Information regarding compliance with Section
16(a) of the Exchange Act is also included under "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement,
which is incorporated herein by reference.
The
Company's Board of Directors has approved a Code of Conduct and Ethics that
applies to the Company's employees, directors and officers (including the
Company's principal executive officer, principal financial officer and principal
accounting officer). The Code of Conduct and Ethics is available on the
Company's website at www.astecindustries.com/investors/.
Information included under the captions
"Executive Compensation", “Compensation Committee Interlocks and Insider
Participation” and “Report of the Compensation Committee” in the Company's
definitive Proxy Statement to be delivered to the shareholders of the Company in
connection with the Annual Meeting of Shareholders to be held on April 23, 2009
is incorporated herein by reference.
Item
12
.
Security Ownership of
Certain Beneficial Owners and Management and Related Shareholder
Matters
Information included under the captions
"Election of Directors - Certain Information Concerning Nominees and Directors,"
"Common Stock Ownership of Management" and "Common Stock Ownership of Certain
Beneficial Owners" in the Company's definitive Proxy Statement to be delivered
to the shareholders of the Company in connection with the Annual Meeting of
Shareholders to be held on April 23, 2009 is incorporated herein by
reference.
Equity Compensation Plan
Information
The following table provides
information about the Common Stock that may be issued under all of the Company's
existing equity compensation plans as of December 31, 2008.
Plan
Category
|
|
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants, Rights and RSU’s
|
|
(b)
Weighted Average Exercise Price of Outstanding Options, Warrants and
Rights
|
|
(c) Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
|
|
Equity
Compensation Plans Approved by Shareholders:
|
|
|
|
|
|
|
|
|
|
|
396,324
(1)
|
|
$
|
22.55
|
|
|
--
|
|
|
|
|
136,966
(2)
|
|
|
--
|
|
|
561,834
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans Not Approved by Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,665
(3)
|
|
$
|
17.37
|
|
|
--
|
|
|
|
|
13,777
(4)
|
|
|
--
|
|
|
131,367(5)
|
|
Total
|
|
|
563,732
|
|
|
|
|
|
693,201
|
|
________________
(1)
|
Stock
Options granted under our 1998 Long-term Incentive
Plan
|
(2)
|
Restricted
Stock Units granted under our 2006 Incentive
Plan
|
(3)
|
Stock
Options granted under our 1998 Non-Employee Director Stock Incentive
Plan
|
(4)
|
Deferred
Stock Units granted under our 1998 Non-Employee Director Stock Incentive
Plan
|
(5)
|
All
of these shares are available for issuance pursuant to grants of
full-value awards.
|
Equity Compensation Plans
Not Approved by Shareholders
Our 1998
Non-Employee Directors Stock Incentive Plan provides that annual retainers
payable to our non-employee directors will be paid in the form of cash, unless
the director elects to receive the annual retainer in the form of common stock,
deferred stock or stock options. If the director elects to receive
Common Stock, whether on a current or deferred basis, the number of shares to be
received is determined by dividing the dollar value of the annual retainer by
the fair market value of the Common Stock on the date the retainer is
payable. If the director elects to receive stock options, the number
of options to be received is determined by dividing the dollar value of the
annual retainer by the Black-Scholes value of an option on the date the retainer
is payable.
Item
13
.
Certain
Relationships and Related Transactions, and Director
Independence
Information
included under the captions “Corporate Governance: Independent Directors” and
”Transactions with Related Persons” in the Company’s definitive Proxy Statement
to be delivered to the shareholders of the Company in connection with the Annual
Meeting of Shareholders to be held on April 23, 2009 is incorporated herein by
reference.
Item
14
.
Principal Accounting Fees
and Services
Information
included under the caption “Audit Matters” in the Company’s definitive Proxy
Statement to be delivered to the shareholders of the Company in connection with
the Annual Meeting of Shareholders to be held on April 23, 2009 is incorporated
herein by reference.
PART IV
Item
15
.
Exhibits and Financial
Statement Schedules
(a)(1) The following
financial statements and other information appear in Appendix “A” to this Report
and are filed as a part hereof:
·
|
Selected
Consolidated Financial Data.
|
·
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
·
|
Management’s
Assessment Report.
|
·
|
Reports
of Independent Registered Public Accounting Firm.
|
·
|
Consolidated
Balance Sheets at December 31, 2008 and 2007.
|
·
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007 and
2006.
|
·
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
2006.
|
·
|
Consolidated
Statements of Shareholders' Equity for the Years Ended December 31, 2008,
2007 and 2006.
|
·
|
Notes
to Consolidated Financial
Statements.
|
(a)(2) Other than as described below, Financial
Statement Schedules are not filed with this Report because the Schedules are
either inapplicable or the required information is presented in the Financial
Statements or Notes thereto. The following Schedule appears in
Appendix “A” to this Report and is filed as a part hereof:
Schedule II – Valuation and Qualifying
Accounts
.
|
(a)(3) The following Exhibits* are incorporated by reference into or
are filed with this Report:
|
|
3.1
|
|
Restated
Charter of the Company (incorporated by reference from the Company’s
Registration Statement on Form S-1, effective June 18, 1986, File No.
33-5348).
|
|
3.2
|
|
Articles
of Amendment to the Restated Charter of the Company, effective September
12, 1988 (incorporated by reference from the Company’s Annual Report on
Form 10-K for the year ended December 31, 1988, File No.
0-14714).
|
|
3.3
|
|
Articles
of Amendment to the Restated Charter of the Company, effective June 8,
1989 (incorporated by reference from the Company’s Annual Report on Form
10-K for the year ended December 31, 1989, File No.
0-14714).
|
|
3.4
|
|
Articles
of Amendment to the Restated Charter of the Company, effective January 15,
1999 (incorporated by reference from the Company Quarterly Report on Form
10-Q for the period ended June 30, 1999, File No.
0-14714).
|
|
3.5
|
|
Amended
and Restated Bylaws of the Company, adopted March 14, 1990 (incorporated
by reference from the Company’s Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 0-14714).
|
|
3.6
|
|
Amended
and Restated Bylaws of the Company, adopted July 26, 2007 (incorporated by
reference from the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007, File No. 001-11595)
|
|
3.7
|
|
Amended
and Restated Bylaws of the Company, adopted on March 14, 1990 and as
amended on July 29, 1993, July 27, 2007 and July 23, 2008 (incorporated by
reference from the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008, File No.
001-11595)
|
|
4.1
|
|
Amended
and Restated Shareholder Protection Rights Agreement, dated as of December
22, 2005, by and between the Company and Mellon Investor Services LLC, as
Rights Agent. (incorporated by reference from the Company’s Current Report
on Form 8-K dated December 22, 2005, File No. 0-14714).
|
|
10.1
|
|
Supplemental
Executive Retirement Plan, dated February 1, 1996 to be effective as of
January 1, 1995 (incorporated by reference from the Company’s Annual
Report on Form 10-K for the year ended December 31, 1995, File No.
0-14714). *
|
|
10.2
|
|
Trust
under Astec Industries, Inc. Supplemental Retirement Plan, dated January
1, 1996 (incorporated by reference from the Company’s Annual Report on
Form 10-K for the year ended December 31, 1995, File No. 0-14714).
*
|
|
10.3
|
|
Astec
Industries, Inc. 1998 Long-Term Incentive Plan (incorporated by reference
from Appendix A of the Company’s Proxy Statement for the Annual Meeting of
Shareholders held on April 23, 1998). *
|
|
10.4
|
|
Astec
Industries, Inc. Executive Officer Annual Bonus Equity Election Plan
(incorporated by reference from Appendix B of the Company’s Proxy
Statement for the Annual Meeting of Shareholders held on April 23, 1998).
*
|
|
10.5
|
|
Astec
Industries, Inc. Non-Employee Directors’ Stock Incentive Plan
(incorporated by reference from the Company’s Annual Report on Form 10-K
for the year ended December 31, 1999, File No. 0-14714).
*
|
|
10.6
|
|
Amendment
to Astec Industries, Inc. Non-Employee Directors’ Stock Incentive Plan,
dated March 15, 2005 (incorporated by reference from the Company’s Current
Report on Form 8-K dated March 15, 2005, File No. 0-14714).
*
|
|
10.7
|
|
Revolving
Line of Credit Note, dated December 2, 1997, between Kolberg-Pioneer, Inc.
and Astec Holdings, Inc. (incorporated by reference from the Company’s
Annual Report on Form 10-K for the year ended December 31, 1997, File No.
0-14714).
|
|
10.8
|
|
Purchase
Agreement, dated October 30, 1998, effective October 31, 1998, between
Astec Industries, Inc. and Johnson Crushers International, Inc.
(incorporated by reference from the Company’s Annual Report on Form 10-K
for the year ended December 31, 1998, File No.
0-14714).
|
|
10.9
|
|
Asset
Purchase and Sale Agreement, dated August 13, 1999, by and among Teledyne
Industries Canada Limited, Teledyne CM Products Inc. and Astec Industries,
Inc. (incorporated by reference from the Company’s Quarterly Report on
Form 10-Q for the period ended September 30, 1999, File
No. 0-14714).
|
|
10.10
|
|
Stock
Purchase Agreement, dated October 31, 1999, by and among American Augers,
Inc. and Its Shareholders and Astec Industries, Inc. (incorporated by
reference from the Company’s Annual Report on Form 10-K for the year ended
December 31, 1999, File No. 0-14714).
|
|
10.11
|
|
Sale
of Business Agreement, dated September 29, 2000, between Anglo Operations
Limited and High Mast Properties 18 Limited and Astec Industries, Inc. for
the purchase of the materials handling and processing products division of
the Boart-Longyear Division of Anglo Operations Limited (incorporated by
reference from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2000, File No. 0-14714).
|
|
10.12
|
|
Acquisition
Agreement, dated October 2, 2000, by and among Larry Raymond, Carlson
Paving Products, Inc. and Astec Industries, Inc. (incorporated by
reference from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2000, File No. 0-14714).
|
|
10.13
|
|
Amended
Supplemental Executive Retirement Plan, dated September 29, 2004,
originally effective as of January 1, 1995. (incorporated by reference
from the Company’s Annual Report on Form 10-K for the year ended December
31, 2004, File No. 0-14714) *
|
|
10.14
|
|
Amendment
to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive
Plan (incorporated by reference to the Company’s Current Report on Form
8-K dated March 15, 2005, File No. 0-14714). *
|
|
10.15
|
|
Amendment
Number 2 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock
Incentive Plan dated February 21, 2006 (incorporated by reference to the
Company’s Current Report on Form 8-K dated February 7, 2006, File No.
0-14714).
*
|
|
10.16
|
|
Astec
Industries, Inc. 2006 Incentive Plan (incorporated by reference to
Appendix A for the Registrant’s Definitive Proxy Statement on Schedule
14A, File No. 0-14714, file with the Securities and Exchange Commission on
March 16, 2006) *
|
|
10.17
|
|
Amendment
Number 2 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock
Incentive Plan (incorporated by reference from the Company’s Current
Report on Form 8-K dated February 27, 2006, File No. 001-11595)
*
|
|
10.18
|
|
Credit
Agreement dated as of April 13, 2007 between Astec Industries, Inc. and
Certain of Its Subsidiaries and Wachovia Bank, National Association
(incorporated by reference from the Company’s Quarterly Report on form
10-Q for the quarter ended March 31, 2007, File No.
001-11595)
|
|
10.19
|
|
Stock
Purchase Agreement by and among Astec Industries, Inc., Peterson, Inc., A.
Neil Peterson, and the Other Shareholders of Peterson, Inc. dated as of
May 31, 2007 (incorporated by reference from the Company’s Quarterly Form
10-Q for the quarter ended June 30, 2007, File No.
001-11595)
|
|
10.20
|
|
First
Amendment to the Credit Agreement between Astec Industries, Inc. and
Certain of Its Subsidiaries and Wachovia Bank, National Association
(incorporated by reference from the Company’s Quarterly Report on form
10-Q for the quarter ended September 30, 2007, File No.
001-11595)
|
|
10.21
|
|
Amendment
to the Supplemental Executive Retirement Plan dated March 8, 2007
originally effective January 1, 1995 (incorporated by reference from the
Conmpany's Annual Report on form 10-k for the year ended December 31,
2007, File No. 001-11595) *
|
|
10.22
|
|
Supplemental
Executive Retirement Plan Amendment and Restatement Effective January 1,
2008, originally effective January 1, 1995 (incorporated by reference from
the Conmpany's Annual Report on form 10-k for the year ended December
31, 2007, File No. 001-11595) *
|
|
10.23
|
|
Stock
Purchase Agreement by and among Astec Industries, Inc., Dillman Equipment,
Inc. and the “Sellers” Referred to Herein dated August 5, 2008
(incorporated by reference from the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2008, File No.
001-11595)
|
|
10.24
|
|
Stock
Purchase Agreement by and among Astec Industries, Inc., Double L
Investments, Inc. and the “Sellers” Referred to Herein dated August 5,
2008 (incorporated by reference from the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008, File No.
001-11595)
|
|
10.25
|
|
Amendment
Number 1 to Astec Industries, Inc. 2006 Incentive Plan
*
|
|
10.26
|
|
Amendment
Number 3 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock
Incentive Plan *
|
|
10.27
|
|
Amendment
Number 1 to Amended and Restated Supplemental Executive Retirement Plan
Effective January 1, 2009, originally effective January 1, 1995
*
|
|
21
|
|
Subsidiaries
of the Registrant
|
|
23
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
31.1
|
|
Certification
of Chief Executive Officer of Astec Industries, Inc. pursuant
Rule 13a-14/15d/14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act Of 2002
|
|
31.2
|
|
Certification
of Chief Financial Officer of Astec Industries, Inc. pursuant
Rule 13a-14/15d/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
|
|
*
|
|
Management
contract or compensatory plan or
arrangement.
|
|
(b)
|
|
The
Exhibits to this Report are listed under Item 15(a)(3)
above.
|
|
(c)
|
|
The
Financial Statement Schedules to this Report are listed under Item
15(a)(2) above.
|
The
Exhibits are numbered in accordance with Item 601 of Regulation
S-K. Inapplicable Exhibits are not included in the
list.
|
to
ANNUAL
REPORT ON FORM 10-K
ITEMS
8 and 15(a)(1), (2)and (3),and 15(b) and 15(c)
INDEX
TO FINANCIAL STATEMENTS AND
FINANCIAL
STATEMENT SCHEDULES
ASTEC
INDUSTRIES, INC.
Contents
|
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Page
|
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A-3
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A-5
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A-19
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A-20
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A-22
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A-23
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A-24
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A-26
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A-27
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A-55
|
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FINANCIAL
INFORMATION
(in
thousands, except as noted*)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
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2004
|
|
Consolidated
Income Statement Data
|
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|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
$
|
973,700
|
|
|
$
|
869,025
|
|
|
$
|
710,607
|
|
|
$
|
616,068
|
|
|
$
|
504,554
|
|
Selling,
general and administrative expenses
|
|
|
|
122,621
|
|
|
|
107,600
|
|
|
|
94,383
|
|
|
|
82,126
|
|
|
|
70,043
|
|
Gain
on sale of real estate,
net of real
estate
impairment charge
1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,531
|
|
|
|
--
|
|
Research
and development
|
|
|
|
18,921
|
|
|
|
15,449
|
|
|
|
13,561
|
|
|
|
11,319
|
|
|
|
8,580
|
|
Income
from operations
|
|
|
|
92,316
|
|
|
|
86,728
|
|
|
|
60,343
|
|
|
|
46,303
|
|
|
|
24,382
|
|
Interest
expense
|
|
|
|
851
|
|
|
|
853
|
|
|
|
1,672
|
|
|
|
4,209
|
|
|
5,033
|
|
Other income (expense),
net
2
|
|
|
|
5,709
|
|
|
|
(202
|
)
|
|
|
167
|
|
|
|
252
|
|
|
|
(19
|
)
|
Income
from continuing operations
|
|
|
|
63,128
|
|
|
|
56,797
|
|
|
|
39,588
|
|
|
|
28,094
|
|
|
|
12,483
|
|
Income
from discontinued operations,
net of tax
3
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,164
|
|
Gain
on disposal of discontinued operations,
net
of tax
of $5,071
3
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,406
|
|
Net
income
|
|
|
|
63,128
|
|
|
|
56,797
|
|
|
|
39,588
|
|
|
|
28,094
|
|
|
|
19,053
|
|
Earnings
per common share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
2.83
|
|
|
|
2.59
|
|
|
|
1.85
|
|
|
|
1.38
|
|
|
|
0.63
|
|
Diluted
|
|
|
|
2.80
|
|
|
|
2.53
|
|
|
|
1.81
|
|
|
|
1.34
|
|
|
|
0.62
|
|
Income
from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
0.33
|
|
Diluted
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
0.33
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
2.83
|
|
|
|
2.59
|
|
|
|
1.85
|
|
|
|
1.38
|
|
|
|
0.96
|
|
Diluted
|
|
|
|
2.80
|
|
|
|
2.53
|
|
|
|
1.81
|
|
|
|
1.34
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
|
$
|
251,263
|
|
|
$
|
204,839
|
|
|
$
|
178,148
|
|
|
$
|
137,981
|
|
|
$
|
106,489
|
|
Total
assets
|
|
|
|
612,812
|
|
|
|
542,570
|
|
|
|
421,863
|
|
|
|
346,583
|
|
|
|
324,818
|
|
Total
short-term debt
|
|
|
|
3,427
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
11,827
|
|
Long-term
debt, less current maturities
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
25,857
|
|
Shareholders’
equity
|
|
|
|
439,226
|
|
|
|
376,589
|
|
|
|
296,166
|
|
|
|
242,742
|
|
|
|
191,256
|
|
Book
value per diluted common share
at
year-end*
|
|
|
|
19.45
|
|
|
|
16.78
|
|
|
|
13.51
|
|
|
|
11.57
|
|
|
|
9.52
|
|
1
During
2005, the Company recognized a gain on the sale of its vacated Grapevine, Texas
facility. In addition, the Company
recognized an
impairment charge on certain other real estate.
2
During the fourth quarter
of 2008, the Company sold certain equity securities for a pre-tax gain of
$6,195,000.
3
The Company sold
substantially all of the assets and liabilities of Superior Industries of
Morris, Inc. on June 30, 2004.
SUPPLEMENTARY
FINANCIAL DATA
(in
thousands, except as noted*)
Quarterly
Financial Highlights
(Unaudited)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
2008
Net
sales
|
|
$
|
263,072
|
|
|
$
|
277,703
|
|
|
$
|
237,443
|
|
|
$
|
195,482
|
|
Gross profit
|
|
|
66,220
|
|
|
|
66,289
|
|
|
|
58,803
|
|
|
|
42,546
|
|
Net income
|
|
|
17,519
|
|
|
|
21,072
|
|
|
|
15,962
|
|
|
|
8,575
|
|
Earnings per common
share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.79
|
|
|
|
0.95
|
|
|
|
0.72
|
|
|
|
0.38
|
|
Diluted
|
|
|
0.78
|
|
|
|
0.93
|
|
|
|
0.71
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Net
sales
|
|
$
|
215,563
|
|
|
$
|
226,414
|
|
|
$
|
206,239
|
|
|
$
|
220,810
|
|
Gross profit
|
|
|
54,373
|
|
|
|
58,943
|
|
|
|
48,561
|
|
|
|
47,901
|
|
Net income
|
|
|
15,334
|
|
|
|
18,505
|
|
|
|
11,574
|
|
|
|
11,384
|
|
Earnings per common
share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.71
|
|
|
|
0.85
|
|
|
|
0.52
|
|
|
|
0.51
|
|
Diluted
|
|
|
0.69
|
|
|
|
0.83
|
|
|
|
0.51
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Price *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
High
|
|
$
|
39.76
|
|
|
$
|
42.38
|
|
|
$
|
37.55
|
|
|
$
|
33.99
|
|
2008
Low
|
|
|
25.51
|
|
|
|
31.16
|
|
|
|
19.40
|
|
|
|
17.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
High
|
|
$
|
40.90
|
|
|
$
|
45.24
|
|
|
$
|
59.36
|
|
|
$
|
60.40
|
|
2007
Low
|
|
|
32.94
|
|
|
|
39.43
|
|
|
|
42.53
|
|
|
|
33.75
|
|
The
Company’s common stock is traded on the National Association of Securities
Dealers Automated Quotation (NASDAQ) National Market under the symbol ASTE.
Prices shown are the high and low bid prices as announced by NASDAQ. The Company
has never paid dividends on its common stock and does not intend to pay
dividends on its common stock in the foreseeable future. As determined by the
proxy search on the record date, the number of common shareholders is
approximately 14,000.
MANAG
EMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion contains forward-looking statements that involve inherent
risks and uncertainties. Actual results may differ materially from those
contained in these forward-looking statements. For additional information
regarding forward-looking statements, see “Forward-looking Statements” on page
A-17.
Overview
Astec
Industries, Inc., (“The Company”) is a leading manufacturer and marketer of road
building equipment. The Company’s businesses:
·
|
design,
engineer, manufacture and market equipment that is used in each phase of
road building, from quarrying and crushing the aggregate to applying the
asphalt;
|
·
|
design,
engineer, manufacture and market equipment and components unrelated to
road construction, including trenching, auger boring, directional
drilling, industrial heat transfer, wood chipping and grinding;
and
|
·
|
manufacture
and sell replacement parts for equipment in each of its product
lines.
|
The
Company has 14 manufacturing companies, 13 of which fall within four reportable
operating segments, which include the Asphalt Group, the Aggregate and Mining
Group, the Mobile Asphalt Paving Group and the Underground Group. The business
units in the Asphalt Group design, manufacture and market a complete line of
asphalt plants and related components, heating and heat transfer processing
equipment and storage tanks for the asphalt paving and other unrelated
industries. In early 2009, the Company introduced a new line of concrete mixing
plants. The business units in the Aggregate and Mining Group design, manufacture
and market equipment for the aggregate, metallic mining and recycling
industries. The business units in the Mobile Asphalt Paving Group design,
manufacture and market asphalt pavers, material transfer vehicles, milling
machines, stabilizers and screeds. The business units in the Underground Group
design, manufacture and market a complete line of trenching equipment,
directional drills and auger boring machines for the underground construction
market as well as vertical drills for gas and oil field development. 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 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
highways and other 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
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 September 30, 2008 a funding bill for the 2009
fiscal year, which fully funds the highway program at $41.2
billion.
