The following excerpt is from the company's
SEC filing.
al Inf
ormation
Item 1. Financial Statements
(unaudited)
ensed Con
solida
ted Balance She
ets as of September 30, 2015 and December 31, 2014
Condensed Consolidated Statemen
ts of Income for the Three and Nine Months Ended September
30,
2015
and 2014
Condensed Consolidated Statements of Comprehensive Income for
the Three and Nine Months Ended
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2015
Condensed Consolidated Statement of Equity for t he Nine Months
Ended September 30, 201
es to
naudited
Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financia
l Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Item 4. Controls and Procedures
PART II - Other I
nformation
Item 1. Legal Proceedings
Item 1A. Risk
Factors
m 6. Exhibits
PART I -- FINANCIAL INFORMATION
Astec Industries, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
13,985
13,023
Investments
Trade receivables
103,629
105,743
Other receivables
Inventories
384,531
387,835
Prepaid expenses and other
34,161
28,299
Deferred income tax assets
16,237
14,817
Total current assets
555,974
553,191
Property and equipment, net
170,508
187,610
11,814
11,393
Goodwill
31,280
31,995
Other long-term assets
17,711
21,276
Total assets
787,287
805,465
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt
Accounts payable
46,406
60,987
Income taxes payable
Accrued product warranty
10,064
10,032
Customer deposits
32,563
45,086
Accrued payroll and related liabilities
19,893
17,265
Accrued loss reserves
Other current liabilities
20,311
18,450
Total current liabilities
137,974
161,129
Long-term debt
Deferred income tax liabilities
13,194
16,836
Other long-term liabilities
19,331
21,087
Total liabilities
174,893
206,113
Shareholders' equity
610,392
595,166
Non-controlling interest
Total equity
612,394
599,352
Total liabilities and equity
See Notes to Unaudited Condensed Consolidated Financial
Statements
Condensed Consolidated Statements of Income
(in thousands, except per share data)
Three Months Ended
Net sales
211,350
220,157
768,141
736,086
Cost of sales
166,212
176,896
594,724
573,890
Gross profit
45,138
43,261
173,417
162,196
Selling, general, administrative and engineering expenses
41,023
38,867
128,136
122,539
Income from operations
45,281
39,657
Interest expense
Other income, net of expenses
Income from operations before income taxes
46,602
41,536
18,070
15,734
Net income
28,532
25,802
Net loss attributable to non-controlling interest
Net income attributable to controlling interest
29,201
25,958
Earnings per common share
Net income attributable to controlling interest:
Diluted
Weighted average number of common shares outstanding:
22,943
22,830
22,930
22,813
23,121
23,109
23,118
23,103
Dividends declared per common share
Condensed Consolidated Statements of Comprehensive Income
(Loss)
Other comprehensive income:
Change in unrecognized pension and post-retirement
benefit costs
Income tax (provision) benefit on change in unrecognized
pension and post-retirement benefit costs
Foreign currency translation adjustments
(7,003
(5,602
(10,721
(3,475
Income tax benefit on foreign currency translation
Other comprehensive loss
(6,165
(5,105
(9,906
(2,931
Comprehensive income (loss)
(4,207
(3,339
18,626
22,871
Comprehensive loss attributable to non-
(1,285
Comprehensive income (loss) attributable
(3,600
(2,867
19,911
23,152
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
18,042
18,149
Provision (benefit) for doubtful accounts
Provision for warranties
11,723
12,436
Deferred compensation provision
Stock-based compensation
Tax benefit from stock incentive plans
Deferred income tax benefit
(3,959
(4,124
Gain on disposition of fixed assets
Distributions to SERP participants
(2,649
Change in operating assets and liabilities:
(Purchase) sale of trading securities, net
Trade and other receivables
(8,432
(19,456
Other assets
(3,294
(14,581
(11,499
(12,051
(12,523
(1,178
Prepaid and income taxes payable, net
(1,792
Net cash provided by operating activities
22,144
12,845
Cash flows from investing activities:
Expenditures for property and equipment
(15,483
(18,445
Business acquisition, net of cash acquired
(34,965
Sale of investments
16,249
Proceeds from life insurance cash surrender value
Proceeds from sale of property and equipment
Net cash used by investing activities
(14,398
(36,610
Cash flows from financing activities:
Payment of dividends
(6,893
(6,874
Borrowings under bank loans
Repayments of bank loans
(3,507
Tax benefit from stock issued under incentive plans
Sale (purchase) of Company shares held by SERP, net
Withholding tax paid upon vesting of restricted stock units
Proceeds from exercise of stock options
Sale (purchase) of subsidiaries shares to/from minority
shareholders, net
Net cash provided (used) by financing activities
(5,519
Effect of exchange rates on cash
(1,265
Net increase (decrease) in cash and cash equivalents
(21,744
Cash and cash equivalents, beginning of period
35,564
Cash and cash equivalents, end of period
13,820
For the Nine Months Ended September 30, 2015
Common
Shares
Amount
Additional
Paid-in-
Capital
Accum-
ulated
Compre-
by SERP
Retained
Earnings
Interest
Balance, December
135,887
(12,915
(2,929
470,537
(10,522
(6,899
Change in ownership
of subsidiary
Stock issued under
of RSUs
SERP transactions,
Balance, September
22,987
137,583
(22,821
(1,806
492,839
ASTEC INDUSTRIES, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Dollar and share amounts in thousands, except per share
amounts, unless otherwise specified)
Note 1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X promulgated under the
Securities Act of 1933. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States of America ("U.S. GAAP")
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended
September 30, 2015 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2015. It is
suggested that these unaudited condensed consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the Astec Industries, Inc. Annual
Report on Form 10-K for the year ended December 31, 2014.
