SEC Company Response from ASTEC INDUSTRIES INC (ASTE) (CIK 0000792987) (ASTE) — Jul 13, 2005
ASTEC INDUSTRIES INC (ASTE) (CIK 0000792987)
Date: July 13, 2005 · CIK: 0000792987 · Accession: 0000950144-05-007359
AI Filing Summary & Sentiment
Letter
July 13, 2005 Via EDGAR and Overnight Courier Mr. Gary Todd Review Accountant United States Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549
RE: ASTEC INDUSTRIES, INC. Form 10-K for the year ended December 31, 2004 Form 10-Q for the quarter ended March 31, 2005 File No. 000079987
Dear Mr. Todd:
This letter sets forth the responses of Astec Industries, Inc. ("Astec", the "Company" or "we") to the comment letter, dated May 24, 2005, from the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") with regard to the above-referenced filings. We have provided the following responses and such responses are numbered to correspond to the Staff's comments. In connection with responding to the Staff's comments, we hereby acknowledge that: (i) we are responsible for the adequacy and accuracy of the disclosure in the above referenced filings; (ii) Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and (iii) we may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. Please let me know if you need further clarification.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Financial Statements
Consolidated Balance Sheets
1. COMMENT. Show us that the item "other accrued liabilities" should not be further disaggregated pursuant to Rule 5-02.20 to Regulation S-X.
<PAGE>
RESPONSE. Rule 5-02.20 of Regulation S-X states that items included in "other current liabilities" should be stated separately if they exceed five percent of total current liabilities. The remaining items may be shown in one amount. The following table shows the calculation of the five percent threshold for disclosure of other current liabilities and the major items that constitute our "other accrued liabilities":
CURRENT LIABILITIES DISCLOSURE THRESHOLD December 31, 2004 and 2003
<TABLE> <CAPTION> 2004 2003 ------------ ------------- <S> <C> <C> Total Current Liabilities $ 91,995,883 $ 102,167,884 ============ ============= Five Percent Threshold $ 4,599,794 $ 5,108,394 ============ ============= </TABLE>
OTHER ACCRUED LIABILITIES December 31, 2004 and 2003
<TABLE> <CAPTION> 2004 2003 ----------- ----------- <S> <C> <C> Accrued Health Insurance Liability $ 1,421,593 $ 1,237,704 Accrued Bonuses 3,136,637 739,841 Accrued Interest Expense 337,792 337,951 Accrued Legal & Professional Expenses 408,607 717,249 Accrued Franchise and Property Taxes 1,337,614 598,468 Accrued Sales Commissions 1,570,521 1,428,040 Accrued Vacation & Holiday Pay 3,930,882 3,902,652 Accrued Obligation for Purchased Parts 2,801,051 - Federal & State Income Taxes 293,894 1,935,335 Aggregated Remaining Items 4,423,150 3,854,653 ----------- ----------- Total Other Accrued Liabilities $19,661,741 $14,751,893 =========== =========== </TABLE>
Based upon the above calculations, we believe that the item "other accrued liabilities" should not be further disaggregated based upon the five percent threshold set forth in Rule 5-02.20 to Regulation S-X.
2. COMMENT. The footnotes to future filings should present a clear description of the components of the item "accrued loss reserves." The footnote disclosure about this item should also consider the requirements of SFAS 5, SOP 94-6 and SAB Topic 5-Y. Show us how you plan to implement this comment.
RESPONSE. We acknowledge your comment and have included an example of a footnote disclosure for "accrued loss reserves" that, as applicable, will be included in our future filings.
XX. 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
<PAGE>
reserves are estimated based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future.
Consolidated Statements of Operations
3. COMMENT. When significant, MD&A or the notes to financial statements should present disclosure about the components of "other income (expense) - net." We see, for instance, the significance of the "net" amounts for 2003 and 2002 and the significant variance between those years.
RESPONSE. We acknowledge your comment and have included an example of additional disclosure regarding "other income (expense) - net" that, as applicable, will be included in our future filings.