On
February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009. The measure includes approximately $27.5 billion for
highway and bridge construction activities. These funds are in addition to the
expected $41.2 billion investment related to the federal highway program for
fiscal year 2009. The measure requires the funding to be apportioned to the
states within 21 days of the bill’s enactment. Half of the funds must be
obligated by the states within 120 days with the remaining portion required to
be under contract one year after the bill’s enactment. The bill also proposes a
continuation of the 50% bonus tax depreciation for 2009 and an increase of the
Section 179 deduction to $250,000.
The
Canadian government has approved spending $9.5 billion on road, bridge, public
transit, water and other infrastructure over the next two years. The list of
approximately 2,200 “shovel-ready” projects, derived from a survey of federation
members, range from simple rehabilitation to major new construction.
The
Company believes the spending programs will have a positive impact on its
financial performance, however, the magnitude of that impact cannot be
determined.
The
public sector spending described above is needed to fund road, bridge and mass
transit improvements. The Company believes that increased funding is
unquestionably needed to restore the nation’s highways to a quality level
required for safety, fuel efficiency and mitigation of congestion. In the
Company’s opinion, amounts needed for such improvements are significantly above
amounts approved, and funding mechanisms such as the federal usage fee per
gallon of gasoline, which has not been increased in 15 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 typically have the effect of negatively impacting
customers’ attitudes toward purchasing equipment. Although the Federal Reserve
has recently made significant reductions to interest rates in response to the
current economic downturn, the Company expects only slight changes, if any, in
interest rates in 2009 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 involved in
the production, handling and installation of asphalt mix. A major component of
asphalt is oil. An increase in the price of oil increases the cost of providing
asphalt, which could likely decrease demand for asphalt, and therefore, decrease
demand for certain Company products. While increasing oil prices may have an
impact on the Company’s customers, the Company’s equipment can use a significant
amount of recycled asphalt pavement, thereby mitigating the cost of asphalt for
the customer. The Company continues to develop products and initiatives to
reduce the amount of oil and related products required to produce asphalt mix.
Oil price volatility makes it difficult to predict the costs of oil-based
products used in road construction such as liquid asphalt and gasoline. The
Company’s customers appear to be adapting their prices in response to the
fluctuating oil prices and the fluctuations did not appear to significantly
impair equipment purchases in 2008. The Company expects oil prices to continue
to fluctuate in 2009 but does not foresee the fluctuation to have a significant
impact on customers’ buying decisions.
Steel is
a major component in the Company’s equipment. Steel prices retracted somewhat
during 2005 and 2006 from record highs during 2004 but returned to historically
high levels during 2008. Steel prices increased significantly during the first
eight months of 2008, and the Company increased sales prices during the first
half of 2008 to offset these rising steel costs. Late in the third quarter of
2008, steel prices began to retreat from their 2008 highs. Steel pricing
declined sharply in the fourth quarter of 2008. We expect fourth quarter pricing
to continue through the first quarter of 2009 and pricing levels throughout 2009
to remain well below the peak levels reached in the third quarter of 2008.
However, moderate increases are possible during 2009 due to reduced mill output
and reductions in automotive and appliance output which reduce the amount of
high-quality scrap, a prime input factor for steel pricing. In addition,
spending under the American Recovery and Reinvestment Act of 2009 may impact
steel prices by slowing the price retraction or even causing steel prices to
rise. Although the Company would institute price increases in response to rising
steel and component prices, if the Company is not able to raise the prices of
its products enough to cover increased costs, 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.
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. During
most of 2008, the reduced value of the dollar relative to many foreign
currencies and the positive economic conditions in certain foreign economies had
a positive impact on the Company’s international sales. During the latter months
of 2008, the dollar began to strengthen as the current economic recession began
to have an impact around the world.
In the
United States and internationally, the Company’s equipment is marketed directly
to customers as well as through dealers. During 2008, approximately 75% to 80%
of equipment sold by the Company was sold directly to the end user.
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 distributions in the aggregate up to 10% of the 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 distributions for subsidiary
presidents are paid from a separate corporate pool.
Results
of Operations; 2008 vs. 2007
The
Company generated net income for 2008 of $63,128,000, or $2.80 per diluted
share, compared to net income of $56,797,000, or $2.53 per diluted share, in
2007. The weighted average number of diluted common shares outstanding at
December 31, 2008 was 22,585,775 compared to 22,444,866 at December 31,
2007.
Net sales
for 2008 were $973,700,000, an increase of $104,675,000, or 12.0%, compared to
net sales of $869,025,000 in 2007. The increase in net sales in 2008 occurred in
both domestic and international sales and was primarily due to the continued
weakness of the dollar against foreign currencies and strong economic conditions
internationally during most of 2008.
In 2008,
international sales increased $74,377,000, or 26.7%, to $352,713,000 compared to
international sales of $278,336,000 in 2007. International sales increased the
most in Asia, followed by Canada, Africa, South America and Central America.
These increases are due primarily to continued weakness of the dollar against
these currencies and strong local economic conditions in these geographic areas
during most of 2008.
In 2008,
domestic sales increased $30,297,000 or 5.1%, to $620,987,000 compared to
domestic sales of $590,690,000 in 2007. Domestic sales are primarily generated
from equipment purchases made by customers for use in construction for privately
funded infrastructure development and public sector spending on infrastructure
development.
Parts
sales were $204,912,000 in 2008 compared to $186,146,000 in 2007 for an increase
of 10.1%. The increase of $18,766,000 was generated mainly by the Underground
Group and the Asphalt Group. The increase was primarily due to strong economic
conditions both domestically and abroad, increased parts marketing efforts and
growth in the active machine population.
Gross
profit increased from $209,778,000 in 2007 to $233,858,000 in 2008. The gross
profit as a percentage of net sales decreased 10 basis points from 24.1% in 2007
to 24.0% in 2008. The primary factor that caused this decrease in gross profit
as a percentage of net sales was an increase in overhead of $5,520,000 in 2008
as compared to 2007. The increase in overhead is due primarily to manufacturing
process improvement projects, as well as the impact of slowing economic activity
during the second half of the year resulting in lower absorption of overhead. As
these improvement projects occurred, the flow of production was disrupted and
certain production resources were used to complete the projects, thus creating
inefficiencies which resulted in excess production costs. Steel and component
cost increases were offset by sales price increases, redesign of the product,
and improvements in the manufacturing process.
In 2008,
selling, general and administrative (“SG&A”) expenses increased $15,021,000
or 14.0% to $122,621,000, or 12.6% of 2008 net sales from $107,600,000 or 12.4%
of net sales in 2007. The increase in SG&A in 2008 compared to 2007 was
primarily due to increases in personnel related expenses of $7,790,000, sales
commissions of $1,424,000, and health insurance of $2,911,000. In addition,
ConExpo costs of $3,594,000 were expensed in 2008.
Research
and development expenses increased by $3,472,000, or 22.5%, from $15,449,000 in
2007 to $18,921,000 in 2008. The increase is related to the development of new
products and improvement of current products.
Interest
expense for 2008 remained flat at $851,000 from $853,000 in 2007. This equates
to 0.1% of net sales in both 2008 and 2007.
Interest
income decreased $1,845,000, or 67.5%, to $888,000 in 2008 from $2,733,000 in
2007. The decrease is primarily due to a reduction in cash available for
investment due to business acquisitions in 2008.
Other
income (expense), net was income of $5,709,000 in 2008 compared to expense of
$202,000 in 2007. The net change in other income from 2007 to 2008 was due
primarily to gains on the sale of investments.
For 2008,
the Company had an overall income tax expense of $34,767,000, or 35.5% of
pre-tax income compared to the 2007 tax expense of $31,398,000, or 35.5% of
pre-tax income.
Earnings
per share for 2008 were $2.80 per diluted share compared to $2.53 per diluted
share for 2007, a 10.7% increase.
The
backlog at December 31, 2008 was $193,316,000 compared to $280,923,000,
including the backlogs of Dillman and Astec Australia, at December 31, 2007, a
31.2% decrease. The international backlog at December 31, 2008 was $87,693,000
compared to $88,842,000 at December 31, 2007, a decrease of $1,149,000 or 1.3%.
The domestic backlog at December 31, 2008 was $105,623,000 compared to
$192,081,000 at December 31, 2007, a decrease of $86,458,000 or 45.0%. The
backlog decreased $47,691,000 in the Aggregate and Mining Group, followed by a
decrease of $27,135,000 in the Asphalt Group. The Company is unable to determine
whether this backlog effect was experienced by the industry as a whole, however,
the Company believes the decreased backlog reflects the current economic
conditions the industry is experiencing.
Asphalt
Group: During 2008, this segment had sales of $257,336,000 compared to
$240,229,000 for 2007, an increase of $17,107,000, or 7.1%. Asphalt Group sales
increased both domestically and internationally. International sales
increased primarily in Canada and Central America. Segment profits for 2008 were
$40,765,000 compared to $37,707,000 for 2007, an increase of $3,058,000, or
8.1%. The focus on product improvement and cost reduction through the Company’s
focus group initiative as well as price increases and increased international
sales impacted gross profits and segment income during 2008.
Aggregate
and Mining Group: During 2008, sales for this segment increased $12,167,000, or
3.6%, to $350,350,000 compared to $338,183,000 for 2007. The primary increase in
sales was attributable to increased international sales in Asia, Africa and
South America. Domestic sales for the Aggregate and Mining Group were down 12.3%
compared to 2007. Segment profits for 2008 decreased $1,860,000, or 4.8%, to
$37,032,000 from $38,892,000 for 2007. The primary reasons for the decrease in
segment profits was ConExpo expenses of $1,578,000 in 2008 and weakening sales
volume and gross profit in the fourth quarter of 2008.
Mobile
Asphalt Paving Group: During 2008, sales for this segment increased $4,203,000,
or 2.9%, to $150,692,000 from $146,489,000 in 2007. The increase in sales in
2008 compared to 2007 was attributable to international sales. International
sales increased in Europe, Canada and South America. Domestic sales decreased
slightly year over year. Segment profits for 2008 decreased $2,798,000, or
15.6%, to $15,087,000 from $17,885,000 for 2007. The decrease in segment profits
was primarily due to increased research and development costs, ConExpo expenses
of $665,000 in 2008 and weakening sales volume and gross profit in the fourth
quarter of 2008.
Underground
Group: During 2008, sales for this segment increased $20,774,000, or 18.2%, to
$135,152,000 from $114,378,000 for 2007. International sales for this group
increased in South America, Africa, China, Japan and Korea. Segment profits for
2008 increased $5,163,000 from $7,348,000 in 2007 to $12,511,000 in 2008. The
sales and profit increase is primarily due to market acceptance of new
products.
Other:
During 2008, sales for this segment increased $50,424,000, or 169.5%, to
$80,170,000 from $29,746,000 in 2007. $42,337,000 of this increase is due to the
acquisitions of Peterson and Astec Australia.
Results
of Operations; 2007 vs. 2006
The
Company generated net income for 2007 of $56,797,000, or $2.53 per diluted
share, compared to net income of $39,588,000, or $1.81 per diluted share, in
2006. The weighted average number of diluted common shares outstanding at
December 31, 2007 was 22,444,866 compared to 21,917,123 at December 31,
2006.
Net sales
for 2007 were $869,025,000, an increase of $158,418,000, or 22.3%, compared to
net sales of $710,607,000 in 2006. The increase in net sales in 2007 occurred in
both domestic and international sales and was primarily due to the continued
weakness of the dollar against foreign currencies and strong economic conditions
internationally and domestically.
In 2007,
international sales increased $86,185,000, or 44.9%, to $278,336,000 compared to
international sales of $192,151,000 in 2006. International sales increased the
most in Australia, followed by Canada and South America. These increases are due
primarily to continued weakness of the dollar against these currencies and
improving local economic conditions in these geographic areas.
In 2007,
domestic sales increased $72,234,000 or 13.9%, to $590,690,000 compared to
domestic sales of $518,456,000 in 2006. Domestic sales are primarily generated
from equipment purchases made by customers for use in construction for privately
funded infrastructure development and public sector spending on infrastructure
development.
Parts
sales were $186,146,000 in 2007 compared to $165,487,000 in 2006 for an increase
of 12.5%. The increase of $20,659,000 was generated mainly by the Underground
Group and the Aggregate and Mining Group. The increase was primarily due to
improving economic conditions both domestically and abroad and increased parts
marketing efforts.
Gross
profit increased from $168,287,000 in 2006 to $209,778,000 in 2007. As a result,
the gross profit as a percentage of net sales increased 40 basis points from
23.7% in 2006 to 24.1% in 2007. The primary factors that caused this increase in
gross profit were increased international sales, increased parts sales, price
increases and the impact of the Company’s cost and design initiative programs.
These improvements in gross profit were offset by an increase in overhead of
$3,214,000 in 2007 as compared to 2006. The increase in overhead is due
primarily to the facility expansion projects at certain subsidiaries. As these
improvement projects occurred, the flow of production was disrupted and certain
production resources were used to complete the projects, thus creating
inefficiencies which resulted in excess production costs.
In 2007
selling, general and administrative (“SG&A”) expenses increased $13,217,000
or 14.0% to $107,600,000, or 12.4% of 2007 net sales from $94,383,000 or 13.3%
of net sales in 2006. The increase in SG&A in 2007 compared to 2006 was
primarily due to increases in personnel related expenses of $4,462,000, profit
sharing expense of $1,842,000, sales commissions of $1,745,000, travel, lodging
and meals expense of $1,780,000 and depreciation of $814,000. Each of these
expenses increased in anticipation of or as a result of increased sales
volumes.
Research
and development expenses increased by $1,888,000, or 13.9%, from $13,561,000 in
2006 to $15,449,000 in 2007. The increase is related to the development of new
products and improvement of current products.
Interest
expense for 2007 decreased by $819,000, or 49.0%, to $853,000 from $1,672,000 in
2006. This equates to 0.1% of net sales in 2007 compared to 0.2% of net sales
for 2006. During April, 2007 the Company entered into a new credit agreement
which reduced the interest charged related to the revolving credit line and
letters of credit.
Interest
income increased $1,264,000, or 86.0%, to $2,733,000 in 2007 from $1,469,000 in
2006. The increase is primarily due to a higher investment of excess cash in
2007 compared to 2006.
Other
income (expense), net was an expense of $202,000 in 2007 compared to income of
$167,000 in 2006. The net change in other income from 2006 to 2007 was due
primarily to an increase in losses on foreign currency
transactions.
For 2007,
the Company had an overall income tax expense of $31,398,000, or 35.5% of
pre-tax income compared to the 2006 tax expense of $20,638,000, or 34.2% of
pre-tax income. The primary reason for the increase in the effective tax rate in
2007 compared to 2006 is the repeal of the Extra-Territorial Income Exclusion
for 2007.
Earnings
per share for 2007 were $2.53 per diluted share compared to $1.81 per diluted
share for 2006, resulting in a 39.8% increase.
The
backlog at December 31, 2007 was $272,422,000 compared to $246,240,000,
including Peterson, at December 31, 2006, a 10.6% increase. The backlog
increased $13,804,000 in the Asphalt Group, followed by increases of $3,661,000
in the Aggregate and Mining Group, and $3,638,000 in the Underground Group. The
Company is unable to determine whether this backlog effect was experienced by
the industry as a whole. The Company believes the increased backlog reflects
increased international sales demand relating to the weak dollar and strong
foreign economies along with the impact of federal funding under
SAFETEA-LU.
Asphalt
Group: During 2007, this segment had sales of $240,229,000 compared to
$186,657,000 for 2006, an increase of $53,572,000, or 28.7%. Asphalt Group sales
increased both domestically and internationally. The international
sales increased primarily in Australia and South America. Segment profits for
2007 were $37,707,000 compared to $24,387,000 for 2006, an increase of
$13,320,000, or 54.6%. The focus on product improvement and cost reduction
through the Company’s focus group initiative as well as price increases and
increased international sales impacted gross profits and segment income during
2007.
Aggregate
and Mining Group: During 2007, sales for this segment increased $48,712,000, or
16.8%, to $338,183,000 compared to $289,471,000 for 2006. The primary increase
in sales was attributable to increased international sales. Domestic sales for
the Aggregate and Mining Group were flat compared to 2006. International sales
increased primarily in Canada, South America and the Middle East. Segment
profits for 2007 increased $5,629,000, or 16.9%, to $38,892,000 from $33,263,000
for 2006. Profits improved due to increased international sales and increased
parts sales.
Mobile
Asphalt Paving Group: During 2007, sales for this segment increased $17,104,000,
or 13.2%, to $146,489,000 from $129,385,000 in 2006. The increase in sales in
2007 compared to 2006 was almost evenly split between international and domestic
sales. International sales improved in Australia, Southeast Asia, Europe and
South America. Segment profits for 2007 increased $3,517,000, or 24.5%, to
$17,885,000 from $14,368,000 for 2006. Segment profits were positively impacted
by both improved machine sales volume and parts sales volume.
Underground
Group: During 2007, sales for this segment increased $9,284,000, or 8.8%, to
$114,378,000 from $105,094,000 for 2006. This increase is due primarily to
increased sales of large trenchers, directional drills and auger boring
machines. International sales for this group increased slightly compared to
2006. Segment profits for 2007 increased $2,482,000 from $4,866,000 in 2006 to
$7,348,000 in 2007.
Other:
The sales of $29,746,000 in this segment in 2007 were generated by Peterson
Pacific Corp. which was acquired on July 1, 2007. There were no sales in this
segment in 2006.
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 million revolving credit
facility and cash flows from operations. Cash available for operating purposes
was $9,674,000 at December 31, 2008. The Company had $3,129,000 of borrowings
under its credit facility with Wachovia Bank, National Association (“Wachovia”)
at December 31, 2008. Net of letters of credit of $10,734,000, the Company had
borrowing availability of $86,137,000 on its credit facility at December 31,
2008.
During
April 2007, the Company entered into an unsecured credit agreement with Wachovia
whereby Wachovia has 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
$15,000,000. The Wachovia credit agreement replaced the previous $87,500,000
secured credit facility the Company had in place with General Electric Capital
Corporation and General Electric Capital-Canada.
The
Wachovia credit facility has an original term of three years (which is subject
to further extensions as provided therein). Early in 2009, the Company exercised
its right to extend the credit facility’s term one additional year. An
additional one year extension is available. The interest rate for borrowings is
a function of the Adjusted LIBOR Rate or Adjusted LIBOR Market Index Rate, as
defined, as elected by the Company, plus a margin based upon a leverage ratio
pricing grid ranging between 0.5% and 1.5%. As of December 31, 2008, the
applicable margin based upon the leverage ratio pricing grid was equal to 0.5%.
The unused facility fee is 0.125%. The interest rate at December 31, 2008 was
0.94%. 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 interest at the Adjusted LIBOR Rate, at the end of the applicable
interest period. The Wachovia credit agreement contains certain financial
covenants including a minimum fixed charge coverage ratio, minimum tangible net
worth and maximum allowed capital expenditures. The borrowings are classified as
current liabilities as the Company plans to repay the debt within the next 12
months.
The
Company was in compliance with the covenants under its credit facility as of
December 31, 2008.
The
Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $5,978,000 (ZAR
50,000,000) to finance short-term working capital needs, as well as to cover the
short-term establishment of letter of credit performance guarantees. As of
December 31, 2008, Osborn had $298,000 outstanding borrowings under the credit
facility at 15% interest, and approximately $1,854,000 in performance bonds
which were guaranteed under the facility. The facility is secured by Osborn’s
buildings and improvements, accounts receivable 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 seventy-five percent (75%) of Osborn’s accounts receivable
and total cash balances at the end of the prior month as well as buildings and
improvements of $1,983,000. As of December 31, 2008, Osborn had available credit
under the facility of approximately $3,826,000. The facility expires on July 30,
2009 and the Company plans to renew the facility prior to expiration. There is
no unused facility fee.
Net cash
provided by operating activities for the year ended December 31, 2008 was
$10,038,000 compared to $45,744,000 for the year ended December 31, 2007. The
decrease in cash provided by operating activities is primarily due to an
increase in cash used for inventory of $28,195,000, an increase in cash used to
reduce other accrued liabilities of $10,588,000, a decrease in customer deposits
of $14,511,000, increases in cash used for income taxes payable of $8,175,000
and cash used to pay down accounts payable of $10,733,000. These uses of cash
were offset by increased earnings of $6,331,000, cash provided by accounts
receivable of $21,771,000 and increases in the provision for warranty of
$5,820,000.
Cash
flows used by investing activities for the year ended December 31, 2008 were
$41,438,000 compared to $68,261,000 for the year ended December 31, 2007. During
2008, the Company purchased Dillman Equipment, Inc. and Double L Investments,
Inc. using net cash of $16,493,000. In addition, the Company purchased Q-Pave
Pty Ltd assets using $1,797,000 of cash and increased expenditures for property
and equipment of $1,481,000 in 2008 over 2007. These current year uses of cash
were offset by cash proceeds of $16,500,000 from the sale of investments
compared to $10,305,000 used to purchase investments in 2007. Investing cash
flows were impacted in 2007 by the purchase of Peterson Pacific Corp. for net
cash of $19,656,000.
Cash
provided by financing activities was $7,624,000 in 2008 compared to $11,935,000
in 2007. Financing cash flows were primarily impacted by a reduction of
$12,175,000 in cash provided by stock options exercised and the related tax
benefits in 2008 compared to 2007, partially offset by a reduction in the cash
used to pay off debt assumed in business acquisitions of $6,588,000. In
addition, net borrowings increased $3,427,000 in 2008.
Capital
expenditures in 2009 are budgeted to be approximately $30,473,000. The Company
expects to finance these expenditures using cash currently available, the
available capacity under the Company’s revolving credit facility and internally
generated funds. Capital expenditures for 2008 were $39,932,000 compared to
$38,451,000 in 2007.
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 December 31, 2009.