The unaudited condensed consolidated balance sheet as of
December 31, 2014 has been derived from the audited financial
statements at that date but does not include all of the information
and footnotes required by U.S. GAAP for complete financial
statements.
Dollar and share amounts shown are in thousands, except per
share amounts, unless otherwise specified.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2014-08, "Reporting
Discontinued Operations and Disclosures of Disposals of Components
of an Entity," which raises the previous threshold for disposals to
qualify as discontinued operations and requires new disclosures for
individually material disposal transactions that do not meet the
definition of a discontinued operation. The standard also allows
companies to have significant continuing involvement and continuing
cash flows with the discontinued operation. The standard requires
the reclassification of assets and liabilities of a discontinued
operation in the balance sheet for all periods presented. The
standard is effective for public entities for annual periods
beginning on or after December 15, 2014 and is to be implemented
prospectively. The Company's adoption of this standard effective
January 1, 2015 did not have a significant impact on the Company's
financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from
Contracts with Customers," which supersedes existing revenue
guidance under U.S. GAAP. The standard's core principle is that a
company will recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those
goods or services. The implementation of this new standard will
require companies to use more judgment and to make more estimates
than under current guidance. The standard is effective for public
companies for annual periods beginning after December 15, 2017. The
Company plans to adopt the new standard effective January 1, 2018.
The Company has not yet determined what impact, if any, the
adoption of this new standard will have on the Company's financial
position or results of operations.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic
330): Simplifying the Measurement of Inventory," which changes the
measurement basis for inventory from the lower of cost or market to
lower of cost and net realizable value and also eliminates the
requirement for companies to consider replacement cost or net
realizable value less an approximate normal profit margin when
determining the recorded value of inventory. The standard is
effective for public companies in fiscal years beginning after
December 15, 2016, and the Company expects to adopt the standard
effective January 1, 2017. The Company has not yet determined what
impact, if any, the adoption of this new standard will have on the
Company's financial position or results of operations.
Note 2. Earnings per Share
Basic earnings per share are determined by dividing earnings by
the weighted average number of common shares outstanding during
each period. Diluted earnings per share include the potential
dilutive effect of options, restricted stock units and shares held
in the Company's Supplemental Executive Retirement Plan.
The following table sets forth the computation of net income
attributable to controlling interest and the number of basic and
diluted shares used in the computation of earnings per share:
Numerator:
Denominator:
Denominator for basic earnings per share
Effect of dilutive securities:
Employee stock options and restricted stock units
Denominator for diluted earnings per share
Antidilutive options are not included in the diluted earnings
per share computation. The number of antidilutive options in the
three and nine-month periods ended September 30, 2015 and 2014 were
not material.
Note 3. Receivables
Receivables are net of allowances for doubtful accounts of
$1,788 and $2,248 as of September 30, 2015 and December 31, 2014,
respectively.
Note 4. Inventories
Inventories consist of the following:
Raw materials and parts
145,429
149,171
Work-in-process
95,946
105,163
Finished goods
113,771
102,235
Used equipment
29,385
31,266
Raw material inventory is comprised of purchased steel and other
purchased items for use in the manufacturing process or held for
sale in the Company's after-market parts business. The category
also includes the manufacturing cost of completed equipment
sub-assemblies produced for either integration into equipment
manufactured at a later date or for sale in the Company's
after-market parts business.