MD&A Presentation
RESULTS OF OPERATIONS; 2003 VS. 2002 Other income (expense) - net was a net expense of $933,000 in 2003 compared to income of $966,000 in 2002, for a change of $1,899,000. The change in other income was primarily comprised of income from the sale of finance receivables during 2002 for $1,111,000 that did not recur in 2003. The change also included $319,000 of losses on foreign currency translation in 2003 in excess of the related 2002 amount as well as $318,000 of lease portfolio income in 2002 in excess of the related 2003 amount. The Company also incurred $348,000 of costs in 2003 related to the relocation of the Trencor operation from Grapevine, Texas to the Loudon, Tennessee facility.
RESULTS OF OPERATIONS; 2004 VS. 2003 Other income (expense) - net was a net expense of $41,000 in 2004 compared to a net expense of $933,000 in 2003 for a change of $892,000. The change in net expense was primarily due to a decrease from 2003 to 2004 of $259,000 in the losses on foreign currency related activity in addition to $348,000 of costs incurred in 2003 related to the relocation of the Trencor operation from Grapevine, Texas to the Loudon, Tennessee facility.
<PAGE>
Footnote Presentation
XX. Other Income (Expense) - Net
Other income (expense) - net consisted of the following:
<TABLE> <CAPTION> 2004 2003 2002 -------- -------- --------- <S> <C> <C> <C> Portfolio sales income - (18,000) 1,111,130 Loss on foreign currency translation (294,674) (553,299) (234,057) Lease portfolio income - 38,245 356,171 Relocation costs - (348,688) - Other 254,146 (51,693) (267,323) -------- -------- --------- Total (40,528) (933,435) 965,921 ======== ======== ========= </TABLE>
Consolidated Statements of Cash Flows
4. COMMENT. We see investing cash flows from finance receivables and notes receivable. In a supplemental response, describe the transaction cycles responsible for these cash flows. If these cash flows were derived from the sales of goods and services, explain why those cash flows should not be classified as operating activities. Under SFAS 95, operating cash flows include cash receipts from sales of goods or services, including receipts from collection or sale of accounts and both short- and long-term notes receivable (and leases) from customers arising from those sales. Show us that these cash flows were not derived from sales of goods and services and show us that they have been appropriately classified for cash flow statement purposes. Also respond with respect to the proceeds from and expenditures for equipment on operating leases. Show us that those cash flows are not operating activities as defined in SFAS 95.
RESPONSE. Our primary business is the design, manufacture and marketing of equipment and components used in the road building and construction industry. In 1996, we formed Astec Financial Services, Inc. ("AFS") as a wholly owned subsidiary, to provide to our customers financing products for leasing or purchasing our equipment. On December 31, 2002, we exited the equipment financing business conducted through AFS. By December 31, 2003, AFS had sold to other financing companies, or collected from customers, payment on substantially all contracts. The cash flows related to finance receivables and the majority of cash flows related to notes receivable were derived from the operations of AFS. The cash flows related to equipment on operating lease were generated when AFS acquired equipment from our manufacturing subsidiaries in order to lease the equipment to a customer under operating lease scenarios. Because our primary business was not the financing of equipment sales, the cash flows of AFS were not classified as operating activities in the Consolidated Statements of Cash Flows. We have presented a pro-forma cash flow in Annex B
<PAGE>
to this document in which we disclose the cash flows described above as operating cash flows. Although we have exited the financing business and there are no plans to generate cash flows of this nature in the future, we will in future filings present the historical cash flows and any future cash flows, should they occur, related to finance receivables, equipment on operating lease and equipment financing type notes receivable as operating cash flows.
5. COMMENT. We see a cash outflow totaling $1.8 million identified as "cash paid for retirement of stock." However, we do not see this item on the statement of shareholders' equity. Tell us how the disbursement was accounted for, including where it is presented on the statement of shareholders' equity.