Financial
Condition
The
Company’s current assets increased from $348,732,000 at December 31, 2007 to
$395,099,000 at December 31, 2008, an increase of $46,367,000, or 13.3%. The
increase is primarily attributable to a $74,999,000 increase in inventory. This
increase was offset by decreases in cash of $24,963,000 and trade receivables of
$12,568,000. The increase in inventory is due primarily to increased levels of
finished goods and raw materials acquired in the acquisitions of Dillman
Equipment, Inc. and Astec Australia Pty Ltd. as well as inventory purchased to
meet the Company’s increased demand during 2008 and weakened sales in the fourth
quarter of 2008. The increase in inventory resulted in the Company’s inventory
turn ratio decreasing from 3.45 at December 31, 2007 to 2.91 at December 31,
2008. The decrease in cash is primarily due to the acquisitions mentioned above.
The decrease in receivables is primarily due to the decrease in the Company’s
sales volume during the fourth quarter of 2008.
Property
and Equipment, net, increased $27,602,000 from $141,528,000 at December 31, 2007
to $169,130,000 at December 31, 2008. The increase is primarily a result of
capital expenditures for fixed assets of $39,932,000 and additions due to
business acquisitions of $6,621,000, offset by current year depreciation of
$16,657,000.
The
long-term portion of the Company’s investments decreased by $8,617,000 from
$18,529,000 at December 31, 2007 to $9,912,000 at December 31, 2008. This
decrease is primarily attributed to the sale of certain investments during the
fourth quarter of 2008 for a pre-tax gain of $6,195,000, which is included in
other income.
Market
Risk and Risk Management Policies
The
Company is exposed to changes in interest rates, primarily from its revolving
credit agreements. At December 31, 2008 and 2007, the Company did not have
interest rate derivatives in place. A hypothetical 100 basis point adverse move
(increase) in interest rates would not have materially affected interest expense
for the year ended December 31, 2008, since there were only minimal amounts
outstanding on the revolving credit agreements during most of the
year.
The
Company is subject to foreign exchange risk at its foreign operations. Foreign
operations represent 9.9% of total assets at December 31, 2008 and 2007 and 7.6%
and 7.4% of total revenue for the years ended December 31, 2008 and 2007,
respectively. Each period the balance sheets and related results of operations
are translated from their functional foreign currency into U.S. dollars for
reporting purposes. As the dollar strengthens against those foreign currencies,
the foreign denominated net assets and operating results become less valuable in
the Company’s reporting currency. When the dollar weakens against those
currencies the foreign denominated net assets and operating results become more
valuable in the Company’s reporting currency. At each reporting date, the
fluctuation in the value of the net assets and operating results due to foreign
exchange rate changes is recorded as an adjustment to other comprehensive income
in shareholders’ equity.
From time
to time the Company’s foreign subsidiaries enter into transactions not
denominated in their functional currency. In these situations, the Company
evaluates the need to hedge those transactions against foreign currency rate
fluctuations. Where the Company determines a need to hedge a transaction, the
subsidiary enters into a foreign currency hedge. The Company does not apply
hedge accounting to these contracts and, therefore, recognizes the fair value of
these contracts in the consolidated balance sheet and the change in the fair
value of the contracts in current earnings.
Due to
the limited exposure to foreign exchange rate risk, a 10% fluctuation in the
foreign exchange rates at December 31, 2008 or 2007 would not have a material
impact on the Company’s consolidated financial statements.
Aggregate
Contractual Obligations
The
following table discloses aggregate information about the Company’s contractual
obligations and the period in which payments are due as of December 31,
2008:
|
|
|
Payments
Due by Period
|
|
Contractual
Obligations
|
|
|
Total
|
|
|
Less
Than
1
Year
|
|
|
1
to 3 Years
|
|
|
3
to 5 Years
|
|
|
More
Than
5
Years
|
|
Operating
lease obligations
|
|
|
$
|
3,079,000
|
|
|
$
|
1,460,000
|
|
|
$
|
1,559,000
|
|
|
$
|
44,000
|
|
|
$
|
16,000
|
|
Inventory
purchase obligations
|
|
|
|
1,957,000
|
|
|
|
1,901,000
|
|
|
|
56,000
|
|
|
|
--
|
|
|
|
--
|
|
Debt
obligations
|
|
|
|
3,427,000
|
|
|
|
298,000
|
|
|
|
3,129,000
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
$
|
8,463,000
|
|
|
$
|
3,659,000
|
|
|
$
|
4,744,000
|
|
|
$
|
44,000
|
|
|
$
|
16,000
|
|
The table
excludes our liability for unrecognized tax benefits, which totaled $939,000 at
December 31, 2008 since we cannot predict with reasonable reliability the timing
of cash settlements to the respective taxing authorities.
Although
the Company’s borrowings under its Wachovia credit line are classified as
current at December 31, 2008 because the Company intends to repay the amounts
within twelve months, the amounts are not contractually due until the expiration
of the credit agreement in May 2011 and, therefore, are shown in the above
schedule as due in 1 to 3 years.
In 2008,
the Company made contributions of approximately $562,000 to its pension plan and
$313,000 to its post-retirement benefit plans, for a total of $875,000, compared
to $1,060,000 in 2007. The Company estimates that it will contribute a total of
approximately $248,000 to the pension and post-retirement plans during 2009. The
Company’s funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
Contingencies
Management
has reviewed all claims and lawsuits and, upon the advice of counsel, has made
adequate provision for any losses that can be reasonably estimated. However, the
Company is unable to predict the ultimate outcome of the outstanding claims and
lawsuits.
Certain
customers have financed purchases of the Company’s products through arrangements
in which the Company is contingently liable for customer debt and residual value
guarantees aggregating $241,000 and $776,000 at December 31, 2008 and 2007,
respectively. These obligations have average remaining terms of two years. There
are no recorded liabilities related to these guarantees.
The
Company is contingently liable under letters of credit of approximately
$10,734,000, primarily for performance guarantees to customers or insurance
carriers.
Off-balance
Sheet Arrangements
As of
December 31, 2008 the Company does not have any off-balance sheet arrangements
as defined by Item 303(a)(4) of Regulation S-K.
Environmental
Matters
The
Company has received notice that Johnson Crushers International, Inc. is subject
to an enforcement action brought by the U.S. Environmental Protection Agency and
the Oregon Department of Environmental Quality related to an alleged failure to
comply with federal and state air permitting regulations. Each agency is
expected to seek sanctions that will include monetary penalties. No penalty has
yet been proposed. The Company believes that it has cured the alleged violations
and is cooperating fully with the regulatory agencies. At this stage of the
investigations, the Company is unable to predict the outcome and the amount of
any such sanctions.
The
Company has also received notice from the Environmental Protection Agency 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 notice. 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.
Critical
Accounting Policies
The
Company’s consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. Application of
these principles requires the Company to make estimates and judgments that
affect the amounts as reported in the consolidated financial statements.
Accounting policies that are critical to aid in understanding and evaluating the
results of operations and financial position of the Company include the
following:
Inventory
Valuation: Inventories are valued at the lower of cost or market. The most
significant component of the Company’s inventories is steel. Open market prices,
which are subject to volatility, determine the cost of steel for the Company.
During periods when open market prices decline, the Company may need to provide
an allowance to reduce the carrying value of the inventory. In addition, certain
items in inventory become obsolete over time, and the Company establishes an
allowance to reduce the carrying value of these items to their net realizable
value. The amounts in these inventory allowances are determined by the Company
based on estimates, assumptions and judgments made from the information
available at that time. Historically, inventory reserves have been sufficient to
provide for proper valuation of the Company’s inventory. The Company does not
believe it is reasonably likely that the inventory allowances will materially
change in the near future.
Self-Insurance
Reserves: The Company is insuring the retention portion of workers compensation
claims and general liability claims by way of a captive insurance company, Astec
Insurance Company (“Astec Insurance” or “the captive”). The objectives of Astec
Insurance are to improve control over and reduce retained loss costs; to improve
focus on risk reduction with development of a program structure which rewards
proactive loss control; and to ensure active management participation in the
defense and settlement process for claims.
For
general liability claims, the captive is liable for the first $1 million per
occurrence and $2.5 million per year in the aggregate. The Company carries
general liability, excess liability and umbrella policies for claims in excess
of those covered by the captive.
For
workers compensation claims, the captive is liable for the first $350,000 per
occurrence and $4.0 million per year in the aggregate. The Company utilizes a
third-party administrator for workers compensation claims administration and
carries insurance coverage for claims liabilities in excess of amounts covered
by the captive.
The
financial statements of the captive are consolidated into the financial
statements of the Company. The short-term and long-term reserves for claims and
potential claims related to general liability and workers compensation under the
captive are included in Accrued Loss Reserves and Other Long-Term Liabilities,
respectively, in the consolidated balance sheets depending on the expected
timing of future payments. 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. However,
the Company does not believe it is reasonably likely that the reserve level will
materially change in the near future.
At all
but one of the Company’s domestic manufacturing subsidiaries, the Company is
self-insured for health and prescription claims under its Group Health Insurance
Plan. The Company carries reinsurance coverage to limit its exposure for
individual health claims above certain limits. Third parties administer health
claims and prescription medication claims. The Company maintains a reserve for
the self-insured health and prescription plans which is included in accrued loss
reserves on the Company’s consolidated balance sheets. This reserve includes
both unpaid claims and an estimate of claims incurred but not reported, based on
historical claims and payment experience. Historically the reserves have been
sufficient to provide for claims payments. Changes in actual claims experience,
or payment patterns, could cause the reserve to change, but the Company does not
believe it is reasonably likely that the reserve level will materially change in
the near future.
The
remaining U.S. subsidiary is covered under a fully insured group health plan.
Employees of the Company’s foreign subsidiaries are insured under health plans
in accordance with their local governmental requirements. No reserves are
necessary for these fully insured health plans.
Product
Warranty Reserve: The Company accrues for the estimated cost of product
warranties at the time revenue is recognized. We evaluate our warranty
obligations by product line or model based on historical warranty claims
experience. For machines, our standard product warranty terms generally include
post-sales support and repairs of products at no additional charge for periods
ranging from three months to one year or up to a specified number of hours of
operation. For parts from our component suppliers, we rely on the original
manufacturer’s warranty that accompanies those parts and make no additional
provision for warranty claims. Generally, our fabricated parts are not covered
by specific warranty terms. Although failure of fabricated parts due to material
or workmanship is rare, if it occurs, our policy is to replace fabricated parts
at no additional charge.
We engage
in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of our component suppliers. Our estimated
warranty obligation is based upon warranty terms, product failure rates, repair
costs and current period machine shipments. If actual product failure rates,
repair costs, service delivery costs or post-sales support costs differ from our
estimates, revisions to the estimated warranty liability would be required. The
Company does not believe it is reasonably likely that the warranty reserve will
materially change in the near future.
Pension
and Post-retirement Benefits: The determination of obligations and expenses
under the Company’s pension and post-retirement benefit plans is dependent on
the selection of certain assumptions used by the Company’s independent actuaries
in calculating such amounts. Those assumptions are described in Note 11 to the
consolidated financial statements and include among others, the discount rate,
expected return on plan assets and the expected rates of increase in health care
costs. In accordance with accounting principles generally accepted in the United
States, actual results that differ from assumptions are accumulated and
amortized over future periods and, therefore, generally affect the recognized
expense in such periods. The Company has determined that a 1% change in either
the discount rate or the rate of return on plan assets would not have a material
effect on the financial condition or operating performance of the
Company.
Revenue
Recognition: Revenue is generally recognized on sales at the point in time when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, the product has been shipped and there is reasonable assurance of
collection of the sales proceeds. The Company generally obtains purchase
authorizations from its customers for a specified amount of product at a
specified price with specified delivery terms. A significant portion of the
Company’s equipment sales represents equipment produced in the Company’s plants
under short-term contracts for a specific customer project or equipment designed
to meet a customer’s specific requirements. Certain contracts include terms and
conditions through which the Company recognizes revenues upon completion of
equipment production, which is subsequently stored at the Company’s plant at the
customer’s request. In accordance with Staff Accounting Bulletin 104, revenue is
recorded on such contracts upon the customer’s assumption of title and risk of
ownership and when collectability is reasonably assured. In addition, there must
be a fixed schedule of delivery of the goods consistent with the customer’s
business practices, the Company must not have retained any specific performance
obligations such that the earnings process is not complete and the goods must
have been segregated from the Company’s inventory.
The
Company has certain sales accounted for as multiple-element arrangements,
whereby related revenue on each product is recognized when it is shipped, and
the related service revenue is recognized when the service is performed. The
Company evaluates sales with multiple deliverable elements (such as an agreement
to deliver equipment and related installation services) to determine whether
revenue related to individual elements should be recognized separately, or as a
combined unit. In addition to the previously mentioned general revenue
recognition criteria, the Company only recognizes revenue on individual
delivered elements when there is objective and reliable evidence that the
delivered element has a determinable value to the customer on a standalone basis
and there is no right of return.
Goodwill
and Other Intangible Assets: In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” (“SFAS 142”), we classify intangible assets into three
categories: (1) intangible assets with definite lives subject to amortization,
(2) intangible assets with indefinite lives not subject to amortization, and (3)
goodwill. We test intangible assets with definite lives for impairment if
conditions exist that indicate the carrying value may not be recoverable. Such
conditions may include an economic downturn in a geographic market or a change
in the assessment of future operations. We record an impairment charge when the
carrying value of the definite lived intangible asset is not recoverable by the
cash flows generated from the use of the asset.
Intangible
assets with indefinite lives and goodwill are not amortized. We test these
intangible assets and goodwill for impairment at least annually or more
frequently if events or circumstances indicate that such intangible assets or
goodwill might be impaired. We perform our impairment tests of goodwill at our
reporting unit level. The Company’s reporting units are defined as its
subsidiaries because each is a legal entity that is managed separately and
manufactures and distributes distinct product lines. Such impairment tests for
goodwill include comparing the fair value of the respective reporting unit with
its carrying value, including goodwill. We use a variety of methodologies in
conducting these impairment tests, including discounted cash flow analyses and
market analyses. When the fair value is less than the carrying value of the
intangible assets or the reporting unit, we record an impairment charge to
reduce the carrying value of the assets to fair value.
We
determine the useful lives of our identifiable intangible assets after
considering the specific facts and circumstances related to each intangible
asset. Factors we consider when determining useful lives include the contractual
term of any agreement, the history of the asset, the Company’s long-term
strategy for the use of the asset, any laws or other local regulations which
could impact the useful life of the asset, and other economic factors, including
competition and specific market conditions. Intangible assets that are deemed to
have definite lives are amortized, generally on a straight-line basis, over
their useful lives, ranging from 3 to 15 years.
Income
Taxes: Income taxes are based on pre-tax financial accounting income. Deferred
tax assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts. The Company periodically assesses the need to establish a
valuation allowance against its deferred tax assets to the extent the Company no
longer believes it is more likely than not that the tax assets will be fully
utilized. The major circumstance that affects the Company’s valuation allowance
is each subsidiary’s ability to utilize any available state net operating loss
carryforwards. If the subsidiaries that generated the loss carryforwards
generate higher than expected future income, the valuation allowance will
decrease. If these subsidiaries generate future losses, the valuation allowance
may increase.
In
accordance with FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes: an interpretation of FASB Statement 109, Accounting for Income Taxes”,
(“FIN 48”), the Company evaluates each of its tax positions to determine whether
it is more likely than not that the tax position will be sustained upon
examination, based upon the technical merits of the position. A tax position
that meets the more-likely-than-not recognition threshold is subject to a
measurement assessment to determine the amount of benefit recognized in the
consolidated statements of operations and the appropriate reserve to establish,
if any. If a tax position does not meet the more-likely-than-not recognition
threshold, a tax reserve is established and no benefit is recognized. While it
is often difficult to predict final outcome or timing of resolution of any
particular tax matter, the Company believes its reserve for uncertain tax
positions is properly recorded pursuant to the recognition and measurement
provisions of FIN 48.
Stock-based
Compensation: The Company currently has two types of stock-based compensation
plans in effect for its employees and directors. The Company’s stock option
plans have been in effect for a number of years and its stock incentive plan was
put in place during 2006. These plans are more fully described in Note 14 to the
consolidated financial statements. Restricted stock units (“RSU’s”) awarded
under the Company’s stock incentive plan are granted shortly after the end of
each year and are based upon the performance of the Company and its individual
subsidiaries. RSU’s can be earned for performance in each of the years from 2006
through 2010 with additional RSU’s available based upon cumulative five-year
performance. The Company estimates the number of shares that will be granted for
the most recent fiscal year and the five-year cumulative performance based on
actual and expected future operating results. The compensation expense for RSU’s
expected to be granted for the most recent fiscal year and the
cumulative five-year based awards is calculated using the fair value of the
Company stock at each period end and is adjusted to the fair value as of each
future period end until granted. Generally, each award will vest at the end of
five years from the date of grant, or at a time the recipient retires after
reaching age 65, if earlier. Estimated forfeitures are based upon the expected
turnover rates of the employees receiving awards under the plan. The fair value
of stock options is estimated using the Black-Scholes method.
Fair
Value: For cash and cash equivalents, trade receivables, other receivables,
revolving credit loans, accounts payable, customer deposits and accrued
liabilities, the carrying amount approximates the fair value because of the
short-term nature of those 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. All of the
investments held by the Company at December 31, 2008 and 2007 are classified as
Level 1 or Level 2 under the SFAS 157 hierarchy.
Recent
Accounting Pronouncements
See
Recent Accounting Pronouncements in Note 1 to the Consolidated Financial
Statements.
Forward-Looking
Statements
This
annual report 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 Annual Report 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, including, without limitation, statements
regarding:
·
|
execution
of the Company’s growth and operation
strategy;
|
·
|
compliance
with covenants in the Company’s credit
facilities;
|
·
|
liquidity
and capital expenditures;
|
·
|
sufficiency
of working capital, cash flows and available capacity under the Company’s
credit facilities;
|
·
|
government
funding and growth of highway construction and commercial
projects;
|
·
|
pricing
and availability of oil;
|
·
|
pricing
and availability of steel;
|
·
|
pricing
of scrap metal;
|
·
|
condition
of the economy;
|
·
|
the
success of new product lines;
|
·
|
plans
for technological innovation;
|
·
|
ability
to secure adequate or timely replacement of financing to repay our
lenders;
|
·
|
compliance
with government regulations;
|
·
|
compliance
with manufacturing or delivery
timetables;
|
·
|
forecasting
of results;
|
·
|
general
economic trends and political
uncertainty;
|
·
|
integration
of acquisitions;
|
·
|
presence
in the international marketplace;
|
·
|
suitability
of our current facilities;
|
·
|
future
payment of dividends;
|
·
|
competition
in our business segments;
|
·
|
product
liability and other claims;
|
·
|
protection
of proprietary technology;
|
·
|
future
fillings of backlogs;
|
·
|
the
impact of account changes;
|
·
|
the
effect of increased international sales on our
backlog;
|
·
|
critical
account policies;
|
·
|
ability
to satisfy contingencies;
|
·
|
contributions
to retirement plans;
|
·
|
supply
of raw materials; and
|
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 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. You can
identify these statements by forward-looking words such as “expect”, “believe”,
“goal”, “plan”, “intend”, “estimate”, “may”, “will” and similar
expressions.
In
addition to the risks and uncertainties identified elsewhere herein and in
documents filed by the Company with the Securities and Exchange Commission, the
following factors should be carefully considered when evaluating the Company’s
business and future prospects: changes or delays in highway funding; rising
interest rates; changes in oil prices; changes in steel prices; changes in the
general economy; unexpected capital expenditures and decreases in liquidity; the
timing of large contracts; production capacity; general business conditions in
the industry; non-compliance with covenants in the Company’s credit facilities;
demand for the Company’s products; and those other factors listed from time to
time in the Company’s reports filed with the Securities and Exchange Commission.
Certain of the risks, uncertainties and other factors discussed or noted above
are more fully described in the section entitled “Business - Risk Factors” in
the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
MANAGEMENT
ASSESSMENT REPORT
The
management of Astec Industries, Inc. (the “Company”) is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company. The Company’s internal control system is designed to provide
reasonable assurance to the Company’s management and board of directors
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. There are inherent limitations in the effectiveness of
all internal control systems no matter how well designed. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to the preparation and presentation of financial statements.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of a change
in circumstances or conditions.
In order
to ensure that the Company’s internal control over financial reporting is
effective, management regularly assesses such controls and did so most recently
as of December 31, 2008. This assessment was based on criteria for effective
internal control over financial reporting described in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management believes the
Company maintained effective internal control over financial reporting as of
December 31, 2008. Ernst & Young LLP, the Company’s independent registered
public accounting firm, has issued an attestation report on the Company’s
internal control over financial reporting as of December 31, 2008.
REPOR
T OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders
Astec
Industries, Inc.
We have
audited the accompanying consolidated balance sheets of Astec Industries, Inc.
as of December 31, 2008 and 2007 and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2008. Our audits also included the financial
statement schedules listed in the index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Astec Industries, Inc.
at December 31, 2008 and 2007, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2008, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 158, Employers’
Accounting for Defined Benefit Pension and Other Post-retirement Plans, in
2006.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Astec Industries, Inc.’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 25, 2009
expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Chattanooga,
Tennessee
February
25, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Astec
Industries, Inc.