Work-in-process inventory consists of the value of materials,
labor and overhead incurred to date in the manufacturing of
incomplete equipment or incomplete equipment sub-assemblies being
produced.
Finished goods inventory consists of completed equipment
manufactured for sale to customers.
Used inventory consists of equipment accepted in trade or
purchased on the open market. The category also includes equipment
rented to prospective customers on a short-term or month-to-month
basis. Used equipment is valued at the lower of acquired or
trade-in cost or market determined on each separate unit. Each unit
of rental equipment is valued at its original manufacturing cost
and is reduced by an appropriate reserve each month during the
period of time the equipment is rented.
Inventories are valued at the lower of cost (first-in,
first-out) or market, which requires the Company to make specific
estimates, assumptions and judgments in determining the amount, if
any, of reductions in the valuation of inventories to their net
realizable values. The net realizable values of the Company's
products are impacted by a number of factors, including changes in
the price of steel, competitive sales pricing, quantities of
inventories on hand, the age of the individual inventory items,
market acceptance of the Company's products, the Company's normal
gross margins, actions by the Company's competitors, the condition
of the Company's used and rental inventory and general economic
factors. Once an inventory item's value has been deemed to be less
than cost, a net realizable value allowance is calculated and a new
"cost basis" for that item is effectively established. This new
cost is retained for that item until such time as the item is
disposed of or the Company determines that an additional write-down
is necessary. Additional write-downs may be required in the future
based upon changes in assumptions due to general economic downturns
in the markets in which the Company operates, changes in competitor
pricing, new product design or other technological advances
introduced by the Company or its competitors and other factors
unique to individual inventory items.
The most significant component of the Company's inventory is
steel. A significant decline in the market price of steel could
result in a decline in the market value of the equipment or parts
the Company sells. During periods of significant declining steel
prices, the Company reviews the valuation of its inventories to
determine if reductions are needed in the recorded value of
inventory on hand to its net realizable value.
The Company reviews the individual items included in its
finished goods, used equipment and rental equipment inventory on a
model-by-model or unit-by-unit basis to determine if any item's net
realizable value is below its carrying value each quarter. This
analysis is expanded to include items in work-in-process and raw
material inventory if factors indicate those items may also be
impacted. In performing this review, judgments are made and, in
addition to the factors discussed above, additional consideration
is given to the age of the specific items of used or rental
inventory, prior sales offers or lack thereof, the physical
condition of the specific items and general market conditions for
the specific items. Additionally, an analysis of raw material
inventory is performed each quarter to calculate any valuation
write-downs needed for obsolete inventory based upon quantities of
items on hand, the age of those items and their recent and expected
future usage or sale.
When the Company determines that the value of inventory has
become impaired through damage, deterioration, obsolescence,
changes in price levels, excessive levels of inventory or other
causes, the Company reduces the carrying value to estimated market
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.
Note 5. Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation of $213,648 and $222,001 as of September 30, 2015 and
December 31, 2014, respectively.
During the second quarter of 2015, the Company closed its Astec
Underground facility in Loudon Tennessee and relocated (or disposed
of) the majority of its non-real estate fixed assets to other
Company facilities. The book value of the Loudon facility ($9,248)
is classified as held for sale at September 30, 2015 and is
included in other current assets in the accompanying condensed
consolidated balance sheet as of September 30, 2015. The Company
closed on the sale of the facility in October 2015 and collected
the $9,599 net sales price. The costs of closing the facility
totaling $1,500 were recorded in cost of sales ($999) and selling,
general and administrative expenses ($501) in the accompanying
condensed consolidated statement of income in the first six months
of 2015.
Note 6. Fair Value Measurements
The Company has various financial instruments that must be
measured at fair value on a recurring basis, including marketable
debt and equity securities held by Astec Insurance Company ("Astec
Insurance"), the Company's captive insurance company, and
marketable equity securities held in an unqualified Supplemental
Executive Retirement Plan ("SERP"). The obligations of the Company
associated with the financial assets held in the SERP also
constitute a liability of the Company for financial reporting
purposes and are included in other long-term liabilities in the
accompanying balance sheets. The Company's subsidiaries also
occasionally enter into foreign currency exchange contracts to
mitigate exposure to fluctuations in currency exchange rates.