RESPONSE. The item labeled "Cash paid for retirement of stock" consists of two items. The first item is cash paid by Osborn Engineered Products, SA (Pty) Ltd. ("Osborn"), one of our subsidiaries, to acquire 100 shares of Osborn stock owned by the Company. This payment is related to the cash receipt shown directly above it in the cash flow statement line item entitled "Proceeds from sale of minority interest stock" which represents the receipt by us of the same cash from Osborn. We believe that these amounts should have been eliminated against each other in the consolidated cash flow so that neither item appears in the cash flow. The second item in "Cash paid for retirement of stock" is cash paid by Osborn to acquire the Osborn minority shares owned by its former managing director upon his resignation. We believe this item is properly stated but should be labeled "Cash paid for acquisition of minority shares". Since these cash receipts and payments are related to the stock of a subsidiary, they do not affect our consolidated capital structure and should not appear in the statement of shareholders' equity. We will classify these items as investing activities on the consolidated cash flow in future filings. A supplemental example of the effect of the corrections appears in Annex B.
Note 1 - Summary of Significant Accounting Policies
Revenue Recognition
6. COMMENT. We note the general criteria you apply for product revenue recognition purposes. We also see that you sell products through dealers, independent representatives and distributors. Tell us more about the terms of sales through these channels. Do you recognize revenue when you ship product to dealers, independent representatives and distributors or when these parties resell products to their customers? Show us how you apply the disclosed criteria for transactions with these parties and demonstrate to us that your revenue practices are appropriate for transactions with these parties. Be sure to address the considerations that drive the timing of revenue. Refer to SAB 104.
RESPONSE. According to SAB 104, revenue is generally realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred
<PAGE>
or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. Sales to intermediaries (dealers, independent representatives or distributors) or end users must all meet the requirements of SAB 104 for revenue recognition to occur. We recognize revenue upon shipment to each of the customer types mentioned, as long as the remaining requirements for revenue recognition under SAB 104 are satisfied (except in certain bill and hold transactions - see comment number 9 below). We do not distinguish between intermediary customers and end users in sales agreements or applying the requirements of SAB 104. Intermediary customers accept the full benefits and risks of ownership in the same fashion as end users when purchasing ou
Show Raw Text
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<PAGE>
[ASTEC INDUSTRIES, INC. LETTERHEAD]
July 13, 2005
Via EDGAR and Overnight Courier
Mr. Gary Todd
Review Accountant
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: ASTEC INDUSTRIES, INC.
Form 10-K for the year ended December 31, 2004
Form 10-Q for the quarter ended March 31, 2005
File No. 000079987
Dear Mr. Todd:
This letter sets forth the responses of Astec Industries, Inc. ("Astec",
the "Company" or "we") to the comment letter, dated May 24, 2005, from the staff
(the "Staff") of the Securities and Exchange Commission (the "Commission") with
regard to the above-referenced filings. We have provided the following responses
and such responses are numbered to correspond to the Staff's comments. In
connection with responding to the Staff's comments, we hereby acknowledge that:
(i) we are responsible for the adequacy and accuracy of the disclosure in the
above referenced filings; (ii) Staff comments or changes to disclosure in
response to Staff comments do not foreclose the Commission from taking any
action with respect to the filings; and (iii) we may not assert Staff comments
as a defense in any proceeding initiated by the Commission or any person under
the federal securities laws of the United States. Please let me know if you need
further clarification.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Financial Statements
Consolidated Balance Sheets
1. COMMENT. Show us that the item "other accrued liabilities" should
not be further disaggregated pursuant to Rule 5-02.20 to Regulation
S-X.
<PAGE>
RESPONSE. Rule 5-02.20 of Regulation S-X states that items included
in "other current liabilities" should be stated separately if they
exceed five percent of total current liabilities. The remaining
items may be shown in one amount. The following table shows the
calculation of the five percent threshold for disclosure of other
current liabilities and the major items that constitute our "other
accrued liabilities":
CURRENT LIABILITIES DISCLOSURE THRESHOLD
December 31, 2004 and 2003
<TABLE>
<CAPTION>
2004 2003
------------ -------------
<S> <C> <C>
Total Current Liabilities $ 91,995,883 $ 102,167,884
============ =============
Five Percent Threshold $ 4,599,794 $ 5,108,394
============ =============
</TABLE>
OTHER ACCRUED LIABILITIES
December 31, 2004 and 2003
<TABLE>
<CAPTION>
2004 2003
----------- -----------
<S> <C> <C>
Accrued Health Insurance Liability $ 1,421,593 $ 1,237,704
Accrued Bonuses 3,136,637 739,841
Accrued Interest Expense 337,792 337,951
Accrued Legal & Professional Expenses 408,607 717,249
Accrued Franchise and Property Taxes 1,337,614 598,468
Accrued Sales Commissions 1,570,521 1,428,040
Accrued Vacation & Holiday Pay 3,930,882 3,902,652
Accrued Obligation for Purchased Parts 2,801,051 -
Federal & State Income Taxes 293,894 1,935,335
Aggregated Remaining Items 4,423,150 3,854,653
----------- -----------
Total Other Accrued Liabilities $19,661,741 $14,751,893
=========== ===========
</TABLE>
Based upon the above calculations, we believe that the item "other
accrued liabilities" should not be further disaggregated based upon
the five percent threshold set forth in Rule 5-02.20 to Regulation
S-X.