We have
audited Astec Industries, Inc.’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Astec Industries, Inc.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management Assessment Report. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Astec Industries, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Astec
Industries, Inc. as of December 31, 2008 and 2007 and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2008 and our report dated February
25, 2009 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Chattanooga,
Tennessee
February
25, 2009
CONSO
LIDATED BALANCE SHEETS
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,673,542
|
|
|
$
|
34,636,472
|
|
Trade
receivables, less allowance for doubtful accounts of
$1,496,000 in 2008 and $1,713,000
in 2007
|
|
|
71,629,778
|
|
|
|
84,197,596
|
|
Other
receivables
|
|
|
3,530,975
|
|
|
|
3,289,200
|
|
Inventories
|
|
|
285,817,262
|
|
|
|
210,818,628
|
|
Prepaid
expenses
|
|
|
12,079,943
|
|
|
|
6,420,092
|
|
Deferred
income tax assets
|
|
|
10,700,767
|
|
|
|
8,864,181
|
|
Other
current assets
|
|
|
1,666,821
|
|
|
|
505,471
|
|
Total current
assets
|
|
|
395,099,088
|
|
|
|
348,731,640
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
169,129,628
|
|
|
|
141,527,620
|
|
Investments
|
|
|
9,911,504
|
|
|
|
18,528,745
|
|
Goodwill
|
|
|
29,658,550
|
|
|
|
26,415,979
|
|
Other
long-term assets
|
|
|
9,013,686
|
|
|
|
7,365,533
|
|
Total other
assets
|
|
|
48,583,740
|
|
|
|
52,310,257
|
|
Total
assets
|
|
$
|
612,812,456
|
|
|
$
|
542,569,517
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Revolving
credit loans
|
|
$
|
3,426,978
|
|
|
$
|
--
|
|
Accounts
payable
|
|
|
51,052,764
|
|
|
|
54,840,478
|
|
Customer
deposits
|
|
|
41,385,512
|
|
|
|
37,751,174
|
|
Accrued
product warranty
|
|
|
10,050,225
|
|
|
|
7,826,820
|
|
Accrued
payroll and related liabilities
|
|
|
10,553,393
|
|
|
|
12,556,033
|
|
Accrued
loss reserves
|
|
|
3,302,650
|
|
|
|
2,858,854
|
|
Other
accrued liabilities
|
|
|
24,064,621
|
|
|
|
28,059,694
|
|
Total current
liabilities
|
|
|
143,836,143
|
|
|
|
143,893,053
|
|
Deferred
income tax liabilities
|
|
|
13,064,912
|
|
|
|
8,361,165
|
|
Other
long-term liabilities
|
|
|
15,877,581
|
|
|
|
12,842,785
|
|
Total other
liabilities
|
|
|
28,942,493
|
|
|
|
21,203,950
|
|
Total
liabilities
|
|
|
172,778,636
|
|
|
|
165,097,003
|
|
Minority
interest
|
|
|
807,803
|
|
|
|
883,410
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock - authorized 4,000,000 shares of
$1.00 par value; none
issued
|
|
|
--
|
|
|
|
--
|
|
Common
stock - authorized 40,000,000 shares of
$.20 par value; issued and
outstanding -
22,508,332 in 2008 and 22,299,125
in 2007
|
|
|
4,501,666
|
|
|
|
4,459,825
|
|
Additional
paid-in capital
|
|
|
121,968,255
|
|
|
|
114,255,803
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(2,798,636
|
)
|
|
|
5,186,045
|
|
Company
shares held by SERP, at cost
|
|
|
(1,966,178
|
)
|
|
|
(1,705,249
|
)
|
Retained
earnings
|
|
|
317,520,910
|
|
|
|
254,392,680
|
|
Total
shareholders’ equity
|
|
|
439,226,017
|
|
|
|
376,589,104
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
612,812,456
|
|
|
$
|
542,569,517
|
|
See Notes
to Consolidated Financial Statements
CON
SOLIDATED STATEMENTS OF OPERATIONS
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
973,700,191
|
|
|
$
|
869,025,354
|
|
|
$
|
710,606,813
|
|
Cost
of sales
|
|
|
739,842,231
|
|
|
|
659,247,203
|
|
|
|
542,319,968
|
|
Gross
profit
|
|
|
233,857,960
|
|
|
|
209,778,151
|
|
|
|
168,286,845
|
|
Selling,
general and administrative expenses
|
|
|
122,620,842
|
|
|
|
107,600,243
|
|
|
|
94,383,111
|
|
Research
and development expenses
|
|
|
18,921,232
|
|
|
|
15,449,493
|
|
|
|
13,560,572
|
|
Income
from operations
|
|
|
92,315,886
|
|
|
|
86,728,415
|
|
|
|
60,343,162
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
851,096
|
|
|
|
852,994
|
|
|
|
1,671,852
|
|
Interest income
|
|
|
887,600
|
|
|
|
2,733,224
|
|
|
|
1,469,485
|
|
Other income (expense),
net
|
|
|
5,709,075
|
|
|
|
(202,263
|
)
|
|
|
167,157
|
|
Income
before income taxes and minority interest
|
|
|
98,061,465
|
|
|
|
88,406,382
|
|
|
|
60,307,952
|
|
Income
taxes
|
|
|
34,766,566
|
|
|
|
31,398,049
|
|
|
|
20,637,741
|
|
Income
before minority interest
|
|
|
63,294,899
|
|
|
|
57,008,333
|
|
|
|
39,670,211
|
|
Minority
interest
|
|
|
166,669
|
|
|
|
211,225
|
|
|
|
82,368
|
|
Net
income
|
|
$
|
63,128,230
|
|
|
$
|
56,797,108
|
|
|
$
|
39,587,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.83
|
|
|
$
|
2.59
|
|
|
$
|
1.85
|
|
Diluted
|
|
|
2.80
|
|
|
|
2.53
|
|
|
|
1.81
|
|
Weighted
average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,287,554
|
|
|
|
21,967,985
|
|
|
|
21,428,738
|
|
Diluted
|
|
|
22,585,775
|
|
|
|
22,444,866
|
|
|
|
21,917,123
|
|
See Notes
to Consolidated Financial Statements
CON
SOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
63,128,230
|
|
|
$
|
56,797,108
|
|
|
$
|
39,587,843
|
|
Adjustments
to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
16,656,505
|
|
|
|
14,576,053
|
|
|
|
11,507,298
|
|
Amortization
|
|
|
686,383
|
|
|
|
504,900
|
|
|
|
383,793
|
|
Provision for doubtful
accounts
|
|
|
320,469
|
|
|
|
512,816
|
|
|
|
374,748
|
|
Provision for inventory
reserves
|
|
|
4,142,878
|
|
|
|
3,271,024
|
|
|
|
3,721,613
|
|
Provision for
warranty
|
|
|
18,316,668
|
|
|
|
12,496,960
|
|
|
|
11,712,690
|
|
Deferred compensation (benefit)
provision
|
|
|
(501,744
|
)
|
|
|
452,152
|
|
|
|
325,159
|
|
Deferred income tax
provision
|
|
|
2,551,974
|
|
|
|
99,766
|
|
|
|
1,014,445
|
|
(Gain) loss on disposition of
fixed assets
|
|
|
(22,696
|
)
|
|
|
67,259
|
|
|
|
74,637
|
|
Gain on sale of available for
sale securities
|
|
|
(6,195,145
|
)
|
|
|
--
|
|
|
|
--
|
|
Tax benefit from stock option
exercises
|
|
|
(636,613
|
)
|
|
|
(4,388,696
|
)
|
|
|
(2,955,103
|
)
|
Purchase of trading securities,
net
|
|
|
(1,623,348
|
)
|
|
|
(7,868,131
|
)
|
|
|
(445,329
|
)
|
Stock-based
compensation
|
|
|
2,383,930
|
|
|
|
1,557,384
|
|
|
|
974,826
|
|
Minority interest
|
|
|
166,669
|
|
|
|
211,225
|
|
|
|
82,368
|
|
(Increase)
decrease in, net of amounts acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other
receivables
|
|
|
10,925,818
|
|
|
|
(10,844,976
|
)
|
|
|
(13,955,658
|
)
|
Notes receivable
|
|
|
--
|
|
|
|
258,500
|
|
|
|
(89,993
|
)
|
Inventories
|
|
|
(70,789,928
|
)
|
|
|
(42,594,820
|
)
|
|
|
(26,815,069
|
)
|
Prepaid expenses
|
|
|
(3,818,525
|
)
|
|
|
(402,340
|
)
|
|
|
1,555,495
|
|
Other assets
|
|
|
(625,398
|
)
|
|
|
(36,112
|
)
|
|
|
(417,318
|
)
|
Increase
(decrease) in, net of amounts acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(3,909,243
|
)
|
|
|
6,823,822
|
|
|
|
2,976,010
|
|
Customer deposits
|
|
|
401,815
|
|
|
|
14,912,509
|
|
|
|
10,645,675
|
|
Accrued product
warranty
|
|
|
(15,955,337
|
)
|
|
|
(12,454,573
|
)
|
|
|
(10,168,800
|
)
|
Income taxes
payable
|
|
|
(2,298,021
|
)
|
|
|
5,877,019
|
|
|
|
1,193,460
|
|
Accrued retirement benefit
costs
|
|
|
(799,543
|
)
|
|
|
(966,057
|
)
|
|
|
(1,425,494
|
)
|
Self insurance loss
reserves
|
|
|
959,391
|
|
|
|
439,438
|
|
|
|
(3,478,566
|
)
|
Other accrued
liabilities
|
|
|
(4,352,309
|
)
|
|
|
6,235,730
|
|
|
|
12,601,026
|
|
Other
|
|
|
924,930
|
|
|
|
206,201
|
|
|
|
44,407
|
|
Net
cash provided by operating activities
|
|
$
|
10,037,810
|
|
|
$
|
45,744,161
|
|
|
$
|
39,024,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Peterson Pacific Corp., net of $1,701,715
cash
acquired
|
|
$
|
7,137
|
|
|
$
|
(19,655,696
|
)
|
|
$
|
--
|
|
Purchase
of Dillman Equipment, Inc. and Double L
Investment,
Inc., net of $4,066,017 cash acquired
|
|
|
(16,493,215
|
)
|
|
|
--
|
|
|
|
--
|
|
Purchase
of Q-Pave Pty Ltd assets
|
|
|
(1,797,083
|
)
|
|
|
--
|
|
|
|
--
|
|
Proceeds
from sale of property and equipment
|
|
|
276,089
|
|
|
|
186,139
|
|
|
|
1,247,475
|
|
Expenditures
for property and equipment
|
|
|
(39,932,447
|
)
|
|
|
(38,451,380
|
)
|
|
|
(30,879,114
|
)
|
Sale
(purchase) of available for sale securities
|
|
|
16,500,000
|
|
|
|
(10,304,855
|
)
|
|
|
--
|
|
Cash
from sale (acquisition) of minority shares
|
|
|
1,143
|
|
|
|
(34,931
|
)
|
|
|
93,292
|
|
Net
cash used by investing activities
|
|
$
|
(41,438,376
|
)
|
|
$
|
(68,260,723
|
)
|
|
$
|
(29,538,347
|
)
|
See Notes
to Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
$
|
4,669,132
|
|
|
$
|
13,632,057
|
|
|
$
|
9,970,201
|
|
Tax
benefit from stock option exercise
|
|
|
636,613
|
|
|
|
4,388,696
|
|
|
|
2,955,103
|
|
Net
borrowings under revolving line of credit
|
|
|
3,426,978
|
|
|
|
--
|
|
|
|
--
|
|
Principal
repayments of notes payable assumed
in
business combinations
|
|
|
(912,091
|
)
|
|
|
(7,500,000
|
)
|
|
|
--
|
|
Sale
(purchase) of company shares by
Supplemental
Executive Retirement Plan, net
|
|
|
(196,311
|
)
|
|
|
1,414,105
|
|
|
|
54,092
|
|
Net
cash provided by financing activities
|
|
|
7,624,321
|
|
|
|
11,934,858
|
|
|
|
12,979,396
|
|
Effect
of exchange rates on cash
|
|
|
(1,186,685
|
)
|
|
|
340,048
|
|
|
|
(184,780
|
)
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(24,962,930
|
)
|
|
|
(10,241,656
|
)
|
|
|
22,280,432
|
|
Cash
and cash equivalents, beginning of year
|
|
|
34,636,472
|
|
|
|
44,878,128
|
|
|
|
22,597,696
|
|
Cash
and cash equivalents, end of year
|
|
$
|
9,673,542
|
|
|
$
|
34,636,472
|
|
|
$
|
44,878,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
787,394
|
|
|
$
|
493,657
|
|
|
$
|
895,650
|
|
Income taxes, net of
refunds
|
|
$
|
38,106,367
|
|
|
$
|
23,419,302
|
|
|
$
|
18,437,778
|
|
See Notes
to Consolidated Financial Statements
CON
SOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the
Years Ended December 31, 2008, 2007 and 2006
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Other
Compre-
hensive
Income
(Loss)
|
|
|
Company
Shares
Held
by
SERP
|
|
|
Retained
Earnings
|
|
|
Total
Shareholders’
Equity
|
|
Balance
December 31, 2005
|
|
21,177,352
|
|
|
$
|
4,235,470
|
|
|
$
|
79,722,952
|
|
|
$
|
2,604,676
|
|
|
$
|
(1,894,507
|
)
|
|
$
|
158,073,454
|
|
|
$
|
242,742,045
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,587,843
|
|
|
|
39,587,843
|
|
Other
comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pensiopension liability
adjustment, net of income
taxes
of $762,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,280,857
|
|
|
|
|
|
|
|
|
|
|
|
1,280,857
|
|
Foreign currency
translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(802,986
|
)
|
|
|
|
|
|
|
|
|
|
|
(802,986
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,065,714
|
|
Adjustment
to initially apply
SFAS 158, net of income taxes
of $(368,700)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596,289
|
)
|
|
|
|
|
|
|
|
|
|
|
(596,289
|
)
|
Stock-based
compensation
|
|
2,016
|
|
|
|
403
|
|
|
|
974,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
974,826
|
|
Exercise
of stock options,
including tax benefit
|
|
517,006
|
|
|
|
103,402
|
|
|
|
12,821,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,925,304
|
|
Sale
(purchase) of Company
stock held by SERP,
net
|
|
|
|
|
|
|
|
|
|
240,680
|
|
|
|
|
|
|
|
(186,588
|
)
|
|
|
|
|
|
|
54,092
|
|
Balance
December 31, 2006
|
|
21,696,374
|
|
|
$
|
4,339,275
|
|
|
$
|
93,759,957
|
|
|
$
|
2,486,258
|
|
|
$
|
(2,081,095
|
)
|
|
$
|
197,661,297
|
|
|
$
|
296,165,692
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,797,108
|
|
|
|
56,797,108
|
|
Other
comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrecognized
pension and post
retirement
cost, net of income taxes
of
$291,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497,729
|
|
|
|
|
|
|
|
|
|
|
|
497,729
|
|
Foreign currency
translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,126,704
|
|
|
|
|
|
|
|
|
|
|
|
3,126,704
|
|
Unrealized loss on available-
for-sale
investment
securities, net of
income
taxes of
$558,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(924,646
|
)
|
|
|
|
|
|
|
|
|
|
|
(924,646
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,496,895
|
|
FIN
48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,725
|
)
|
|
|
(65,725
|
)
|
Stock-based
compensation
|
|
2,532
|
|
|
|
506
|
|
|
|
1,556,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,557,384
|
|
Exercise
of stock options,
including tax benefit
|
|
600,219
|
|
|
|
120,044
|
|
|
|
17,900,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,020,753
|
|
Sale
(purchase) of Company
stock held by SERP,
net
|
|
|
|
|
|
|
|
|
|
1,038,259
|
|
|
|
|
|
|
|
375,846
|
|
|
|
|
|
|
|
1,414,105
|
|
Balance
December 31, 2007
|
|
22,299,125
|
|
|
$
|
4,459,825
|
|
|
$
|
114,255,803
|
|
|
$
|
5,186,045
|
|
|
$
|
(1,705,249
|
)
|
|
$
|
254,392,680
|
|
|
$
|
376,589,104
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,128,230
|
|
|
|
63,128,230
|
|
Other
comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrecognized
pension and post
retirement
cost, net of income taxes
of
$1,207,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,996,444
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,996,444
|
)
|
Foreign currency
translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,912,883
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,912,883
|
)
|
Unrealized gain on available-
for-sale
investment
securities, net of
income
taxes of $2,887,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,790,417
|
|
|
|
|
|
|
|
|
|
|
|
4,790,417
|
|
Reclassification adjustment for
gains included in net
income,
net of income taxes of
$(2,329,374)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,865,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,865,771
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,143,549
|
|
Stock-based
compensation
|
|
5,206
|
|
|
|
1,041
|
|
|
|
2,382,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,383,930
|
|
Exercise
of stock options,
including tax
benefit
|
|
204,001
|
|
|
|
40,800
|
|
|
|
5,264,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,305,745
|
|
Sale
(purchase) of Company
stock held by SERP,
net
|
|
|
|
|
|
|
|
|
|
64,618
|
|
|
|
|
|
|
|
(260,929
|
)
|
|
|
|
|
|
|
(196,311
|
)
|
Balance
December 31, 2008
|
|
22,508,332
|
|
|
$
|
4,501,666
|
|
|
$
|
121,968,255
|
|
|
$
|
(2,798,636
|
)
|
|
$
|
(1,966,178
|
)
|
|
$
|
317,520,910
|
|
|
$
|
439,226,017
|
|
See Notes
to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For the
Years Ended December 31, 2008, 2007 and 2006
1.
Summary of Significant Accounting Policies
Basis of Presentation
-
The consolidated financial
statements include the accounts of Astec Industries, Inc. and its domestic and
foreign subsidiaries. The Company’s significant wholly-owned and consolidated
subsidiaries at December 31, 2008 are as follows:
American
Augers, Inc.
|
Astec
Australia Pty Ltd
|
Astec,
Inc.
|
Astec
Insurance Company
|
Astec
Underground, Inc. (f/k/a Trencor, Inc.)
|
Astec
Mobile Screens, Inc. (f/k/a Production Engineered Products,
Inc.)
|
Breaker
Technology, Inc.
|
Breaker
Technology Ltd
|
Carlson
Paving Products, Inc.
|
CEI
Enterprises, Inc.
|
Heatec,
Inc.
|
Johnson
Crushers International, Inc.
|
Kolberg-Pioneer,
Inc.
|
Osborn
Engineered Products SA (Pty) Ltd (92% owned)
|
Peterson
Pacific Corp.
|
Roadtec,
Inc.
|
Telsmith,
Inc.
|
|
All
intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
- The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported and disclosed in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Foreign Currency Translation
-
Subsidiaries located in Australia, Canada and South Africa operate primarily
using local functional currency. Accordingly, assets and liabilities of these
subsidiaries are translated using exchange rates in effect at the end of the
period, and revenues and costs are translated using average exchange rates for
the period. The resulting adjustments are presented as a separate component of
accumulated other comprehensive income.
Fair Value of Financial
Instruments
- For cash and cash equivalents, trade receivables, other
receivables, revolving debt, accounts payable, customer deposits and accrued
liabilities, the carrying amount approximates the fair value because of the
short-term nature of those 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. All of the
investments held by the Company at December 31, 2008 and 2007 are classified as
Level 1 or Level 2 under the SFAS 157 hierarchy.
Cash and Cash Equivalents
-
All highly liquid investments with an original maturity of three months or less
when purchased are considered to be cash and cash equivalents.
Investments
- Investments
consist primarily of investment-grade marketable securities. Available-for-sale
securities are recorded at fair value, and unrealized holding gains and losses
are recorded, net of tax, as a separate component of accumulated other
comprehensive income. Unrealized gains and losses are charged against net income
when a change in fair value is determined to be other than temporary. Trading
securities are carried at fair value, with unrealized holding gains and losses
included in net income. Realized gains and losses are accounted for on the
specific identification method. Purchases and sales are recorded on a trade date
basis. Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each balance
sheet date.
The
Company adopted Statement of Financial Accounting Standard No. 157, “Fair Value
Measurements” (“SFAS 157”), effective January 1, 2008. As required by SFAS No.
157, financial assets and liabilities are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. SFAS No.
157 classifies the inputs used to measure the fair value into 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.
|
Financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.
Concentration of Credit Risk
-
The Company sells products to a wide variety of customers. Accounts receivable
are carried at their outstanding principal amounts, less an allowance for
doubtful accounts. The Company extends credit to its customers based on an
evaluation of the customer’s financial condition generally without requiring
collateral. Credit risk is driven by conditions within the economy and the
industry and is principally dependent on each customer’s financial condition. To
minimize credit risk, the Company monitors credit levels and financial
conditions of customers on a continuing basis. The Company maintains an
allowance for doubtful accounts at a level which management believes is
sufficient to cover potential credit losses. Amounts are deemed past due when
they exceed the payment terms agreed to by the customer in the sales contract.
Past due amounts are charged off when reasonable collection efforts have been
exhausted and the amounts are deemed uncollectable by management. As of December
31, 2008, concentrations of credit risk with respect to receivables are limited
due to the wide variety of customers.
Inventories
- Inventory costs
include materials, labor and overhead. Inventories (excluding used equipment)
are stated at the lower of first-in, first-out cost or market. Used equipment
inventories are stated at the lower of specific unit cost or
market.
When
inventory becomes obsolete, the Company establishes an allowance to reduce the
carrying value to net realizable value based on estimates, assumptions and
judgments made from the information available at that time. Abnormal amounts of
idle facility expense, freight, handling cost and wasted materials are
recognized as current period charges.
Property and Equipment
-
Property and equipment is stated at cost. Depreciation is calculated for
financial reporting purposes using the straight-line method based on the
estimated useful lives of the assets as follows: airplanes (40 years), buildings
(40 years) and equipment (3 to 10 years). Both accelerated and straight-line
methods are used for tax compliance purposes. Routine repair and maintenance
costs and planned major maintenance are expensed when incurred.
Goodwill
and Other Intangible Assets
-
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS
142”), the Company classifies intangible assets into three categories: (1)
intangible assets with definite lives subject to amortization, (2) intangible
assets with indefinite lives not subject to amortization, and (3)
goodwill. The Company tests intangible assets with definite lives for
impairment if conditions exist that indicate the carrying value may not be
recoverable. Such conditions may include an economic downturn in a geographic
market or a change in the assessment of future operations. An impairment charge
is recorded when the carrying value of the definite lived intangible asset is
not recoverable by the future undiscounted cash flows generated from the use of
the asset.