The carrying amount of cash and cash equivalents, trade
receivables, other receivables, revolving debt and accounts payable
approximates their fair value because of the short-term nature of
these instruments. Investments are carried at their fair value
based on quoted market prices for identical or similar assets or,
where no quoted prices exist, other observable inputs for the
asset. The fair values of foreign currency exchange contracts are
based on quotations from various banks for similar instruments
using models with market based inputs.
Financial assets and liabilities are categorized based upon the
level of judgment associated with the inputs used to measure their
fair value. The inputs used to measure the fair value are
identified in the following hierarchy:
Level 1 -
Unadjusted quoted prices in active markets for identical assets
or liabilities.
Level 2 -
Unadjusted quoted prices in active markets for similar assets or
liabilities; or unadjusted
quoted prices for identical or similar assets or liabilities in
markets that are not active; or
inputs other than quoted prices that are observable for the
asset or liability.
Level 3 -
Inputs reflect management's best estimate of what market
participants would use in pricing
the asset or liability at the measurement date. Consideration is
given to the risk inherent in
the valuation technique and the risk inherent in the inputs to
the model.
As indicated in the tables below (which excludes the Company's
pension assets), the Company has determined that all of its
financial assets and liabilities as of September 30, 2015 and
December 31, 2014 are level 1 and level 2 in the fair value
hierarchy as defined above:
Financial Assets:
Trading equity securities:
SERP money market fund
SERP mutual funds
Preferred stocks
Trading debt securities:
Corporate bonds
Municipal bonds
Floating rate notes
Asset backed securities
Derivative financial instruments
Total financial assets
15,716
Financial Liabilities:
SERP liabilities
Total financial liabilities
U.S. Treasury bills
13,856
The Company reevaluates the volume of trading activity for each
of its investments at the end of each quarter and adjusts the level
within the fair value hierarchy as needed. Six corporate bond
investments with a combined September 30, 2015 market value of
$1,141 changed from Level 1 in the hierarchy at December 31, 2014
to Level 2 at September 30, 2015 due to a reduction in trading
activity.
The trading equity investments noted above are valued at their
fair value based on their quoted market prices, and the debt
securities are valued based upon a mix of observable market prices
and model driven prices derived from a matrix of observable market
prices for assets with similar characteristics obtained with the
assistance of a nationally recognized third party pricing service.
Additionally, a significant portion of the SERP's investments in
trading equity securities are in money market and mutual funds. As
these money market and mutual funds are held in a SERP, they are
also included in the Company's liability under its SERP.
Trading debt securities are comprised of marketable debt
securities held by Astec Insurance. Astec Insurance has an
investment strategy that focuses on providing regular and
predictable interest income from a diversified portfolio of
high-quality fixed income securities.
Net unrealized gains or losses incurred on investments held as
of September 30, 2015 and December 31, 2014 amounted to net losses
of $144 and $17, respectively.
Note 7.
On April 12, 2012, the Company and certain of its subsidiaries
entered into an amended and restated credit agreement whereby Wells
Fargo extended to the Company an unsecured line of credit of up to
$100,000, including a sub-limit for letters of credit of up to
$25,000. During the three and nine-month periods ended September
30, 2015, the highest amount of outstanding borrowings at any time
under the facility was $5,542 and $7,871, respectively. The $1,251
outstanding borrowings under the facility, which are included in
short-term debt and current maturities of long-term debt in the
accompanying condensed balance sheet at September 30, 2015, were
paid off in early October 2015. As of December 31, 2014, there were
no outstanding borrowings under the line of credit facility.
Letters of credit totaling $14,461, including $8,674 of letters of
credit issued to banks in Brazil to secure the local debt of Astec
do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), were
outstanding under the credit facility as of September 30, 2015,
resulting in additional borrowing ability of $84,288 under the
credit facility. The credit agreement has a five-year term expiring
in April 2017. Borrowings under the agreement are subject to an
interest rate equal to the daily one-month LIBOR rate plus a 0.75%
margin, resulting in a rate of 0.95% as of September 30, 2015. The
unused facility fee is 0.175%. Interest only payments are due
monthly. The amended and restated credit agreement contains certain
financial covenants, including provisions concerning required
levels of annual net income, minimum tangible net worth and maximum
allowed capital expenditures. The Company was in compliance with
these covenants as of September 30, 2015.
The Company's South African subsidiary, Osborn Engineered
Products SA (Pty) Ltd ("Osborn"), has a credit facility of $6,874
with a South African bank to finance short-term working capital
needs, as well as to cover performance letters of credit, advance
payment and retention guarantees. As of September 30, 2015, Osborn
had no borrowings outstanding under the facility but did have
$1,118 in performance, advance payment and retention guarantees
outstanding under the facility. The facility has been guaranteed by
Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused
facility fee is charged if less than 50% of the facility is
utilized. As of September 30, 2015, Osborn had available credit
under the facility of $5,756. The interest rate is 0.25% less than
the South Africa prime rate, resulting in a rate of 9.25% as of
September 30, 2015.