2. COMMENT. The footnotes to future filings should present a clear
description of the components of the item "accrued loss reserves."
The footnote disclosure about this item should also consider the
requirements of SFAS 5, SOP 94-6 and SAB Topic 5-Y. Show us how you
plan to implement this comment.
RESPONSE. We acknowledge your comment and have included an example
of a footnote disclosure for "accrued loss reserves" that, as
applicable, will be included in our future filings.
XX. 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
2
<PAGE>
reserves are estimated based on the Company's evaluation of the type
and severity of individual claims and historical information,
primarily its own claims experience, along with assumptions about
future events. Changes in assumptions, as well as changes in actual
experience, could cause these estimates to change in the future.
Consolidated Statements of Operations
3. COMMENT. When significant, MD&A or the notes to financial statements
should present disclosure about the components of "other income
(expense) - net." We see, for instance, the significance of the
"net" amounts for 2003 and 2002 and the significant variance between
those years.
RESPONSE. We acknowledge your comment and have included an example
of additional disclosure regarding "other income (expense) - net"
that, as applicable, will be included in our future filings.
MD&A Presentation
RESULTS OF OPERATIONS; 2003 VS. 2002
Other income (expense) - net was a net expense of $933,000 in 2003
compared to income of $966,000 in 2002, for a change of $1,899,000.
The change in other income was primarily comprised of income from
the sale of finance receivables during 2002 for $1,111,000 that did
not recur in 2003. The change also included $319,000 of losses on
foreign currency translation in 2003 in excess of the related 2002
amount as well as $318,000 of lease portfolio income in 2002 in
excess of the related 2003 amount. The Company also incurred
$348,000 of costs in 2003 related to the relocation of the Trencor
operation from Grapevine, Texas to the Loudon, Tennessee facility.
RESULTS OF OPERATIONS; 2004 VS. 2003
Other income (expense) - net was a net expense of $41,000 in 2004
compared to a net expense of $933,000 in 2003 for a change of
$892,000. The change in net expense was primarily due to a decrease
from 2003 to 2004 of $259,000 in the losses on foreign currency
related activity in addition to $348,000 of costs incurred in 2003
related to the relocation of the Trencor operation from Grapevine,
Texas to the Loudon, Tennessee facility.
3
<PAGE>
Footnote Presentation
XX. Other Income (Expense) - Net
Other income (expense) - net consisted of the following:
<TABLE>
<CAPTION>
2004 2003 2002
-------- -------- ---------
<S> <C> <C> <C>
Portfolio sales income - (18,000) 1,111,130
Loss on foreign currency translation (294,674) (553,299) (234,057)
Lease portfolio income - 38,245 356,171
Relocation costs - (348,688) -
Other 254,146 (51,693) (267,323)
-------- -------- ---------
Total (40,528) (933,435) 965,921
======== ======== =========
</TABLE>
Consolidated Statements of Cash Flows
4. COMMENT. We see investing cash flows from finance receivables and
notes receivable. In a supplemental response, describe the
transaction cycles responsible for these cash flows. If these cash
flows were derived from the sales of goods and services, explain why
those cash flows should not be classified as operating activities.
Under SFAS 95, operating cash flows include cash receipts from sales
of goods or services, including receipts from collection or sale of
accounts and both short- and long-term notes receivable (and leases)
from customers arising from those sales. Show us that these cash
flows were not derived from sales of goods and services and show us
that they have been appropriately classified for cash flow statement
purposes. Also respond with respect to the proceeds from and
expenditures for equipment on operating leases. Show us that those
cash flows are not operating activities as defined in SFAS 95.