Intangible
assets with indefinite lives including goodwill are not amortized. The Company
tests these intangible assets and goodwill for impairment at least annually or
more frequently if events or circumstances indicate that such intangible assets
or goodwill might be impaired. The Company performs impairment tests of goodwill
at the reporting unit level and of other indefinite lived intangible assets at
the asset level. The Company’s reporting units are defined as its subsidiaries
because each is a legal entity that is managed separately and manufactures and
distributes distinct product lines. Such impairment tests for goodwill include
comparing the fair value of the respective reporting unit with its carrying
value, including goodwill. A variety of methodologies are used in conducting
these impairment tests, including discounted cash flow analyses and market
analyses. When the fair value is less than the carrying value of the intangible
assets or the reporting unit, an impairment charge is recorded to reduce the
carrying value of the assets to fair value.
The
Company determines the useful lives of identifiable intangible assets after
considering the specific facts and circumstances related to each intangible
asset. Factors considered when determining useful lives include the contractual
term of any agreement, the history of the asset, the Company’s long-term
strategy for the use of the asset, any laws or other local regulations which
could impact the useful life of the asset, and other economic factors, including
competition and specific market conditions. Intangible assets that are deemed to
have definite lives are amortized, generally on a straight-line basis, over
their useful lives, ranging from 3 to 15 years.
Impairment of Long-lived
Assets
- In the event that facts and circumstances indicate the carrying
amounts of long-lived assets may be impaired, an evaluation of recoverability is
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the carrying amount for
each asset to determine if a writedown is required. If this review indicates
that the assets will not be recoverable, the carrying value of the Company’s
assets would be reduced to their estimated market value. Market value is
estimated using discounted cash flows, prices for similar assets or other
valuation techniques.
Self-Insurance Reserves
- The
Company retains the risk for a portion of its workers compensation claims and
general liability claims by way of a captive insurance company, Astec Insurance
Company, (“Astec Insurance” or “the captive”). Astec Insurance is incorporated
under the laws of the state of Vermont. The objectives of Astec Insurance are to
improve control over and reduce loss costs; to improve focus on risk reduction
with development of a program structure which rewards proactive loss control;
and to ensure management participation in the defense and settlement process for
claims.
For
general liability claims, the captive is liable for the first $1 million per
occurrence and $2.5 million per year in the aggregate. The Company carries
general liability, excess liability and umbrella policies for claims in excess
of those covered by the captive.
For
workers compensation claims, the captive is liable for the first $350,000 per
occurrence and $4.0 million per year in the aggregate. The Company utilizes a
third party administrator for workers compensation claims administration and
carries insurance coverage for claims liabilities in excess of amounts covered
by the captive.
The
financial statements of the captive are consolidated into the financial
statements of the Company. The short-term and long-term reserves for claims and
potential claims related to general liability and workers compensation under the
captive are included in Accrued Loss Reserves or Other Long-Term Liabilities,
respectively, in the consolidated balance sheets depending on the expected
timing of future payments. The undiscounted reserves are actuarially determined
to cover the ultimate cost of each claim 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. However, the Company does not believe it is
reasonably likely that the reserve level will materially change in the
future.
At all
but one of the Company’s domestic manufacturing subsidiaries, the Company is
self-insured for health and prescription claims under its Group Health Insurance
Plan. The Company carries reinsurance coverage to limit its exposure for
individual health claims above certain limits. Third parties administer health
claims and prescription medication claims. The Company maintains a reserve for
the self-insured health and prescription plans which is included in accrued loss
reserves on the Company’s consolidated balance sheets. This reserve includes
both unpaid claims and an estimate of claims incurred but not reported, based on
historical claims and payment experience. Historically the reserves have been
sufficient to provide for claims payments. Changes in actual claims experience
or payment patterns could cause the reserve to change, but the Company does not
believe it is reasonably likely that the reserve level will materially change in
the near future.
The
remaining U.S. subsidiary is covered under a fully insured group health plan.
Employees of the Company’s foreign subsidiaries are insured under health plans
in accordance with their local governmental requirements. No reserves are
necessary for these fully insured health plans.
Revenue Recognition
- Revenue
is generally recognized on sales at the point in time when persuasive evidence
of an arrangement exists, the price is fixed or determinable, the product has
been shipped and there is reasonable assurance of collection of the sales
proceeds. The Company generally obtains purchase authorizations from its
customers for a specified amount of product at a specified price with specified
delivery terms. A significant portion of the Company’s equipment sales
represents equipment produced in the Company’s plants under short-term contracts
for a specific customer project or equipment designed to meet a customer’s
specific requirements. Certain contracts include terms and conditions through
which the Company recognizes revenues upon completion of equipment production,
which is subsequently stored at the Company’s plant at the customer’s request.
In accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition”
(“SAB 104”), revenue is recorded on such contracts upon the customer’s
assumption of title and risk of ownership and when collectability is reasonably
assured. In addition, there must be a fixed schedule of delivery of the goods
consistent with the customer’s business practices, the Company must not have
retained any specific performance obligations such that the earnings process is
not complete and the goods must have been segregated from the Company’s
inventory.
The
Company has certain sales accounted for as multiple-element arrangements,
whereby related revenue on each product is recognized when it is shipped, and
the related service revenue is recognized when the service is performed. The
Company evaluates sales with multiple deliverable elements (such as an agreement
to deliver equipment and related installation services) to determine whether
revenue related to individual elements should be recognized separately, or as a
combined unit. In addition to the previously mentioned general revenue
recognition criteria, the Company only recognizes revenue on individual
delivered elements when there is objective and reliable evidence that the
delivered element has a determinable value to the customer on a standalone basis
and there is no right of return.
Advertising Expense
- The cost
of advertising is expensed as incurred. The Company incurred approximately
$3,603,000, $3,334,000 and $2,794,000 in advertising costs during 2008, 2007 and
2006, respectively, which is included in selling, general and administrative
expenses.
Income Taxes
- Income taxes
are based on pre-tax financial accounting income. Deferred tax assets and
liabilities are recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported
amounts. The Company periodically assesses the need to establish a valuation
allowance against its deferred tax assets to the extent the Company no longer
believes it is more likely than not that the tax assets will be fully utilized.
The major circumstance that affects the Company’s valuation allowance is each
subsidiary’s ability to utilize any available state net operating loss
carryforwards. If the subsidiaries that generated the loss carryforwards
generate higher than expected future income, the valuation allowance will
decrease. If these subsidiaries generate future losses, the valuation allowance
may increase.
In
accordance with FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes: an interpretation of FASB Statement 109, Accounting for Income Taxes”,
(“FIN 48”), the Company evaluates a tax position to determine whether it is more
likely than not that the tax position will be sustained upon examination, based
upon the technical merits of the position. A tax position that meets the
more-likely-than-not recognition threshold is subject to a measurement
assessment to determine the amount of benefit to recognize in the Consolidated
Statements of Operations and the appropriate reserve to establish, if any. If a
tax position does not meet the more-likely-than-not recognition threshold, a tax
reserve is established and no benefit is recognized. The Company is continually
audited by U.S. federal and state as well as foreign tax authorities. While it
is often difficult to predict final outcome or timing of resolution of any
particular tax matter, the Company believes its reserve for uncertain tax
positions is properly recorded pursuant to the recognition and measurement
provisions of FIN 48.
Product Warranty Reserve
-
The
Company accrues for the estimated cost of product warranties at the time revenue
is recognized. We evaluate our warranty obligations by product line or model
based on historical warranty claims experience. For machines, our standard
product warranty terms generally include post-sales support and repairs of
products at no additional charge for periods ranging from three months to one
year or up to a specified number of hours of operation. For parts from our
component suppliers, we rely on the original manufacturer’s warranty that
accompanies those parts and make no additional provision for warranty claims.
Generally, our fabricated parts are not covered by specific warranty terms.
Although failure of fabricated parts due to material or workmanship is rare, if
it occurs, our policy is to replace fabricated parts at no additional
charge.
The
Company engages in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component suppliers.
Estimated warranty obligation is based upon warranty terms, product failure
rates, repair costs and current period machine shipments. If actual product
failure rates, repair costs, service delivery costs or post-sales support costs
differ from our estimates, revisions to the estimated warranty liability would
be required.
Pension and Post-retirement Benefits
-
The
determination of obligations and expenses under the Company’s pension and
post-retirement benefit plans is dependent on the Company’s selection of certain
assumptions used by the independent actuaries in calculating such amounts. Those
assumptions are described in Note 11, Pension and Post-retirement Benefits and
include among others, the discount rate, expected return on plan assets and the
expected rates of increase in health care costs. In accordance with accounting
principles generally accepted in the United States, actual results that differ
from assumptions are accumulated and amortized over future periods and,
therefore, generally affect the recognized expense in such periods. Significant
differences in actual experience or significant changes in the assumptions used
may materially affect the pension and post-retirement obligations and future
expenses.
Stock-based Compensation
- The
Company currently has two types of stock-based compensation plans in effect for
its employees and directors. The Company’s stock option plans have been in
effect for a number of years and its stock incentive plan was put in place
during 2006. These plans are more fully described in Note 14, Shareholders’
Equity. Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123R, “Share Based Payment”, (“SFAS 123R”), using the
modified prospective method. SFAS 123R requires the recognition of the cost of
employee services received in exchange for an award of equity instruments in the
financial statements and is measured based on the grant date calculated fair
value of the award. SFAS 123R also requires stock-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). Prior to the adoption of
SFAS 123R on January 1, 2006, the Company accounted for stock-based compensation
plans in accordance with the provisions of Accounting Principles Board Opinion
No. 25 (“APB 25”), and applied the disclosure only provision of SFAS 123. Under
APB 25, generally no compensation expense was recorded when the terms of the
award were fixed and the exercise price of the employee stock option equaled or
exceeded the market value of the underlying stock on the date of grant. The
Company did not record compensation expense for option awards in periods prior
to January 1, 2006.
Restricted
stock units (“RSU’s”) awarded under the Company’s stock incentive plan are
granted shortly after the end of each year and are based upon the performance of
the Company and its individual subsidiaries. RSU’s can be earned for
performance in each of the years from 2006 through 2010 with additional RSU’s
available based upon cumulative five-year performance. The Company estimates the
number of shares that will be granted for the most recent fiscal year end and
the five-year cumulative performance based on actual and expected future
operating results. The compensation expense for RSU’s expected to be granted for
the most recent fiscal year and the cumulative five-year based awards is
calculated using the fair value of the Company stock at each period end and is
adjusted to the fair value as of each future period end until
granted.
All
unexercised options outstanding were vested prior to December 31, 2006,
therefore, no stock option expense was recorded in 2008 or 2007. During 2006,
the Company recorded compensation expense related to stock options that reduced
income from operations by $381,000, decreased the provision for income taxes by
$83,000, and decreased net income by $298,000. This resulted in a $.01 reduction
in both basic and fully diluted earnings per share for the year ended December
31, 2006.
Earnings Per Share
- Basic and
diluted earnings per share are calculated in accordance with Statement of
Financial Accounting Standards No. 128 Earnings per Share, (“SFAS 128”). Basic
earnings per share is based on the weighted average number of common shares
outstanding and diluted earnings per share includes potential dilutive effects
of options, warrants and convertible securities.
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
63,128,230
|
|
|
$
|
56,797,108
|
|
|
$
|
39,587,843
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings
per share
|
|
|
22,287,554
|
|
|
|
21,967,985
|
|
|
|
21,428,738
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and
restricted stock units
|
|
|
208,152
|
|
|
|
382,006
|
|
|
|
371,477
|
|
Supplemental executive retirement
plan
|
|
|
90,069
|
|
|
|
94,875
|
|
|
|
116,908
|
|
Denominator
for diluted earnings per share
|
|
|
22,585,775
|
|
|
|
22,444,866
|
|
|
|
21,917,123
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.83
|
|
|
$
|
2.59
|
|
|
$
|
1.85
|
|
Diluted
|
|
|
2.80
|
|
|
|
2.53
|
|
|
|
1.81
|
|
For the
years ended December 31, 2008 and 2006 approximately 20,000 and 169,000 options,
respectively, were antidilutive and were not included in the diluted EPS
computation. For the year ended December 31, 2007, there were no antidilutive
options.
Derivatives and Hedging Activities
- SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, (“SFAS 133”) which was amended by SFAS Nos. 137, 138, and 161,
requires the Company to recognize all derivatives in the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities, or firm commitments through income or
recognized in other comprehensive income until the hedged item is recognized in
income. The ineffective portion of a derivative’s change in fair value is
immediately recognized in income. From time to time the Company’s foreign
subsidiaries enter into foreign currency exchange contracts to mitigate exposure
to fluctuation in currency exchange rates. There were no significant foreign
exchange contracts outstanding at December 31, 2008 and 2007. There were no
derivatives that qualified for hedge accounting at December 31, 2008 and
2007.
Shipping and Handling Fees and
Cost
- The Company records revenues earned for shipping and handling as
revenue, while the cost of shipping and handling is classified as cost of goods
sold.
Litigation Contingencies
- In
the normal course of business in the industry, the Company is named as a
defendant in a number of legal proceedings associated with product liability and
other matters. The Company does not believe it is party to any legal proceedings
that will have a materially adverse effect on the consolidated financial
position. It is possible, however, that future results of operations for any
particular quarterly or annual period could be materially affected by changes in
assumptions related to these proceedings.
As
discussed in Note 13, Contingent Matters, as of December 31, 2008, the Company
has accrued its best estimate of the probable cost for the resolution of these
claims. This estimate has been developed in consultation with outside counsel
that is handling the defense in these matters and is based upon a combination of
litigation and settlement strategies. Certain litigation is being addressed
before juries in states where past jury awards have been significant. To the
extent additional information arises or strategies change, it is possible that
the Company’s best estimate of the probable liability in these matters may
change.
Business Combinations
- In
accordance with SFAS No. 141, “Business Combinations,” we account for all
business combinations by the purchase method. Furthermore, we recognize
intangible assets apart from goodwill if they arise from contractual or legal
rights or if they are separable from goodwill.
Recent Accounting
Pronouncements
- In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151, “Inventory Costs” (“SFAS 151”). SFAS 151 amends
the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory
Pricing”, to clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as
current-period charges and requires the allocation of fixed production overheads
to inventory based on normal capacity of the production facilities. The Company
adopted SFAS 151 on January 1, 2006. The adoption did not have a significant
impact on the Company’s consolidated financial statements.
In
May 2005, the FASB issued Statement of Financial Accounting Standards No.
154, “Accounting Changes and Error Corrections”, (“SFAS 154”). SFAS
154 replaces APB 20, “Accounting Changes” and SFAS 3, “Reporting Accounting
Changes in Interim Financial Statements” and establishes retrospective
application as the required method for reporting a change in accounting
principle. The reporting of a correction of an error by restating previously
issued financial statements is also addressed. The Company adopted SFAS 154 on
January 1, 2006. The adoption did not have a significant impact on the Company’s
consolidated financial statements.
As
previously discussed, the Company adopted SFAS 123R related to share-based
payments. See Note 14, Shareholders’ Equity for further details.
In June
2006, the FASB ratified Emerging Issues Talk Force (“EITF”) Issue No. 06-3, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross Versus Net Presentation)”.
This statement allows companies to present in their statements of operations any
taxes assessed by a governmental authority that are directly imposed on
revenue-producing transactions between a seller and a customer, such as sales,
use, value-added and some excise taxes, on either a gross (included in revenue
and costs) or a net (excluded from revenue) basis. The Company presents these
transactions on a net basis, and therefore, the adoption of this standard
beginning January 1, 2007 had no impact on the Company’s financial
statements.
In July
2006, the FASB issued FASB Interpretation 48, “Accounting for Uncertainty in
Income Taxes: an interpretation of FASB Statement 109, Accounting for Income
Taxes” (“FIN 48”). FIN 48 defines the criteria 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 was 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
detailed in Note 12, Income Taxes.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements”, (“SFAS 157”), which provides guidance on how to
measure assets and liabilities that use fair value. SFAS 157 applies whenever
another US GAAP standard requires (or permits) assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also requires additional disclosures in both annual
and quarterly reports. Portions of SFAS 157 were effective for financial
statements issued for fiscal years beginning after November 15, 2007, and the
Company began applying those provisions effective January 1, 2008. The adoption
of this statement did not have a significant impact on the Company’s financial
statements. In February 2008, the FASB issued Staff Position No. 157-2, (“FSP
No. 157-2”), which delays the effective date of SFAS 157 one year for all
nonfinancial assets and nonfinancial liabilities, except those recognized at
fair value in the financial statements or a recurring basis. The Company will
adopt the remaining provisions of SFAS 157 as of January 1, 2009. The adoption
of these remaining provisions is not expected to have a significant impact on
the Company’s financial statements.
In
September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was
issued in order to eliminate the diversity of practice in how public companies
quantify misstatements of financial statements, including misstatements that
were not material to prior years’ financial statements. The Company began
applying the provisions of SAB 108 in connection with the preparation of its
annual financial statements for the year ended December 31, 2006. The adoption
of this bulletin had no impact on the Company’s financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
158, “Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans - An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”).
SFAS 158 requires companies to (1) recognize as an asset or liability, the
overfunded or underfunded status of defined pension and other postretirement
benefit plans; (2) recognize changes in the funded status through other
comprehensive income in the year in which the changes occur; (3) measure the
funded status of defined pension and other post-retirement benefit plans as of
the date of the company’s fiscal year-end; and (4) provide enhanced disclosures.
The Company began applying the provisions of SFAS 158 in connection with the
preparation of its annual financial statements for the year ended December 31,
2006. See Note 11, Pension and Post-retirement Benefits, for further information
on the impact of adoption.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”), and Statement of
Financial Accounting Standards No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill acquired. This
standard also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. SFAS 160
clarifies that a noncontrolling interest in a subsidiary should be reported as
equity in the consolidated financial statements. Consolidated net income should
include the net income for both the parent and the noncontrolling interest with
disclosure of both amounts on the consolidated statement of income. The
calculation of earnings per share will continue to be based on income amounts
attributable to the parent. Both statements will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and the
Company will begin applying its provisions effective January 1, 2009 on any new
acquisition activity.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities - an amendment
of FASB Statement No. 133” (“SFAS 161”). The objective of this statement is to
require enhanced disclosures about an entity’s derivative and hedging activities
and to improve the transparency of financial reporting. Entities are required to
provide enhanced disclosures about (1) how and why an entity uses derivative
instruments, (2) how derivative instruments and related hedged items are
accounted for under Statement No. 133 and its related interpretations, and (3)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This statement encourages,
but does not require, comparative disclosures for earlier periods at initial
adoption. The Company will adopt the standard as of January 1, 2009. The
adoption of SFAS No. 161 is not expected to have a significant impact on the
Company’s financial position or results of operations.
In April
2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The intent of FSP 142-3 is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R and other applicable accounting literature. FSP
142-3 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and must be applied prospectively to intangible assets
acquired after the effective date. The Company will begin applying the
provisions of the FSP on January 1, 2009 for any new intangible assets
acquired.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162,
“Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). This
statement is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements of nongovernmental entities that are presented in
conformity with U.S. GAAP. This statement was effective November 15, 2008. The
Company’s adoption of SFAS 162 on the effective date did not have a significant
impact on its consolidated financial statements.
In
December 2008, the FASB issued Staff Position No. 132R-1, “Employer’s
Disclosures about Postretirement Benefit Plan Assets”. This FSP amends FASB
Statement No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and
Other Postretirement Benefits”, to provide guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan.
This FSP is effective for fiscal years ending after December 15, 2009, and the
Company will begin applying its provisions with its December 31, 2009
consolidated financial statements.
2.
Inventories
Inventories
consist of the following:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Raw
materials and parts
|
|
$
|
116,253,800
|
|
|
$
|
96,718,726
|
|
Work-in-process
|
|
|
57,776,229
|
|
|
|
54,127,870
|
|
Finished
goods
|
|
|
99,806,732
|
|
|
|
51,027,368
|
|
Used
equipment
|
|
|
11,980,501
|
|
|
|
8,944,664
|
|
Total
|
|
$
|
285,817,262
|
|
|
$
|
210,818,628
|
|
The above
inventory amounts are net of reserves totaling $13,157,000 and $11,548,000 in
2008 and 2007, respectively.
3.
Investments
The
Company’s investments consist of the following:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
(Net
Carrying
Amount)
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
equity securities
|
|
$
|
2,874,680
|
|
|
$
|
--
|
|
|
$
|
422,578
|
|
|
$
|
2,452,102
|
|
Trading
debt securities
|
|
|
8,686,084
|
|
|
|
48,255
|
|
|
|
259,739
|
|
|
|
8,474,600
|
|
Total
|
|
$
|
11,560,764
|
|
|
$
|
48,255
|
|
|
$
|
682,317
|
|
|
$
|
10,926,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities
|
|
$
|
10,305,000
|
|
|
$
|
--
|
|
|
$
|
1,483,000
|
|
|
$
|
8,822,000
|
|
Trading
equity securities
|
|
|
3,011,012
|
|
|
|
102,709
|
|
|
|
167,420
|
|
|
|
2,946,301
|
|
Trading
debt securities
|
|
|
6,861,402
|
|
|
|
49,363
|
|
|
|
1,437
|
|
|
|
6,909,328
|
|
Total
|
|
$
|
20,177,414
|
|
|
$
|
152,072
|
|
|
$
|
1,651,857
|
|
|
$
|
18,677,629
|
|
The
investments noted above are valued at their estimated fair value based on quoted
market prices for identified or similar assets or, where no quoted prices exist,
other observable inputs for the asset.
A
significant portion of the trading securities are in equity mutual funds and
approximate a portion of the Company’s liability under the Supplemental
Executive Retirement Plan (“SERP”), an unqualified defined contribution plan.
See Note 11, Pension and Post-retirement Benefits, for additional information on
these investments and the SERP.
Trading
debt securities are comprised mainly of marketable debt securities held by Astec
Insurance Company. 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. At December 31, 2008 and 2007,
$1,015,198 and $148,884, respectively, of trading debt securities was due to
mature within twelve months and, accordingly, is included in other current
assets.
Available-for-sale
equity securities are comprised of actively traded marketable equity securities
with quoted prices on national markets. The available-for-sale equity securities
held at December 31, 2007 were sold in the fourth quarter of 2008 and a pre-tax
realized gain of $6,195,000 is included in other income for the year ended
December 31, 2008.