The Company's Brazilian subsidiary, Astec Brazil, has
outstanding working capital loans totaling $6,512 from three
Brazilian banks with interest rates ranging from 10.3% to 20.3%.
The loans' maturity dates range from December 2016 to April 2024
and the debts are secured by Astec Brazil's manufacturing facility
and also by letters of credit totaling $8,674 issued by Astec
Industries, Inc. Additionally, Astec Brazil has various 5-year
equipment financing loans outstanding with two Brazilian banks in
the aggregate of $1,450 as of September 30, 2015 that have interest
rates ranging from 3.5% to 16.3%. These equipment loans have
maturity dates ranging from September 2018 to April 2020. Astec
Brazil's loans are included in the accompanying balance sheets as
short-term debt and current maturities of long-term debt ($3,568)
and long-term debt ($4,394).
Note 8. Product Warranty Reserves
The Company warrants its products against manufacturing defects
and performance to specified standards. The warranty period and
performance standards vary by market and uses of its products, but
generally range from three months to one year or up to a specified
number of hours of 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 product warranty liability is
primarily based on historical claim rates, nature of claims and the
associated cost.
Changes in the Company's product warranty liability for the
three and nine-month periods ended September 30, 2015 and 2014 are
as follows:
Reserve balance, beginning of the period
10,761
14,102
12,716
Warranty liabilities accrued
Warranty liabilities settled
(3,828
(4,804
Reserve balance, end of the period
13,404
Note 9. Accrued Loss Reserves
The Company records reserves for losses related to known
workers' compensation and general liability claims that have been
incurred but not yet paid or are estimated to have been incurred
but not yet reported to the Company. The undiscounted reserves are
actuarially determined based on the Company's evaluation of the
type and severity of individual claims and historical information,
primarily its own claims experience, along with assumptions about
future events. Changes in assumptions, as well as changes in actual
experience, could cause these estimates to change in the future.
Total accrued loss reserves were $8,382 as of September 30, 2015
and $7,562 as of December 31, 2014, of which $5,345 and $4,512 were
included in other long-term liabilities as of September 30, 2015
and December 31, 2014, respectively.
Note 10. Income Taxes
The Company's effective income tax rate was 52.5% and 64.0% for
the three-month periods ended September 30, 2015 and 2014,
respectively. The Company's effective income tax rate was 38.8% and
37.9% for the nine-month periods ended September 30, 2015 and 2014,
respectively. The Company's effective tax rate for the nine months
ended September 30, 2015 includes the effect of state income taxes
and other discrete items but did not include benefits for the
research and development credit given that legislation extending
the research and development credit to 2015 has not been enacted by
Congress. The Company's effective tax rate for the nine months
ended September 30, 2014 also did not include a benefit for the
research and development tax credit given that Congress had not
enacted legislation extending the credit to 2014 as of September
30, 2014.
The Company's recorded liability for uncertain tax positions as
of September 30, 2015 has decreased by approximately $711 as
compared to December 31, 2014 as the result of a tax audit
settlement related to tax year 2010.
Note 11. Segment Information
The Company has three reportable segments, each of which is
comprised of multiple business units that offer similar products
and services and meet the requirements for aggregation. A brief
description of each segment is as follows:
Infrastructure Group
- This segment consists of five business units, three of which
design, engineer, manufacture and market a complete line of
portable, stationary and relocatable hot-mix asphalt plants, wood
pellet plants, asphalt pavers, material transfer vehicles, milling
machines and paver screeds. The other two business units in this
segment primarily operate as Company-owned dealers in the foreign
countries in which they are domiciled. These two business units
sell, service and install products produced by the manufacturing
subsidiaries of the Company, and a majority of their sales are to
customers in the infrastructure industry. The principal purchasers
of the products produced by this group are asphalt producers,
highway and heavy equipment contractors, wood pellet processors and
foreign and domestic governmental agencies.
Aggregate and Mining Group
- This segment consists of eight business units that design,
engineer, manufacture and market a complete line of jaw crushers,
cone crushers, horizontal shaft impactors, vertical shaft
impactors, material handling, roll rock crushers and stationary
rockbreaker systems, vibrating feeders and high frequency
vibrating...
More