RESPONSE. Our primary business is the design, manufacture and
marketing of equipment and components used in the road building and
construction industry. In 1996, we formed Astec Financial Services,
Inc. ("AFS") as a wholly owned subsidiary, to provide to our
customers financing products for leasing or purchasing our
equipment. On December 31, 2002, we exited the equipment financing
business conducted through AFS. By December 31, 2003, AFS had sold
to other financing companies, or collected from customers, payment
on substantially all contracts. The cash flows related to finance
receivables and the majority of cash flows related to notes
receivable were derived from the operations of AFS. The cash flows
related to equipment on operating lease were generated when AFS
acquired equipment from our manufacturing subsidiaries in order to
lease the equipment to a customer under operating lease scenarios.
Because our primary business was not the financing of equipment
sales, the cash flows of AFS were not classified as operating
activities in the Consolidated Statements of Cash Flows. We have
presented a pro-forma cash flow in Annex B
4
<PAGE>
to this document in which we disclose the cash flows described above
as operating cash flows. Although we have exited the financing
business and there are no plans to generate cash flows of this
nature in the future, we will in future filings present the
historical cash flows and any future cash flows, should they occur,
related to finance receivables, equipment on operating lease and
equipment financing type notes receivable as operating cash flows.
5. COMMENT. We see a cash outflow totaling $1.8 million identified as
"cash paid for retirement of stock." However, we do not see this
item on the statement of shareholders' equity. Tell us how the
disbursement was accounted for, including where it is presented on
the statement of shareholders' equity.
RESPONSE. The item labeled "Cash paid for retirement of stock"
consists of two items. The first item is cash paid by Osborn
Engineered Products, SA (Pty) Ltd. ("Osborn"), one of our
subsidiaries, to acquire 100 shares of Osborn stock owned by the
Company. This payment is related to the cash receipt shown directly
above it in the cash flow statement line item entitled "Proceeds
from sale of minority interest stock" which represents the receipt
by us of the same cash from Osborn. We believe that these amounts
should have been eliminated against each other in the consolidated
cash flow so that neither item appears in the cash flow. The second
item in "Cash paid for retirement of stock" is cash paid by Osborn
to acquire the Osborn minority shares owned by its former managing
director upon his resignation. We believe this item is properly
stated but should be labeled "Cash paid for acquisition of minority
shares". Since these cash receipts and payments are related to the
stock of a subsidiary, they do not affect our consolidated capital
structure and should not appear in the statement of shareholders'
equity. We will classify these items as investing activities on the
consolidated cash flow in future filings. A supplemental example of
the effect of the corrections appears in Annex B.
Note 1 - Summary of Significant Accounting Policies
Revenue Recognition
6. COMMENT. We note the general criteria you apply for product revenue
recognition purposes. We also see that you sell products through
dealers, independent representatives and distributors. Tell us more
about the terms of sales through these channels. Do you recognize
revenue when you ship product to dealers, independent
representatives and distributors or when these parties resell
products to their customers? Show us how you apply the disclosed
criteria for transactions with these parties and demonstrate to us
that your revenue practices are appropriate for transactions with
these parties. Be sure to address the considerations that drive the
timing of revenue. Refer to SAB 104.
RESPONSE. According to SAB 104, revenue is generally realized or
realizable and earned when persuasive evidence of an arrangement
exists, delivery has occurred
5
<PAGE>
or services have been rendered, the price is fixed or determinable
and collectibility is reasonably assured. Sales to intermediaries
(dealers, independent representatives or distributors) or end users
must all meet the requirements of SAB 104 for revenue recognition to
occur. We recognize revenue upon shipment to each of the customer
types mentioned, as long as the remaining requirements for revenue
recognition under SAB 104 are satisfied (except in certain bill and
hold transactions - see comment number 9 below). We do not
distinguish between intermediary customers and end users in sales
agreements or applying the requirements of SAB 104. Intermediary
customers accept the full benefits and risks of ownership in the
same fashion as end users when purchasing ou