Management
reviews several factors to determine whether a loss is other than temporary,
such as the length of time a security is in an unrealized loss position, the
extent to which fair value is less than amortized cost, the financial condition
and near term prospects of the issuer and the Company’s intent and ability to
hold the security for a period of time sufficient to allow for anticipated
recovery in fair value. Management determined that the gross unrealized losses
on available-for-sale equity securities as of December 31, 2007 was considered
temporary and, therefore, the net unrealized holding losses of $1,483,000 were
included in accumulated other comprehensive income at December 31,
2007.
As
indicated in the table below, the Company has determined that its investments at
December 31, 2008 are level 1 and level 2 in the fair value
hierarchy:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Trading
equity securities
|
|
$
|
2,452,102
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
2,452,102
|
|
Trading
debt securities
|
|
|
1,464,444
|
|
|
|
7,010,156
|
|
|
|
--
|
|
|
|
8,474,600
|
|
Total
|
|
$
|
3,916,546
|
|
|
$
|
7,010,156
|
|
|
$
|
--
|
|
|
$
|
10,926,702
|
|
The
carrying values of the Company’s other financial assets and liabilities,
including cash and cash equivalents, trade receivables, other receivables,
revolving credit loans, accounts payable, customer deposits and accrued
liabilities approximate fair value without being discounted due to the short
periods during which these amounts are outstanding.
4.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of identifiable
net assets acquired in business combinations. SFAS 142 provides that goodwill
and certain other intangible assets be tested for impairment at least annually.
The Company performs the required valuation procedures each year as of December
31 after the following year’s forecasts are submitted and reviewed. The
valuations performed in 2008, 2007, and 2006 indicated no impairment of
goodwill.
The
changes in the carrying amount of goodwill by reporting segment for the years
ended December 31, 2008 and 2007 are as follows:
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
1,156,818
|
|
|
$
|
16,580,617
|
|
|
$
|
1,646,391
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
19,383,826
|
|
Business
acquisition
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,814,219
|
|
|
|
5,814,219
|
|
Foreign
currency translation
|
|
|
--
|
|
|
|
1,217,934
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,217,934
|
|
Balance,
December 31, 2007
|
|
|
1,156,818
|
|
|
|
17,798,551
|
|
|
|
1,646,391
|
|
|
|
--
|
|
|
|
5,814,219
|
|
|
|
26,415,979
|
|
Business
acquisition
|
|
|
4,804,143
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,804,143
|
|
Final
accounting adjustment
on
business combination
|
|
|
--
|
|
|
|
--
|
|
|
|
-
|
|
|
|
--
|
|
|
|
(7,137
|
)
|
|
|
(7,137
|
)
|
Foreign
currency translation
|
|
|
--
|
|
|
|
(1,554,435
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,554,435
|
)
|
Balance,
December 31, 2008
|
|
$
|
5,960,961
|
|
|
$
|
16,244,116
|
|
|
$
|
1,646,391
|
|
|
$
|
--
|
|
|
$
|
5,807,082
|
|
|
$
|
29,658,550
|
|
5.
Long-lived and Intangible Assets
Statement
of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”) requires long-lived assets be
reviewed for impairment when events or changes in circumstances indicate that
the carrying value of the assets may not be recoverable. SFAS 144 also requires
recognition of impairment losses for long-lived assets “held and used” if the
sum of the estimated future undiscounted cash flows used to test for
recoverability is less than the carrying value. For the years ended December 31,
2008, 2007 and 2006, the Company concluded that there had been no significant
events that would trigger an impairment review of its long-lived and intangible
assets. No impairment was recorded in 2008, 2007 or 2006.
Amortization
expense for other intangible assets was $531,857, $356,068 and $234,961 for
2008, 2007 and 2006, respectively. Other intangible assets, which are included
in other long-term assets on the accompanying consolidated balance sheets,
consisted of the following at December 31, 2008 and 2007:
|
|
Gross
Carrying
Value
Dec.
31, 2007
|
|
|
Accumulated
Amortization
Dec.
31, 2007
|
|
|
Net
Carrying
Value
Dec.
31, 2007
|
|
|
Gross
Carrying
Value
Dec.
31, 2008
|
|
|
Accumulated
Amortization
Dec.
31, 2008
|
|
|
Net
Carrying
Value
Dec.
31, 2008
|
|
Amortizable
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer network and
customer relationships
|
|
$
|
3,589,000
|
|
|
$
|
(698,233
|
)
|
|
$
|
2,890,767
|
|
|
$
|
4,291,619
|
|
|
$
|
(1,040,790
|
)
|
|
$
|
3,250,829
|
|
Drawings
|
|
|
820,000
|
|
|
|
(432,599
|
)
|
|
|
387,401
|
|
|
|
970,000
|
|
|
|
(535,079
|
)
|
|
|
434,921
|
|
Trademarks
|
|
|
336,000
|
|
|
|
(336,000
|
)
|
|
|
--
|
|
|
|
336,000
|
|
|
|
(336,000
|
)
|
|
|
--
|
|
Patents
|
|
|
543,000
|
|
|
|
(61,071
|
)
|
|
|
481,929
|
|
|
|
664,946
|
|
|
|
(137,755
|
)
|
|
|
527,191
|
|
Non-compete
agreement
|
|
|
42,233
|
|
|
|
(5,068
|
)
|
|
|
37,165
|
|
|
|
42,233
|
|
|
|
(15,204
|
)
|
|
|
27,029
|
|
Total
amortizable assets
|
|
|
5,330,233
|
|
|
|
(1,532,971
|
)
|
|
|
3,797,262
|
|
|
|
6,304,798
|
|
|
|
(2,064,828
|
)
|
|
|
4,239,970
|
|
Non-amortizable
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
1,348,000
|
|
|
|
--
|
|
|
|
1,348,000
|
|
|
|
2,003,000
|
|
|
|
--
|
|
|
|
2,003,000
|
|
Total
|
|
$
|
6,678,233
|
|
|
$
|
(1,532,971
|
)
|
|
$
|
5,145,262
|
|
|
$
|
8,307,798
|
|
|
$
|
(2,064,828
|
)
|
|
$
|
6,242,970
|
|
The
increase in gross carrying value of intangible assets during 2008 is mainly
attributed to the purchases of Dillman Equipment, Inc., and substantially all of
the assets of Q-Pave Pty Ltd. See Note 18, Business Combinations for further
discussion.
Approximate
intangible amortization expense for the next five years is expected as
follows:
2009
|
$627,567
|
2012
|
$284,137
|
2010
|
532,565
|
2013
|
284,137
|
2011
|
445,855
|
|
|
6.
Property and Equipment
Property
and equipment consist of the following:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Land,
land improvements and buildings
|
|
$
|
123,546,867
|
|
|
$
|
103,033,483
|
|
Equipment
|
|
|
181,200,088
|
|
|
|
161,182,644
|
|
Less
accumulated depreciation
|
|
|
(135,617,327
|
)
|
|
|
(122,688,507
|
)
|
Total
|
|
$
|
169,129,628
|
|
|
$
|
141,527,620
|
|
Depreciation
expense was approximately $16,657,000, $14,576,000 and $11,507,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
7.
Leases
The
Company leases certain land, buildings and equipment for use in its operations
under various operating leases. Total rental expense charged to operations under
operating leases was approximately $3,186,000, $2,993,000 and $2,381,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Minimum
rental commitments for all noncancelable operating leases at December 31, 2008
are as follows:
2009
|
|
$
|
1,460,000
|
2010
|
|
|
916,000
|
2011
|
|
|
583,000
|
2012
|
|
|
60,000
|
2013
|
|
|
44,000
|
Thereafter
|
|
|
16,000
|
|
|
$
|
3,079,000
|
8.
Debt
During
April 2007, the Company entered into an unsecured credit agreement with Wachovia
Bank, National Association (“Wachovia”) whereby Wachovia has extended to the
Company an unsecured line of credit of up to $100,000,000 including a sub-limit
for letters of credit of up to $15,000,000. The Wachovia credit agreement
replaced the previous $87,500,000 secured credit facility the Company had in
place with General Electric Capital Corporation and General Electric
Capital-Canada.
The
Wachovia credit facility has an original term of three years (which is subject
to further extensions as provided therein). Early in 2009, the Company exercised
its right to extend the credit facility’s term one additional year. An
additional one year extension is available. The interest rate for borrowings is
a function of the Adjusted LIBOR Rate or Adjusted LIBOR Market Index Rate, as
defined, as elected by the Company, plus a margin based upon a leverage ratio
pricing grid ranging between 0.5% and 1.5%. As of December 31, 2008, the
applicable margin based upon the leverage ratio pricing grid was equal to 0.5%.
The unused facility fee is 0.125%. The interest rate at December 31, 2008 was
0.94%. 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 interest at the Adjusted LIBOR Rate, at the end of the applicable
interest period. The Wachovia credit agreement contains certain financial
covenants including a minimum fixed charge coverage ratio, minimum tangible net
worth and maximum allowed capital expenditures. At December 31, 2008, the
Company had borrowings outstanding under the credit facility of $3,129,000
resulting in borrowing availability of $86,137,000, net of letters of credit of
$10,734,000. The borrowings are classified as current liabilities as the Company
plans to repay the debt within the next twelve months.
The
Company was in compliance with the covenants under its credit facility as of
December 31, 2008.
The
Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd.,
(Osborn) has available a credit facility of approximately $5,978,000 (ZAR
50,000,000) to finance short-term working capital needs, as well as to cover the
short-term establishment of letter of credit performance guarantees. As of
December 31, 2008, Osborn had $298,000 outstanding borrowings under the credit
facility at 15% interest, and approximately $1,854,000 in performance bonds
which were guaranteed under the facility. The facility is secured by Osborn’s
buildings and improvements, accounts receivable 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 seventy-five percent (75%) of Osborn’s accounts receivable
and total cash balances at the end of the prior month as well as buildings and
improvements of $1,983,000. As of December 31, 2008, Osborn had available credit
under the facility of approximately $3,826,000. The facility expires on July 30,
2009 and the Company plans to renew the facility prior to expiration. There is
no charge for the unused facility.
9.
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 operation. The Company estimates
the costs that may be incurred under its warranties and records a liability at
the time product sales are recorded. The warranty liability is primarily based
on historical claim rates, nature of claims and the associated
costs.
Changes
in the Company’s product warranty liability during 2008 and 2007 are as
follows:
|
|
2008
|
|
|
2007
|
|
Reserve
balance at beginning of period
|
|
$
|
7,826,820
|
|
|
$
|
7,183,946
|
|
Warranty
liabilities accrued during the period
|
|
|
18,316,668
|
|
|
|
12,496,960
|
|
Warranty
liabilities settled during the period
|
|
|
(16,004,036
|
)
|
|
|
(11,854,086
|
)
|
Other
|
|
|
(89,227
|
)
|
|
|
--
|
|
Reserve
balance at end of period
|
|
$
|
10,050,225
|
|
|
$
|
7,826,820
|
|
10.
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 claim 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 at December 31, 2008 were $9,022,126 compared to
$7,878,723 at December 31, 2007, of which $5,719,476 and $5,019,869 was included
in other long-term liabilities at December 31, 2008 and 2007,
respectively.
11.
Pension and Post-retirement Benefits
Prior to
December 31, 2003, all employees of the Company’s Kolberg-Pioneer, Inc.
subsidiary were covered by a defined benefit pension plan. After December 31,
2003, all benefit accruals under the plan ceased and no new employees could
become participants in the plan. Benefits paid under this plan are based on
years of service multiplied by a monthly amount. In addition, the Company also
sponsors two post-retirement medical and life insurance plans covering the
employees of its Kolberg-Pioneer, Inc. and Telsmith, Inc. subsidiaries and a
life insurance plan covering retirees of its former Barber-Greene subsidiary.
During 2008, the Company terminated the retiree medical plan at Kolberg-Pioneer,
Inc. and completed a lump-sum buyout of the retiree life plans at
Kolberg-Pioneer, Inc. and Barber-Greene. Settlement cost of $109,014 is included
as a component of net periodic benefit cost for 2008. The Company’s funding
policy for all plans is to make the minimum annual contributions required by
applicable regulations.
The
Company’s investment strategy for the Kolberg-Pioneer, Inc. pension plan is to
earn a rate of return sufficient to match or exceed the long-term growth of
pension liabilities. The investment policy states that the Plan Committee in its
sole discretion shall determine the allocation of plan assets among the
following four asset classes: cash equivalents, fixed-income securities,
domestic equities and international equities. The Company attempts to ensure
adequate diversification of the invested assets through investment over several
asset classes, investment in a portfolio of diversified assets within an asset
class or the use of multiple investment portfolios.
The
following provides information regarding benefit obligations, plan assets and
the funded status of the plans:
|
|
Pension
Benefits
|
|
|
Post-retirement
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
9,647,937
|
|
|
$
|
9,986,114
|
|
|
$
|
764,226
|
|
|
$
|
986,097
|
|
Service
cost
|
|
|
--
|
|
|
|
--
|
|
|
|
46,209
|
|
|
|
44,535
|
|
Interest
cost
|
|
|
606,508
|
|
|
|
564,674
|
|
|
|
60,401
|
|
|
|
41,974
|
|
Amendments
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
48,221
|
|
Settlements
|
|
|
--
|
|
|
|
--
|
|
|
|
(189,548
|
)
|
|
|
--
|
|
Actuarial
(gain) loss
|
|
|
302,102
|
|
|
|
(478,204
|
)
|
|
|
98,084
|
|
|
|
(92,426
|
)
|
Benefits
paid
|
|
|
(436,590
|
)
|
|
|
(424,647
|
)
|
|
|
(313,184
|
)
|
|
|
(264,175
|
)
|
Benefit
obligation at end of year
|
|
|
10,119,957
|
|
|
|
9,647,937
|
|
|
|
466,188
|
|
|
|
764,226
|
|
Accumulated
benefit obligation
|
|
$
|
10,119,957
|
|
|
$
|
9,647,937
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$
|
9,013,126
|
|
|
$
|
7,817,439
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Actual
gain (loss) on plan assets
|
|
|
(2,356,033
|
)
|
|
|
823,995
|
|
|
|
--
|
|
|
|
--
|
|
Employer
contribution
|
|
|
562,048
|
|
|
|
796,339
|
|
|
|
--
|
|
|
|
--
|
|
Benefits
paid
|
|
|
(436,590
|
)
|
|
|
(424,647
|
)
|
|
|
--
|
|
|
|
--
|
|
Fair
value of plan assets at end of year
|
|
|
6,782,551
|
|
|
|
9,013,126
|
|
|
|
--
|
|
|
|
--
|
|
Funded
status at end of year
|
|
$
|
(3,337,406
|
)
|
|
$
|
(634,811
|
)
|
|
$
|
(466,188
|
)
|
|
$
|
(764,226
|
)
|
Amounts
recognized in the consolidated
balance
sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
(73,731
|
)
|
|
$
|
(132,138
|
)
|
Noncurrent
liabilities
|
|
|
(3,337,406
|
)
|
|
|
(634,811
|
)
|
|
|
(392,457
|
)
|
|
|
(632,088
|
)
|
Net
amount recognized
|
|
$
|
(3,337,406
|
)
|
|
$
|
(634,811
|
)
|
|
$
|
(466,188
|
)
|
|
$
|
(764,226
|
)
|
Amounts
recognized in accumulated other
comprehensive
income
(loss) consist of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (gain)
|
|
$
|
4,650,401
|
|
|
$
|
1,288,821
|
|
|
$
|
(753,386
|
)
|
|
$
|
(660,236
|
)
|
Prior
service credit
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(7,669
|
)
|
Transition
obligation
|
|
|
--
|
|
|
|
--
|
|
|
|
95,500
|
|
|
|
167,500
|
|
Net
amount recognized
|
|
$
|
4,650,401
|
|
|
$
|
1,288,821
|
|
|
$
|
(657,886
|
)
|
|
$
|
(500,405
|
)
|
Weighted
average assumptions used to determine benefit
obligations
as of December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.19
|
%
|
|
|
6.41
|
%
|
|
|
6.19
|
%
|
|
|
5.59
|
%
|
Expected
return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate
of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The
measurement date used for all plans was December 31.
The
Company’s expected long-term rate of return on assets was 8.0% for both 2008 and
2007. In determining the expected long-term rate of return, the historical
experience of the plan assets, the current and expected allocation of the plan
assets and the expected long-term rates of return were considered.
The
Company’s pension plan asset allocation as of the measurement date (December 31)
and the target asset allocation ranges by asset category were as
follows:
|
|
Actual
Allocation
|
|
|
2008
& 2007 Target
|
|
Asset
Category
|
|
2008
|
|
|
2007
|
|
|
Allocation Ranges
|
|
Equity
securities
|
|
|
59.5
|
%
|
|
|
59.6
|
%
|
|
|
53
- 73
|
%
|
Debt
securities
|
|
|
33.7
|
%
|
|
|
30.5
|
%
|
|
|
21
- 41
|
%
|
Money
market funds
|
|
|
6.8
|
%
|
|
|
9.9
|
%
|
|
|
0 -
15
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
The
weighted average annual assumed rate of increase in per capita health care costs
is 9.0% for 2008 and is assumed to decrease gradually to 5.0% by 2017 and remain
at that level thereafter. A one-percentage point change in the assumed health
care cost trend rate for all years to, and including, the ultimate rate would
have the following effects:
|
|
2008
|
|
|
2007
|
|
Effect
on total service and interest cost
|
|
|
|
|
|
|
|
|
1% Increase
|
|
$
|
4,958
|
|
|
$
|
5,535
|
|
1% Decrease
|
|
|
(4,542
|
)
|
|
|
(5,128
|
)
|
Effect
on accumulated post-retirement benefit obligation
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
26,089
|
|
|
|
32,924
|
|
1% Decrease
|
|
|
(24,072
|
)
|
|
|
(30,305
|
)
|
Net
periodic benefit cost for 2008, 2007 and 2006 included the following
components:
|
|
Pension
Benefits
|
|
|
Post-retirement
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Components
of net periodic benefit
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
46,209
|
|
|
$
|
44,535
|
|
|
$
|
56,442
|
|
Interest
cost
|
|
|
606,508
|
|
|
|
564,674
|
|
|
|
544,410
|
|
|
|
60,401
|
|
|
|
41,974
|
|
|
|
53,176
|
|
Expected
return on plan assets
|
|
|
(732,954
|
)
|
|
|
(638,348
|
)
|
|
|
(546,362
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Amortization
of prior service cost
(credit)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
14,457
|
|
|
|
14,457
|
|
|
|
(5,225
|
)
|
Amortization
of transition obligation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
33,700
|
|
|
|
33,700
|
|
|
|
33,700
|
|
Settlement
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
109,014
|
|
|
|
--
|
|
|
|
--
|
|
Amortization
of net (gain) loss
|
|
|
29,509
|
|
|
|
90,395
|
|
|
|
136,815
|
|
|
|
108,845
|
|
|
|
(56,930
|
)
|
|
|
(89,294
|
)
|
Net
periodic benefit cost
|
|
|
(96,937
|
)
|
|
|
16,721
|
|
|
|
134,863
|
|
|
|
372,626
|
|
|
|
77,736
|
|
|
|
48,799
|
|
Other
changes in plan assets and
benefit obligations
recognized in
other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (gain)
|
|
|
3,391,089
|
|
|
|
(663,852
|
)
|
|
|
(476,290
|
)
|
|
|
15,695
|
|
|
|
(92,425
|
)
|
|
|
(714,035
|
)
|
Amortization
of net (gain) loss
|
|
|
(29,509
|
)
|
|
|
(90,395
|
)
|
|
|
(136,815
|
)
|
|
|
(108,845
|
)
|
|
|
56,930
|
|
|
|
89,294
|
|
Prior
service credit
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
22,126
|
|
|
|
48,221
|
|
|
|
(46,658
|
)
|
Amortization
of prior service credit
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(14,457
|
)
|
|
|
(14,457
|
)
|
|
|
5,225
|
|
Transition
obligation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(38,300
|
)
|
|
|
--
|
|
|
|
234,900
|
|
Amortization
of transition obligation
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(33,700
|
)
|
|
|
(33,700
|
)
|
|
|
(33,700
|
)
|
Total
recognized in other
comprehensive
income
|
|
|
3,361,580
|
|
|
|
(754,247
|
)
|
|
|
(613,105
|
)
|
|
|
(157,481
|
)
|
|
|
(35,431
|
)
|
|
|
(464,974
|
)
|
Total
recognized in net periodic benefit
cost and other comprehensive income
|
|
$
|
3,264,643
|
|
|
$
|
(737,526
|
)
|
|
$
|
(478,242
|
)
|
|
$
|
215,145
|
|
|
$
|
42,305
|
|
|
$
|
(416,175
|
)
|
Weighted
average assumptions used
to determine net periodic benefit
cost
for
years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.41
|
%
|
|
|
5.72
|
%
|
|
|
5.41
|
%
|
|
|
5.59
|
%
|
|
|
5.72
|
%
|
|
|
5.41
|
%
|
Expected
return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
The
Company expects to contribute approximately $174,000 to the pension plan and
approximately $74,000 to the other benefit plans during 2009.
|
|
Pension
Benefits
|
|
|
Post-retirement
Benefits
|
|
Amounts
in accumulated other comprehensive
income
expected to be recognized
in net periodic benefit
cost in 2009
|
|
|
|
|
|
|
|
|
Amortization
of net (gain) loss
|
|
$
|
301,942
|
|
|
$
|
(64,545
|
)
|
Amortization
of transition obligation
|
|
|
--
|
|
|
|
24,200
|
|
The
following estimated future benefit payments are expected to be paid in the years
indicated:
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
2009
|
|
$
|
455,000
|
|
$
|
74,000
|
|
2010
|
|
|
472,000
|
|
|
34,000
|
|
2011
|
|
|
510,000
|
|
|
44,000
|
|
2012
|
|
|
557,000
|
|
|
35,000
|
|
2013
|
|
|
564,000
|
|
|
28,000
|
|
2014
- 2018
|
|
|
3,481,000
|
|
|
238,000
|
|
The
Company sponsors a 401(k) defined contribution plan to provide eligible
employees with additional income upon retirement. The Company’s contributions to
the plan are based on employee contributions. The Company’s contributions
totaled $4,856,709 in 2008, $4,167,248 in 2007 and $3,150,802 in
2006.
The
Company maintains a supplemental executive retirement plan (“SERP”) for certain
of its executive officers. The plan is a non-qualified deferred compensation
plan administered by the Board of Directors of the Company, pursuant to which
the Company makes quarterly cash contributions of a certain percentage of
executive officers’ annual compensation. The SERP previously invested cash
contributions in Company common stock that it purchased on the open market;
however, under a plan amendment effective November 1, 2004, the participants may
self-direct the investment of their apportioned plan assets. Upon retirement,
executives may receive their apportioned contributions of the plan assets in the
form of cash.
Assets of
the supplemental executive retirement plan consist of the
following:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Cost
|
|
|
Market
|
|
|
Cost
|
|
|
Market
|
|
Company
stock
|
|
$
|
1,966,178
|
|
|
$
|
2,889,670
|
|
|
$
|
1,705,249
|
|
|
$
|
3,195,104
|
|
Equity
securities
|
|
|
2,575,862
|
|
|
|
2,229,325
|
|
|
|
3,011,012
|
|
|
|
2,946,301
|
|
Total
|
|
$
|
4,542,040
|
|
|
$
|
5,118,995
|
|
|
$
|
4,716,261
|
|
|
$
|
6,141,405
|
|
The
Company periodically adjusts the deferred compensation liability such that the
balance of the liability equals the total fair market values of all assets held
by the trust established under the SERP. Such liabilities are included in other
liabilities on the consolidated balance sheets. The equity securities are
included in investments in the consolidated balance sheets and classified as
trading equity securities. See Note 3, Investments. The Company stock held by
the plan is carried at cost and included as a reduction in shareholders’ equity
in the consolidated balance sheets.
The
change in the fair market value of Company stock held in the SERP results in a
charge or credit to selling, general and administrative expenses in the
consolidated statement of operations because the acquisition cost of the Company
stock in the SERP is recorded as a reduction of shareholders’ equity and is not
adjusted to fair market value; however, the related liability is adjusted to the
fair market value of the stock as of each period end. The Company recognized a
credit of $502,000 in 2008 and expense of $452,000 and $325,000 in 2007 and
2006, respectively, related to the change in the fair value of the Company stock
held in the SERP.
12.
Income Taxes
For
financial reporting purposes, income before income taxes and minority interest
includes the following components:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United
States
|
|
$
|
91,681,710
|
|
|
$
|
82,367,924
|
|
|
$
|
55,925,244
|
|
Foreign
|
|
|
6,379,755
|
|
|
|
6,038,458
|
|
|
|
4,382,708
|
|
Income
before income taxes and minority interest
|
|
$
|
98,061,465
|
|
|
$
|
88,406,382
|
|
|
$
|
60,307,952
|
|
The
provision for income taxes consists of the following:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,802,219
|
|
|
$
|
27,131,144
|
|
|
$
|
17,509,493
|
|
State
|
|
|
4,419,760
|
|
|
|
2,935,588
|
|
|
|
1,846,120
|
|
Foreign
|
|
|
992,613
|
|
|
|
1,231,551
|
|
|
|
267,683
|
|
Total
current provision
|
|
|
32,214,592
|
|
|
|
31,298,283
|
|
|
|
19,623,296
|
|
Deferred
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,820,986
|
|
|
|
(394,900
|
)
|
|
|
534,754
|
|
State
|
|
|
185,177
|
|
|
|
65,245
|
|
|
|
(81,619
|
)
|
Foreign
|
|
|
545,811
|
|
|
|
429,421
|
|
|
|
561,310
|
|
Total
deferred provision
|
|
|
2,551,974
|
|
|
|
99,766
|
|
|
|
1,014,445
|
|
Total
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
28,623,205
|
|
|
|
26,736,244
|
|
|
|
18,044,247
|
|
State
|
|
|
4,604,937
|
|
|
|
3,000,833
|
|
|
|
1,764,501
|
|
Foreign
|
|
|
1,538,424
|
|
|
|
1,660,972
|
|
|
|
828,993
|
|
Total
provision
|
|
$
|
34,766,566
|
|
|
$
|
31,398,049
|
|
|
$
|
20,637,741
|
|
The
Company’s income tax provision is computed based on the federal statutory rates
and the average state statutory rates, net of related federal
benefit.
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. A
reconciliation of the provision for income taxes at the statutory federal income
tax rate to the amount provided is as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Tax
at the statutory federal income tax rate
|
|
$
|
34,321,513
|
|
|
$
|
30,942,234
|
|
|
$
|
21,033,019
|
|
Qualified
Production Activity Deduction
|
|
|
(1,081,747
|
)
|
|
|
(932,710
|
)
|
|
|
(621,982
|
)
|
State
income tax, net of federal income tax
|
|
|
3,004,717
|
|
|
|
1,950,540
|
|
|
|
1,146,925
|
|
Other
permanent differences
|
|
|
198,495
|
|
|
|
356,637
|
|
|
|
307,814
|
|
R&D
credit
|
|
|
(1,109,551
|
)
|
|
|
(1,049,782
|
)
|
|
|
(367,771
|
)
|
Change
in valuation allowance
|
|
|
(276,112
|
)
|
|
|
60,775
|
|
|
|
(233,431
|
)
|
Other
items
|
|
|
(290,749
|
)
|
|
|
70,355
|
|
|
|
(626,833
|
)
|
Income
tax provision
|
|
$
|
34,766,566
|
|
|
$
|
31,398,049
|
|
|
$
|
20,637,741
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
Significant
components of the Company’s deferred tax assets and liabilities are as
follows:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Inventory
reserves
|
|
$
|
4,925,261
|
|
|
$
|
3,840,943
|
|
Warranty reserves
|
|
|
3,345,363
|
|
|
|
2,516,910
|
|
Bad debt reserves
|
|
|
392,461
|
|
|
|
461,652
|
|
State tax loss
carryforwards
|
|
|
1,126,177
|
|
|
|
1,471,800
|
|
Other
|
|
|
5,263,102
|
|
|
|
4,334,092
|
|
Valuation
allowance
|
|
|
(841,616
|
)
|
|
|
(1,117,728
|
)
|
Total
deferred tax assets
|
|
|
14,210,748
|
|
|
|
11,507,669
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property and
equipment
|
|
|
14,231,539
|
|
|
|
9,048,440
|
|
Other
|
|
|
2,343,354
|
|
|
|
1,956,213
|
|
Total
deferred tax liabilities
|
|
|
16,574,893
|
|
|
|
11,004,653
|
|
Net
deferred tax asset (liability)
|
|
$
|
(2,364,145
|
)
|
|
$
|
503,016
|
|
As of
December 31, 2008, the Company has state net operating loss carryforwards of
approximately $27,300,000 for tax purposes, which will be available to offset
future taxable income. If not used, these carryforwards will expire between 2010
and 2022. The valuation allowance for deferred tax assets specifically relates
to the future utilization of state net operating loss carryforwards. Future
utilization of these net operating loss carryforwards is evaluated by the
Company on an annual basis and the valuation allowance is adjusted accordingly.
In 2008, the valuation allowance was decreased by $276,112 based upon the
projected ability of certain entities to utilize their state net operating loss
carryforwards.
Undistributed
earnings of Astec’s Canadian subsidiary, Breaker Technology Ltd., are considered
to be indefinitely reinvested; accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon repatriation of those
earnings, in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to Canada. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practical due to the complexities
associated with the hypothetical calculation; however, unrecognized foreign tax
credit carryforwards would be available to reduce some portion of the U.S.
liability. Withholding taxes would be payable upon remittance of previously
unremitted earnings.
The
Company files 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 2005.
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
2002.
As a
result of the implementation of FIN 48, the Company recognized a $65,725
liability for unrecognized tax benefits, which was accounted for as a reduction
to the January 1, 2007 balance of retained earnings. The Company had a liability
recorded for unrecognized tax benefits at December 31, 2007 of $1,872,766 which
included accrued interest and penalties of $218,505. At December 31, 2008, the
Company had a liability for unrecognized tax benefits of $939,217 which included
accrued interest and penalties of $140,025. The Company recognizes interest and
penalties accrued related to unrecognized tax benefits in tax expense. The
interest and penalties recognized in the Company’s statement of operations was
$124,365 in 2007. In 2008, the Company recognized a tax benefit for penalties
and interest of $78,480 related to amounts that were settled for less than
previously accrued. The total amount of unrecognized tax benefits that, if
recognized, would affect the effective rate is $718,904 and $817,641 at December
31, 2008 and 2007, respectively. The Company does not expect a significant
increase or decrease to the total amount of unrecognized tax benefits within the
next 12 months. A reconciliation of the beginning and ending unrecognized tax
benefits is as follows:
|
|
2008
|
|
|
2007
|
|
Unrecognized
tax benefits at January 1
|
|
$
|
1,872,766
|
|
|
$
|
1,191,360
|
|
Additions
for tax positions related to the current year
|
|
|
422,010
|
|
|
|
589,976
|
|
Additions
for tax positions related to prior years
|
|
|
58,748
|
|
|
|
192,579
|
|
Reductions
due to lapse of statutes of limitations
|
|
|
(142,404
|
)
|
|
|
(101,149
|
)
|
Decreases
related to settlements with tax authorities
|
|
|
(1,271,903
|
)
|
|
|
--
|
|
Unrecognized
tax benefits at December 31
|
|
$
|
939,217
|
|
|
$
|
1,872,766
|
|
In the
December 31, 2008 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.
13.
Contingent Matters
Certain
customers have financed purchases of Company products through arrangements in
which the Company is contingently liable for customer debt of approximately
$241,000 and $629,000 at December 31, 2008 and 2007, respectively. The Company
was also contingently liable for residual value guarantees aggregating
approximately $147,000 at December 31, 2007. At December 31, 2008, the maximum
potential amount of future payments for which the Company would be liable is
equal to $241,000. Because the Company does not believe it will be called on to
fulfill any of these contingencies, the carrying amounts on the consolidated
balance sheets of the Company for these contingent liabilities are
zero.
In
addition, the Company is contingently liable under letters of credit totaling
approximately $10,734,000, including a $2,000,000 letter of credit issued to the
Company’s South African subsidiary, Osborn. The outstanding letters of credit
expire at various dates through February 2010. Osborn is contingently liable for
a total of $1,854,000 in performance bonds. None of Osborn’s performance bonds
outstanding at December 31, 2008 were secured by the $2,000,000 letter of credit
issued by the Company. As of December 31, 2008, the maximum potential amount of
future payments under these letters of credit and bonds for which the Company
could be liable is approximately $12,588,000.
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.
The
Company has received notice that Johnson Crushers International, Inc. is subject
to an enforcement action brought by the U.S. Environmental Protection Agency and
the Oregon Department of Environmental Quality related to an alleged failure to
comply with federal and state air permitting regulations. Each agency is
expected to seek sanctions that will include monetary penalties. No penalty has
yet been proposed. The Company believes that it has cured the alleged violations
and is cooperating fully with the regulatory agencies. At this stage of the
investigations, the Company is unable to predict the outcome and the amount of
any such sanctions.
The
Company has also received notice from the Environmental Protection Agency 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 notice. 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 any liabilities with respect to either matter because
no estimate of the amount of any such liability can be made at this
time.
14.
Shareholders’ Equity
Under
terms of the Company’s employee’s stock option plans, officers and certain other
employees have been 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. The
Company has reserved unissued 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 annual
retainer 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. Generally, other options granted vest over 12 months.
All stock options have a 10-year term. The shares reserved under the 1998
Long-term Incentive Plan total 396,324, and 161,809 under the 1998 Non-employee
Directors Stock Plan as of December 31, 2008. The fair value of stock awards
granted to non-employee directors totaled $182,000, $158,000 and $175,000 during
2008, 2007 and 2006, respectively.
A summary
of the Company’s stock option activity and related information for the year
ended December 31, 2008 follows:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Life
|
|
|
Intrinsic
Value
|
|
Options
outstanding at
December 31, 2007
|
|
|
616,990
|
|
|
$
|
22.45
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(204,001
|
)
|
|
|
22.89
|
|
|
|
|
|
|
|
|
|
Options
outstanding at
December 31, 2008
|
|
|
412,989
|
|
|
|
22.24
|
|
|
2.45
Years
|
|
|
$
|
3,763,000
|
|
Options
exercisable at
December 31, 2008
|
|
|
412,989
|
|
|
$
|
22.24
|
|
|
2.45
Years
|
|
|
$
|
3,763,000
|
|
The
weighted average grant-date fair value of 1,686 options granted during the year
ended December 31, 2006 was $16.61. No options were granted during 2008 or 2007.
The total fair value of stock options that vested during the year ended December
31, 2006 was $2,153,000. No options vested during 2008 or 2007. The total
intrinsic value of stock options exercised during the years ended December 31,
2008, 2007 and 2006 was $1,696,000, $13,174,000, and $8,695,000, respectively.
Cash received from options exercised during the years ended December 31, 2008,
2007 and 2006, totaled $4,669,000, $13,632,000 and $9,970,000, respectively and
is included in the accompanying consolidated statement of cash flows as a
financing activity. The excess tax benefit realized from the exercise of these
options totaled $637,000, $4,389,000 and $2,955,000 for the years ended December
31, 2008, 2007 and 2006, respectively. The stock option compensation expense is
included in selling, general and administrative expenses in the accompanying
consolidated statement of operations. As of December 31, 2008, 2007 and 2006,
there were no unrecognized compensation costs related to stock options
previously granted.
The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions.
|
|
2006
Grants
|
|
Expected
life
|
|
5.5
years
|
|
Expected
volatility
|
|
|
55.1
|
%
|
Risk-free
interest rate
|
|
|
4.53
|
%
|
Dividend
yield
|
|
|
--
|
|
The
expected life of stock options represents the period of time that the stock
options granted are expected to be outstanding and was based on the shortcut
method allowed under SAB 107 for 2006. The expected volatility is based on the
historical price volatility of the Company’s common stock. The risk-free
interest rate represents the U.S. Treasury bill rate for the expected life of
the related stock options. No factor for dividend yield was incorporated in the
calculation of fair value, as the Company has historically not paid
dividends.
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
(“RSU’s”) 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. RSU’s granted each year will be determined based upon the performance
of individual subsidiaries and consolidated annual financial performance.
Additional RSU’s may be granted in 2011 based upon cumulative five-year
performance. Generally, each award will vest at the end of five years from the
date of grant, or at the time a recipient retires after reaching age 65, if
earlier.
RSU’s
granted in 2007 and 2008 and expected to be granted in 2009 for each prior
year’s performance and RSU’s expected to be granted in 2011 for five-year
cumulative performance are as follows:
Actual
or Anticipated
Grant
Date
|
|
|
Performance
Period
|
|
|
Original
|
|
|
Forfeitures
|
|
|
Vested
|
|
|
Net
|
|
|
Fair
Value
Per
RSU
|
|
March,
2007
|
|
|
2006
|
|
|
|
71,100
|
|
|
|
7,179
|
|
|
|
600
|
|
|
|
63,321
|
|
|
$
|
38.76
|
|
February,
2008
|
|
|
2007
|
|
|
|
74,800
|
|
|
|
555
|
|
|
|
600
|
|
|
|
73,645
|
|
|
$
|
38.52
|
|
February,
2009
|
|
|
2008
|
|
|
|
69,800
|
|
|
|
--
|
|
|
|
--
|
|
|
|
69,800
|
|
|
$
|
31.33
|
|
February,
2011
|
|
|
2006-2010
|
|
|
|
92,009
|
|
|
|
--
|
|
|
|
--
|
|
|
|
92,009
|
|
|
$
|
31.33
|
|
Total
|
|
|
|
|
|
|
307,709
|
|
|
|
7,734
|
|
|
|
1,200
|
|
|
|
298,775
|
|
|
|
|
|
Compensation
expense of $2,202,000, $1,399,000 and $419,000 was recorded in the years ended
December 31, 2008, 2007 and 2006, respectively, to reflect the fair value of the
original RSU’s granted or anticipated to be granted less forfeitures, amortized
over the portion of the vesting period occurring during the period. Related
income tax benefits of $782,000, $497,000 and $143,000 were recorded in 2008,
2007 and 2006, respectively. The fair value of the 161,809 RSU’s expected to be
granted in February 2009 and 2011 and expensed in 2008 was based upon the market
value of the related stock at December 31, 2008 and will be adjusted to the fair
value as of each period end until the date of grant. Based upon the fair value
and net RSU’s shown above, it is anticipated that $5,679,000 of additional
compensation costs will be recognized in future periods through
2016.
Changes
in restricted stock units during the year ended December 31, 2008 are as
follows:
|
|
2008
|
|
Unvested
restricted stock units at January 1, 2008
|
|
|
64,950
|
|
Restricted
stock units granted
|
|
|
74,800
|
|
Restricted
stock units forfeited
|
|
|
(1,584
|
)
|
Restricted
stock units vested
|
|
|
(1,200
|
)
|
Unvested
restricted stock units at December 31, 2008
|
|
|
136,966
|
|
The grant
date fair value of the restricted stock units granted during 2008 and 2007 was
$2,881,296 and $2,755,836, respectively. The intrinsic value of the 1,200 shares
that vested during 2008 was $47,604.
The
Company has adopted an Amended and Restated Shareholder Protection Rights
Agreement and declared a distribution of one right (the “Right”) for each
outstanding share of Company common stock, par value $0.20 per share (the
“Common Stock”). Each Right entitles the registered holder (other than the
“Acquiring “Person” as defined below) to purchase from the Company one
one-hundredth of a share (a “Unit”) of Series A Participating Preferred Stock,
par value $1.00 per share (the “Preferred Stock”), at a purchase price of $72.00
per Unit, subject to adjustment. The Rights currently attach to the certificates
representing shares of outstanding Company Common Stock, and no separate Rights
certificates will be distributed. The Rights will separate from the Common Stock
upon the earlier of ten business days (unless otherwise delayed by the Board)
following the: 1) public announcement that a person or group of affiliated or
associated persons (the “Acquiring Person”) has acquired, obtained the right to
acquire, or otherwise obtained beneficial ownership of fifteen percent (15%) or
more of the then outstanding shares of Common Stock, or 2) commencement of a
tender offer or exchange offer that would result in an Acquiring Person
beneficially owning fifteen percent (15%) or more of the then outstanding shares
of Common Stock. The Board of Directors may terminate the Rights without any
payment to the holders thereof at any time prior to the close of business ten
business days following announcement by the Company that a person has become an
Acquiring Person. Once the Rights are separated from the Common Stock, then the
Rights entitle the holder (other than the Acquiring Person) to purchase shares
of Common Stock (rather than Preferred Stock) having a current market value
equal to twice the Unit purchase price. The Rights, which do not have voting
power and are not entitled to dividends, expire on December 22, 2015. In the
event of a merger, consolidation, statutory share exchange or other transaction
in which shares of Common Stock are exchanged, each Unit of Preferred Stock will
be entitled to receive the per share amount paid in respect of each share of
Common Stock.
15.
Operations by Industry Segment and Geographic Area
The
Company has four reportable operating segments. These segments are combinations
of business units that offer different products and services. The business units
are each managed separately because they manufacture and distribute distinct
products that require different marketing strategies. A brief description of
each segment is as follows:
Asphalt Group
- This segment
consists of three operating units that design, 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 and
thermal fluid storage tanks. 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 six operating units that design, 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 two operating units that design, 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 consists of two operating units that design, manufacture and market
auger boring machines, directional drills, fluid/mud systems, chain and wheel
trenching equipment, rock saws, and road miners. The principal purchasers of
these products are pipeline and utility contractors and gas and oil
drillers.
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 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.
Intersegment
sales and transfers are valued at prices comparable to those for unrelated
parties. For management purposes, the Company does not allocate federal income
taxes or corporate overhead (including interest expense) to its business
units.
Segment
information for 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Revenues
from
external
customers
|
|
$
|
257,336,421
|
|
|
$
|
350,350,377
|
|
|
$
|
150,691,545
|
|
|
$
|
135,152,338
|
|
|
$
|
80,169,510
|
|
|
$
|
973,700,191
|
|
Intersegment
revenues
|
|
|
24,071,770
|
|
|
|
26,970,745
|
|
|
|
4,931,081
|
|
|
|
3,755,602
|
|
|
|
--
|
|
|
|
59,729,198
|
|
Interest
expense
|
|
|
173,512
|
|
|
|
167,099
|
|
|
|
383,235
|
|
|
|
500
|
|
|
|
126,750
|
|
|
|
851,096
|
|
Depreciation
and
amortization
|
|
|
4,116,394
|
|
|
|
6,064,911
|
|
|
|
2,633,667
|
|
|
|
2,726,316
|
|
|
|
1,801,600
|
|
|
|
17,342,888
|
|
Segment
profit (loss)
|
|
|
40,765,363
|
|
|
|
37,031,600
|
|
|
|
15,087,032
|
|
|
|
12,510,606
|
|
|
|
(41,153,408
|
)
|
|
|
64,241,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
302,007,759
|
|
|
|
314,365,480
|
|
|
|
109,113,262
|
|
|
|
109,382,786
|
|
|
|
304,661,454
|
|
|
|
1,139,530,741
|
|
Capital
expenditures
|
|
|
4,096,636
|
|
|
|
15,280,306
|
|
|
|
4,282,571
|
|
|
|
6,493,773
|
|
|
|
9,779,161
|
|
|
|
39,932,447
|
|
Segment
information for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Revenues
from
external
customers
|
|
$
|
240,229,156
|
|
|
$
|
338,183,219
|
|
|
$
|
146,488,680
|
|
|
$
|
114,377,657
|
|
|
$
|
29,746,642
|
|
|
$
|
869,025,354
|
|
Intersegment
revenues
|
|
|
12,882,783
|
|
|
|
15,437,948
|
|
|
|
5,613,527
|
|
|
|
11,720,989
|
|
|
|
--
|
|
|
|
45,655,247
|
|
Interest
expense
|
|
|
11,710
|
|
|
|
213,931
|
|
|
|
11,432
|
|
|
|
894
|
|
|
|
615,027
|
|
|
|
852,994
|
|
Depreciation
and
amortization
|
|
|
3,757,204
|
|
|
|
5,310,658
|
|
|
|
2,147,476
|
|
|
|
2,832,824
|
|
|
|
1,032,791
|
|
|
|
15,080,953
|
|
Segment
profit (loss)
|
|
|
37,707,111
|
|
|
|
38,892,362
|
|
|
|
17,885,115
|
|
|
|
7,348,141
|
|
|
|
(45,042,148
|
)
|
|
|
56,790,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
264,179,910
|
|
|
|
299,896,625
|
|
|
|
152,947,368
|
|
|
|
87,556,087
|
|
|
|
306,818,074
|
|
|
|
1,111,398,064
|
|
Capital
expenditures
|
|
|
7,361,126
|
|
|
|
13,539,548
|
|
|
|
4,335,580
|
|
|
|
3,912,318
|
|
|
|
9,302,808
|
|
|
|
38,451,380
|
|
Segment
information for 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asphalt
Group
|
|
|
Aggregate
and
Mining Group
|
|
|
Mobile
Asphalt
Paving
Group
|
|
|
Underground
Group
|
|
|
All
Others
|
|
|
Total
|
|
Revenues
from
external
customers
|
|
$
|
186,656,861
|
|
|
$
|
289,470,523
|
|
|
$
|
129,385,414
|
|
|
$
|
105,094,015
|
|
|
$
|
--
|
|
|
$
|
710,606,813
|
|
Intersegment
revenues
|
|
|
9,069,815
|
|
|
|
13,626,818
|
|
|
|
3,864,530
|
|
|
|
2,925,366
|
|
|
|
--
|
|
|
|
29,486,529
|
|
Interest
expense
|
|
|
5,060
|
|
|
|
188,224
|
|
|
|
3,639
|
|
|
|
9,190
|
|
|
|
1,465,739
|
|
|
|
1,671,852
|
|
Depreciation
and
amortization
|
|
|
3,487,982
|
|
|
|
3,834,284
|
|
|
|
1,684,789
|
|
|
|
2,500,605
|
|
|
|
383,431
|
|
|
|
11,891,091
|
|
Segment
profit (loss)
|
|
|
24,386,850
|
|
|
|
33,263,355
|
|
|
|
14,368,409
|
|
|
|
4,866,484
|
|
|
|
(36,439,102
|
)
|
|
|
40,445,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
215,265,761
|
|
|
|
256,142,482
|
|
|
|
131,879,605
|
|
|
|
69,521,666
|
|
|
|
233,291,974
|
|
|
|
906,101,488
|
|
Capital
expenditures
|
|
|
4,792,573
|
|
|
|
15,343,183
|
|
|
|
7,588,091
|
|
|
|
1,719,057
|
|
|
|
1,436,210
|
|
|
|
30,879,114
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
external sales for reportable segments
|
|
$
|
893,530,681
|
|
|
$
|
839,278,712
|
|
|
$
|
710,606,813
|
|
Intersegment
sales for reportable segments
|
|
|
59,729,198
|
|
|
|
45,655,247
|
|
|
|
29,486,529
|
|
Other
sales
|
|
|
80,169,510
|
|
|
|
29,746,642
|
|
|
|
--
|
|
Elimination
of intersegment sales
|
|
|
(59,729,198
|
)
|
|
|
(45,655,247
|
)
|
|
|
(29,486,529
|
)
|
Total
consolidated sales
|
|
$
|
973,700,191
|
|
|
$
|
869,025,354
|
|
|
$
|
710,606,813
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
profit for reportable segments
|
|
$
|
105,394,601
|
|
|
$
|
101,832,729
|
|
|
$
|
76,885,098
|
|
Other
loss
|
|
|
(41,153,408
|
)
|
|
|
(45,042,148
|
)
|
|
|
(36,439,102
|
)
|
Minority
interest in earnings of subsidiary
|
|
|
(166,669
|
)
|
|
|
(211,225
|
)
|
|
|
(82,368
|
)
|
(Elimination)
recapture of intersegment profit
|
|
|
(946,294
|
)
|
|
|
217,752
|
|
|
|
(775,785
|
)
|
Total
consolidated net income
|
|
$
|
63,128,230
|
|
|
$
|
56,797,108
|
|
|
$
|
39,587,843
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets for reportable segments
|
|
$
|
834,869,287
|
|
|
$
|
804,579,990
|
|
|
$
|
672,809,514
|
|
Other
assets
|
|
|
304,661,454
|
|
|
|
306,818,074
|
|
|
|
233,291,974
|
|
Elimination
of intercompany profit in inventory
|
|
|
(1,885,560
|
)
|
|
|
(939,266
|
)
|
|
|
(1,157,018
|
)
|
Elimination
of intercompany receivables
|
|
|
(324,860,356
|
)
|
|
|
(369,361,503
|
)
|
|
|
(310,941,290
|
)
|
Elimination
of investment in subsidiaries
|
|
|
(119,562,447
|
)
|
|
|
(122,612,801
|
)
|
|
|
(101,255,392
|
)
|
Other
eliminations
|
|
|
(80,409,922
|
)
|
|
|
(75,914,977
|
)
|
|
|
(70,885,253
|
)
|
Total
consolidated assets
|
|
$
|
612,812,456
|
|
|
$
|
542,569,517
|
|
|
$
|
421,862,535
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense for reportable segments
|
|
$
|
724,346
|
|
|
$
|
237,967
|
|
|
$
|
206,113
|
|
Other
interest expense
|
|
|
126,750
|
|
|
|
615,027
|
|
|
|
1,465,739
|
|
Total
consolidated interest expense
|
|
$
|
851,096
|
|
|
$
|
852,994
|
|
|
$
|
1,671,852
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation and amortization for reportable segments
|
|
$
|
15,541,288
|
|
|
$
|
14,048,162
|
|
|
$
|
11,507,660
|
|
Other
depreciation and amortization
|
|
|
1,801,600
|
|
|
|
1,032,791
|
|
|
|
383,431
|
|
Total
consolidated depreciation and amortization
|
|
$
|
17,342,888
|
|
|
$
|
15,080,953
|
|
|
$
|
11,891,091
|
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital expenditures for reportable segments
|
|
$
|
30,153,286
|
|
|
$
|
29,148,572
|
|
|
$
|
29,442,904
|
|
Other
capital expenditures
|
|
|
9,779,161
|
|
|
|
9,302,808
|
|
|
|
1,436,210
|
|
Total
consolidated capital expenditures
|
|
$
|
39,932,447
|
|
|
$
|
38,451,380
|
|
|
$
|
30,879,114
|
|
Sales by
major geographic region were as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United
States
|
|
$
|
620,987,337
|
|
|
$
|
590,689,756
|
|
|
$
|
518,455,721
|
|
Asia
|
|
|
33,203,197
|
|
|
|
11,191,188
|
|
|
|
7,867,141
|
|
Southeast
Asia
|
|
|
11,711,595
|
|
|
|
8,433,668
|
|
|
|
6,660,597
|
|
Europe
|
|
|
39,182,153
|
|
|
|
36,475,730
|
|
|
|
36,128,754
|
|
South
America
|
|
|
36,492,133
|
|
|
|
23,335,858
|
|
|
|
13,670,468
|
|
Canada
|
|
|
77,226,493
|
|
|
|
55,758,257
|
|
|
|
41,527,458
|
|
Australia
|
|
|
26,058,737
|
|
|
|
38,566,656
|
|
|
|
10,891,367
|
|
Africa
|
|
|
63,314,725
|
|
|
|
45,500,703
|
|
|
|
38,059,309
|
|
Central
America
|
|
|
26,663,931
|
|
|
|
14,237,170
|
|
|
|
13,721,178
|
|
Middle
East
|
|
|
28,842,208
|
|
|
|
24,671,411
|
|
|
|
18,251,651
|
|
West
Indies
|
|
|
4,778,771
|
|
|
|
8,780,295
|
|
|
|
2,442,514
|
|
Other
|
|
|
5,238,911
|
|
|
|
11,384,662
|
|
|
|
2,930,655
|
|
Total foreign
|
|
|
352,712,854
|
|
|
|
278,335,598
|
|
|
|
192,151,092
|
|
Total
|
|
$
|
973,700,191
|
|
|
$
|
869,025,354
|
|
|
$
|
710,606,813
|
|
Long-lived
assets by major geographic region were as follows:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
United
States
|
|
$
|
162,879,418
|
|
|
$
|
136,191,972
|
|
Canada
|
|
|
3,242,843
|
|
|
|
3,985,596
|
|
Africa
|
|
|
5,351,435
|
|
|
|
3,570,325
|
|
Australia
|
|
|
426,648
|
|
|
|
--
|
|
Total foreign
|
|
|
9,020,926
|
|
|
|
7,555,921
|
|
Total
|
|
$
|
171,900,344
|
|
|
$
|
143,747,893
|
|
16.
Accumulated Other Comprehensive Income (Loss)
The
balance of related after-tax components comprising accumulated other
comprehensive income is summarized below:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Foreign
currency translation adjustment
|
|
$
|
(310,569
|
)
|
|
$
|
6,602,314
|
|
Unrealized
loss on available for sale investment securities, net of
tax
|
|
|
--
|
|
|
|
(924,646
|
)
|
Unrecognized
pension and post retirement benefit cost, net of tax
|
|
|
(2,488,067
|
)
|
|
|
(491,623
|
)
|
Accumulated
other comprehensive income (loss)
|
|
$
|
(2,798,636
|
)
|
|
$
|
5,186,045
|
|
17.
Other Income (Expense) - Net
Other
income (expense), net consist of the following:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Loss
on foreign currency transactions
|
|
$
|
(547,331
|
)
|
|
$
|
(601,814
|
)
|
|
$
|
(167,478
|
)
|
Gain
on sale of investments
|
|
|
5,907,620
|
|
|
|
--
|
|
|
|
--
|
|
Other
|
|
|
348,786
|
|
|
|
399,551
|
|
|
|
334,635
|
|
Total
|
|
$
|
5,709,075
|
|
|
$
|
(202,263
|
)
|
|
$
|
167,157
|
|
18.
Business Combinations
On July
31, 2007, the Company acquired all of the outstanding capital stock of Peterson,
Inc., an Oregon company (“Peterson”) for approximately $21,098,000, including
cash acquired of approximately $1,702,000, plus transaction costs of
approximately $252,000. In addition to the purchase price paid to the sellers,
the Company also paid off approximately $7,500,000 of outstanding Peterson debt
coincident with the purchase. The effective date of the purchase was July 1,
2007, and the results of Peterson’s operations have been included in the
consolidated financial statements since that date. The transaction resulted in
the recognition of approximately $3,352,000 of property, plant and equipment,
approximately $5,807,000 of goodwill and approximately $4,278,000 of intangible
assets. Intangible assets consist of patents (seven-year weighted average useful
life), customer relationships (15-year weighted average useful life),
non-compete agreement (four-year weighted average useful life), and tradename
(indefinite useful life). Peterson’s intangible assets subject to amortization,
in total, have a 13-year weighted average useful life. During June 2008, the
purchase price allocation was finalized and funds previously held in escrow have
been distributed. No significant adjustments to amounts previously recorded
were made as a result of the final accounting.
Peterson
is a manufacturer of whole-tree pulpwood chippers, horizontal grinders and
blower trucks. Founded in 1961 as Wilbur Peterson & Sons, a heavy
construction company, Peterson expanded into manufacturing in 1982 to develop
equipment to suit their land clearing and construction needs. Peterson will
continue to operate from its Eugene, Oregon headquarters under the name Peterson
Pacific Corp.
No
conditional earn-out payments are due to the sellers based upon 2008 operational
results. However, conditional earn-out payments of up to $3,000,000 may be due
to the sellers based upon cumulative 2008 and 2009 results of operations. The
Company was granted the option to purchase the real estate and improvements used
by Peterson from Peterson’s former majority owner and his wife at a later date.
The Company exercised this option and purchased the real estate and improvements
for $7,000,000 in October 2008.
On
October 1, 2008, the Company acquired all of the outstanding capital stock of
Dillman Equipment, Inc., a Wisconsin corporation (“Dillman”) and Double L
Investments, Inc., a Wisconsin corporation which owned the real estate and
improvements used by Dillman, for approximately $20,384,000 including cash
acquired of approximately $4,066,000 plus transaction costs of approximately
$175,000. In addition to the purchase price paid to the sellers, the Company
also paid off approximately $912,000 of outstanding debt coincident with the
purchase. The transaction resulted in the recognition of approximately
$6,165,000 of property, plant and equipment, approximately $4,804,000 of
goodwill and approximately $1,139,000 of intangible assets. Intangible assets
consist of patents (12-year weighted average useful life), customer
relationships (14-year weighted average useful life) and tradename (indefinite
useful life). Dillman’s intangible assets subject to amortization, in total,
have a 13-year weighted average useful life. $1,000,000 of the purchase price is
being held in escrow pending the resolution of certain contingent matters. The
effective date of the purchase was October 1, 2008, and the results of Dillman’s
operations have been included in the consolidated financial statements since
that date. Subsequent to the closing, the two acquired corporations were merged
into Astec, Inc., a subsidiary of Astec Industries, Inc., and Dillman will
operate as a division of Astec, Inc. from its current location in Prairie du
Chien, Wisconsin. The purchase price allocation is preliminary pending the
finalization of certain valuations and will be finalized no later than September
30, 2009.
Dillman
was incorporated in 1994 and is a manufacturer of asphalt plant equipment.
Dillman supplies the asphalt industry with asphalt plant equipment that includes
asphalt storage silos, counterflow drum plants, cold feed systems, recycle
systems, baghouses, dust silos, air pollution control systems, portable asphalt
plants, drag slats, transfer conveyors, plant controls, control houses, silos,
asphalt storage tanks, parts and field services.
On
October 1, 2008, the Company purchased substantially all the assets and assumed
certain liabilities of Q-Pave Pty Ltd, an Australia company (“Q-Pave”) for
approximately $1,797,000. At the time of the purchase, Q-Pave had payables to
other Astec Industries’ subsidiaries totaling $1,589,000 which was a component
of the purchase price. The transaction resulted in the recognition of
approximately $273,000 of intangible assets which consist of dealer network and
customer relationships (15-year weighted average useful life). The assets and
liabilities are held in a newly-formed subsidiary of the Company, Astec
Australia Pty Ltd. The effective date of the purchase was October 1, 2008, and
the results of Astec Australia Pty Ltd’s operations have been included in the
consolidated financial statements since that date. The purchase price allocation
is preliminary pending the finalization of certain valuations and will be
finalized no later than September 30, 2009.
Astec
Australia Pty Ltd is the Australian and New Zealand distributor for the range of
equipment manufactured by Astec Industries, Inc.
The
revenues and pre-tax income of Dillman and Q-Pave were not significant in
relation to the Company’s 2008 financial statements, and would not have been
significant on a proforma basis to any earlier periods. Similarly, the revenue
and pre-tax income of Peterson was not significant in relation to the Company’s
2007 financial statements, and would not have been significant on a proforma
basis to any earlier periods.
Comparison
of 5 Year Cumulative Total Return
Assumes
Initial Investment of $100
Performance
Graph for Astec Industries, Inc.
Notes:
|
A. Data
complete through last fiscal year.
|
B. Corporate
Performance Graph with peer group uses peer group
only
performance (excludes
only
company).
|
C. Peer
group indices use beginning of period market capitalization
weighting.
|
D. Calculated
(or Derived) based from CRSP NYSE/AMEX/NASDAQ
Stock
Market (US Companies)
Center
for Research in Security Prices
(CRSP®),
Graduate School of Business, The University
of
Chicago.
|
ASTEC
INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE
(II)
VALUATION
AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND
2006
DESCRIPTION
|
|
|
BEGINNING
BALANCE
|
|
|
ADDITIONS
CHARGES
TO
COSTS
&
EXPENSES
|
|
|
OTHER
ADDITIONS
(DEDUCTIONS)
(3)
|
|
|
|
DEDUCTIONS
|
|
|
|
ENDING
BALANCE
|
|
December
31, 2008:
Reserves
deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
1,713,454
|
|
$
|
320,469
|
|
$
|
(78,887
|
)
|
|
$
|
459,251
|
(1)
|
|
$
|
1,495,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for inventory
|
|
$
|
11,547,899
|
|
$
|
4,142,878
|
|
$
|
293,496
|
|
|
$
|
2,826,919
|
|
|
$
|
13,157,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Reserves:
Product
warranty
|
|
$
|
7,826,820
|
|
$
|
18,316,668
|
|
$
|
(89,227
|
)
|
|
$
|
16,004,036
|
(2)
|
|
$
|
10,050,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax
Asset
Allowance
|
|
$
|
1,117,728
|
|
$
|
87,435
|
|
$
|
--
|
|
|
$
|
363,547
|
|
|
$
|
841,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
Reserves
deducted from assets to which they apply
|
Allowance
for doubtful accounts
|
|
$
|
1,781,187
|
|
$
|
512,816
|
|
$
|
--
|
|
|
$
|
580,549
|
(1)
|
|
$
|
1,713,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for inventory
|
|
$
|
8,798,170
|
|
$
|
3,271,024
|
|
$
|
--
|
|
|
$
|
521,295
|
|
|
$
|
11,547,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Reserves:
Product
warranty
|
|
$
|
7,183,946
|
|
$
|
12,496,960
|
|
$
|
--
|
|
|
$
|
11,854,086
|
(2)
|
|
$
|
7,826,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax
Asset
Allowance
|
|
$
|
1,056,953
|
|
$
|
61,778
|
|
$
|
--
|
|
|
$
|
1,003
|
|
|
$
|
1,117,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006:
Reserves
deducted from assets to which they apply:
|
Allowance
for doubtful accounts
|
|
$
|
1,876,880
|
|
$
|
374,748
|
|
$
|
--
|
|
|
$
|
470,441
|
(1)
|
|
$
|
1,781,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for inventory
|
|
$
|
9,372,601
|
|
$
|
3,721,613
|
|
$
|
--
|
|
|
$
|
4,296,044
|
|
|
$
|
8,798,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Reserves:
Product
warranty
|
|
$
|
5,666,123
|
|
$
|
11,712,690
|
|
$
|
--
|
|
|
$
|
10,194,867
|
(2)
|
|
$
|
7,183,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax
Asset
Allowance
|
|
$
|
1,290,384
|
|
$
|
246,407
|
|
$
|
--
|
|
|
$
|
479,838
|
|
|
$
|
1,056,953
|
|
(1)
Uncollectible accounts written off, net of recoveries.
(2)
Warranty costs charged to the reserve.
(3)
Reserves acquired in business combinations and effect of foreign
exchange
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Astec Industries, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
ASTEC
INDUSTRIES, INC.
|
|
|
|
|
BY:
/s/ J.
Don
Brock
|
|
|
J.
Don Brock, Chairman of the Board and
|
|
|
President
(Principal Executive Officer)
|
|
|
|
|
BY:
/s/ F. McKamy
Hall
|
|
|
F.
McKamy Hall, Chief Financial Officer,
|
|
|
Vice
President, and Treasurer (Principal
|
|
|
Financial
and Accounting
Officer)
|
Date:
February 26, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by a majority of the Board of Directors of the Registrant on the
dates indicated:
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ J. Don Brock
|
|
Chairman
of the Board and President
|
|
February
26, 2009
|
J.
Don Brock
|
|
|
|
|
|
|
|
|
|
/s/ W. Norman Smith
|
|
Group
Vice President - Asphalt and Director
|
|
February
26, 2009
|
W.
Norman Smith
|
|
|
|
|
|
|
|
|
|
/s/ Robert G. Stafford
|
|
Director
|
|
February
26, 2009
|
Robert
G. Stafford
|
|
|
|
|
|
|
|
|
|
/s/ William B. Sansom
|
|
Director
|
|
February
26, 2009
|
William
B. Sansom
|
|
|
|
|
|
|
|
|
|
/s/ Phillip E. Casey
|
|
Director
|
|
February
26, 2009
|
Phillip
E. Casey
|
|
|
|
|
|
|
|
|
|
/s/ Glen E. Tellock
|
|
Director
|
|
February
26, 2009
|
Glen
E. Tellock
|
|
|
|
|
|
|
|
|
|
/s/ William D. Gehl
|
|
Director
|
|
February
26, 2009
|
William
D. Gehl
|
|
|
|
|
|
|
|
|
|
/s/ Daniel K. Frierson
|
|
Director
|
|
February
26, 2009
|
Daniel
K. Frierson
|
|
|
|
|
|
|
|
|
|
/s/ Ronald F. Green
|
|
Director
|
|
February
26, 2009
|
Ronald
F. Green
|
|
|
|
|
|
|
|
|
|
/s/ Thomas W. Hill
|
|
Director
|
|
February
26, 2009
|
Thomas
W. Hill
|
|
|
|
|
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
EXHIBITS
FILED WITH ANNUAL REPORT
ON FORM
10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
ASTEC
INDUSTRIES, INC.
1725
Shepherd Road
Chattanooga,
Tennessee 37421
ASTEC
INDUSTRIES, INC.
FORM
10-K
INDEX TO
EXHIBITS
Exhibit Number
|
|
Description
|
|
10.25
|
|
Amendment
Number 1 to Astec Industries, Inc. 2006 Incentive Plan
|
|
|
|
|
|
10.26
|
|
Amendment
Number 3 to the Astec Industries, Inc. 1998 Non-Employee Directors' Stock
Incentive Plan
|
|
|
|
|
|
10.27
|
|
Amendment
Number 1 to Amended and Restated Supplemental Executive Retirement Plan
Effective January 1, 2009, originally effective January 1, 1995
|
|
|
|
|
|
Exhibit
21
|
|
Subsidiaries
of the registrant.
|
|
|
|
|
|
Exhibit
23
|
|
Consent
of independent registered public accounting firm.
|
|
|
|
|
|
Exhibit
31.1
|
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Exhibit
31.2
|
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a),
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Exhibit
32
|
|
Certification
pursuant to Rule 13a-14(b)/15d-14(b) of the Securities
Exchange
Act
of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002.
|
|